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Singapore hype good lesson not to fear Shanghai

By Hong Liang (China Daily)
Updated: 2009-03-31 07:43

A favorite story among Hong Kong financial reporters in the 80s and 90s was the competition with Singapore as the region's premier financial center.

That was hyped up by every newspaper in town as an unfolding drama in which the lead players were engaged in a life and death struggle for survival. Alarmists were having a field day dispensing prognoses of doom whenever some obscure research firm published results of dubious surveys showing a tip of the scale in favor of Singapore.

Even an inconsequential piece of information, like falling behind Singapore in foreign exchange transactions, could envelope the Hong Kong financial community with a deep sense of foreboding. Fanned by financial journalists and headline-grabbing politicians, the threat of Singapore seemed most menacing to many Hong Kong people.

Not anymore. Since the opening of the mainland in the late 70s, the focus of Hong Kong has shifted north. Singapore no longer poses any threat because Hong Kong is having the mainland market all to itself.

Now, the fixation is on Shanghai.

Although it makes as little sense as it did with Singapore, Hong Kong has got into a habit of worrying that Shanghai will rob its economic crown jewels and relegate it to a bit player in the mainland's economic development.

The latest threat perceived by Hong Kong comes from the central government's backing of Shanghai's bid to become an international financial center.

Li Ka-shing, Hong Kong's property baron who has a finger in almost every economic pie, has predicted that the city will face "intense" competition from Shanghai.

Indeed, the reaction to the news in Hong Kong was so strong that it prompted some soothing words from Financial Secretary John Tsang Chun-wah, who said that China is a big enough country to accommodate two financial centers.

More important is that the fundamental differences between Hong Kong and Shanghai basically preclude any form of direct head-to-head competition. Operating under totally different regulatory and economic environments, Hong Kong and Shanghai don't offer too many overlapping financial services.

Shanghai's bid to become a financial center will, of course, lead to competition with Hong Kong on some specific types of services. But the vast difference between the social and economic fundamentals of the two cities will leave plenty of room for both to prosper.

As professor Zhang Hanlin, a senior researcher at a central government think tank, noted in South China Morning Post, Shanghai can never hope to emulate Hong Kong's economic freedom. More important, Hong Kong enjoys many "unique" advantages, including the rule of law and international connectivity, which Shanghai doesn't have, Zhang said.

Take the capital markets. The average daily turnover on the Shanghai bourse may have exceeded that of Hong Kong, but it has remained restrictive to foreign investment. In comparison, the Hong Kong stock market is highly transparent and fully open not only to foreign investors but also to a broad range of international financial intermediaries.

Instead of worrying about competition from Shanghai, or any other mainland cities that also harbor ambition to become financial centers, Hong Kong can do better by concentrating its efforts on preserving its free-enterprise environment and the rule of law, and developing closer business links with other financial centers in the region and around the world.

There is also a need to continue to improve the quality of life to make Hong Kong more attractive for talents in finance and other related services. In the financial industry, talent matters the most. In this respect, Hong Kong has little to fear from Shanghai.

E-mail: jamesleung@chinadaily.com.cn