KONGThe world economy may be reviving, but in those symbols of global
markets, Hong Kong and Singapore, unease remains. Both are facing economic
challenges which are more than cyclical. Could city states be losers from
globalization? For sure, 2002 will be better than 2001, when Singapore's gross
domestic product contracted sharply and Hong Kong's was static. But pick up will
be slow. The bastions of stability through the Asian crisis are now lagging
behind their neighbors. They are struggling equally even though their economies
have diverged over the past 20 years, with Hong Kong shifting industry to China
while Singapore's manufacturing flourished due to multinational electronics
Singapore's problems go beyond last
year's electronics slump, and it has recognized as much by setting up an
Economic Review Committee to chart new directions. Hong Kong still seems bemused
that little of China's growth since the 1997 handover has rubbed off on it, but
has finally realized that a dramatic deterioration in its fiscal position is
more structural than cyclical. Singapore's chief concern is that local
entrepreneurship may have been stifled by the dominance of multinationals and
Government Linked Companies . Hong Kong remains a predominantly small
enterprise, service economy.
Hong Kong and Singapore face many other
challenges, among them:
Loss of port business to their
hinterlands. Hong Kong is suffering from a move to cheaper container ports on
the mainland. Singapore is feeling the same effect from Malaysia's Tanjung
Easier foreign access to local financial
markets has reduced the need for mediation through the city states. Hong Kong
must compete with large, open Korean and Taiwan markets for portfolio
investment. Singapore remains the regional hub but equity markets in Bangkok and
Kuala Lumpur offer more varied attractions. Very high costs compared to
neighbors. This is partly a currency issue. Hong Kong is pegged to a strong U.S.
dollar. Singapore's dollar has been allowed to weaken since 1997 but not by as
much as its neighbors.
Both cities are still suffering from the
property bubble of the late 1990s. Though prices have come down, they are still
high. Domestic market domination by oligopolies which, critics claim, keep
outside competition low.
Exceptionally low birth rates are
bringing an era of aging populations.
Precautionary savings in Hong Kong and
forced savings in Singapore have held back consumption growth.
Neither city is sure how to relate to its
neighbors. Are they complementary or competitor? Hong Kong talks about China
opportunities, but closes its border at night. Singapore's main economic
advantage is its geography, but for political reasons it prefers to think
globally as much as regionally.
The city states are still needed. They
have that critical mass of international services that few capitals can match.
But in an era of low tariffs, free capital flows, floating exchange rates, low
direct taxes, and footloose manufacturing they have lost some of their unique
quality. They must run harder to stay ahead and justify their high costs and