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Old workhorses continue to drive economy

Hong Kong continues its time-tested role of being the gateway to southern China while also leveraging its strong shipowning tradition to become the fourth largest ship register by tonnage.

PERHAPS due to the nature of the cities, shipping and real estate have both been long-established markets in Hong Kong and Singapore. Although considered traditional industries, they still make up a substantial proportion of their respective economies.

While Hong Kong and Singapore have their strengths in each, these two sectors continue to play a vital role in driving the economy. According to official figures, in Hong Kong, the maritime sector contributes about 1.4 per cent to GDP and employs some per cent of the workforce.

Meanwhile in Singapore, according to the Maritime and Port Authority of Singapore, the maritime cluster contributes some 7 per cent to GDP and employs more than 170,000 people.

In terms of the ports, both cities have created different roles for themselves. Singapore has made use of its strategic location at the crossroads of Asian trade to become the second busiest container port in the world.

Hong Kong continues its time-tested role of being the gateway to southern China while also leveraging its strong shipowning tradition to become the fourth largest ship register by tonnage.

The city is also one of the top ship management centres in the world and has an impressive range of maritime services firms to cater to the needs of the shipping community.

In Hong Kong, all container terminals are privately owned and operated and the Marine Department is responsible for the day-to-day operation of the port. The Transport and Housing Bureau is the policy bureau responsible for port policies and related development, while the Hong Kong Maritime and Port Board (HKMPB) was formed last year to bring together industry representation.

It was formed to assist the government in devising maritime and port-related strategies and initiatives; facilitate collaboration between stakeholders, and work closely with the government; create a maritime business-friendly environment; foster the long-term development of Hong Kong's maritime industry and port; and support and promote Hong Kong's maritime community.

Among some of the future challenges for the maritime industry in Hong Kong is the burden on landside infrastructure from higher traffic as well as volume as port calls and vessel sizes increase.

According to a McKinsey & Co report, the key to restoring Hong Kong's competitiveness against the cheaper southern China ports is to address the logistics of getting goods to the port, not the port operations itself.

The same report noted however that despite the cost advantage of these competitor ports, Hong Kong retains its appeal with relatively easier customs clearance and shipment procedures.

Despite challenges, the city maintains its advantage among rival maritime cities with its shipping companies continuing to do well in global trade. Hong Kong's status as a duty-free port also makes it attractive as a regional warehouse for high-value goods, while its sophisticated legal and financial systems facilitate trade.

Meanwhile, the real estate sector is yet another key part of the economy of both cities and in recent years has been driven by a common factor: the Chinese buyer.

Reports note however that the pattern of investment of Mainland China investors is different between the two markets. Citing figures from Real Capital Analytics, it found that last year, Chinese groups invested US$5.2 billion in completed properties and undeveloped land in Hong Kong Island and Kowloon, compared to only about US$600 million in Singapore.

Citing reasons such as providing a way to hedge against possible further Chinese renminbi depreciation, analysts note that Chinese investors overall definitely seem more interested in Hong Kong than in Singapore property.

Other subsidiary considerations include buying commercial property to set up headquarters in the city as a strategic gateway for Chinese firms expanding beyond the mainland and going international.

The Mainland Chinese demand for office space in Hong Kong's central business district has driven up rentals as well and these are expected to double in the next two years.

This contrasts with Singapore, where the slowing economy has caused the office property market to stay in the doldrums for the past two years or so. The drop in the first quarter office price index widened to 4 per cent from from 0.6 per cent in the preceding quarter while the office rental index saw a 3.4 per cent fall compared to a 1.8 per cent decrease in the fourth quarter of 2016.

Even in the residential property market Chinese individual investors tend to prefer mainly low- to mid-end residential property in Singapore, while Chinese developers also tendered for development land mainly in the low to mid-end segment.

However, analysts believe Singapore remains attractive for real estate investment in the long run due to its socioeconomic stability and transparent legal and regulatory structures.

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