How Singapore Is Winning the Trade War with Hong Kong
Last few weeks, Hong Kong has been engulfed in massive anti-government street protests, that turned violent, hurting Hong Kong’s reputation as a global financial hub. Hong Kong’s independence from Beijing, free trade, political stability, impartial courts, safety and freedom of expression, which have been the key pillars of attracting international businesses seem to have been shaken by the on-going anti-government protests. The former British colony has witnessed a drain of foreign companies and businesses with the preferred destination being Singapore because of its proximity to China.
The protests in Hong Kong go beyond just the extradition bill to include the undermining of the fundamental freedoms of the state as China’s state control of the economy begins to creep into Hong Kong. The protests have led to a sense of foreboding in the business community as concerns continue to grow regarding China’s growing control. Hong Kong has started experiencing the effects of a drain of professionals, and several incorporated companies are considering relocating to other parts of Asia.
Business Moving to Singapore from Hong Kong
Several businesses have already started implementing mitigation strategies like the recently canceled ESR Cayman $1.24 billion IPO listing. Reuters reported recently that a wealthy investor had transferred over $100 million from a Citibank account to Singapore from Hong Kong. Several private banks are reporting that some clients are moving their money out of Hong Kong, and their preferred destination is Singapore. Singapore has been in completion with Hong Kong as Asia’s financial hub owing to their former British colony status, multicultural ethos, low tax regimes, and market-friendly economic policies. It, therefore, makes sense why companies leaving Hong Kong are headed to Singapore.
Companies are increasingly relocating their regional headquarters from Hong Kong to the rest of Asia, especially in Singapore. On Monday, the President of the American Chamber of Commerce in Hong Kong, Tara Joseph, told CNBC’s Squawk Box, that there real concern in Hong Kong was the signs of companies and people moving their money to Singapore. The government of Singapore has acknowledged this great opportunity, but because of the spirit of being a good trading neighbor to Hong Kong, they have asked business community and investors not to woo business from Hong Kong.
Trump Tariffs hurting Hong Kong Economy
Besides the anti-government protests, Hong Kong is also feeling the effects of the on-going tariffs wars between President Trump and China. The economy now stares at something worse than depression with economic analysts warning that in combination with the on-going protests, it is easier for the economy to tip into negative territory. Hong Kong, which relies on trade merchandise, is a key gateway for capital, and it stands as a conduit between China and the rest of the globe.
A Bloomberg Economic analysis predicts that the city faces a recession in the second half of 2019 warning of an erosion of the corporate governance standards that underpin Hong Kong as a global financial hub. The President for Greater China at CPA Australia, Paul Ho, warns that the trade tariff war with China along with slowing of economic growth in China, and the increasing property prices are factors that will sink Hong Kong into a crisis in 2019. Property prices are expected to fall further as the city’s economic outlook looks gloomier with most companies doing little to mitigate the effects of Trump’s trade war, and this will hurt Hong Kong’s competitiveness in Asia.
In the second quarter, the city’s economy experienced slow annual growth as a result of the growing trade tensions between Washington and Beijing. On Friday the government indicated that growth in GDP dropped 0.5% in the quarter missing on the early projection of 0.6%. Despite the slowing growth of the global economy, the damaging factor for the city has so far been the trade war, which has led to a downturn in exports. Other export-dependent economies in South East Asia such as South Korea and Singapore are also feeling the effects of the traded war crossfire.
The Hong Kong protests
The anti-government protests began sometime in June, with protesters protesting against the extradition bill that required residents to be tried in mainland china. Despite the bill being suspended indefinitely, the protests have continued. There are issues besides the extradition bill, that Hong Kong residents are protesting, such as the failure of mainland China to respect the “one country two systems” commitment that they entered in 1997 after taking control of Hong Kong from Britain. China authoritarian objectives have continued to undermine Hong Kong’s freedoms like freedom of the press, independent judiciary, free-market economy, and democratic elections.
Some of the issues raising concern include the ability of Beijing to gather information on the income and assets of Chinese resident living in Hong Kong. China may eventually seize their assets, which have encouraged them to consider moving their assets offshore. There is a possibility of bankers serving Chinese clients being accused of money laundering, and they will face extradition to stand trial in the nepotistic and corrupt judicial system of China. There are concerns that China will start levying taxes on global income of Chinese citizens residing in Hong Kong, thus taking away the main attraction of staying in Hong Kong.
Singapore luring business
Singapore has economic policies that are market-friendly, and its low tax regimes are appealing to investors leaving Hong Kong. The country is considered a financial hub in the region with conditions similar to those in Hong Kong, which are favorable for international businesses. Equally, the incorporation process of a company in Singapore is simple and well defined, which appeals to businesses looking to set home in Singapore.
Equally, the immigration laws in Singapore are friendly to skilled workers and their families, making relocation to the country easier. In what is seen as an influx of people to Singapore, Rahul Sen, a partner at Boyden indicated that at least three of his multi-office advisory clients had already considered hiring teams of bankers from Singapore even though they considered Hong Kong earlier.