TNAG-2467-FCO40-3591-Economic-situation-in-Hong-Kong-1992 — Page 55

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1.4 The paper shows that both Hong Kong and Singapore provid narrower ranges of services and, obviously, in much smaller volumes than London. Singapore supplies a broader range of services than

Hong Kong although lack of data precludes a comprehensive comparison. Moreover the services Hong Kong provides, especially in banking, are skewed towards Japan which, given the recent problems

of Japanese financial companies, might be a cause of concern to Hong Kong. The adage that Hong Kong was a lending centre and Singapore a funding centre is not supported by available data such

that the two centres should be regarded more as substitutes than

has been suggested in the past.

1.5 In terms of factors of supply, Hong Kong and Singapore now have comparable regulatory systems even though historically the Hong Kong authorities generally have produced a regulatory

environment which has emphasised non-interference whereas

Singapore's authorities have tended to be much more controlling.

However, the distinction is now more one of style than substance,

with Hong Kong having passed advanced banking legislation, having established well organised regulation of the securities and

derivatives markets (the Securities and Futures Commission) and

being in the process of establishing a monetary authority combining

conduct of monetary policy and bank supervision. In the past the

difference of the authorities' approach probably attracted

international firms to Hong Kong and thus provided Hong Kong with

its larger population of international companies than Singapore.

Currently, with greater awareness of the need for well developed and cost effective regulation and the changes made in Hong Kong's regulatory system in the last few years, Hong Kong could retain this advantage. Political uncertainty aside, there is perhaps

little to choose between Hong Kong and Singapore on other factors.

1.6

Hong Kong's and Singapore's future prospects depend on two key regional developments. First, the economic and financial links between Hong Kong and Southern China are growing very rapidly and this is a process which could prove irresistible even if a conservative regime took power in China. Hong Kong entrepreneurs

are aggressively investing in manufacturing plant in Southern China, to take advantage of low-cost labour, with the prospect that

in the near future financial sector firms might also begin to

relocate ancillary services out of Hong Kong. In addition, the