SINGAPORE • Hong Kong has become more “China-centric”, enabling Singapore to take the lead when multinational companies look to set up their Asian headquarters in the region, according to the country’s Economic Development Board (EDB).
With Hong Kong becoming more focused since 1997 on servicing the massive Chinese economy, it’s given Singapore a leg up as a hub for companies’ Asia-Pacific operations, said Beh Swan Gin (picture), chairman of the EDB, a government agency that helps attract investment to the South-East Asian city.
“The importance of China to the Hong Kong economy has grown disproportionately,” Beh said in an interview with Bloomberg on Tuesday. “If you’re a company that’s thinking about coordinating, managing your activities across Asia, then Hong Kong becomes, I suppose, more and more China-centric and it becomes perhaps less suitable for those activities.”
About 37,400 international companies base their operations out of Singapore, including 7,000 multinational corporations, with more than half of those running their Asia-Pacific businesses from the city-state, according to the EDB website.
“The numbers speak for themselves, he said. “More companies are now having their Asia-Pacific headquarters, or at least Asia-Pacific non-China headquarters, in Singapore.”
Beh said he sees Hong Kong continuing to “grow in importance”, and that companies looking to tap the Chinese market will probably consider Hong Kong, along with Shanghai or Beijing, to base those operations.
Hong Kong is still a leader when it comes to financial activity, boasting the world’s fourth-largest stock market. While Singapore’s is a fraction of the size, it’s the largest in South-East Asia.
Beh sees Singapore’s lead as a magnet for multinationals continuing to widen as it bills itself as an innovation-led economy, attracting investors with its strong spending on research and development (R&D), a still-generous tax regime, and targeted labour laws.
“We’re a small country — we’ll never be a self-sufficient Silicon Valley that constantly just generates from within,” Beh said. “We believe we’ll always need to attract industry leaders from outside.”
Singapore’s government spends the equivalent of about 1% of gross domestic product (GDP) on R&D, while the private sector contributes about 1.3% of GDP, said Beh.
Authorities are focused on raising the overall R&D expenditure to about 3% of GDP, in line with other small, innovation-focused economies like Sweden and Switzerland, Beh said. Switzerland tallied about 3.4% in 2015, while Sweden was at 3.3%, according to figures from the Organisation for Economic Cooperation and Development.
Businesses scored an extra incentive from Singapore’s 2018 budget to boost that spending: The tax deduction for R&D project costs and consumables was raised to 250% from 150%.
While some, particularly smaller, firms have reported difficulty in hiring staff amid stricter rules for foreign workers since 2011, Beh said he’s confident that hasn’t hurt Singapore’s competitiveness.
The government’s focus on attracting higher-skilled labour is more in line with the kind of businesses that Singapore wants to have based in the city, he said. — Bloomberg