COVID-19 and related quarantines and restrictions have damaged the image of Hong Kong, considered the international centre of Asia, provoked the departure of expats and spurred the ambitions of rival cities to replace Hong Kong and take its place as the preeminent financial centre of the region.
But toppling Hong Kong as Asia's financial capital will not be easy. None of the top three cities in this category - Singapore, Tokyo and Shanghai - can match Hong Kong's unique cultural and commercial flair blend. For various reasons, they face severe challenges in attracting talent from worldwide.
Let's consider Singapore in this role, which is often cited as the most likely haven for the thousands of expatriate executives who have left Hong Kong over the past two years. It is worth noting that, like Hong Kong, it is a former British colony with a commercial code based on the British and a world-class airport with easy access to other Asian cities. English and Chinese are widely spoken. International school standards are high, and taxes are low. As a result, Southeast Asia is becoming an increasingly attractive business destination for European companies. Also, don't forget that Singapore in April lifted the border crossing restrictions imposed at the start of the pandemic, allowing all vaccinated travellers to enter.
However, the influx of bank employees to Singapore from Hong Kong was less than expected. International companies seeking to relocate staff to Singapore are reporting unexpected resistance from immigration authorities in the form of stricter visa requirements, new hiring restrictions and other bureaucratic hurdles. Expats who obtained visas say they are struggling to find housing, and rental prices for private property rented by migrants have risen 40% over the past year.
Singapore's biggest downside for bankers and brokers is its mediocre stock market. For example, fewer than 700 companies are listed on the Singapore Stock Exchange with a total market capitalisation of less than $700 billion. On the other hand, more than 2,500 companies are listed on the Hong Kong Stock Exchange and have a market capitalisation of over $5 trillion.
• Easing coronavirus-related travel restrictions
• First-class infrastructure, including the world's best airport
• Venue for events such as the Formula 1 Grand Prix.
• Favourable business environment
• No capital gains tax
• Widespread use of the English language
• Far away from China
• Small stock exchange with 700 companies listed below $700 billion
• An immigration system that makes it challenging to obtain work visas for foreign employees
Tokyo was the region’s dominant financial center until the implosion of Japan’s speculative asset bubble in the 1990s. Both central and Tokyo metropolitan government leaders have said they want Tokyo to reclaim its old position as Asia’s finance capital. It’s not an unreasonable goal. Tokyo, with 38 million people, is Asia’s most populous city, the capital of the world’s third-largest economy, and home to 47 Fortune Global 500 companies. Tokyo boasts the world’s most punctual network of trains and subways. Once sky-high rents and property prices have declined steadily over the past several decades and are now significantly lower than those in Hong Kong. And the yen’s 20% decline against the U.S. dollar this year is a potential boon for expat bankers paid in greenbacks.
But a significant disadvantage is that few Japanese speak a foreign language, and few foreigners are in the city. The Tokyo Financial Exchange, with 2,200 large and small caps over US $5 trillion, is the size of Hong Kong but only includes four non-Japanese companies. Moreover, the prolonged economic stagnation in Japan has made it unattractive for international investors, and the Tokyo Stock Exchange is unattractive for investors who intend to bet on China's continued economic growth.
But for international bankers, brokers, and wealth managers, the real downside is taxes. The maximum personal income tax rate in Japan is 55%. In addition, capital gains, not taxed in Hong Kong and Singapore, are treated as income in Japan.
• Japan is the world’s third-largest economy and home to 47 Fortune Global 500 companies
• High-caliber infrastructure, with the world’s most punctual network of trains and subways
• Once sky-high rents and property values have declined and, by Hong Kong standards, seem almost affordable
• A weak currency that has plunged 20% against the dollar this year, a boon for expat bankers paid in USD
• Small expat population; few Japanese speak English
• Its large stock exchange—with 2,200 companies and a market cap of more than $5 trillion—features few non-Japanese companies
Official vows that Shanghai would eventually eclipse Hong Kong as Asia’s financial capital go back decades but gained momentum after the global financial crisis. In 2009, Zhou Xiaochuan, then governor of China’s central bank, told a prominent Chinese financial forum that China “needs an international financial center” to match its rising influence in global finance and that Shanghai was the best candidate. The Shanghai skyline, which sprouted skyscrapers throughout the 1990s and 2000s, now looks the part. The Shanghai Stock Exchange, with a market cap of $7 trillion, is the world’s third-largest and hosts 85 Fortune Global 500 firms.
But Shanghai, like Tokyo, functions almost exclusively as a marketplace for domestic companies and investors. For financiers, the disadvantages to setting up shop in Shanghai are numerous and significant. At the top of the list is China’s commitment to a “COVID-zero” approach to combating the coronavirus, leaving residents at risk of extended citywide lockdowns in the event of a minor outbreak. China’s borders remain effectively closed to non-Chinese travelers. It doesn’t help that China has a digital firewall to block internet access to overseas websites; the wall can be hurdled using a VPN, but connections are slow and unreliable.
Top tax rates on China’s mainland are nearly as high as those in Japan. China’s legal system is opaque and unpredictable. Mainland stock exchanges, though huge, are dominated by unsophisticated retail investors and often behave more like casinos than markets. Another significant drawback: China’s strict capital controls mean that foreign investors who profit on the Shanghai exchange can’t bring their money home.
• Its stock exchange, with total market cap of about $7 trillion, is the world’s third-largest and features 85 Global 500 companies
• A government pledge to make the city one of the world’s leading financial hubs
• Chinese exchanges, dominated by retail investors who trade heavily on rumor, are highly volatile
• A COVID-zero policy that has shut out foreign travelers and subjected residents to mass lockdowns
• Strict capital controls; profits earned in China have to stay there
• Personal income tax rates of up to 45%
• The Great Firewall, which restricts internet access to websites outside China
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