Commentary: Were warnings of Hong Kong’s demise as a financial hub exaggerated?

LONDON: Hong Kong now ranks as the third best financial centre in the world, according to the 2024 edition of the Global Financial Centres Index. The city has regained the title of Asia’s top financial hub from Singapore. 
This ranking defies sceptics who believe Hong Kong is over, given the city was battered by the pandemic and an exodus of talent in recent years.
Singapore was able to take advantage and claimed Asia’s top spot in 2022 and 2023. So how was Hong Kong able to retake the crown?     
First is the stability of its financial policies. As a special administrative region of China, Hong Kong benefits from strong support from the central government, and its highly business-friendly regulations are appealing to foreign investors. According to government data, Hong Kong brought in HK$38.3 billion (US$4.9 billion) of investment in the first half of 2024, a year-on-year increase of 6 per cent.
In recent years, as China has increasingly prioritised the development of the Greater Bay Area, economic ties between Hong Kong and mainland China have strengthened, creating a favourable environment for the city’s financial market.
Second is Hong Kong’s well-established financial infrastructure. Its robust banking system and deep capital market continues to be a major draw for businesses. Foreign firms have also remained confident in Hong Kong’s legal and regulatory system for global capital transactions, arbitration and other types of transactions.
Third, in recent years Hong Kong has promoted fintech innovation and development. For instance, in June 2021, the Hong Kong Monetary Authority announced the “FinTech 2025” strategy to encourage the financial sector to adopt technology by 2025. As of January, Hong Kong is home to approximately 1,000 fintech companies, and it recently welcomed China-based digital bank WeBank to establish its technology headquarters in the city.
This has allowed the city to strengthen its position not only in traditional finance but also in the rapidly evolving fintech sector. The government’s efforts to simplify regulatory procedures have further strengthened the city’s competitiveness in this area.
Fourth, Hong Kong’s real estate market plays a factor in Hong Kong’s recovery. In September, the US Federal Reserve announced a 0.5 per cent interest rate cut, with more cuts expected to occur in the coming months. This could help stabilise Hong Kong’s property market and improve housing affordability.
With the health of the property market being one of the key economic barometers in Hong Kong, the positive sentiment adds to people’s confidence in the city’s economic future.
While Hong Kong is known as the gateway to China, Singapore plays the role of enabling Chinese firms’ outbound business. With its strong trade and financial ties with China, many Chinese firms use Singapore as their base for Southeast Asia and global expansion.
Additionally, Singapore has worked to enhance its own links to China, such as through the Chongqing Connectivity Initiative which promotes collaboration in financial services, aviation, logistics, and information and communications technology.
With Singapore being one of the world’s leading wealth management centres, it has also been attracting high-net-worth individuals from abroad. According to advisory firm Henley & Partners, Singapore is expected to welcome around 3,500 millionaires in 2024, ranking third globally in attractiveness to the wealthy. A key advantage is that Singapore has a lower progressive tax rate on personal income and has no capital gains tax or inheritance tax, which is highly attractive to the rich.
But despite its advantages, Singapore will need to continuously innovate its financial services and products to remain competitive in a rapidly evolving global market. This requires not only technological advancements but also the ability to quickly respond to market trends and needs. It is already on the right path with its growing private markets and venture capital sectors.
Singapore’s strong legal framework, diverse economic structure, and highly skilled workforce are valuable traits in encouraging innovation and attracting more fintech and other types of technology companies. According to the 2023 Savills Tech Cities Fintech Index, Singapore ranks fourth globally as a fintech hub, and it saw the highest level of venture capital investment in fintech from 2019 to 2022, at US$34 billion.
The government has also been investing heavily through the Financial Sector Technology and Innovation Scheme, having committed over S$450 million in funding to the industry since 2015.
Further strengthening collaboration with international financial institutions and promoting knowledge sharing will only help enhance Singapore’s global competitiveness and position as a global financial centre.
The future success of Hong Kong and Singapore as Asian financial centres may not lie in competition, but, instead, in strengthening collaboration.
The two markets already have extensive economic and trade ties, and together have been promoting regional integration as members of the Asia-Pacific Economic Cooperation.
Throughout history, Hong Kong and Singapore played different but complementary roles in growing Asia as a financial and economic powerhouse.
For instance, Hong Kong has been known as an equity trading centre while Singapore thrived in income-oriented securities such as bonds and REITs. Both provide the types of investments that investors of varying risk appetite need, and together help expand the options that investors can access.
In recent years, despite both markets vying for the fintech crown in the region, their approaches have been different and yet complementary to each other. For example, Singapore has an edge on digital wealth management solutions, while Hong Kong has welcomed digital assets. Both are setting examples and best practices for each other – and other markets – to learn from.
With many fintech firms around the world facing fundraising challenges and investors in general being cautious, closer collaboration between the two governments could further develop the financial ecosystem in Asia and attract more capital to both Hong Kong and Singapore.
David Cook is Partner of International Financial Services at Penta Group.