Thursday, November 16, 2006

Singapore vs Hong Kong vs Shanghai as Financial Hub

Singapore makes a lot of noise about being a competitive financial centre - particularly a private banking hub with Swiss standard of private banking. But it seems that all the money is going to Hong Kong.

With the rapid growth of China, and multiple Chinese mega corporations having their IPOs lately, and the stumbling of Shanghai with huge instances of corruption (the former Shanghai governor was fired earlier this year for corruption), Hong Kong is emerging as the true financial centre of China.

Singapore, in comparison, picks up all the small bits and pieces with IPOs of small industrial Chinese companies with poor competitive positions.

A latest Knowledge@Wharton article confirms this:

"Most of the listed companies are state-owned. If you are a state-owned company listed in Shanghai you can't give your executives or directors [stock] options," Meyer says. "The Shanghai stock market has been on a long downhill slope for some time ... it also almost looks as if China has outsourced its capital markets to Hong Kong." He notes that the amount of capital raised on the Hong Kong stock exchange in the first half of 2006 -- fueled by Chinese company listings -- was greater than the amount raised in New York.
Hong Kong is effectively establishing itself as the New York of China - and the Hong Kong Stock Exchange is becoming the New York Stock Exchange of the East.


...Beijing also has learned in the last decade that "Hong Kong is a window to the rest of the world.... There is an advantage to keeping Hong Kong prosperous and not overshadowing it." Hong Kong has a deep talent pool of lawyers, accountants, traders, analysts and economists that can't be easily replicated in Shanghai, he adds.

And it also can't be easily replicated in Singapore. Despite Singapore's moves to be an private banking hub, the real bulk of the banking and financial services in Asia is going to be conducted in Hong Kong.

With massive IPOs, it only makes sense for fund managers and investment bankers to headquarter in Hong Kong where they can get access to the best companies. It doesn't make sense for fund managers to stay in Singapore, away from the action in Hong Kong.

And what about the argument that Singapore has a much cleaner environment and that Hong Kong is polluted and drives away talent? Well, Hong Kong is realising this and cleaning up its environment:

Environmental officials in Hong Kong have begun working more closely with mainland Chinese authorities and are posting pollution data on public access web sites. They have also sharply criticized Exxon Mobil for failing to install equipment to clean the smoke from dirty coal-burning electric units that supply Hong Kong with electricity.

"This is part of economic development," Rowse says. "Forty years ago, there were oxygen tanks on the streets in Tokyo. They cleaned it up." Hong Kong can't point its finger at China for air pollution "because much of it is coming from Hong Kong-owned factories. We're not innocent here." As for the threat of pollution to the city's growth, "Individual executives are very critical of the air, but the companies still know they have to be in Hong Kong to earn a profit."

The smog presents a temporary disadvantage to Hong Kong because employees don't want their families to have to breathe in polluted air. But with a strong resolve to clean up the air, Hong Kong should be able to fix this problem. Once it does it, its underlying structural advantages will establish Hong Kong as the financial centre of the East.

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