Hong Kong/Singapore economy: Vying tigers
The competition between Hong Kong and Singapore has been a long and intense one. Their similarities are obvious—both are city-based, trade-dominated economies that rose among the first tier of so-called tiger economies between the 1960s and 1990s to become wealthy, developed markets. In some ways, Singapore's economy seems to have moved ahead of Hong Kong's over the past 15 years, but levels of prosperity in both territories are now among the highest in the world. The key challenges facing their respective governments over the next ten years will increasingly be political rather than economic. If there is an economic race between Singapore and Hong Kong, many would argue that Singapore has overtaken Hong Kong in stunning fashion. In 2000 Singapore's GDP stood at just US$94bn, barely more than half the size of Hong Kong's, at US$172bn. However, by 2013 the positions had been reversed, with Singapore's output standing at US$296bn, compared with Hong Kong's US$274bn. This is perhaps surprising, when one considers that Singapore's neighbourhood in South-east Asia and the export markets in the West on which it depends have grown much more slowly than mainland China, to which Hong Kong's fortunes are so closely tied.
A triumph of manufacturing Some would argue that this vindicates Singapore's strategy of pursuing balanced economic development and constantly seeking new growth areas in an effort to diversify its economy. Hong Kong's economy is almost entirely driven by services, led by trade and logistics, retail, tourism, real estate and professional services. Yet its trade and logistics sector has struggled in recent years as cheaper mainland-Chinese ports have eroded the territory's role as China's leading merchandise trade entrepôt. While the tourism sector has boomed, it remains a relatively low-value-added business. Moreover, studies tend to find that it is tougher to raise productivity in service sectors than in manufacturing. By contrast, although Singapore's imports and exports amounted to the equivalent of almost 360% of GDP in 2013, the country's government has worked hard to ensure that the manufacturing sector remains an important part of the economy. The island's state-linked companies, including Temasek Holdings (a sovereign wealth fund), have played an important role in this, highlighting the difference between the territory's dirigiste economic model and Hong Kong's free-market approach. As a result, Singapore retains impressive production capabilities in high-technology electronics, engineering (especially related to the energy sector) and pharmaceuticals. In total, manufacturing contributed around 20% of GDP in 2013; the equivalent figure in Hong Kong was 1.5%. Whereas Hong Kong's trading sector relies on handling goods produced in mainland China, Singapore's tends to ship locally manufactured products, making it tougher for rival ports to eat into its market. Emerging financial titans
The governments in Hong Kong and Singapore have different approaches when it comes to manufacturing, but both are seeking to become Asia's pre-eminent financial services centre. Yet the two have developed fairly specialised niche capabilities, which means that direct competition between them is not as fierce as it might at first appear. Hong Kong is leagues ahead in terms of the development of its equity market. Owing to the territory's role as a leading centre for offshore listings by mainland Chinese firms, the market capitalisation of Hong Kong's stock exchanges stood at US$3.1trn at end–2013. By contrast, Singapore's was just over US$744bn, a problem in an area where scale brings benefits in terms of market liquidity. Hong Kong also boasts a lead in some niche markets, such as the emerging business of offshore renminbi-denominated financial services. However, the dependence of the territory's financial firms on China is also a potential source of vulnerability. Singapore's key advantages lie in other areas, most notably wealth management. Whereas Hong Kong plays an important role in managing the assets of mainlandChinese citizens, Singapore has developed a more global reputation. It also appears to have picked up business as other financial centres in places like Switzerland have increased disclosure to regulators in the US and EU. The island further boasts a stronger position in foreign-exchange markets—perhaps unsurprisingly, given that its currency, unlike Hong Kong's, is not pegged to the US dollar.
Power to the people Comparing the performance of the two economies is a useful exercise to see which has made better progress in recent years, but a focus on headline GDP can produce a misleading picture. One of the reasons why Singapore's economy has expanded so much faster than Hong Kong's since 2000 has been the rapid rise in its population. Between 2000 and 2013, Singapore's population rose by 34%, compared with a 7.9% increase in Hong Kong. In per head terms at purchasing power parity, the economic performance of the two looks much more evenly matched. The increase in population has been problematic for Singapore. The public has grown angry over the rising cost of living, transport congestion and the difficulty of obtaining housing. Three large protests over these issues occurred in 2013, shaking the city state's reputation for political stability. Immigrants, too, have been frustrated: there was a riot in the city's Little India district in December 2013, and ethnic-Chinese bus drivers staged a strike in November 2012; both events were the first of their kind in decades. Support for the government has frayed, boosting the opposition and prompting officials to lift social-welfare spending. The dynamics of the debate are different in Hong Kong, but the authorities there are also coming under pressure to curb inflows of people from mainland China (especially tourists) and to raise spending on social welfare amid mounting concerns about congestion and the cost of living. A new order In Hong Kong and Singapore, average standards of living are now among the highest in the world. As a result, public concerns increasingly revolve around quality-of-life issues, such as pollution, congestion and the cost of living, rather than the sole question of how to promote economic growth. Prosperity has also allowed more room for political debate over social justice and accountability, challenging the past models of small welfare states and strong executive-led government that laid the foundations of economic success. Although the authorities are trying to structure increased benefits in a way that limits the long-term strain on public finances, the creep towards "welfarism" (as Hong Kong's financial secretary, John Tsang, has termed it) will be hard to restrain. Ultimately, both Singapore and Hong Kong have emerged as victors from the economic race over the past 15 years. Over the next decade it is the contest to meet the demands of their own citizens that will prove to be more important. If their governments fail to meet those demands, they will face retribution at the ballot box. © 2014 The Economist Intelligence Unit Limited. An Economist Group business. All rights reserved. Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor its affiliates can accept any responsibility or liability for reliance by any person on this information.
