Singapore Trails Hong Kong in Diversifying Economy
(Update1)
By Yoolim Lee
March 14 (Bloomberg) -- Singapore, once so staid it banned bungee
jumping, has cut taxes, opened its doors to casinos and hired fund
managers to oversee billions of dollars of state funds to help
attract international investment.
While the city-state has made progress toward becoming a more
vibrant financial hub, it's still falling behind perennial rival
Hong Kong.
Assets held by Hong Kong fund managers tripled to $579 billion from
2000 to 2005, while Singapore's assets more than doubled to $472
billion, according to regulators in the two cities. Hong Kong's
stock-market value has swelled to more than five times
Singapore's.
The Singapore government's grip on the economy, which extends from
the city's largest companies to its newspapers, stifles the
entrepreneurialism that fuels Hong Kong's success, says investor
Anil Thadani. While Singapore has loosened the reins, it's not
moving fast enough to match Hong Kong, he says.
``Singapore has been unnecessarily restrictive,'' says Thadani,
chairman of Singapore-based Symphony Capital Partners (Asia) Pte,
which invests in Asian health-care companies and luxury resorts.
``People who are told from birth what to do and say aren't likely
to be self-starting entrepreneurs. We need a generation to change
the mindset.''
With its government-driven economy, Singapore can't rival Hong Kong
in breeding private companies, says Andy Xie, a Hong Kong-based
economist. Li Ka-shing, Asia's richest man, built an empire
spanning from telecommunications and property to retail after
arriving in Hong Kong in 1940 as a refugee from China.
Government Initiatives
``A strong government and a strong private sector cannot coexist,''
says Shanghai-born Xie, who left his previous job as Morgan
Stanley's chief Asia economist in October after writing an e-mail
that criticized Singapore. ``In Singapore, it's all about the
government taking initiatives.''
The biggest threat to Hong Kong may be air pollution drifting south
from mainland China. Merrill Lynch & Co. cut its ratings on
three Hong Kong developers in November because of concerns that
educated workers would leave the city to escape the smog.
Singapore, a former British colony with 4.5 million residents,
became part of Malaysia in 1963 and declared its independence two
years later. Hong Kong was ruled by the U.K. until 1997, when the
city of 6.9 million people became a special administrative region
of China.
The two cities have much in common besides their British roots.
Both transformed themselves into modern societies in a matter of
decades, and both economies are built on trade, finance and
international investment.
Comparable Growth
Hong Kong's gross domestic product will equal about $37,385 per
person this year based on purchasing power parity, compared with
$31,165 in Singapore, according to International Monetary Fund
estimates. The figures rank seventh and 21st worldwide.
The cities have also recorded comparable growth. Hong Kong's
economy expanded an average of 5.3 percent annually from 2000 to
2005, compared with Singapore's 5.1 percent rate.
Singapore's expansion has been built on the foundation of
government planning.
Temasek Holdings Pte, the state investment arm which manages about
$84 billion of assets, owns controlling stakes in seven of
Singapore's 10 largest companies, including Singapore Airlines Ltd.
and DBS Group Holdings Ltd.
Casinos
Singapore says it wants a more diversified economy to reduce its
dependence on makers of semiconductors, computer disk drives and
mobile phones. The government in 2005 lifted a 40- year ban on
casinos, attracting about $6.6 billion of investment from Las Vegas
Sands Corp. and Malaysia's Genting Bhd. It's also luring companies
in industries such as digital media and biotechnology.
``The greatest challenge to Singapore today is to get our people to
move away from the old model,'' Lee Kuan Yew, who founded modern
Singapore and led the city-state for three decades, said in 2005.
``Just being clean, green, efficient and cost-effective is not
enough. You've also got to be innovative, creative,
entrepreneurial.''
Lee, 83, who governed from 1959 to 1990, transformed the city-state
from a swampy fishing and trading town into a regional banking and
technology hub and the world's biggest container port. He still
holds the title of minister mentor, and his son, Lee Hsien Loong,
is prime minister.
After independence, Lee developed national industries such as
electronics and chemical making, attracting companies including
Royal Dutch Shell Plc with cheap land and tax breaks. Exports
helped Singapore's economy swell to S$210 billion ($137 billion) in
2006 from S$8.9 billion in 1965.
