SUNS  4337 Thursday 3 December 1998



FINANCE: HONG KONG-SINGAPORE RIVALRY HEATS UP IN RECESSION

Hong Kong, Dec 1 (IPS/Cheung Chui Yung) -- Hong Kong and Singapore have long been East Asia's economic stars as well as rivals, but this friendly competition may well turn nasty as they vie for business in a time of recession.

The two entrepot economies have long been the region's financial hubs, often described as closest to free-market economies the world has seen.

But as Hong Kong and Singapore are hit by Asia's recession, with consequent rising unemployment and slower growth, the two are trying to become more competitive than the other in the race to keep its place in the financial world.

Hong Kong and Singapore officials have thus been keeping an eye on economic measures like the extent of government intervention and cuts in salary rates and tax breaks, and other steps to reduce business costs and keep foreign money coming in.

Hong Kong officials are worried by the 15% nationwide pay cut put forward recently by Singapore's government. The cuts will total $4.26 billion.

Singapore's announcement of this blueprint for staving off deeper recession sparked a deep sense of crisis in Hong Kong, where it dominated news headlines amid fears of being beaten by their Asian neighbour in cutting costs. Apart from wage cuts, Singapore's cost-cutting schemes include a $6 billion package of cuts in utility charges, lower rent of government property, tax breaks and lower levies on foreign workers.

Singapore has also cut by half, to 10 percent, the amount employers contribute to their workers' pension funds.

"Our view is that it is better to have a strong Singapore dollar so as to preserve the value of savings and assets. That is why we have taken this approach of cutting costs instead of tinkering with our exchange rate," Singapore Trade and Industry Minister Lee Yock Suan said.

Hong Kong Chief Executive Tung Chee-Hwa immediately responded to what many here see as the "challenge" thrown by Singapore, saying the two are different.

"It is not necessary for Hong Kong to follow the steps of Singapore. We are still committed to our laissez-faire tradition and we will let the market force regulate the level of wages," he explained.

The approach to wages shows up one difference between the governments of the two economies. Singapore officials appear to be intent on calling for sacrifice by the public instead of seeing joblessness, while Hong Kong has chosen to stress its adherence to "market forces".

"It is better to see a 15% cut in wages than to see many more Singaporeans lose their jobs," said Lim Swee Say, deputy secretary general of Singapore's National Trade Union Congress.

"It is amazing to see the Singaporeans just to keep quiet on the pay cut measures and work with the government rather than work against it as far as the workers' rights are concerned," said Chan, a Hong Kong trade unionist. "It will never happen in Hong Kong."

Workers here have been resisting salary cuts. Last week, the trade union of one of the biggest public enterprises here, the Hong Kong Telecom Workers' Union, fought a successful battle to resist pay cuts suggested by the firm.

Singapore and Hong Kong have limited natural resources, small populations and size and records as international financial centres. And if Singapore has seen a greater government role in the economic sphere, the Hong Kong government in August also moved to ease stock market speculation by buying up shares there.

Both are in their first recession in 13 years, with negative economic growth of 5.2 percent for Hong Kong and 0.7 percent for Singapore. Unemployment in Hong Kong is at a record 5.3 percent, and 4.5 percent in Singapore.

But Tung maintains that Hong Kong is in a more solid position. "At least we are now part of China and our struggle to get out of the economic turmoil will be supported by our motherland," he said at a recent press conference.

Singapore, Tung maintains, is deeply affected by two neighbouring countries in turmoil -- Indonesia and Malaysia.

Malaysia is hoping its capital controls revive the economy somewhat even as it grapples with political turmoil. Indonesia faces both an economic and political crisis, wracked by violence along increasingly ethnic and religious lines as the government struggles to keep control.

With two neighbours in crises, the city state of Singapore has little to fall back on and its recent string of cost cutting measures is an attempt to maintain its attraction as Asia's business location.

Experts here say the Hong Kong and Singapore's responses to the recession show a different political culture.

"Hong Kong is based on private economy and the role of the government is kept to a minimum. Hong Kong does not have central provident funds or state enterprises, and it also cannot exercise control over private enterprise or exert influence over the banks," said Tsang Chong Yuen, associate professor at the City University of Hong Kong.

"In Singapore, the people always tease the triangular cooperative relationship of the government, employers and workers, as the basis for Singapore Inc.," he added. But it also follows the rules of the free market, he said.

He says Singapore reacted differently to the crisis as it has different needs. "Because of different political situation, Singapore is in much greater need for stability than Hong Kong and the Singapore government tends to take a leading role in the direction of economic development,"
Tsang explained.

Despite Hong Kong's brave words, it is sensitive to every move of Singapore. It opposed a proposal by the Singapore International Monetary Exchange to launch a competing Hong Kong Hang Seng stock index of futures contract.

Hong Kong officials fear that it could allow speculators to launch attacks against the territory's currency, which came under strong pressure earlier this year.

To allay such fears, the two governments have agreed to cooperate on regulation and say competition in the financial services sector is good provided checks and balances are in place. Analysts say it is unclear what such cooperation could take.