Singapore an Emerging Threat to Hong Kong’s Popularity

Singapore: An emerging threat to Hong Kong’s popularity

Singapore is fast eclipsing Hong Kong as the new favourite destination for business setup for the rich in China. During the recent gathering at the Shangri-La Hotel in Singapore, 80 of China’s wealth managers spoke of nothing, but this during tea break chatters.

According to interviews with several wealth managers, Singapore seems to be gaining popularity for Company Incorporation because it’s at a safer distance from any potential scrutiny from authorities in Beijing. Multiple private banking sources in Singapore, who would not comment on the record because of the sensitivity of the subject, report seeing increased flows at the expense of Hong Kong. Consulting firm Capgemini SE said at stake for banks in both cities is a huge pile of money. China’s high-net-worth individuals control an estimated $5.8 trillion, almost half of it already offshore.

 

Tax Transparency Agreements

Changing banking practices may be placing the rich in an uncomfortable position. Recently, Hong Kong signed tax transparency agreements that required all banks to report their account holders’ information to Hong Kong tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China. While Singapore will have similar agreements with 61 jurisdictions, they don’t include either Hong Kong or Beijing, meaning its accounts and account holders aren’t visible to the Chinese government. “Many rich people from the mainland believe Hong Kong is still a part of China, after all,” says Xia Chun, chief research officer at Noah Holdings Ltd. of Hong Kong, an asset management service provider. “They think there’s no difference in putting money in Hong Kong, compared to Beijing.”

According to Eva Law, the Hong Kong-based founder of the Association of Private Bankers in Greater China Region, more Chinese banks in Hong Kong are also trying to synchronise their internal systems with those on the mainland to improve service efficiency. “This also means the clients’ information will become more transparent and the mainland can identify fund flows more easily, or will have fuller and faster access to your asset holdings, thus enabling easier investigation and tracing,” she said.

Overall, Hong Kong remains the primary destination for China’s offshore money. According to a Capgemini survey, this is followed by Singapore and New York. However, the number of Chinese high-net-worth individuals who view Hong Kong as their preferred overseas place of investment is down to 53 percent, from 71 percent two years ago, according to a survey in July by Bain & Co.

More than 20 percent favour Singapore, up from 15 percent two years ago. “Singapore is the Zurich of the East,” says Xiao Xiao, the Beijing-based chief operating officer of Chinese wealth manager Fortunes Capital.

 

Singapore the Bridgehead of China’s Investment

“We see Singapore, not Hong Kong, as the bridgehead of China’s investment overseas,” says Li Qinghao, co-founder of NewBanker Tech Consulting.

About 78 percent of S$2.7 trillion ($1.9 trillion) in assets under management in Singapore comes from overseas sources. Morgan Stanley, JPMorgan Chase & Co., and other firms with big private banking operations are building up their teams of China relationship managers in Singapore.

China has also since been tightening its grip on Hong Kong. Chinese financier Xiao Jianhua was about a year ago, reported by local media to have been seized from a Hong Kong hotel by Chinese authorities and taken to the mainland. The incident followed the disappearance of several Hong Kong booksellers who sold books critical of China’s Communist Party and were reported to have been taken involuntarily across the border.

Also, there has been increased restrictions on Hong Kong’s financial practices, such as a 2016 crackdown on sales of certain types of insurance products to mainland Chinese. The products pay dividends over a number of years and are essentially viewed as investments and potentially a way to send money out of China and evade capital controls.

 

Hong Kong Market Affected by Mainland China

“The Hong Kong market is now heavily affected by mainland China,” says Guan Huanyu, president of Beijing-based wealth manager Zhenghe Holdings.

According to data from Hong Kong’s Securities & Futures Commission, growth in the city’s private banking business has been slowing. Hong Kong logged 10.7 percent growth in private banking assets under management in 2016, down from 18 percent in 2015.

Apart from much cheaper real estate compared to Hong Kong, Singapore has additional attractions for the wealthy of China. For example, Mandarin is one of its four official languages, and it has world-class health facilities and international schools. Not far from the Shangri-La Hotel, Sentosa’s casinos are a popular draw for Chinese tourists. Mainland Chinese were the largest foreign buyers of luxury properties in Singapore during the first half of last year, according to consultancy Cushman & Wakefield.

Diversification among the rich is also rampant, not only among asset classes, but among political regimes.

“Most of our clients have undergone a shift from poor to rich. And they’re all worried about becoming poor again,” said Kou Quan, vice president at Tianjin-based Xinmao S&T Investment Group.