The competition between Hong Kong and Singapore has been a long and intense one. Their similarities are obvious—both are city-based, trade-dominated economies that rose among the first tier of so-called tiger economies between the 1960s and 1990s to become wealthy, developed markets. In some ways, Singapore's economy seems to have moved ahead of Hong Kong's over the past 15 years, but levels of prosperity in both territories are now among the highest in the world. The key challenges facing their respective governments over the next ten years will increasingly be political rather than economic. If there is an economic race between Singapore and Hong Kong, many would argue that Singapore has overtaken Hong Kong in stunning fashion. In 2000 Singapore's GDP stood at just US$94bn, barely more than half the size of Hong Kong's, at US$172bn. However, by 2013 the positions had been reversed, with Singapore's output standing at US$296bn, compared with Hong Kong's US$274bn. This is perhaps surprising, when one considers that Singapore's neighbourhood in South-east Asia and the export markets in the West on which it depends have grown much more slowly than mainland China, to which Hong Kong's fortunes are so closely tied.
A triumph of manufacturing Some would argue that this vindicates Singapore's strategy of pursuing balanced economic development and constantly seeking new growth areas in an effort to diversify its economy. Hong Kong's economy is almost entirely driven by services, led by trade and logistics, retail, tourism, real estate and professional services. Yet its trade and logistics sector has struggled in recent years as cheaper mainland-Chinese ports have eroded the territory's role as China's leading merchandise trade entrepôt. While the tourism sector has boomed, it remains a relatively low-value-added business. Moreover, studies tend to find that it is tougher to raise productivity in service sectors than in manufacturing. By contrast, although Singapore's imports and exports amounted to the equivalent of almost 360% of GDP in 2013, the country's government has worked hard to ensure that the manufacturing sector remains an important part of the economy. The island's state-linked companies, including Temasek Holdings (a sovereign wealth fund), have played an important role in this, highlighting the difference between the territory's dirigiste economic model and Hong Kong's free-market approach. As a result, Singapore retains impressive production capabilities in high-technology electronics, engineering (especially related to the energy sector) and pharmaceuticals. In total, manufacturing contributed around 20% of GDP in 2013; the equivalent figure in Hong Kong was 1.5%. Whereas Hong Kong's trading sector relies on handling goods produced in mainland China, Singapore's tends to ship locally manufactured products, making it tougher for rival ports to eat into its market. Emerging financial titans
The governments in Hong Kong and Singapore have different approaches when it comes to manufacturing, but both are seeking to become Asia's pre-eminent financial services centre. Yet the two have developed fairly specialised niche capabilities, which means that direct competition between them is not as fierce as it might at first appear. Hong Kong is leagues ahead in terms of the development of its equity market. Owing to the territory's role as a leading centre for offshore listings by mainland Chinese firms, the market capitalisation of Hong Kong's stock exchanges stood at US$3.1trn at end–2013. By contrast, Singapore's was just over US$744bn, a problem in an area where scale brings benefits in terms of market liquidity. Hong Kong also boasts a lead in some niche markets, such as the emerging business of offshore renminbi-denominated financial services. However, the dependence of the territory's financial firms on China is also a potential source of vulnerability. Singapore's key advantages lie in other areas, most notably wealth management. Whereas Hong Kong plays an important role in managing the assets of mainlandChinese citizens, Singapore has developed a more global reputation. It also appears to have picked up business as other financial centres in places like Switzerland have increased disclosure to regulators in the US and EU. The island further boasts a stronger position in foreign-exchange markets—perhaps unsurprisingly, given that its currency, unlike Hong Kong's, is not pegged to the US dollar.
Power to the people Comparing the performance of the two economies is a useful exercise to see which has made better progress in recent years, but a focus on headline GDP can produce a misleading picture. One of the reasons why Singapore's economy has expanded so much faster than Hong Kong's since 2000 has been the rapid rise in its population. Between 2000 and 2013, Singapore's population rose by 34%, compared with a 7.9% increase in Hong Kong. In per head terms at purchasing power parity, the economic performance of the two looks much more evenly matched. The increase in population has been problematic for Singapore. The public has grown angry over the rising cost of living, transport congestion and the difficulty of obtaining housing. Three large protests over these issues occurred in 2013, shaking the city state's reputation for political stability. Immigrants, too, have been frustrated: there was a riot in the city's Little India district in December 2013, and ethnic-Chinese bus drivers staged a strike in November 2012; both events were the first of their kind in decades. Support for the government has frayed, boosting the opposition and prompting officials to lift social-welfare spending. The dynamics of the debate are different in Hong Kong, but the authorities there are also coming under pressure to curb inflows of people from mainland China (especially tourists) and to raise spending on social welfare amid mounting concerns about congestion and the cost of living. A new order In Hong Kong and Singapore, average standards of living are now among the highest in the world. As a result, public concerns increasingly revolve around quality-of-life issues, such as pollution, congestion and the cost of living, rather than the sole question of how to promote economic growth. Prosperity has also allowed more room for political debate over social justice and accountability, challenging the past models of small welfare states and strong executive-led government that laid the foundations of economic success. Although the authorities are trying to structure increased benefits in a way that limits the long-term strain on public finances, the creep towards "welfarism" (as Hong Kong's financial secretary, John Tsang, has termed it) will be hard to restrain. Ultimately, both Singapore and Hong Kong have emerged as victors from the economic race over the past 15 years. Over the next decade it is the contest to meet the demands of their own citizens that will prove to be more important. If their governments fail to meet those demands, they will face retribution at the ballot box. © 2014 The Economist Intelligence Unit Limited. An Economist Group business. All rights reserved. Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor its affiliates can accept any responsibility or liability for reliance by any person on this information.
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