Hong Kong and Singapore are former British colonies that rose to prominence as trading ports serving the region. Both are magnets for global talent and capital that developed into international financial centers. But they now have another similarity: Both have seen their growth rates fall in recent years. According to the World Bank, Hong Kong and Singapore grew by 1.5% and 1.3% in 2012. In the first quarter of 2013, their growth improved but they expanded at only 2.8% and 1.8%, amid rising costs and weak growth in key export markets.
Slower growth is not necessarily a cause for concern. As economies in transition, Hong Kong and Singapore are currently adapting their growth models to the competition from neighboring countries. I spoke to Jack So, chairman of the Hong Kong Trade Development Council, and Leo Yip, chairman of the Singapore Economic Development Board, to discuss their strategies for continual growth and development.
So and Yip say their economies are tied to the global shift of economic activity to the Asia-Pacific region. “Asia’s growth is not a short-term phenomenon,” says Yip, adding that “its scale and complexity provide momentum for decades to come.” A study by OECD predicts that China, India and Southeast Asia will grow by 7.4% per year over the next five years, largely driven by domestic consumption by a growing middle class. Given the growing interest of multinational corporations in the region, Yip believes Singapore is well-placed to benefit from the “varied” and “multidimensional” opportunities arising from the region’s “dynamic growth.” Citing Hong Kong’s strategic location in the heart of Asia, So calls Hong Kong the gateway for business flowing into and out of the region.
So notes that China has moved beyond being the world’s factory to become the world’s second-largest economy and a vast market for good and services. He says multinational corporations such as Starbucks SBUX -0.03% can use Hong Kong as a springboard to showcase their products and tap into China’s fast-growing middle class. China’s 12th five-year plan aims to boost domestic consumption, improve productivity and wages, and open up more industries to foreign companies. So adds that Hong Kong has signed the Closer Economic Partnership Arrangement with China, which gives it lower tariffs and preferential access to the Chinese market. Hong Kong is also China’s de facto international capital market, hosting the public listings of Chinese companies such as Tencent Holdings and Great Wall Motor , and serving as the world’s largest offshore renminbi center. “Hong Kong is bicultural,” So stresses, “it is both part of China and an integral part of the world economy.”
Singapore, on the other hand, has set its sights on becoming a pan-Asian business hub. Yip argues that with its prime geographic location and good connectivity to markets in Asia, Singapore is an ideal location for global companies to expand their strategic operations in the region. He cites the example of Rolls-Royce, which set up a production plant in Singapore in 2012 to produce half its global output of aircraft engines and to serve the growth of the aviation industry in Asia. “Multinational corporations are starting innovation in Asia, for Asia,” Yip explains, because “products in Asia have to be designed differently” to cater to the tastes and preferences of local customers. The $64 million Institute on Asian Consumer Insight was set up in 2011 to study the consumption habits of Asian customers. Yip adds that Singapore is “a good place to understand Asia” and is well-positioned as a center for upstream activities such as research and development, as well as downstream activities such as brand management. One of his coups is Procter & Gamble PG +0.29%, which moved its baby-care global headquarters from Cincinnati to Singapore last year to be closer to its consumers.
Hong Kong has largely phased out its manufacturing sector and 95% of its economy today is based on the service sector. These include financial services, logistics and tourism, along with new drivers such as medicine, education and creative industries. So believes that Hong Kong can leverage its wide range of services to facilitate the flow of business between the region and the world. For example, Hong Kong can help companies from China enter international markets. So says China’s outbound foreign direct investment has already exceeded inbound investment. To illustrate Hong Kong’s role in this development, he states that 60% of China’s outbound investment passes through Hong Kong. According to a report by Capgemini and RBC Wealth Management, Asia is home to 30% of the world’s high-net-worth individuals and has the highest rate of wealth growth, at 12%. To capitalize on this trend, So says Hong Kong is building up its wealth-management sector and it is now the world’s third-largest wealth-management center, behind only Singapore and Switzerland.
Singapore has taken deliberate efforts to diversify its economy. It continues to maintain a significant manufacturing sector that focuses on high-value industries such as biotechnology and electronics. Yip explains that for Singapore to remain attractive as a business hub, it must offer “innovative capabilities” that are founded on science and technology. He adds that the city-state is now reaping the fruits of a decade-long effort to build its research-and-development capabilities. This includes training 1,000 PhDs in biomedical sciences and establishing research institutes in cutting edge fields. Besides building a good base of research-and-development talents, Yip thinks it is important for them to know how to translate their research findings into commercial applications. Several companies have set up major research centers in Singapore, including Nestlé, Abbott Laboratories ABT 0% and Google GOOG +0.08%.
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