Compared to Hong Kong, Singapore is a picture of calm right now. Photo: Reuters
Opinion
Anthony Rowley
Anthony Rowley
Will protest-hit Hong Kong lose financial business to Singapore amid a growing climate of fear? The answer isn’t so clear-cut
Hong Kong is still the market of choice for large equity offerings but businesses may well look to move regional headquarters and private banking to Singapore
In the current climate, most analysts in Asia are reticent to discuss Hong Kong’s future to avoid offending China
Debate about which among competing Asian financial centres will eventually emerge as the “winner” has gone back and forth for decades and, lately, some have argued that Hong Kong has ruled itself out of contention with its protest movement. That, however, may be a premature and overly simplistic conclusion.
All other things being equal, Singapore, with its demonstrated respect for the rule of law in business matters and its political stability, appears to be on top now as Hong Kong battles with civil strife and questions about the city's continued legal independence.
Viewed from this perspective, there is “no contest” between Singapore and Hong Kong, Jesper Koll, a veteran Tokyo-based analyst, suggested. “That's why people in Hong Kong are protesting. They do not want to live in a place that does not have a free and fair process under the rule of law,” he said.
It is not only the rule of law that matters in business, however. Japan, too, has the rule of law (albeit a rigidly codified civil law rather than the more flexible common law Hong Kong and Singapore inherited from Britain). But this has not secured Tokyo a place as a global financial centre.
Sheer size and power also matter and, as the world's second-largest economy, China has both. “If Beijing told financial firms they had to set up in Shanghai or get no more China business, they would all relocate within a week,” Kenneth Courtis, former managing director of Goldman Sachs and vice-chairman of Goldman Sachs Asia, told me.
He does not believe this will happen, however, because Hong Kong is “still important” for China. Imagine, he said, “if the US – and this is not just idle speculation – said it would limit Chinese firms' access to US capital markets. Hong Kong capital markets would then become critically important.”
It is with such risks in mind that Alibaba is considering a US$20 billion secondary offering in Hong Kong, said Courtis. “We should watch now for others to do the same thing. Singapore's equity market just isn't positioned for such large-scale offerings.”
The arguments for having a physical business presence in China, rather than using offshore centres, are compelling. As Koll puts it, “the choice used to be Hong Kong versus Singapore – now it's going to be Shanghai vs Shenzhen. Now, you go directly to the mainland.”
But when it comes to where to locate regional headquarters to oversee business in Asia, the issues look different from the viewpoint of North American, European or other non-Asian firms. They want to be in the same time zone as China but not necessarily in China itself.
This is where Singapore could score. “The advantage of Singapore is that it has Western common law and it's the Western system that [many people] are looking for in Asia,” said Koll. Running, say, a Shanghai entity out of Singapore, as opposed to Frankfurt or London, makes sense.
Singapore is also expected to gain over Hong Kong in areas such as private banking. “As China takes more control of Hong Kong, I expect private banking will become more Singapore-based,” said Courtis, adding that marketing functions will remain in Hong Kong but actual accounts will be held in Singapore or Switzerland.
What worries those who do speak out is not just issues such as the rule of law but, more, what they see as a growing climate of fear about offending China
Beyond the likes of Courtis and Koll, there is remarkable reticence among financial analysts in Asia to discuss the future of Hong Kong. The Asia chief economist of one leading international financial firm declined even background comment, citing the “sensitivity” of the issue.
What worries those who do speak out is not just issues such as the rule of law, but, more, what they see as a growing climate of fear about offending China. That could feed into uncertainty that will affect business decisions at least as much as the strictly legal or logistical constraints they suggest.
A regional financial centre needs to concern itself with regional financial issues and opportunities if it is to be worthy of the name. But people like Courtis see the departure of high-level executives from key positions in Hong Kong as being because “they were not sufficiently sensitive to China”.
In this sense, too, Singapore may be emerging with added advantage over its long-time rival because, important though China business is to the Southeast Asian island state, Singapore is not physically connected to China (even if it is sometimes referred to as part of “greater China”).
Japan is likely to step up efforts to gain ground as an Asian business hub in the light of recent events and Tokyo governor Yuriko Koike is vigorously promoting the city as an Asian financial centre. But factors other than Japan's lagging English-language capability hold it back in this regard.
One is a lack of liquidity in financial markets. That may sound odd in a capital that has one of the world's biggest stock and bond markets but the slice of Japanese business that foreign entities can hope to get into, in areas such as banking, securities or fund management, is tiny.
Ironically, Hong Kong is facing a loss of confidence in its appeal as a financial centre at the same time that London is suffering from an erosion of confidence due to Brexit. Both could end up ceding at least part of their hoped-for belt and road financing role to other centres.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
