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March 24, 2016

Singapore vs. Hong Kong

Singapore and Hong Kong have long been rivals for the crown of Asia's best city. But Singapore has now crept well ahead of Hong Kong, a trend that is bound to continue.

Both Singapore and Hong Kong are members of the original Asian miracle-economy club, which achieved stunning development in the postwar period. And the greatness of their miracles is evident in that were able to surpass Japan, Asia's first miracle economy, in terms of GDP per capita. Today, the two island economies are only rivaled in Asia by the casino economy of Macao and petro-state of Brunei.

However, while it is tempting to lump Singapore and Hong Kong together, they are now heading towards divergent destinies, a trend that is only likely to continue with China's persistent interference and mismanagement of Hong Kong.

Singapore's economic edge

However you measure it, Singapore's GDP per capita began creeping ahead of Hong Kong's over the past decade or two. In purchasing parity terms, Singapore's GDP per capita would be $83,000 in 2014, way above Hong Kong's $55,000, while in market price terms Singapore's $55,000 is again way ahead of Hong Kong's $38,000.

Singapore's leading edge is curious for many reasons. For one, Hong Kong would seem to have a locational advantage, sitting right next to fast-growing China, while Singapore's Southeast Asian neighbors have been less dynamic than China.

Let's have a look at some of the factors that may be splitting the two island economies.
Hong Kong seems like a cradle of capitalism, and it certainly is. But according to the World Bank, the Lion City of Southeast Asia is an easier place in which to do business than Hong Kong. Singapore ranks number one in the world for ease of doing business, a little ahead of fifth-placed Hong Kong, which scores relatively poorly for enforcing contracts and registering property.

And while the World Economic Forum (WEF) Global Competitiveness Index ranks Hong Kong high at 7th in the world, Singapore comes in 2nd, just after Switzerland. As the WEF says,
"The challenge for Hong Kong is to evolve from one of the world's foremost financial hubs to an innovative powerhouse. Innovation is the weakest aspect of the economy's performance, and the business community consistently cites the capacity to innovate as their biggest concern."
Most other analyses of innovation capacity also put Singapore ahead of Hong Kong.
For advanced economies like Singapore and Hong Kong, human capital is key to continued development, and again Singapore has a slight edge. In the OECD "PISA 2012" study, which measures what 15-year-olds know and what they can do with what they know, Singapore comes 2nd out of the 64 participating economies, just ahead of 3rd placed Hong Kong. And the National University of Singapore ranks as the world's 26th best university in the Times Higher Education World University Rankings 2015-2016, ahead of 44th placed University of Hong Kong.

Corruption is a cancer that poisons the business environment in much of Asia. And while Transparency International ranks both economies very well in its Corruption Perceptions Index, once again Singapore again has an edge, being ranked the 8th cleanest economy in the world, while Hong Kong is further down the list at 18th.

And when it comes to the rule of law, another critical requirement for a sound business climate, Singapore maintains its edge, being ranked 9th in the world, ahead of the 17th placed Hong Kong. At the same time, Hong Kong pips Singapore into 4th place in the Global Financial Centers index, after London and New York.

Hong Kong tops the list of 23 advanced countries in the Economist "crony-capitalism index". In other words, it has the worst cronyism of all the economies surveyed, while Singapore is further down the list at 5th. Despite Hong Kong's free market pretensions, its domestic economy is in reality dominated by cartels, monopolies and oligopolies. The tycoons control everything from supermarkets to drugstores, electricity supply to ports and buses, and construction. This pushes prices up and quality down, and results in low environmental standards.

In other words, Hong Kong politicians and businessmen have their hands deep in each other's pockets. It is perhaps not surprising Hong Kong has four billionaires in the Forbes list for 2016 of the world's top hundred billionaires -- Li Ka-shing at 20th, Lee Shau Kee 31st, Cheng Yu-tung 58th, and Joseph Lau 65th. In sharp contrast, there are no Singaporeans in the top 100, with Robert and Philip Ng the most highly ranked at 151st.

All things considered, Singapore's economy has a clear edge across the board over Hong Kong's.

Hong Kong's fading freedoms

One area in which Hong Kong has always been ahead of Singapore is freedom of the press, and it remains well ahead to this day. According to Freedom House, Hong Kong's press is "partly free", and it ranks 41st of the 97 countries surveyed, while Singapore's press is "not free", with a ranking of 67th.

But Hong Kong's ranking declined 37th to 41st in 2015 due the increasing number of physical attacks on journalists, major businesses withdrawing advertising from critical media outlets, and reporters acknowledging the growing practice of self-censorship. The editorial independence of Hong Kong's South China Morning Post has also been thrown into question ever since the century-old newspaper was sold to Chinese e-commerce giant Alibaba in late 2015. Alibaba executives pledged to use the deal to counteract the "negative" portrayal of China in Western media.

