Singapore over-regulated economy vs more market-driven Hong Kong

Singapore's over-regulated economy has been growing primarily because the government has been pouring larger and larger sums of capital into investment at ever-decreasing rates of efficiency, while the more market-driven Hong Kong has been using its resources with increasing efficiency. This is worrisome for Singapore because there are limits to expenditure of capital in a society where the government has long forced savings rates up to around 40%, the highest level in the world.

Hong Kong will lose its role as a great financial centre. After all, its rise was for the purpose of recycling Middle East oil profits (petrodollars) and Japanese surplus to third world countries. Now that the oil boom is finished, much of that petrodollar role has vanished and therefore, according to this line of argument, Hong Kong's function as a financial centre should decline. As Bangkok and Taipei liberalize and seek to become financial centres, Hong Kong should lose its special advantage. But the petrodollar argument ignores the fact that Asia has a population of nearly 2 billion people and growing at 7% per year, and that such growth must be financed. If growth must be financed in absence of petrodollars, it will be financed through more sophisticated methods: leases of equipment from American Pension funds, global bond issues, stock market placements, private equity funds and many others. In absence of petrodollars money is scarcer and more expensive, so heroic efforts will be made to reduce financing costs through a variety of financial techniques. These complex techniques require a concentration of cosmopolitan bankers, accountants, lawyers and computer services that is found only in Hong Kong. Japan has the skills but is focused on its own market. Singapore does not have the same critical mass of skills. The reason that New York, London and Tokyo prosper as global financial centres is not because of the protectionism of their region, but rather because of their critical mass of skills. New York does not loose its function as a global financial centre just because Minneapolis has liberated financial rules and aspires to a larger role; the same applies to Hong Kong and Bangkok.

Hong Kong - Regional services headquarters.

1980s and 1990s are the era of take off of the services sector in Pacific Asia. Complex cross-border trade and investment deals, modern tax system, the rising role of stock markets and their associated need for analysis, and host of other developments have created an explosion of demand for high-level, cosmopolitan, regionally oriented services from accountants, lawyers, information specialists and computer consultants. Hong Kong and Singapore are the regional capitals of such services with Hong Kong playing a substantially more significant role - a role that is expanding exponentially.

Hong Kong - Manufacturer

Hong Kong is in fact going out of the manufacturing business, except for certain specialized sectors. But it is becoming the manager of manufacturing in southern China, and a principal manager throughout Asia. Like New York, Hong Kong has evolved from manufacturing to management, design and finance. There are many competitors for Hong Kong's manufacturing role, but there are also plenty of work for all of them, and Hong Kong's function as a manager and designer is increasingly a regional one, with factories in Thailand, Malaysia, Indonesia, the Philippines and even places as far away as Switzerland, the USA and Sri Lanka. As manufacturing in China expands faster than anywhere else in the world, and as China's export manufacturing lies largely in Hong Kong hands, the market share of Hong Kong firms in world manufactures is growing rapidly.

Until recently, the Hong Kong and Taiwan markets were simply too small to support the kinds of firms that characterize Japan (Mitsubishi, Sony) and South Korea (Hyundai, Lucky-Goldstar). Hong Kong will probably always be a more fragmented economy than that of its larger neighbors, but Cheung Kong is becoming a world scale firm in real estate, and Hutchison in satellite television, ports and mobile phone systems; Hopewell is becoming a major regional builder of infrastructure. As Chinese companies make Hong Kong their base of international operations, and as they seek to use it as a centre for commercializing their broad base of scientific research, Hong Kong could well emerge for the first time as the home of recognizable firms and brand names.

Hong Kong - Services Headquarters

Most major Pacific Asian firms require a headquarters in Tokyo and another for the rest of Asia. In addition to the reasons already given for choosing Hong Kong of Singapore as a financial centre, tax and other incentives make these two city-states the obvious choice. Hong Kong is regarded as a superior environment for its culture and entertainment. Singapore has a more placid physical and social ambience.

The most recent survey indicated that

Hong Kong held 51% of Pacifica Asia's regional headquarters, Singapore 29% and Tokyo 20%.

