US/China Trade: Employment Outlook for HK & Singapore

With continuing US-China trade friction and political turmoil in Hong Kong, Nick Frank, Head of APAC at River Partnership, takes a view on the future of Hong Kong and Singapore as international employment hubs.

As both Hong Kong and Singapore adapt to US-China tensions, both financial centres are gearing up for change in the region. In his article of August 2020 "The Endangered Asian Century", Singaporean Prime Minister Lee Hsien Loong echoed his earlier comments from the National Day Rally. “Overall, deteriorating US-China relations is bad news for the world economy, and a definite minus for Singapore.” But considering the additional internal political pressures that Hong Kong is facing, there could even be some silver lining for Singapore.

The Economist recently sketched out two widely regarded scenarios for Hong Kong in the face of increasingly dominant mainland Chinese influence. (“Can Hong Kong remain a global financial centre?” 6th June 2020) The first scenario outlined in the article is that as China extends influence over the territory, confidence in Hong Kong as an honest broker begins to erode. The perception of crystal-clear independent regulation and Westernized financial infrastructure that has allowed Hong Kong to flourish might slowly fade. The result would be a slow decline for Hong Kong as a global financial centre, leading to ‘activity [shifting] somewhere less controversial’.

The second, “less likely” scenario is the so called “nuclear” scenario. Should China persist in its establishment of its own order in Hong Kong in the midst of the ongoing trade friction the US may take a much harder line on Hong Kong and remove its special treatment of the territory.

Such a move has been termed potentially “incredibly dangerous” for the financial centre. With the ‘one country, two systems’ approach, Hong Kong currently enjoys “access to the heart of the West’s financial systems” but this could be reversed as the US takes a stronger stand in the trade relationship with China. That would see the destabilisation of the flows of capital through Hong Kong’s financial systems and could “disrupt its role as a global dollar centre.”

This “nuclear” scenario would clearly lead to systemic change in Hong Kong and as stated in the Economist article would be “unlikely”. However, the mere idea that Hong Kong is converging towards China and might lose its “squeaky-clean” credentials could be enough to lead counterparties to apply a higher risk score, encouraging companies to shift their activities to the next best location in Asia. Both Western companies who want a platform into Asia as well as Chinese firms wanting to operate internationally may chose alternative bases for their operations.

China’s tech behemoths are increasingly turning to SE Asia given growing hostility from the US and other major markets” – Straits Times 15th Sept 2020

To some extent this is already happening. Singapore is already picking up some positive influence as companies seek to de-risk their growth strategies. The Straits Times reported in September 2020 that “Tencent Holdings has picked Singapore as its beachhead for Asia, joining rivals Alibaba Group Holding and ByteDance” This at a time when the US is threatening banning entities from dealing with Tencent’s WeChat app as well as with Bytedance-owned TikTok. ByteDance has stated its intention to spend several billion dollars and add hundreds of jobs in Singapore over the next 3 years, and Alibaba have not only spent US $4 billion on acquisition of Singapore based Lazada, but are currently in talks to invest $3bn in Grab. They have also bought half of Singapore’s AXA tower; a concrete statement of intention to grow headcount there. Many smaller companies also appear to be making the transfer; membership of the Singapore Fintech Association swelled from 350 firms in March 2020 to 750 as of September.

Moreover, Goldman Sachs’ reports of US $4 billion outflows to Singapore due to concerns over protests in Hong Kong could further herald a shift in these operations that would point to greater demand for talent in Singapore as “the next best alternative in Asia.”

Nonetheless, even as firms invest in the island nation, Singapore’s government is not throwing down the welcome mat. During Singapore's recent election campaign, the Ministry of Manpower recently raised the minimum qualifying salaries for foreign professionals applying for a work visa. At SGD 4500 (double for over 40s), this minimum qualifying salary would not affect leadership levels, but would have a significant effect on companies wishing to relocate mid-level staff and managers from overseas to supplement a workforce which already sees a shortage of local talent in certain key talent pinch points such as technology.

This election campaign announcement could be dismissed as pandering to a populist agenda, but either way, the rate of immigration to Singapore by foreign workers has been falling steadily since 2008 under ever stricter regulation.

Despite its troubles, Hong Kong does still maintain an appeal. While some recruiters are suggesting they are receiving record-breaking numbers of requests to relocate out of Hong Kong this is by no means a trend and is not something we are experiencing here at River. Firms such as Nomura and MUFJ are all staying put in Hong Kong for now, and China’s economic integration plans that includes a wealth connect scheme with Hong Kong banks may well encourage financial services firms to retain a presence in Hong Kong. While there is some question over whether Chinese bankers will choose to leave Hong Kong due to the possible future imposition of the mainland tax rate (top rate at 45% compared to Hong Kong’s 17%), it remains an attractive prospect due not only to the ‘network of professional relationships that are crucial to success’ but also to the international lifestyle found there.

‘Those at the pinnacle of Hong Kong’s financial world say that its role in the global system is not threatened by social unrest and geopolitics, [but] it is complacent to suppose that Hong Kong can be immune to worsening Sino-American relations’ – The Economist June 2020

Attitudes towards prospects in both Hong Kong and Singapore are certainly beginning to shift, if slowly. The soft influence of the US-China trade spat continues to make itself felt in a number of ways across these two financial hubs, and factors such as the American election in November, how China reacts to Hong Kong’s political tensions as well as her influence over Hong Kong’s independent financial regulations will all come into play over the coming months.

As Lee Hsien Loong put it, “US-China tensions have already hurt confidence worldwide. But the deeper and wider structural effects…will only be felt over time” and it remains to be seen whether the current gentle tailwind blowing in Singapore’s direction from Hong Kong picks up into a steady breeze.

Click here to download the paper in full: US-China Trade War - Employment Outlook for Hong Kong and Singapore.pdf

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