SPEAKING
FREELY A tale of two
cities By Mark Lazell
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
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Financial and
economic industry experts agree unanimously that
Asia's booming economies, strong banking
confidentiality laws and pro-business incentives
are driving capital flows eastward. And it
appears that two key, distinct factors have
emerged to explain the trend.
Emerging
markets First, of course, the
biggest economic growth rates lie in Asia. In
China, annual economic growth is running at more than 9%, and
there's a long queue of hungry investors looking
for a foothold there. Likewise, Dubai's growth in
recent years has been
staggering. And India is
becoming a major economic power.
Aidan
Healy, managing director of Singapore-based Healy
Consultants, agrees that
China, Dubai and India are the new frontiers of
opportunity, but that although regulations and
bureaucracy are easing, much still needs to be
addressed.
"The business cultures and
legal frameworks are hugely different in emerging
markets. And in some cases company formation is
still a cumbersome procedure which requires expert
knowledge," he explains.
These factors
clearly work to Singapore and Hong Kong's
advantage. Hong Kong is a natural
gateway into China, while Singapore is busy
promoting itself as the regional hub of choice.
Both economies consistently rank
as the world's freest. In its 2006 Index
of Economic Freedom, drawn up by the
US-based Heritage Foundation think-tank, Hong Kong and
Singapore were first and second respectively.
The 2006 report heaps praise on the two
city-states' policies on inward foreign
investment. "Singapore's investment laws are clear
and fair, and they pose few problems for business.
Foreign and domestic businesses are treated
equally, there are no production or local content
requirements, and nearly all sectors are open to
100% foreign ownership," it explains.
According to Singapore's
Economic Development Board, the government agency
tasked with attracting overseas businesses, the
country ranks highly in miscellaneous global
surveys.
Accounting firm KPMG had it
as the most competitive place for business in
its Competitive Alternatives Study 2006. The
Global Competitiveness Index 2005-2006, meanwhile,
ranked Singapore as Asia's most competitive
economy, and the fifth-most competitive economy in
the world.
And in the World Bank report
"Doing Business in 2005", Singapore's economy was
ranked third, behind only New Zealand and the US,
in terms of the ease of doing business.
Referring to Hong Kong, the
Heritage report says, "The Special Administrative
Region of Hong Kong remains a model of economic
freedom. It is a free port with no barriers to
trade; has simple procedures for starting
enterprises, free entry of foreign capital and
repatriation of earnings, and transparency; and
operates under the rule of law."
Turnover
on the Hong Kong stock exchange has increased as
more mainland Chinese enterprises look to raise
capital by issuing new shares. As of December 31,
2005, the total amount of funds raised in Hong
Kong reportedly stood at US$38.6 billion, making
it the world's fourth-largest fund raising center
after New York, London and Toronto. Bankers and
stockbrokers say they expect further increases in
fundraising by mainland enterprises this year.
"Everyone wants to be in Asia at the
moment. It's fashionable, and profitable," Healy
says.
Swiss rollover There's
another key factor in the capital shift, however,
which is much less well known. Not long ago,
Switzerland was the world's quintessential private
banking center. And although in some eyes it still
is - after all, its banks still hold an estimated
30% of global offshore assets - its mantle is
rapidly being taken over by the likes of Singapore
and Hong Kong.
What caused
this eastward transition? A major factor was the
clampdown on tax evasion and money laundering by
the European Union and Organization for
Economic Cooperation and Development, which have
been applying ever more pressure on Swiss, and
other European banks, to disclose information
about their account holders.
This pressure came to a head last July, when Swiss banks
were forced to withhold a percentage of the
interest earned on personal savings accounts held
by EU nationals living outside Switzerland. This
Swiss rollover provided the governments of
Singapore and Hong Kong with an opportunity, one
they were quick to seize.
In Singapore,
whose overall asset management business (including
private banking) is now worth more than $350
billion and growing, banking privacy is paramount,
and trust laws attractive. Officials in Singapore
are quick to point out that a rush of foreign
private banking depositors is predominantly due to
the country's solid legal system, corruption-free
environment and transparent financial systems.
"I'm not surprised by
the increased capital flows to Asia from Europe,"
Healy says. "The proof is that Asia's booming at the
moment - we've noticed a huge increase in
demand for company incorporation and corporate
and personal bank accounts in Singapore and Hong
Kong, and China is also on the doorstep."
Banking officials clearly agree with the
positive sentiment. A chairman of one Swiss bank
says a recently-opened Singapore office for the
bank represented "a platform of growth in Asia".
Another banking executive believes "Singapore will
be the fastest-growing offshore banking center
over the next five years".
The statistics
seem to support these bullish assessments.
According to a report in the Wall Street Journal
in April, the number of private banks operating in
Singapore increased to 35 in 2006 from just 20 in
2000. International majors such as Credit Suisse
and UBS are expanding services in Singapore to
cater to growing demand for private banking from
wealthy Europeans and Asians. Credit Suisse's
Singapore operation is now its second-biggest in
the world, after Zurich.
Not the Cayman
Islands But in a world consumed by
image, do Singapore and Hong Kong fit the
tax-haven stereotype? Officials in both countries
are typically keen to distance the country from
the same brush which has tarred offshore havens
such as the British Virgin Islands, Cayman
Islands and Panama.
An official from the
Monetary Authority of Singapore says the country
continues to cooperate with foreign authorities
investigating money laundering and terrorist
financing. "Our banking and financial system is
open and transparent, and our rules are strictly
enforced," he stresses.
Healy also believes that international
investors and entrepreneurs prefer the positive
image presented by Singapore and Hong Kong to the
tax-haven image of Western offshore jurisdictions.
"The
bottom line is this: Singapore and Hong Kong are
built on internationally respected economic models
and legal frameworks," says Healy. "The image they
present is unrivaled in tax-free jurisdictions,"
he adds. "A Singapore company is ... tax-free,
looks good to customers and suppliers, and has
absolutely no stigma attached to it."
"Both countries have
also signed [double-taxation] treaties with more
than 50 countries, have laid down investment
guarantees, and [their] banks offer highly
competitive corporate financing, generally without
seeking equity," he says.
As well as
the business benefits of setting up in Singapore
and Hong Kong, there's a human angle to the tale.
The 2006 Quality of Living Survey, produced by
Mercer Human Resource Consulting in April, ranked
Singapore as the most livable city in Asia, and
34th in the world. Hong Kong comes in at 68th in
the world, while China's first-ranked city comes
in at 103rd in the world.
"Singapore
really is the focal point of corporate and
financial activity in Asia, and should remain so
for the foreseeable future," Healy concludes.
Mark Lazell is the marketing and
media director of Singapore-based corporate
consultancy Healy Consultants. He is also a
freelance journalist specializing in the offshore
financial industry in the Middle East and
Asia-Pacific regions.
(Copyright 2006
Mark Lazell)
Speaking Freely is an
Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