Hong Kong - Commercializer of China's science

Despite the Cultural Revolution's devastating effect on its educational institutions, China possesses a huge reservoir of scientific skills, most of which have never been tapped for commercial purposes. Hong Kong has proved relatively weak in training and attracting scientists, but seems able to commercialize just about anything. Inevitably, these complementary elements will fuse into a compound that generates money. A pioneer in such efforts is Videotech, a listed Hong Kong company that produces computers and educational toys. Videotech, which produces the majority of the world's educational computer toys, is run by Allan Wong, an American-educated Hong Kong Chinese whose huge factory in China has made a point of employing highly trained but hitherto poorly paid scientists from different parts of China.

Hong Kong - Press Centre

Hong Kong is also Asia's press centre. No other country offers comparable facilities and press freedom. Singapore has superior printing capabilities, but its restricts press freedom severely.

In the next few years, there will be no serious competitors to Hong Kong. However, Hong Kong's long-term attraction could weaken substantially at a time when one can imagine possible improvements in Singapore or Bangkok. China will certainly be tempted to curb slander and rumors about itself, although under Li Peng's conservative regime and Asian Wall Street Journal and the Far Eastern Economic Review, as well as other major news sources such as CNN television, are consistently available in China and often banned or severely limited in Singapore.

Historical record shows that Hong Kong is likely to continue to prosper. Hong Kong is now at the confluence of three of the most powerful economic forces in world history: the Chinese economic takeoff; the regional Asian economic takeoff; and the era in which the Asian services sectors takeoff.

Hong Kong's competitors

A mainland version of the competition thesis holds that Shanghai is envious of Hong Kong's success and will seek to raise itself by suppressing Hong Kong. The 1992 agreement whereby the Port of Shanghai sold half of its terminal facilities to Hutchison Whampoa, with Hutchison granted a superior management role, indicates far more interest in collaboration than conflict. There will be competition, to be sure, in such areas as stock markets and banking. But shared interests and a mutually acceptable division of labour, with Shanghai as the capital of heavy industry and Hong Kong as the capital of services and light industry, seem the essence of the future relationship. The national tax system will be revamped and that the coastal areas are likely to lose some of their special tax privileges. But a fair tax system is not a Shanghai conspiracy, and Guangdong will always retain its special cultural and geographic advantages, along with its head-strart in developing a modern economic system.

Does China's rise mean the

loss of Hong Kong's regional role?

A final piece of conventional wisdom holds that, as Hong Kong's relationship with China prospers, Hong Kong's regional role will inevitably suffer. But this need not to be so. A survey of American firms in Hong Kong, which are reasonable proxy for the multinational corporations based there, reveals that only about half of them (47%) have business related to China. So, Hong Kong can work on both the Chinese leg and the regional leg.

The central issue in Hong Kong's future

Instant democracy versus preservation of freedom

Hong Kong is the freest stable society in Asia. Malaysia and Singapore have severe restrictions on the press and severe national security laws, and Malaysia has spent virtually its entire post-colonial era under a State of Emergency. Japan has informal controls on the press. Hong Kong, by contrast, has complete freedom of speech, religion, the press and assembly, as well as almost all of the freedoms guaranteed by British common law. In 1995 twenty of its legislators are directly elected by popular vote, thirty will be elected by functional groups such as accountants and lawyers, and ten will be indirectly elected through an electoral college. The Chief Executive were elected after 1997 through some mechanism over which Beijing have a veto. A free and diverse press gives a very articulate voice to virtually all social groups. The system has also displayed some initial resilience against Chinese efforts to manipulate it; in the 1991 election, Xinhua - the new China News Agency, which manages Chinese interests in Hong Kong - made vigorous efforts to support a pro-Beijing (but not socialist) group of politicians. Not one achieved election. The principal risk is that a ruthless government in Beijing could manipulate it. Beijing so far has evinced no desire to do so in any way that would cause structural damage. Thus, the Hong Kong system is very free by any standards, relatively democratic, and much more democratic than it was before China decided to take it back from the British.

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