Singapore economy

Singapore fights post Covid-19 crisis with eyes on Hong Kong status

With Singapore heading to the polls this week and facing the prospect of its first recession in two decades, leaders in the city-state are looking to capitalise on instability in Hong Kong to become the new financial capital of Asia

Noel Caballero/EFE-EPA
July 7, 2020
Singapore fights post Covid-19 crisis with eyes on Hong Kong status
A man wears a face mask as he walks in front of a campaign truck broadcasting slogans of the ruling conservative People's Action Party ahead of the general elections in Singapore. EFE-EPA/Wallace Woon

Singapore will to head to polls on Friday amid the forecast of its first recession in the last two decades, while it seeks to leverage the instability in Hong Kong to become the financial capital of Asia.

With the aim of providing a greater stronghold to the next government, in terms of working toward the recovery of the economy following the impact of Covid-19, Prime Minister Lee Hsien Loong’s government on June 23 announced early elections which were earlier anticipated sometime before April 2021.

According to the latest official data, the economy of the city this year will suffer a GDP contraction somewhere between 4 and 7%.

The political stability of the city-state, the People’s Action Party is in power since its independence in 1965, and are favourites to win in the coming general elections as well, is one of the strong points of this country – with its 5.7 million habitants – that accommodates more than 1,500 financial and insurance institutions.

Singapore economic growth has been unstoppable in the last few decades and has allowed it to transform into a luxurious and modern multi-cultural metropolis where its skyscrapers proliferate banks and offices of financial entities from across the world.

During the Sunday’s speech, Prime Minister Lee Hsien Loong, who is seeking reelection in the general elections, said that it was important for Singapore to maintain a good reputation and confidence of the global investors to fight the economic crisis due to the pandemic.

“Being so open and trade-dependent, it is [expected to be] the first to enter a recession, but the first to emerge,” OANDA’s senior market analyst for Asia Pacific Jeffrey Halley said.

However, The Economist Intelligence Unit’s Liuqing Yu believes that Singapore will face medium and long-term challenges such as a possible, “wave of unemployment”, when the governmental subsidies end, “plummeted trade activities”, or its role as “regional headquarters”, if the work from home norm is extended into general practice.

Economics professor at INSEAD business school Antonio Fatas told EFE that the global economic crisis and recession, “should not affect their ambitions to develop further their financial system”.

During these uncertain times, Singapore seeks to use the instability of Hong Kong – its main rival – to its benefit.

Hong Kong, which has been the centre of numerous protests in the last year is now facing the imposition of a draconian national security law pushed by Beijing.

“Financial centres do not disappear overnight. Hong Kong will remain attractive because of its connection to Mainland China. But in the margin you might see some institutions that are focused on the region, not just China deciding to locate themselves in Singapore,” Fatas said.

If it is proved to have irretrievably undermined the Hong Kong legal system, a bedrock of its success, international companies may choose to locate elsewhere

Fatas said that Singapore had, “all the ingredients to attract the more global or regional financial institutions”.

The expert further said that Singapore had financial potential, tax conditions and a favourable regulatory framework among other reasons.

Halley shared the opinion which emphasises on a strong legal system, quality of life and high qualifications of the workers in Singapore.

Halley further said that for the relocation of companies between Hong Kong and Singapore, one will have to wait for the interpretation and execution of the recent national security law imposed on the semi-autonomous city by Beijing and has been the centre of several protests since June 2019.

“If it is proved to have irretrievably undermined the Hong Kong legal system, a bedrock of its success, international companies may choose to locate elsewhere,” said the analyst, although he ruled out that it would be end of Hong Kong’s financial centre status.

Liuqing Yu, believes that Hong Kong holds a a bigger market valuation as, “its access to mainland China is incomparable [to Singapore]”.

“Singapore is overall a “next-best” financial centre compared to Hong Kong. It can offer all the infrastructures and instruments Hong Kong has, but nonetheless much smaller in size and less active,” Liuqing said.

Hong Kong’s political instability has left the companies in a, “no-win situation,” said Halley and added that, “International banking groups may come under pressure from their home country governments to reduce their footprint though. Unfortunately, China may seek to penalise those that do!”

According to the analyst, many banks have adopted a pragmatic approach as they watch the situation unfold.

“In the end money talks, and that is what Hong Kong is built on,” Halley added.


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