Benjamin Qiu is a partner with the law firm Elliott Kwok Levine & Jaroslaw in New York specializing in Chinese cross-border disputes and transactions. Sam Goodman is senior policy director of China Strategic Risks Institute and co-founder of the New Diplomacy Project, a foreign policy think tank in London.
According to a joke circulating on the Chinese internet, it took America 100 years to turn New York into an international financial center but it took China just three years to turn Singapore into one.
Singapore, of course, was already an important regional financial hub before 2021, but it has surged ahead as Hong Kong has lost ground with its independent institutions losing their autonomy and its freedom of the press deteriorating.
This has caused wealthy Chinese, ever footloose and willing to arbitrage, to look for a new place to securely park their money.
Many of China's best entrepreneurs and investors have taken up Singapore residency, including Neil Shen, co-founder of what is now Trip.com and an early investor in leading technology companies including ByteDance and Pinduoduo.
Tokyo could be well placed to compete with Singapore. Urban Chinese love traveling to Japan and spending time there, probably more than Singapore, which also happens to be a longer flight from Shanghai. Many envy Alibaba founder Jack Ma, now a Tokyo College professor at the University of Tokyo.
At any rate, China's wealth and talent, and an opportunity to influence the country's future, are now up for grabs due to Hong Kong's rapidly declining attractiveness.
The city looks set to take a further blow this week as lawmakers have rushed through a new security law covering offenses such as treason and espionage. Chambers of commerce representing foreign companies had expressed concerns about broad, vague provisions regarding state secrets, but the bill also has created new offenses around colluding with foreign forces and publishing misleading information and hints at the possibility of Chinese-style internet censorship.
In the wake of an earlier national security law imposed by Beijing on Hong Kong in June 2020, over 10,000 people have been arrested for offenses related to protests or other political acts. The opposition has been completely purged from the legislature and other elective bodies and employers are having trouble filling positions due to the exodus of young citizens to places they see as freer and more open.
Chinese businesspeople have also taken note of a new Hong Kong law which took effect in January and has eroded the separation of the city's legal system from that of mainland China. Under the new law, some judgments issued by mainland courts can now be enforced in the city, meaning that assets kept in Hong Kong accounts could be seized for the purpose of upholding a judgment from a court that answers to the Chinese Communist Party.
It is little surprise that international investor sentiment toward Hong Kong has soured. Previous China bulls like former Morgan Stanley Asia chair Stephen Roach now say "Hong Kong is over" with others calling China "uninvestable."
With entrepreneurs and investors from the mainland and Hong Kong both moving funds out, the number of family offices registered in Singapore to advise wealthy families on their investments has risen 20-fold since 2018; meanwhile, an initiative to attract family offices to Hong Kong has fallen flat.
Japanese Prime Minister Fumio Kishida seems to realize his nation has an opportunity here.
Last September in New York, he announced policies to spur competition in the country's $5 trillion asset management industry by lowering barriers to entry, assisting new entrants, setting up special business zones where administrative procedures can be completed in English and expanding a tax-protected investment channel for individual investors.
These steps mark a good start, but Japan needs to move quickly even though it comes into the competition with a number of strengths. These include a mature rule of law, robust democracy, a sizable, sophisticated economy, stable governance, a plethora of cultural attractions and a high quality of life.
Japan, though, suffers from a lack of diversity in terms of service providers, talent and financial clientele as well as high levels of taxation and bureaucracy. Indeed, as much as the country is a leader in technology and innovation, as of mid-2023, the use of fax machines and floppy disks were still required under about 9,000 government regulations.
Tokyo should look at the factors that made Hong Kong a successful financial center in the first place. These included income tax efficiency, hands-off governance and an open door to bringing in talented workers from around the world.
Japan could try to compete with Singapore in terms of dispute resolution related to financial products and trusts, for example, but this would take building up a critical mass of legal professionals trained in common law jurisdictions.
Japan should recognize that it can offer well-off Chinese more than great meals and a high quality of life. If they can be made to feel comfortable that their money will be professionally well managed with the level of transparency and security that they have come to expect from providers in New York, London and Singapore, many will happily put their cash to work here too.
