Asia Rivalry Enters New Phase

The long-standing rivalry between two of Asia’s leading business capitals advances to a new level Monday when the Singapore Monetary Exchange begins offering futures contracts based on the Hong Kong stock market.

Hong Kong officials labeled Singapore’s move “predatory” and said it undermines new regulations Hong Kong has set up to combat speculators. To fight back, the Hong Kong Futures Exchange extended its trading hours, waived transaction fees for December and cut interest charges on margin funds for all futures contracts beginning Jan. 1.

“We see Singapore as a formidable challenger,” said Randy Gilmore, a native Texan who is executive director of the decade-old Hong Kong Futures Exchange. “Our objective is for them not to succeed.”

Singapore’s authorities say the entry into futures contracts based on Hong Kong’s Hang Seng index is an important part of general reforms of the market to improve Singapore’s standing as a regional financial services center. They note that Singapore already has a thriving futures market--three times the size of Hong Kong’s in terms of contract volume--that trades in equity derivatives based on the stock indexes in Japan (the Nikkei), Singapore, Taiwan and Thailand.

At stake, officials in both Hong Kong and Singapore agree, is something greater than controlling the growing futures market. “Finance,” Gilmore said, “is the front line of a battle over who will be the Manhattan of Asia.”

So far in this war of cities, Singapore has been the most aggressive.

In an important speech delivered Nov. 4, Singapore Monetary Authority chief Lee Hsien Loong, powerful son of outspoken eight-term Prime Minister Lee Kuan Yew, announced plans to merge the Stock Exchange of Singapore and the Singapore Monetary Exchange, also known as SIMEX, into a single privately held company. Singapore’s strategy is to lower its costs and turn itself into a one-stop investment center.

“Asia has some of the highest trading costs in the world,” Lee said in a keynote speech marking the 25th anniversary of the Singapore stock exchange. “This gives us a window of opportunity to act swiftly in order to capture the advantage and build ourselves up into the premier exchange in the region.”

A blue-ribbon committee studying ways to improve Singapore’s competitiveness in the wake of the Asian economic collapse unveiled a major eight-point reform package in mid-November that included 15% wage cuts for state employees, reduction of utility charges for industry and liberalization of Singapore’s traditionally tightly controlled markets.

These moves came at a time when Hong Kong appeared to be going in a different direction, breaking with its own vaunted laissez faire tradition and intervening massively with public money into the stock market in August in its battle with speculators who it alleged were devaluing the Hong Kong dollar.

As both territories struggle to deal with the Asian economic crisis, the carefully staged Singapore strategies have served as a wake-up call for the Hong Kong business and financial community.

“We were looking for ourselves to be the financial center in Asia,” said Ian Perkins, chief economist for the Hong Kong Chamber of Commerce. “Now there is the impression here that Singapore has stolen the march on us in Asia. There is action in Singapore whereas we might be characterized as resting on our laurels.”

There are no more natural rivals in Asia than Hong Kong and Singapore.

Both are former British colonial city states with clear, somewhat arrogant visions of their role in the world. “We have this colonial legacy,” said Catherine Wong, political and economic consul for Singapore in Hong Kong, “We have a civil service that works in a similar fashion. So more often than not, we tend to be compared with each other because we come from such similar backgrounds.”

But the rivalry becomes especially acute when times are tough.

In the 1980s, when Hong Kong’s suddenly learned it faced a future under mainland Chinese rule, Singapore launched an aggressive campaign to attract Hong Kong’s bright, worried professionals to its balmy domain.

Now that a massive economic crisis has hit the region, each is pulling out all the stops to beat out the other in attracting foreign investment, multinational corporations and financial institutions.

Despite recent high profile successes for Singapore, including the announcement that American giant Caltex would locate its regional headquarters there, Hong Kong still enjoys a huge advantage, claiming 900 multinational corporate offices, compared with fewer than 150 for Singapore.

Moreover, for obvious geographic reasons, Hong Kong is the undisputed place for doing business in China, the only country in the region that has continued to grow during the economic crisis. Singapore, meanwhile, is surrounded by Indonesia and Malaysia, both reeling from the economic collapse and struggling to maintain political stability.

Surrounded by countries on the brink of chaos, Singapore naturally sees financial services as a kind of life raft.

“Look around the Asia region,” said Song Seng Wun, regional economist with Singapore-based GK Goh Research. “You’ve got Hong Kong, Tokyo and Singapore. At the end of the day, you probably just need two financial centers in the Asia-Pacific time zone. Singapore has been looking at ways of how they would be able to knock Hong Kong off its perch.”

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Tale of Two Cities

Singapore aims to challenge Hong Kong as Asia’s preeminent international financial center. Here’s how the two stack up:

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Hong Kong Singapore Stock market capitalization $229.7 billion $67.5 billion Derivatives contract volume (1997) 8,081,880 24,090,285 Main assets of financial institutions $600.6 billion $472.3 billion Bond market issues (1998) $7.13 billion $9.45 billion Total funds under management $200 billion $72 billion Number of mutal funds 1,473 160 Percentage of GDP from financial services 12% 13% Population 6.6 million 3.1 million

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Source: Institutional Investor