Hong Kong and Singapore: Not a Zero-sum Game
Hong Kong and Singapore: Not a Zero-sum Game
Statistics show that Hong Kong and Singapore complement each other regarding Asia’s electronics supply chain and capital needs. On the other hand, many regional companies have a presence in both economies, reflecting the existence of synergies. The two economies also have complementary roles in the China-led Belt and Road Initiative (BRI).
Nodes Connecting China and Southeast Asia
Among ASEAN countries, Singapore is Hong Kong’s biggest trading partner, with total merchandise trade amounting to HK$300 billion in 2014. Major trade items are electronic parts and components. Most of Singapore’s merchandise re-exports, which accounted for 47% of its total exports in 2014, went to other ASEAN countries (33% of the total), Hong Kong (15%) and China (13%).
Despite the complete implementation in 2010 of the China-ASEAN Free Trade Area, where tariffs between China and ASEAN countries were removed, Singapore’s re-exports to Hong Kong increased by 9% a year in 2009-2014, compared with 5% growth in all markets. Reflected in Hong Kong’s statistics, most of these re-exports were destined for China (84%) in 2014. Re-exports back to Singapore, accounting for 8% of the total, posted particularly strong growth of 31% a year during the five-year period.
Concerning investments, Singapore is Hong Kong’s top source (with cumulated stock of HK$225.9 billion in 2013) and destination of FDI (HK$80.2 billion) within ASEAN countries. In fact, one-fifth of Singapore’s FDI abroad was destined for other ASEAN countries in 2013. Even though FDI from Hong Kong accounted for just 4% of the total, it quickly expanded at 24% a year during 2008-2013, compared with 11% growth of all sources. Singapore’s outward FDI to Hong Kong also increased much faster, at 16% a year during 2008-2013, than China (14%) and all destinations (11%).
Location Choice of Headquarters and Other Business Functions
According to the Asia-Pacific Headquarters Study 2011, which surveyed 67 senior representatives of multinational companies operating in the Asia-Pacific region, the most important criteria for selecting the location of regional headquarters is “proximity of clients/markets”. Other top criteria include a favourable legal and regulatory environment, a stable and favourable political environment, and a favourable business and tax environment.
The survey results echo what we found from the trade concerning the comparison of Hong Kong and Singapore as headquarters. Businesses in Singapore did not see a significant difference in the two economies in terms of the business environment. Therefore, proximity to clients/markets is the most important, if not decisive, factor in making a choice. For businesses with a Southeast Asia focus, Singapore is the natural choice of headquarters. However, Hong Kong is still highly relevant. For instance, some Singaporean companies set up their Hong Kong offices to handle trade documents, manage financial transactions with their China counterparts, and perform staff training, etc. Many affirm the roles of Hong Kong as a sourcing platform, a fundraising platform, a trendsetter in Asia and a springboard to China. Others indicate that Hong Kong is an important market per se. The rise of Asia is not a zero-sum game for Hong Kong and Singapore. Rather, both economies are set to benefit from the strong trade flows and more business activities within the region.
Hong Kong and Singapore’s Complementary Roles in BRI
Singapore is expected to play a number of key roles for the China-proposed Belt and Road Initiative, specifically with regard to maritime infrastructure, shipping and trade, logistics, finance, legal and tourism. First, as one of the countries along the maritime belt – as well as a regional trade, shipping and aviation hub for Southeast Asia – Singapore will be a key node of the new, proposed transportation network. In addition, its knowledge and expertise in international shipping and transportation can provide other ASEAN countries with consultancy services in the process of upgrading their ports and logistics networks.
Second, with its established investment and financial-services markets, strong legal system, and political and social stability, Singapore has been the hub for raising capital to facilitate investment within ASEAN countries. While Hong Kong is expected to be the primary financial platform for funding the infrastructure projects under the Belt and Road Initiative, Singapore offers a good complement – for example, by providing due diligence, contract enforcement and other financial advisory services, leveraging its strong knowledge and experience with other ASEAN markets.
Third, both Hong Kong and Singapore follow the English common-law system. The two economies offer perfect complementarity in holding bilateral meetings, contract negotiation and dispute resolution between China and ASEAN countries.
An integrated tourism market along the land and maritime routes is also part of the Belt and Road Initiative. Hong Kong and Singapore, both international cities in the region, can join in facilitating tourist travel by developing tourism routes and strengthening cooperation in the marketing and promotion of tourism products.
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