Singapore’s financial rise
The city-state has a handy habit of taking advantage of financial upheaval
Publicado por The Economist
IN THE 1950s the Bank of China could use 20-year-old architectural designs for its Singapore headquarters near the central post office. From buildings to businesses, things moved slowly in the city-state. Today the picturesque old Bank of China building stands out because little else in Singapore’s financial world stays the same.
One change is physical. Citigroup has moved its headquarters from the same district as Bank of China, first to Shenton Way, which now serves as one financial centre, and then to another, known as Suntec City. It will soon join Standard Chartered at a third site, Marina Bay, which has been built on reclaimed land. A fourth centre for back-office workers is opening up near the (excellent) airport. In an area near Chinatown once known for brothels, converted shops now house investment firms, lawyers and the like.
Perhaps the best measure of change is employment. In 1970 Citi could fit every last member of staff, perhaps 100 or so, on a boat for an advertising image. Michael Zink, Citi’s Singapore head, keeps a copy of the ad near his desk as he oversees 9,400 workers and counting.
The scale of the transformation has been enough to propel Singapore into the ranks of the world’s leading financial centres. As places like London and Switzerland debate whether to welcome bankers or punish them, Singapore has started its own special government school to train private bankers and leased a mansion once used by the British armed forces to UBS to do the same. Credit Suisse has plans for something similar.
Demand for capable people is unquenchable. More than 2,880 financial institutions have registered with Singapore’s monetary authority for one activity or another. They include the usual big names as well as a vast array of smaller firms.
One clear thread in Singapore’s rise has been its ability to take consistent advantage of global upheavals, beginning in 1971 when America de-linked the dollar from gold. Singapore was quick to grasp this opportunity to create a regional centre for foreign exchange, says Gerard Lee, the chief executive of Lion Global Investors and a former executive at GIC, Singapore’s sovereign-wealth fund. Things are no different today: Singapore is positioning itself to grab a chunk of offshore trading in yuan as the Chinese currency gradually starts to internationalise.
Ancillary businesses such as derivatives have thrived. One of the large banks says more than half of Asia’s over-the-counter derivative volume in commodities passes through Singapore. According to Barclays Capital, the trading volume of foreign-exchange-related products has jumped 29-fold since 2005 in retail markets alone, and that of interest-rate-related products 43 times.
Similarly, Singapore anticipated the effects of the 1997 handover of Hong Kong. In the early 1990s the environment was so hostile for asset-management firms that only a few existed. That changed. It became easier to open firms and, says one private banker, regulations were structured to avoid costly provisions, notably a tax on transactions. As the handover approached, numerous clients took steps to “book” assets in Singapore. It is now home to more institutional assets than Hong Kong (see chart).
To retain those assets, Singapore produced a legal framework enabling trust accounts, once the preserve of Jersey and Bermuda. This was despite the fact that Singapore itself does not tax estates and Singaporeans have no need of the service. Good trust laws combined with strong asset-management and foreign-exchange capabilities make Singapore appealing for wealth-management types everywhere.
Singapore’s approach is the antithesis of laissez-faire. Broadly speaking, it has kept a tight rein on domestic finance and done what it could to induce international firms to come. Licences can be obtained efficiently and quickly, a blessing in a bureaucratic world. So can work visas for key employees. There are tax breaks for firms considered important, as well as reimbursements for relocation expenses.
Bankers and hedge-fund managers talk enthusiastically about an environment that is safe, clean and efficient. The speed of the internet, for example, can be 100 times faster than in China, with its many internal firewalls, and eight times faster than in Hong Kong. Singaporean taxes are low and stable, unlike American and European ones. Foreign firms report that it has become more common to see people rejecting promotions to head offices because pay rises would be wiped out by tax.
Many of these advantages are likely to increase. A widely repeated story in Singapore is that the only people who have read all of America’s gargantuan Dodd-Frank financial-regulation act are American academics, who find it a mess, and the Singapore Monetary Authority, which is mulling the opportunities it might create.
And yet, for all its strengths, Singapore has had its failures, too. Most notably, its equity market, often but wrongly thought of as a vital core for a financial centre, has sought listings from China only for many of these “S-chips” to become embroiled in scandals. A few companies have recently delisted from Singapore and relisted in Hong Kong, whose appeal as a gateway to the Chinese mainland is hard to beat.
The Singapore Exchange’s effort to acquire Australia’s exchange was recently rejected on national-interest grounds. That decision may have been partly grounded in the two countries’ different financing cultures—Australia’s use of tiny, cheap offerings to fund mineral exploration, for instance, and its tolerance of a far more permissive media environment.
Actions in other countries may also constrain Singapore’s growth. Already many financial firms there want nothing to do with affluent Americans, given America’s forceful approach to global taxation. But to get the better of Singapore others will have to provide a safe environment with low taxes and scant bureaucracy. No need to worry, then.