Singapore Wins Regional Financial Hub Race by Default

If there is one winner from the recent political unrest in Hong Kong over the controversial extradition bill that threatens to practically extend mainland Chinese jurisdiction into Hong Kong, it is Singapore.

Already, media are rife with stories about bankers and high-profile businesses planning to move their operations or their assets to the rival financial center (and a sovereign nation and UN-member to boot) only four hours’ flight away. The island republic’s banking secrecy laws are second to none including Switzerland’s. Indonesian capital flight to Singapore is legendary. Its banks are where Burmese junta leaders store the proceeds of their thievery. It is also a place, given the government’s legendary disdain for dissent, where social unrest of the kind that struck Hong Kong last week is unlikely.

The tiny nation-state was once somewhat dismissively called by foreign journalists a “city hall with an air force.” But after what is happening in Hong Kong, that designation now almost sounds like a compliment. As long ago as 2016, Z/Yen Group rated Singapore third as the world’s financial center, ahead of Hong Kong, based on surveys of 2,520 financial services professionals according to the London-based research group’s press release, despite Hong Kong’s unique access to China, the world’s second-largest economy.

It could well be the most technologically advanced place in Asia, if not the world, with superb communications, infrastructure, flight connections and IT networks. And, except for those periods when Indonesian planters burn huge tracts of forest for oil palm plantations and the smoke drifts across the Strait of Malacca, its air is usually far superior to Hong Kong’s. For decades, that has already been a factor in many expatriates’ choosing Singapore over Hong Kong to site their headquarters.

Board members at HSBC, dually-listed in Hong Kong and London, must be heaving a sigh of relief for having made the right decision last year of not relocating their headquarters back to the former British Crown colony. With the situation as it stands now, even though Asia now accounts for nearly 90 percent of the bank's total profits, it is highly unlikely that the lender would move its headquarters back to Hong Kong as predicted by some.

If there is one lesson from the recent upheaval, it is that the global financial community, especially the expat community – riding high on Hong Kong’s free port status and low tax rates and its monumental efficiency – seemed to have completely been out of touch with the fact how deeply unhappy the Hong Kong citizens have become over the few years. In addition to the demonstrations, there has been a steady exodus to Taiwan.

And unlike the rest of Asia, Hong Kong people, known for their straightforward and no-nonsense style, have shown the leaders in both Beijing and Hong Kong that they are not ready to suffer fools gladly.

On the other hand, the mainland’s rapidly slowing economy, exacerbated by the trade war in the US, has put the leaders in Beijing in a very tight spot. It is China is unlikely to ease off its pressure on the former British colony but Hong Kong people are not ready to back down as the size of the protests has amply demonstrated.

All of this means that the city that once prided itself on its laissez faire free port status could turn into a hotbed of social unrest. Global businesses, fed perhaps on the tone-deaf coverage of the city in the English -language business press would certainly have been alerted to the seeds of unrest that had long been simmering in the society.

Few would have predicted that such large-scale protests could erupt in the city in such a short a period of time and that the Hong Kong people would be willing to go to such an extent – even sacrificing their lives – to fight for their rights. Chinese-language tabloids reported that many Hong Kong citizens were withdrawing money from the mainland Chinese banks to protest against the extradition bill.

If there is one lesson to be learned from the recent events, that Hong Kong people are not ready to give up so easily and that the Chinese takeover of the city would come with a heavy price. China, however, is unlikely to back down, and nor will Hong Kong people give up so easily. That makes for an ominous combination for Hong Kong’s position as one of the world’s largest financial centers.

Last year, the Hong Kong stock exchange beat New York in terms of initial public offerings (see here), helping companies raise more than US$36.3 billion compared to Big Apple’s US$28.9 billion, according to Refinitiv.

That position now certainly looks unsustainable with the growing political uncertainty; some companies have already decided to change their minds about going public in Hong Kong as Asia Sentinel’s Philip Bowring had noted.

If these companies, worried about the business climate in Hong Kong, do decide to turn to Singapore to raise capital, it could inject new life into the city’s state main bourse, Singapore Exchange, which over the past few years has been suffering from somewhat lackluster growth.

Hong Kong and Singapore have been competing neck to neck in the field of new financial technology firms, often known as fintechs, that are fighting to take business away from traditional banks. Both cities have been introducing regulations that are aimed at attracting startups in the areas from distributed ledger to artificial intelligence and how they are applied to traditional finance.

While Hong Kong had initially somewhat lagged behind the city-state, it had caught up significantly in the past two years and in, some instances, even leapfrogging its rival in areas such as mobile-only banks.

Due to geographical reasons, Hong Kong has long been a favored choice for startups and companies wanting to leverage the Macau-Guangdong-Hong Kong Greater Bay area, while Singapore is natural hub for Southeast Asia, particularly for the ASEAN nations.

The recent events, however, would further cement Singapore’s position as a financial center by default, for those high net-worth individuals or businesses that are looking for stable and neutral hub --an Asian Switzerland -- in the region.

In the short-term, expect more Singapore-bound traffic as the situation escalates and the recalcitrant Hong Kong people rise up in resistance and alerts the Chinese leadership of the actual costs of the Great Chinese Takeaway.

And this could become potentially become a trend, very much in Singapore’s favor, because after all Hong Kong is on its way to becoming just another Chinese city.

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