You expect rivalry between Hong Kong and Singapore. Both are well-off former British colonies in Asia with clean governments and a free-port approach to foreign investment – on which they heavily depend for economic development. Both have a city-like in geographic reach and populations between five and eight million. And both grew aggressively after World War II, surpassing the per capita GDP of Japan, according to the Asian Century Institute. Now they vie for recognition among foreign companies as the best place to start or expand a business in Asia.
Singapore is winning.
It leads in innovative thinking, length of the welcome mat for foreign businesses, and proactive management of potential economic issues such as aging populations, economists say. Then there are the people at the top: Singapore runs itself and China runs Hong Kong. Oversight by China calls the territory’s rule of law into question because Communist Beijing is known for its legal inconsistency.
The World Economic Forum Global Competitiveness Index ranks Singapore as second in the world, with Hong Kong at No. 7. French investment bank Natixis cites research giving Singapore a global ranking of No. 1 and Hong Kong No. 3 for 2014-2018 based on 20 criteria, from political environment to policies affecting foreign investors. A list of criteria compiled by professional services firm Healy Consultants scores Singapore higher in most categories.
Starting with talent, knowledge among 15-year-olds in Singapore comes in at No. 2 among 64 participating economies, one place ahead of Hong Kong, the Asian Century Institute says. Singapore’s flagship university ranks higher than its equal from Hong Kong, it adds. Hong Kong’s economy lags most in “innovation,” the World Economic Forum says, and business people call capacity to innovate “their biggest concern.”
Once in the work force, Singaporeans are likely to help generate the country’s per capita GDP of $55,000 in market price terms compared to Hong Kong’s $38,000, the institute says.
Singapore’s $292.7 billion economy also has more capacity to “absorb shocks,” says Marie Diron, associate managing director in sovereign ratings with Moody’s Investors Service. Moody’s gives it a “very high” mark in that category and Hong Kong a “very high minus.” Singapore earned that laurel through “proactive economic management” such as planning ahead how to accommodate an aging population and on introducing measures to help core sectors such as asset management and finance, Diron says. Shock absorption is based partly on economic diversity, as well. Countries with too few industries more easily succumb to shocks.
Crucial for investors eyeing sites in Asia, Singapore gets higher marks for transport infrastructure, language skills and overall economic freedom, analysts say. Singapore comes in with lower “unit labor costs,” as well, Natixis says.
Hong Kong has stronger pay, productivity and cooperation in employee-employer relations, Healy Consultants says. It’s also got a slightly lower corporate income tax. Hong Kong is “strengthening its stronghold within the region,” according to the advisory firm. “Despite its relative lower placing across the various categories of rankings, Hong Kong could well still be the most ideal location for a certain investor to set up a company.”
But China’s ownership of Hong Kong since 1997, especially with a localization movement that goes against Beijing’s cause of stable unification, makes some people nervous, economists say. Patent protection, fair arbitration and other legal backing that investors might expect could become more hit or miss under a weaker Beijing system set of rules. Singapore ranks world No. 9 in rule of law and Hong Kong is at No. 17, the Asian Century Institute says.
“Singapore has been climbing up positions and is now generally considered a better offshore financial center than Hong Kong,” says Alicia Garcia Herrero, chief Asia economist with Natixis. “I would tend to agree and it can only get worse as Hong Kong rule of law is under threat.”