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Creating synergies to grow together
THE fortunes of Singapore and Hong Kong are intertwined and their complementary roles are set to grow in the future.
As the Hong Kong Special Administrative Region (HKSAR) celebrates its 20th anniversary this year with the theme "Together • Progress • Opportunity" the values embodied in it are equally applicable to the relationship between the two cities. It is about what has happened, and what might happen; of achievements, and of aspirations.
Said Bruno Luk, director of the Hong Kong Economic and Trade Office (HKETO) in Singapore: "Since the return to China, the principles of 'one country, two systems', 'Hong Kong people administering Hong Kong' and a high degree of autonomy have been successfully implemented in Hong Kong. We have made good progress in our social and economic development. We continue to uphold Hong Kong's core values, including rule of law, human rights, liberty, democracy and integrity.
He added: "Hong Kong and Singapore are not rivals but partners, each with a complementary role to play."
Singapore's close relations with Hong Kong are underpinned by strong economic ties. According to Hong Kong's Trade and Industry Department, in 2016, Hong Kong was Singapore's fifth largest trading partner and total bilateral trade amounted to HK$323 billion (S$57.3 billion). The Republic is also Hong Kong's third largest cumulative investment destination.
Being among the world's leading trade and logistics hubs, following the common law system and adopting internationally recognised codes of practice in business and commerce, Hong Kong and Singapore play complementary roles in global and regional supply chains.
Both cities know that free trade under a rules-based trading system is the best way to secure prosperity for all and as such strive to facilitate trade and business as far as possible.
There is much potential for these activities to grow. Close historical, economic and cultural links between Hong Kong and Mainland China, and between Singapore and Asean are likely to offer the two vast potential in expanding access to each other's huge hinterland.
The role of serving their respective hinterlands with highly sophisticated services vital to the seamless operation of supply chains is a well entrenched one. By leveraging the growth potential in Mainland China and Asean, there is huge scope for cooperation between Hong Kong and Singapore in exploring and expanding business opportunities and bringing greater synergies in trade to both parties.
Both jurisdictions are seen as highly competitive among international indicators including economic freedom and business-friendliness while also maintaining a close trading relationship. Hong Kong is also an important entrepôt for trade between Mainland China and Singapore.
In the past 20 years the HKETO has been fostering bilateral and economic relations between Hong Kong and the 10 Asean member countries. As a result, there has been strong growth in economic and trade ties.
Asean has grown to become the city's second largest trading partner since 2010. Goods trade between Hong Kong and Asean exceeded US$100 billion in 2014. Hong Kong and Asean are now negotiating a Free Trade Agreement, the completion of which will certainly bring benefits to all parties concerned. At the same time, people-to-people relations are also growing.
According to a Hong Kong Trade Development Council (HKTDC) report, statistics show that Hong Kong and Singapore complement each other especially in the area of meeting Asia's electronics supply chain and capital needs. Many regional companies have a presence in both economies, reflecting the existence of synergies.
Meanwhile, among Asean countries, Singapore is Hong Kong's biggest trading partner. Major trade items are electronic parts and components. Most of Singapore's merchandise re-exports, which accounted for 47 per cent of its total exports in 2014, went to other Asean countries (33 per cent of the total), Hong Kong (15 per cent) and China (13 per cent).
And despite the complete implementation in 2010 of the China-Asean Free Trade Area, where tariffs between China and Asean countries were removed, Singapore's re-exports to Hong Kong still increased by 9 per cent a year in the period 2009-2014, compared with 5 per cent growth in all markets.
Reflected in Hong Kong's statistics, most of these re-exports were destined for China (84 per cent) in 2014. Re-exports back to Singapore, accounting for 8 per cent of the total, posted particularly strong growth of 31per cent a year during the five-year period.
In terms of investments, Singapore is Hong Kong's top source (with cumulated stock of HK$225.9 billion in 2013) and destination of foreign direct investment (FDI) (HK$80.2 billion) within Asean. In fact, one-fifth of Singapore's FDI abroad was destined for other Asean countries in 2013.
Even though FDI from Hong Kong accounted for just 4 per cent of the total, it quickly expanded at 24 per cent a year during 2008-2013, compared with 11 per cent growth of all sources. Singapore's outward FDI to Hong Kong also increased much faster, at 16 per cent a year during 2008-2013, than China (14 per cent) and all destinations (11 per cent).
A survey of top business executives found that in terms of comparing Hong Kong and Singapore as headquarters, businesses did not see a significant difference in the two economies in terms of the business environment, and therefore, proximity to clients/markets was the most important, if not decisive, factor in making a choice.
Singapore is the natural choice of headquarters for businesses with a South-east Asia focus, while Hong Kong is still highly relevant. For instance, some Singapore companies set up their Hong Kong offices to handle trade documents, manage financial transactions with their China counterparts, and perform staff training.
Many also affirm the role of Hong Kong as a sourcing platform, a fundraising platform, a trendsetter in Asia and a springboard to China. Others indicate that Hong Kong is an important market per se.
The emergence of the Asian market is not a zero-sum game for Hong Kong and Singapore. Rather, both economies are set to benefit from the strong trade flows and more business activities within the region.
The two cities are also expected to play complementary roles in the Belt and Road Initiative. Singapore is seen as playing a key role specifically with regard to maritime infrastructure, shipping and trade, logistics, finance, law and tourism.
As one of the countries along the maritime belt, as well as being a regional trade, shipping and aviation hub for South-east Asia, Singapore will be a key node of the proposed transportation network. In addition, with its knowledge and expertise in international shipping and transportation, it can provide consultancy services to other Asean countries in the process of upgrading their ports and logistics networks.
With its established investment and financial services markets, strong legal system, and political and social stability, Singapore has been the hub for raising capital to facilitate investment within Asean countries.
While Hong Kong is expected to be the primary financial platform for funding the infrastructure projects under the Belt and Road Initiative, Singapore offers a good complement, for example, by providing due diligence, contract enforcement and other financial advisory services, and leveraging its strong knowledge and experience with other Asean markets.
Finally, both Hong Kong and Singapore follow the English common-law system. The two economies offer perfect complementarity in holding bilateral meetings, contract negotiation and dispute resolution between China and Asean countries.
An integrated tourism market along the land and maritime routes is also part of the Belt and Road Initiative. Hong Kong and Singapore, both international cities in the region, can join in facilitating tourist travel by developing tourism routes and strengthening cooperation in the marketing and promotion of tourism products.