Hong Kong vs S'pore: Who has the edge?

SINGAPORE'S National Wages Council recommends a 5 percent to 8 percent cut in everyone's salaries, on top of a 10 percent cut in employer contributions to the national pension fund. Remarkably, there is no public outcry. "The labor movement recognises the need to restore our cost competitiveness," explains legislator Lim Swee Say, deputy secretary general of the National Trades Union Congress. Meanwhile, Hongkong Telecom proposes a scheme that will cut bonuses for most of the utility's 14,700 employees if earnings rise by less than 3 percent next year. Its unions immediately threaten industrial action. "The plan is effectively a wage cut, only it takes longer," charges Ip Kwok-fun, chairman of the Hongkong Telephone Staff Association. Call it Singapore's ace. "This is a tremendous advantage which Singapore has over our competitors," says Deputy Premier Lee Hsien Loong. "This measure [to cut wages] which we are taking is something others cannot do." Perhaps not - and Hong Kong is proud of it. "We are not a command economy," sniffs the SAR's secretary for trade and industry, Brian Chau Tak-hay, in an interview with the South China Morning Post. "We would never dream of instructing that people's wages should be cut 10 percent to 15 percent. But in the next budget [in February], we will explore ways for our competitiveness to be advanced." Overall, Singapore is ranked ahead of Hong Kong in the latest global competitiveness report published by the World Economic Forum.

Officials deny there is a contest, but the rivalry between two of Asia's greatest cities is heating up. They are both free ports with ambitions to become Asia's premier business and finance center after Japan. When times were good, there was enough money sloshing around to fuel equity markets (Hong Kong's strength) and foreign-exchange transactions (Singapore's forte). No longer. The Asian Crisis has slashed trading volumes, helping push the two cities into recession. Singapore is reinventing itself in part by cutting business expenses. That is not so easy for Hong Kong, which cannot lower costs through a depreciating currency because the Hong Kong dollar is pegged to the greenback. It has to depend on unforgiving market forces - witness the 50 percent slump in property values. Singapore's latest challenge centers on derivatives trading. On Nov. 23, the Singapore International Monetary Exchange (Simex) will relaunch contracts on Hong Kong stock-index futures. The product was discontinued last year because of lukewarm investor interest. Now, Singapore authorities "feel they have scored a few points over Hong Kong, which has introduced more and more cumbersome rules," says Singapore financial analyst Chia Yew Boon. "The idea [being pushed] is that it is easier to operate here than out of Hong Kong." As part of its reforms, Singapore is relaxing its strict regulatory approach to financial markets in favor of a more flexible supervisory stance. In contrast, Hong Kong has been tightening regulations - after it spent more than $10 billion in August to intervene in the stock market. The SAR says it bought blue chips to foil speculators, who it believes were attacking the Hong Kong dollar so the Hang Seng stock market index would fall (they supposedly placed huge bets on a plunging Hang Seng). Hong Kong's futures exchange is objecting to Simex's index product on the grounds that different regulations in the two cities could open the way for attacks on the SAR's bourse. The Hong Kong Futures Exchange has warned the territory's 30 information providers not to supply Simex with real-time stock market data. On Nov. 16 in Kuala Lumpur, Singapore PM Goh Chok Tong and Hong Kong Chief Executive Tung Chee-hwa agreed to find ways to settle the dispute. But don't expect Singapore to stop honing its competitive edge. Or Hong Kong. "Our labor force will ultimately compete on the basis of added-value," says George Yuen, executive director of the Better Hong Kong Foundation. "Let's not forget that we have some inherent advantages such as our position as the gateway to China." Watch those knives.

- Reported by Andrea Hamilton/Singapore and Alexandra A. Seno/Hong Kong