By He Jun
Hong Kong and Singapore are two Asian city-state economies that have often been compared. The former is recognized as a regional international financial center, while the latter is a functional international financial center within ASEAN. Before 2019, Hong Kong held a higher status as an international financial center compared to Singapore, where it had a larger capital market and more comprehensive financial services.
However, since 2019, the situation has changed significantly. In 2019, Hong Kong experienced nearly a year of social unrest, which severely impacted its image as a free and secure international financial center. Starting in 2020, the three-year COVID-19 pandemic, combined with the increasingly severe anti-globalization wave and geopolitical conflicts, has greatly affected Hong Kong as well. Over the past five years, the development trajectories of Hong Kong and Singapore have diverged, with Hong Kong declining and Singapore rising.
The changes in the environment and circumstances that Hong Kong faces as an international financial center are not of its own choosing but are dictated by the times and global trends. For instance, the social unrest in Hong Kong in 2019 can be seen as a projection of the U.S.-China geopolitical rivalry onto it. For the United States and the United Kingdom, maintaining Hong Kong as a “free port” in the Western view was desirable, and failing that, they would rather see it become a “democratic battlefield” in the name of democracy. For the Chinese government, it was imperative not to allow Hong Kong, which had returned to the Mainland, to become chaotic under Western interference. With the implementation of the National Security Law, the city effectively underwent a “second return”. In this context, Hong Kong is inevitably caught in the crossfire of the U.S.-China rivalry.
As an influential international financial center, Hong Kong’s prosperity is tied to its proximity to Mainland China. However, this prosperity has primarily been achieved under the influence of Western markets. Hong Kong serves as a “super-connector” between Mainland China and the outside world, operating under a linked exchange rate system with free capital movement. It is a “city-state” with a capitalist market economy that attracts numerous multinational companies, and benefits from special tariff policies from several Western countries.
When the U.S.-China geopolitical rivalry intensified, the external environment for Hong Kong’s development underwent a dramatic change. The U.S. not only revoked Hong Kong’s special tariff status but also imposed a series of sanctions and restrictions. Consequently, Hong Kong’s status and the factors that support its role as an international financial center were altered. For instance, some Western multinationals, concerned about geopolitical risks, have withdrawn; international capital has flowed out of the island due to risk considerations; and some wealthy individuals, worried about the safety of their assets, have moved their wealth to Singapore. This has impacted local asset prices and even cause economic and financial activities to stagnate.
Singapore has been a major beneficiary of these changes in Hong Kong. For a long time, the Southeast Asian nation has pursued a balanced “small country, big diplomacy” strategy, being a unique entity that is politically authoritarian but economically highly liberalized. If capital from the Greater China region seeks to relocate without moving to culturally different countries like the U.S. or the UK, Singapore often becomes an attractive option. In recent years, many wealthy individuals from Mainland China have chosen to immigrate to Singapore based on these considerations. Over the past few years, there is the decline of Hong Kong and the rise of Singapore.
In recent years, Hong Kong has indeed faced significant challenges, with the outflow of some economic and financial elements weakening its prosperity. However, the world is still evolving against the backdrop of de-globalization, and everything is in flux. This new “tale of the two cities” between Hong Kong and Singapore remains undecided. We believe that in maintaining its status as an international financial center and developing its capital markets, Hong Kong should not be underestimated. Its advantages still can be leveraged for further growth.
For example, in the stock market, Hong Kong has a substantial advantage over Singapore. According to the Financial Times, the Singaporean government is having its “battles to revive struggling stock market”. As it stands, the number of listed companies there has decreased from nearly 800 a decade ago to about 600 currently, with a total market value of approximately HKD 5.7 trillion, less than the combined market value of Hong Kong’s three heavyweight stocks. It is safe to say that the stock market in Singapore faces an existential crisis.
In 2023, the Hong Kong Stock Exchange (HKEX) fell to eighth place globally in IPO fundraising, with only 70 new listings and a total fundraising amount of about USD 6 billion, causing concern about the future of the Hong Kong stock market. However, comparisons highlight the situation: in Singapore, considered a rival to Hong Kong, the Singapore Exchange (SGX) had only 7 new listings in 2023, with a total fundraising amount of just USD 300 million, only one-tenth and one-twentieth of Hong Kong’s figures, respectively. More surprisingly, the SGX saw over 20 de-listings last year, reducing the number of listed companies from 651 at the end of 2022 to 632 by the end of 2023. As of the end of March this year, the latest number of listed companies in Singapore is 624, indicating that the “shrinkage trend” continues.
In addition to the number of companies, the gap between the “two cities” becomes even more apparent when comparing the total market capitalization of listed companies. Currently, the total market capitalization of the Singapore stock market is approximately USD 735.1 billion (about HKD 5.7 trillion), whereas the total market capitalization of Hong Kong stocks is as high as HKD 33.4 trillion. Just the combined market value of three heavyweight stocks, i.e., Tencent, Alibaba, and China Mobile amounts to HKD 6.6 trillion, exceeding the entire market capitalization of the Singapore stock market. In terms of liquidity, the average daily turnover on the SGX in March was USD 1.19 billion (about HKD 9.3 billion), while the HKEX had an average daily turnover of HKD 112.3 billion during the same period, more than ten times that of SGX.
Singapore’s weakness in stock market development is inherent and challenging to overcome. As a city-state with a population of several million, it lacks extensive territory, market space, strong support like that from Mainland China, and a sufficient number of large companies for listings. Its economy is highly dependent on international markets, and major geopolitical risk events and turmoil in the region can immediately impact the Singapore market. In contrast, Hong Kong has advantages in these very areas. Therefore, if Hong Kong can weather the current various ebb tide impacts and wait for the pendulum of globalization to swing back to a more balanced position from its extreme irrationality, there is a significant chance for Hong Kong to return to a path of prosperity. Although the future prosperity of Hong Kong may differ from its past, achieving renewed prosperity to a certain extent would still be considered a success for Hong Kong.
Final analysis conclusion:
De-globalization and geopolitical rivalries have significantly impacted Hong Kong, which is still experiencing an outflow of economic, financial, corporate, and talent resources. Singapore, on the other hand, has been the biggest beneficiary of this process. However, Hong Kong should not be underestimated. If it can overcome the current difficulties and leverage its inherent advantages, given time, Hong Kong may not necessarily fall significantly behind Singapore in the unfolding “new tale of two cities”.
- He Jun is Director of China Macro-Economy Research Center and Senior Researcher at ANBOUND, an independent think tank.