Singapore has overtaken Hong Kong as Asia’s top financial center and now ranks third globally behind London and New York. This is the key takeaway from the latest Global Financial Centres Index (GFCI), a ranking by British commercial think-tank Z/Yen Group.
The shift is emblematic of a wider trend of optimism toward Singapore and growing challenges facing Hong Kong. The GFCI survey, which was first published in 2007 and is widely regarded as the most comprehensive source for ranking financial centers, examines five areas of competitiveness, including business environment and development of the financial sector, infrastructure, quality of labor force and regulations.
Although Singapore and Hong Kong are essentially neck and neck, with, respectively, 755 and 752 points out of 1000, these results offer a glimpse of which center is likely to dominate the world’s fastest-growing economic bloc in the future.
“Hong Kong’s financial sector used to get tailwind from China,” says Ravi Ramamurti, professor at Northeastern University’s D’Amore-McKim School of Business. “Today it gets headwinds, because growth is slowing in China, and the Shenzhen and Shanghai stock exchanges have become strong competitors.” He adds, “The mainland is also undermining Hong Kong’s reputation for adherence to rule-of-law. I fear the headwinds will only get stronger with time.”
Both ex-British colonies with similar business establishment procedures and legal systems familiar to Western investors, the multilingual Singapore holds a clear communication advantage over Hong Kong, where the primary language is Cantonese. Although still lagging behind Hong Kong in terms of total assets under management, Singapore routinely tops the World Bank’s Ease of Doing Business Index and is considered one of the most innovative and future-ready cities in the world in terms of infrastructure, entrepreneurship and human capital.
But the outlook for Singapore is not all rosy: Owing to the continued slowdown in China, the economy in 2015 grew at its slowest pace since the global financial crisis of 2008—2009, and it is seen proceeding at the modest pace of 1% to 3% this year. However, says Ramamurti, although Singapore’s economy is struggling, its financial sector continues to expand. “Ironically, some of the money fleeing China is landing in Singapore rather than Hong Kong,” he says.