Moving forward with finance; with the China challenge looming, Randolph Ramsay looks at how Hong Kong, Singapore and Sydney are adapting their regional and global financial centre strategies - Cover Story

Business Asia, July, 2002 by Randolph Ramsay

Times are becoming tougher for Asia's leading financial centres. Not only are Hong Kong, Singapore and relative newcomer Sydney competing with each other for the title of leading regional financial services hub, but all three cities also have to factor in the looming threat that emerging investment magnet China poses.

It is a challenge none of the cities are taking lightly. Sydney and Australia have for the past few years undergone a concerted push to spruik its capabilities to the world. Singapore is restructuring its regulatory and corporate environment to attract and retain the globe's financial giants. And Hong Kong is betting its impeccable track record coupled with several new reforms will help it retain its edge.

More competition

Government authorities in Hong Kong, Singapore and Sydney all agree that the competitive environment in financial services will only get tougher as time progresses.

Hong Kong and Singapore, as the two leading centres for the past few decades, have the most to lose. In the past, both have built up their finance sectors through their sound legal and regulatory frameworks, healthy corporate and personal tax rates, and proximity to the rest of Asia.

While China, in particular cities like Shanghai, cannot boast the same infrastructure, it does have other key advantages--namely its skilled workforce and cheap costs.

And with WTO entry, the legal and regulatory framework is only going to improve. Some analysts have been so downbeat as to say Hong Kong and Singapore only have a lead-time of 10 years or so before cities in China can offer more attractive options.

Still vibrant

Hong Kong Special Administrative Region Secretary for Financial Services Stephen Ip bristles at suggestions that Hong Kong's importance as a financial centre is diminishing, saying that the city is as relevant and vibrant as it ever was.

"In the financial services sector, Hong Kong has firmly established itself as the premier financial centre in the Asia Pacific region," he said.

"76 of the world's top 100 banks--they have chosen Hong Kong (as the best place in Asia to do business). More than 100 international insurance companies, including 11 of the world's top 20--they have all chosen Hong Kong."

Ip is not concerned about Hong Kong being usurped by the likes of Shanghai, saying that the two cities would "complement" each other when servicing the China market.

"Shanghai's rise will not be at the expense of Hong Kong's demise," he said. "China's market over the next 10 or 20 years will become so big that Hong Kong and Shanghai will become the centres of their own massive regional economies."

Positioning

Despite Ip's confidence, Hong Kong is not planning to stand still. Ip says the city will continue to position itself as the highest quality market in the region with the highest potential to grow.

Hong Kong has in recent years worked at improving its financial infrastructure.

"Our securities and futures market structure has been reformed and streamlined with the demutualisation and merger of the two exchanges and three clearing houses in March 2000," Ip said. "Parallel efforts have been made to increase the depth and breadth of the market.

"We have taken a conscious step to fully review the debt issuing mechanism and simplifying procedures for issuing debt. Archaic prospectus requirements are being eliminated without affecting the quality of disclosure to investors.

"The banking industry has also undergone liberalisation and reform. The final phase of interest rate deregulation was completed in July 2001, allowing banks to compete for deposits freely on the basis of price and product innovation."

Challenges

Like Hong Kong, several analysts have predicted a gradual lessening of Singapore's financial services clout as the world shifts its attention away from South East Asia and into North Asia.

Ng Nam Sin, director (Industry Development), Financial Centre Development Department of Singapore, concedes the competitive environment in financial services has become much tougher.

"It has been tougher on a few counts," he said. "Globally, financial services is undergoing a major consolidation. Also there's a trend of deregulations, so you're seeing more countries opening up, such as Australia, New Zealand and China."

Faced with this challenge, Ng says established financial centres like Singapore need to become more proactive in selling their value propositions to the world. In Singapore's case, Ng says their key selling point so far has been its strong fundamental infrastructure--namely, a stable regulatory environment, established legal framework, strong corporate governance, liberal admission rules for foreign workers, and a competitive tax regime.

"If your fundamentals are not strong, then no amount of promotion can attract players to your country," he said.

Restructuring

Singapore has also been trying to improve on its fundamentals, restructuring the sections of the economy which in its view hinders future growth.