Grounded in Finance
Financial and insurance services (FIS) contributed approximately 24.5% of total services exports in Hong Kong in 2015. Meanwhile, FIS was one of the main drivers of 2015 real GDP growth in Singapore, contributing 0.7% to the total recorded figure of 2%. These figures highlight the economic importance of this sector to both economies.Despite their similarities, the development paths and comparative advantages of their respective financial centres are significantly different. While Hong Kong’s position as an international financial centre (IFC) was already established as early as the 1960s, as Singapore was just starting its first Asian currency market.
While Hong Kong remains unchallenged today in terms of Initial Public Offerings (IPOs) and mergers and acquisitions (M&A) activity (third overall, just behind London and New York, while Singapore lags in 19th place), Singapore’s rapid growth allowed it to dominate the region when it comes to commodities and foreign exchange trading.
Hot Competition
So how do they compare with each other? In the Global Financial Centres Index (GFCI) published by Z/Yen Group, which assesses the competitiveness of a country’s financial sector, Hong Kong ranked ahead of Singapore on sixteen out of twenty measures. But Singapore has overtaken Hong Kong to reach third place overall and remained in this position for the whole of 2016.This is not limited to competitiveness in the financial sector. In this years’ Global Competitiveness Index by the World Economic Forum, Hong Kong once again ranked below Singapore, the latter having come second and the former having dropped two places to ninth. Considering the components of this index further, the ‘Financial Market Development’ component also sees Singapore beating Hong Kong, albeit with a margin of 0.1 or 1.82%. While these rankings do not necessarily conclude which country is better, it serves as a good indicator of Hong Kong’s declining competitiveness in Asia as an IFC.
What makes a country or city an international financial centre? What makes IFCs is defined by many factors. They are notable for the competitiveness of their financial industries, highly-developed infrastructure and human capital, relatively unstrict regulatory environments, low taxes, and significant inward foreign direct investment.
For many years, Hong Kong’s international reputation comes from this cocktail that makes it an attractive destination for business. As evidence, many international firms set up their Asian headquarters in Hong Kong. It even has a skyscraper named the International Finance Centre in its financial district. But Singapore’s unprecedented growth sends warning signals that Hong Kong must improve or reinvent itself if it is to regain its throne as Asia’s financial lynchpin.
70% of RMB’s transaction value is Hong Kong-based
If there is an area in which Hong Kong has an absolute advantage over Singapore, it is its strong links and proximity to mainland China. Its growth story surpasses these two Asian dragons if one compares the extreme difficulty in managing a country of China’s size. Because of this, the Hong Kong Monetary Authority and Hong Kong Exchanges and Clearing have in the last two decades shifted the focus of their development strategies to China. Hong Kong is the world’s largest offshore renminbi exchange centre, taking up a staggering
Because of this, the Hong Kong Monetary Authority and Hong Kong Exchanges and Clearing have in the last two decades shifted the focus of their development strategies to China. Hong Kong is the world’s largest offshore renminbi exchange centre, taking up a staggering 70% of total transaction value for the Chinese currency.
Furthermore, as of October 31st, 2016, of the total number of listed companies on the Hong Kong stock exchange (1955) more than half (989) are based on the mainland. Strategic initiatives are known as the ‘Shanghai-HK Stock Connect’ and ‘Shenzhen-HK Stock Connect’, and have opened foreign investors into mainland-issued A-shares. Without China, Hong Kong would have at some point got stuck in a permanent economic slump.
A Title up for Grabs
It is possible that the new Trump-led US economy is likely to have significant effects on both Hong Kong and Singapore, due to the increasing uncertainty in emerging markets. China’s trade relationship with the US, amongst other things, could very well take a turn for the worse – leaving Hong Kong worse-off in the process.Singapore is already feeling the strain, with the economy probably recording its “worst performance since the 2009 financial crisis". Both export-reliant, the two economies are vulnerable to external trade shocks, and higher US interest rates affecting capital flows into their respective economies. What is certain is that the title of Asia’s premier financial centre is up for grabs.
Sources:
https://www.mti.gov.sg/ResearchRoom/SiteAssets/Pages/Economic-Survey-of-Singapore-2015/FullReport_AES2015.pdf http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf
http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf
http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/#indicatorId=GCI.B.08
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