Sibling rivalry: Hong Kong vs the Lion City

ASK DONALD TSANG about the Hong Kong and Singapore rivalry, and the bow-tied financial secretary will give you his stock answer: No, the two economies are complements, not adversaries. And if there is any competition between the two, the relationship is a friendly one. So much for the pleasantries. What's the real score?

It is hard not to compare the two. Even Singapore Deputy Prime Minister Lee Hsien Loong has done so. His take: "In Hong Kong, anything not expressly forbidden is permitted, whereas in Singapore, anything not expressly permitted is forbidden."

Lifestyle is a key category. Usually, Hong Kong rates high among singles for excitement value, while Singapore scores big among the married-with-children set. Hong Kong loses points for high housing costs and pollution, while Singapore takes heat for its more punishing tax regime and rigid social code. To each his own. Seven months after moving to the Lion City, bank strategist William Overholt is returning to Hong Kong. The cleanliness and politeness of Singapore were simply too hard to take.

Certainly, there are arenas of sharp competition. Both places are fighting to be East Asia's premier financial services center after Tokyo. When Hong Kong monetary authorities intervened in the equities and futures markets in August to combat speculators, they looked rash and panicky. Singapore, which had been gradually opening up its financial sector, began to look cooler by far.

Singapore leaders are the first to admit that they held back on financial sector liberalisation, possibly to Hong Kong's advantage. "Hong Kong had a British umbrella [when it was a colony], and hence could afford to be more tolerant of failures of institutions and ambiguous market practices," says DPM Lee. "Had Singapore been lax and then run into difficulties or scandals, bankers would have lost confidence in us, and we would have failed to grow into a major financial center."

But Singapore is making up for lost time - and, say market players, stealing some of Hong Kong's thunder. This month, the Singapore International Monetary Exchange is to launch trading of a Hong Kong futures contract that could take business away from the SAR's smaller futures market. To retaliate, the Stock Exchange of Hong Kong reportedly has asked financial information provider Reuters to delay real-time stock information to SIMEX, saying that the new Singapore product could allow speculators to manipulate the Hong Kong market.

Today's conventional wisdom is that Hong Kong has a lock on China business, while Singapore is the logical base for anybody making moves on the ASEAN market. With Southeast Asia in turmoil, some Singaporeans look north with envy. One is Irene Cheung Nga Yi, executive director for Asia Pacific Research at banking group CIBC World Markets. "We've seen how the Chinese government is supportive of Hong Kong so they have somebody to look after them, whereas we are by ourselves and have to look for ways to survive." Still, Singapore's success in plugging into the regional grid and building links with world markets has stood the city in good stead - though as the crisis unfolds, this could prove a temporary disadvantage.

Both cities court the same multinationals to set up regional operations. Last month Caltex announced it was moving its world headquarters to Singapore; Hong Kong had been in the running. "Singapore is increasingly the logical alternative for people in the crisis who are looking to consolidate from a two-hubs to a single one, unless a company has a very strong China presence," says Mark Daniell, Singapore-based managing director for management consultants Bain & Co. (Asia). Daniell reports that a number of his clients are finding Singapore a better pan-Asian hub. "It has the English language; it's a very attractive environment; it's safe; the schools are good."

All this ignores the fact that Hong Kong and Singapore invest in each other. Last year, economist Friedrich Wu of Singapore's DBS Bank argued that "allegations of zero-sum rivalry between the two city-economies have grossly exaggerated the nature of their competition." He added: "The web of mutually beneficial relations between [them] is so intertwined that the decline of one economy would inevitably inflict substantial financial losses on the other."

Common sense won't stop the rivalry. Singapore officials will continue to quietly gloat about the teething problems at Hong Kong's new airport and the unpopularity of the Tung Chee-hwa administration. And their Hong Kong counterparts will wonder how the problems in Indonesia and Malaysia might affect their colleagues to the south. All is fair in love and undeclared war.