Hong Kong’s COVID quarantines and new restrictions on civil liberties have damaged the former British colony’s image as ‘Asia’s global city’, sparked an exodus of expats and stoked ambitions rival cities to replace Hong Kong as the region’s preeminent financial center.

But dethroning Hong Kong as the financial capital of Asia will not be easy. None of the three cities most frequently mentioned as potential alternatives (Singapore, Tokyo and Shanghai) can match Hong Kong’s unique combination of cultural and commercial attributes. All, for different reasons, face daunting challenges in attracting global talent.

The port of Singapore, with 1,000 berths and 300 cranes, is the world’s second largest by volume.

Bernd von Jutrczenka—Picture Alliance/Getty Images

Singapore

Take Singapore, often cited as the most likely haven for the thousands of expatriate executives who have fled Hong Kong over the past two years. Like Hong Kong, Singapore is a former British colony with a British commercial code and a world-class airport with easy connections to other Asian cities. English and Chinese are widely spoken. International school standards are high, taxes are low. Southeast Asia has become an increasingly attractive business destination for Western businesses. And, unlike Hong Kong, Singapore in April lifted border restrictions it introduced at the start of the COVID pandemic to allow entry for all vaccinated travellers.

And yet, as Bloomberg recently reported, the influx of bankers into Singapore from Hong Kong has proven to be “more of a trickle than a flood.” Global companies seeking to transfer staff to Singapore say they have encountered unexpected resistance from immigration authorities in the form of tougher visa requirements, new hiring restrictions and other bureaucratic hurdles . Transferees who have been granted visas say they are scrambling to find accommodation, with rental prices for private properties rented by expats jumping 40% in the past year. Newcomers to Singapore are often stunned to discover that, if they want to buy a car in the city, they must first bid on a state-issued “Certificate of Eligibility” which this month cost a record amount of $82,000. This is in addition to the price of the car itself. In Singapore, mid-range cars can cost five times more than in the United States; in Singapore, a Toyota Camry sells for $132,000, compared to $28,000 in the United States.

For bankers and brokers, Singapore’s biggest drawback is its small stock market. The Singapore Stock Exchange is home to less than 700 companies with a total market capitalization of less than $700 billion; The Hong Kong Stock Exchange has over 2,500 companies and a market capitalization of over $5 trillion.

Advantages from Singapore

–Easing of COVID travel restrictions
–Top-notch infrastructure, including the world’s top-rated airport
–The new hub of choice for events like the Formula 1 Grand Prix
–An effective launch pad for doing business in Southeast Asia
– No capital gains tax
-English is widely spoken

Disadvantages of Singapore

–Away from China; the nearest Chinese city is five hours away by plane
–A tiny exchange, with less than 700 listed companies and a market capitalization of less than $700 billion
–An immigration system in which work visas for foreign staff are difficult to obtain

Tokyo

Tokyo was the region’s dominant financial center until the implosion of the Japanese asset speculative bubble in the 1990s. Leaders of the central government and the Tokyo Metropolitan Government have said they want Tokyo to return to its former position financial capital of Asia. It’s not an unreasonable goal. Tokyo, with 38 million people, is Asia’s most populous city, the capital of the world’s third largest economy and home to 47 Fortune Global 500 companies. Tokyo has the most punctual train and subway network in the world. Rents and property prices, once exorbitant, have steadily declined over the past decades and are now significantly lower than in Hong Kong. And the 20% drop in the yen against the US dollar this year is a potential boon for expatriate bankers paid in greenbacks.

But these considerable advantages are offset by the fact that Tokyo has few foreign residents and few Japanese speak foreign languages. The Tokyo Stock Exchange, with 2,200 companies and a market capitalization of over $5 trillion, is comparable to Hong Kong’s in size, but includes only four non-Japanese companies. Japan’s long economic stagnation has made it an unattractive destination for global investors, and the Tokyo Stock Exchange has little appeal for investors looking to bet on continued growth in China.

But for global bankers, brokers and asset managers, the real dealbreaker is taxes. The highest personal income tax rate in Japan is 55%. Capital gains, which are not taxed in Hong Kong and Singapore, are treated as income in Japan.

Advantages of Tokyo

–Japan is the world’s third-largest economy and home to 47 Fortune Global 500 companies
–High caliber infrastructure, with the most punctual network of trains and metros in the world
–Once rents and land values ​​have come down and, by Hong Kong standards, seem almost affordable
–A weak currency that has plunged 20% against the dollar this year, a boon for expatriate bankers paid in USD

Disadvantages of Tokyo

–Small expatriate population; few Japanese speak English
– Its large stock exchange, with 2,200 companies and a market capitalization of over $5 trillion, has few non-Japanese companies

Shanghai

Authorities have vowed that Shanghai will eventually eclipse Hong Kong as Asia’s financial capital dates back decades but gained momentum after the global financial crisis. In 2009, Zhou Xiaochuan, then governor of the Central Bank of China, told a major Chinese financial forum that China “needs an international financial centre” to match its growing influence in global finance and that Shanghai was the best candidate. Shanghai’s skyline, which sprouted skyscrapers in the 1990s and 2000s, now looks the part. The Shanghai Stock Exchange, with a market capitalization of $7 trillion, is the third largest in the world and home to 85 Fortune Global 500 companies.

But Shanghai, like Tokyo, functions almost exclusively as a market for domestic companies and investors. For financiers, the disadvantages of settling in Shanghai are numerous and significant. Top of the list is China’s commitment to a ‘COVID-zero’ approach to tackling the coronavirus, leaving residents at risk of prolonged citywide shutdowns in the event of a minor outbreak. . Chinese borders remain effectively closed to non-Chinese travellers. It doesn’t help that China has a digital firewall to block internet access to foreign websites; the wall can be breached using a VPN, but connections are slow and unreliable.

The highest tax rates in mainland China are almost as high as those in Japan. The Chinese legal system is opaque and unpredictable. Continental stock exchanges, while huge, are dominated by unsophisticated retail investors and often behave more like casinos than markets. Another significant downside: China’s strict capital controls mean that foreign investors who profit from the Shanghai Stock Exchange cannot bring their money home.

Advantages of Shanghai

–Its stock exchange, with a total market capitalization of around $7 trillion, is the third largest in the world and has 85 Global 500 companies
–A government pledges to make the city one of the world’s leading financial centers

Disadvantages of Shanghai

–Chinese stock exchanges, dominated by retail investors who trade heavily on rumor, are highly volatile
–A COVID-zero policy that excluded foreign travelers and subjected residents to mass closures
–Strict capital controls; profits made in China must stay there
–Personal income tax rate up to 45%
–The Great Firewall, which restricts internet access to websites outside of China

A version of this article originally appeared in the August/September 2022 issue of Fortune with the title “Which city will be the next Hong Kong?”

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