A Comparative Study Between Hong Kong and Singapore

The strong growth enjoyed by the Asian Pacific economies has given rise to the development of several financial centers in the region. Tokyo is regarded as the leading financial centre of the East while Singapore and Hong Kong are in the race to become the next largest international financial centre (IFC). The changing fortunes and developments of the East Asian and South East Asian economies have created exciting opportunities as well as potential threats for Singapore and Hong Kong as financial centres.

A review of the literature shows recent descriptive studies on financial centers that include Choi and Tschoegl (2000) and Schenk (2002). This paper presents a descriptive snap shot of the developments and performances of the two competing economies as international financial centres. Another objective of this paper is to review the policies and recommendations made by various committees and identify niche areas to further develop the financial sector in Singapore. This is in line with the government's policy to strengthen Singapore's status as a pre-eminent financial centre (Economic Review Committee 2002). Further research can be extended from studies by Schenk (2002), Ngiam (1996) and Ng (1998) to investigate the socio-economic, regulatory effect amongst other variables that help to attain a financial center status.

The ongoing competition between Singapore and Hong Kong can be traced back to the days of their entrepot status. Both economies had similarly been under the British colonial rule in the past and had earned a reputation for being the trading centres of the East. There has been a shift in their focus from manufacturing and trading industries to the services sector, in particular the financial services industry.

With the onset of the Asian currency crisis since July 1997, the burst of the dot- com bubble and the devastating economic tribulations brought about by the 9/11 incident and the outbreak of the Severe Acute Respiratory Syndrome (SARS), both economies have been adversely affected since the late 90s. Coupled with the recent developments launched by the Economic Review Committee - Financial Services Working Group (FSWG) in 2002, it is appropriate to take stock of the progress and reforms made so far and re-assess the future directions for Singapore to develop as an international financial centre and its competition with Hong Kong.

As pointed by Ng (1998), most comparative studies on the two economies as financial centres do not present any conceptual framework. In Hsiao et al (1999), the study used three indicators namely Chandavarkar's monetization rate (C/M2), Shaw's

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financial depth indicator (M2/GDP) and the ratio of the total capitalization of the financial industry to GDP to measure and compare the financial developments of Taiwan, Hong Kong and Singapore. However, the problem of using monetization rate lies in Singapore's