A
Tale of Two Cities – Why Western Capital Flows
Eastwards
Financial and economic industry experts agree unanimously
that Asia's booming economies, strong banking confidentiality
laws and pro-business incentives are driving capital
flows eastwards. And it appears that two key, distinct
factors have emerged to explain the trend.
Emerging
markets
Firstly, the biggest economic growth rates lie in Asia.
In China, annual economic growth is running at
up to 9%, and there's a long queue of hungry investors
looking for a foothold there. Likewise, Dubai's growth
in recent years has been staggering. And India is becoming
a major economic power. Healy agrees
that China, Dubai and India are the new frontiers of
opportunity, but that although regulations and bureaucracy
are easing, much still needs to be addressed. ‘The
business cultures and legal frameworks are hugely different
in emerging markets. And in some cases company formation
is still a cumbersome procedure which requires expert
knowledge,' he explains. This is clearly
to Singapore and Hong Kong's advantage. Hong Kong is
a natural gateway into China, while Singapore is busy
promoting itself as the regional hub of choice. Both
countries consistently rank as the world's freest economies.
In its 2006 Index of Economic Freedom,
drawn up by the US thinktank, The Heritage Foundation,
Hong Kong and Singapore were first and second respectively.
The 2006 report heaps praise on the two Asian country's policies on inward
foreign investment. ‘Singapore's investment laws
are clear and fair, and they pose few problems for business.
Foreign and domestic businesses are treated equally,
there are no production or local content requirements,
and nearly all sectors are open to 100 percent foreign
ownership,' it explains. According to
the city-state's Economic Development Board (EDB), the
government agency tasked with attracting businesses
to Singapore, the country ranks highly in miscellaneous
global surveys. Accounting firm KPMG had it as the most
competitive place for business in its Competitive Alternatives
Study 2006. The Global Competitiveness Index (GCI) 2005-2006,
meanwhile, ranked Singapore as Asia's most competitive
economy, and the fifth-most competitive economy in the
world. And in the World Bank report ‘Doing Business
in 2005', Singapore's economy was ranked third behind
New Zealand and the US in terms of ease of doing business. Referring to Hong Kong,
the Heritage report says: ‘The Special Administrative
Region (SAR) of Hong Kong remains a model of economic
freedom. It is a free port with no barriers to trade;
has simple procedures for starting enterprises, free
entry of foreign capital and repatriation of earnings,
and transparency; and operates under the rule of law.' Turnover
on the Hong Kong stock exchange has increased as more
mainland Chinese enterprises look to raise capital by
issuing new shares. As of December 31, 2005 the total
amount of funds raised in Hong Kong reportedly stood
at US$38.6 billion, making it the world's 4th
largest fund raising centre after New York, London and
Toronto. Bankers and stockbrokers say they expect further
increases in fund raising by mainland enterprises this
year.
‘Everyone wants to be in Asia at the moment. Its fashionable, and profitable,'
Healy says.
Swiss rollover
There's another key factor in all this, too. Not long ago,
Switzerland was the world's quintessential private banking
centre. And although in some eyes it still is – after
all, its banks still hold an estimated 30% of global
offshore assets - its mantle is rapidly being taken
by the likes of Singapore and Hong Kong. This
oriental shift comes as little surprise to many. Particularly
when the European Union (EU) and OECD (Organisation
for Economic Cooperation and Development), seeking to
clamp down on tax evasion and money laundering, apply
ever more pressure on Swiss, and other European banks,
to disclose information about their account holders.
This pressure came to a head in July last year, when
Swiss banks were forced to withhold a percentage of
the interest earned on personal savings accounts held
by EU nationals living outside Switzerland. This Swiss
rollover provided the governments of Singapore and Hong
Kong with an opportunity, one which they were quick
to seize upon. In Singapore, whose
overall asset management business (including private
banking) is now worth more than US$350 billion and growing,
banking privacy is paramount, and trust laws attractive.
Officials in Singapore are quick to point out that a
rush of foreign private banking depositors is predominantly
down to the country's solid legal system, corruption-free
environment and transparent financial systems. ‘I'm
not surprised by the increased capital flows to Asia
from Europe, says Aidan Healy, managing director of
Singapore-based global corporate consulting company
Healy Consultants. ‘And the proof is that Asia's booming
at the moment – we've noticed a huge increase in demand
for company incorporation and corporate and personal
bank accounts in Singapore and Hong Kong, and China
is also on the doorstep' says Healy, formerly with Credit
Suisse in Singapore. Banking officials
clearly agree with the positive sentiment. A chairman
of one Swiss bank says a recently-opened Singapore office
for the bank represented ‘a platform of growth in Asia'.
Another banking executive believes ‘Singapore will be
the fastest growing offshore banking centre in the next
five years'. The statistics seem to
support these bullish assessments. According to a report
in the Wall Street Journal in April this year,
the number of private banks operating in Singapore increased
to 35 in 2006 from just 20 in 2000.
International majors such as Credit Suisse and
UBS are expanding services in Singapore to cater to
growing demand for private banking from wealthy Europeans
and Asians. Credit Suisse's Singapore operation is now
its second-biggest in the world, after Zurich. But
in a world consumed by image, do Singapore and Hong
Kong fit the tax-haven stereotype? Officials
in both countries are typically keen to distance the
country from the same brush which has tarred offshore
havens such as the British Virgin Islands (BVI), Cayman
Islands and Panama. An official from the Monetary Authority
of Singapore says the country continues to cooperate
with foreign authorities investigating money laundering
and terrorist financing. ‘Our banking and financial
system is open and transparent, and our rules are strictly
enforced,' he stresses.
Healy also believes that international investors and entrepreneurs
prefer the positive image presented by Singapore and
Hong Kong, compared to the tax haven image of western
offshore jurisdictions. ‘The bottom line is this: Singapore
and Hong Kong are built on internationally-respected
economic models and legal frameworks,' says Healy. ‘The
image they present is unrivalled in tax-free jurisdictions,'
he adds. ‘A Singapore company is probably the best entity
in the world right now – tax-free, looks good to customers
and suppliers, and has absolutely no stigma attached
to it,' he explains. ‘Both countries have also signed
double-tax treaties with more than 50 countries, have
laid down investment guarantees, and banks offer highly
competitive corporate financing, generally without seeking
equity,' he adds.
As well as the obvious business benefits of setting
up in Singapore and Hong Kong, there’s a human
angle to the tale, too.
The 2006
Quality of Living Survey, produced by Mercer Human Resource
Consulting in April this year, ranked Singapore as the
most livable city in Asia, and 34th in the world. Hong
Kong comes in at 68th in the world, while China’s
first-ranked city comes in at 103rd in the world.
‘Singapore
really is the focal point of corporate and financial
activity in Asia, and should remain so for the foreseeable
future,’ Healy concludes.
Healy
Consultants offer specialist Asia company formation services
and can be contacted via their web-site www.healyconsultants.com
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