More generally, both economies are classified by Freedom House as having only "partly free" societies, with strong restrictions on political rights and civil liberties. But again, Hong Kong is on a downward trend due to restrictions freedom of assembly surrounding protests (the "Umbrella Movement" protests) against a Chinese government decision to limit candidate nominations for future executive elections, and before that the "Occupy Central" protests.

Academic freedom and university autonomy are now increasingly compromised in Hong Kong. There have been cases of academics, who are seen as critical of Beijing, being demoted or coming under attack by pro-Beijing media. And tensions are arising when professors, who are critical of Beijing, are teaching students from the mainland.
China's political influence over Hong Kong is increasingly pervasive, as seen in the recent extraterritorial abductions, apparently orchestrated by the Chinese government, of booksellers and others who seem to offend Beijing. Booksellers are now reportedly pulling China-sensitive titles from their shops.

China's chief representative in Hong Kong, Zhang Xiaoming, made clear that Beijing will keep a heavy hand over Hong Kong in a September 2015 speech on "a correct understanding of the political system" of Hong Kong.

It is, Zhang said, a system in which the chief executive - chosen by an election committee approved by Beijing - has "a special legal status that transcends the executive, legislature and judiciary ... while performing a pivotal role as a link between the central government, which transcends him or her, and the executive, legislature and ­judiciary". Hong Kong's proud tradition of the rule of law is now compromised.

In sum, Hong Kong's fading freedoms, together with China's growing interference and mismanagement of Hong Kong, is gradually undermining the island's uniqueness relative to other Chinese cities, and especially relative to Singapore.

Reasons to be cheerful?

Nevertheless, citizens from both Singapore and Hong Kong have many reasons to be cheerful. Their economies are very prosperous, and well-managed, and their societies are among the safest in the world. And while both can pride themselves as gastronomic hubs, Hong Kong wins hands down, with 64 Michelin-starred restaurants, whereas Singapore has no such starred restaurants.

But citizens from both also have reasons to be frustrated. The gap between rich and poor is enormous, with Hong Kong having the highest inequality in the advanced world, just ahead of Singapore. Beyond the manifest glitz and bling of both cities, lurks poverty for too many citizens, as well as slave-like conditions for the low-skilled migrants who keep these economies ticking over. And Singapore is the world's most expensive city, with Hong Kong just a sliver behind at number two, according to the Economist's Worldwide Cost of Living 2016 survey.

The politics of the two economies are quite different. Singapore is not a meaningful democracy, as the political opposition is given very little space. But the ruling People's Action Party (PAP) is increasingly responsive to public opinion, something which cannot be said about the Hong Kong government. And the PAP won a handsome victory at the 2015 elections, registering a much higher vote than in the previous election.

In contrast, politics in Hong Kong are on a downward slope reflecting the frustrations of the local population, especially the youth, with low incomes, high cost of living, appalling housing conditions for many, and above all the high-handed interventions from Beijing. Moreover, Hong Kong society is now increasingly polarized between the pro-democracy and pro-status quo camps. And there is much negative feeling by Hong Kongers towards the growing number of mainland tourists, students, and residents. The perceived "mainlandization" of Hong Kong has become a big social/political issue.

It is thus not surprising that Singapore should score much better than Hong Kong on international league tables like the World Happiness Report, where Singapore ranks a respectable 24th, while Hong Kong is a miserable 72nd out of the 158 countries covered.

What future for Asia's leading cities?

As Hong Kong is increasingly swallowed up into China's world, its competitive edge vis-a-vis cities like Shanghai, in terms of rule of law, freedom of the press and good governance, will gradually diminish. It will continue to play an important role, but one that is less unique than in the past. Hong Kong is now little more than a Chinese economic dependency, reliant on China for its commerce and tourists, with very little economic independence.

Beijing's struggle against Hong Kong's freedoms and "nativism", or a local Hong Kong identity, will only ensure continued tensions and instability -- as will Beijing's paranoid attitude toward "splittists" who it sees as agitating for independence.

Singapore is a very different case. The government is resolutely committed to managing the economy as best it can, in Singapore's interest, and promoting a Singaporean identity. It maintains very good relations with both the US and China, and is able to balance relations with these super-powers, and remain staunchly independent.

Singapore also has a unique broader Asian role, with excellent links, not only with China, but also Southeast Asia and India. As a Singapore-based journalist once said to me:
"Singapore is the only truly Asian city in the region. All the other big Asian cities are more national in focus."
Courtesy of John West, Asian Century Institute via econintersect.com

The Dolce Whey at Onnit.com!

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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