SINGAPORE (BLOOMBERG)- Hong Kong has become more "China-centric," enabling Singapore to take the lead when multinational companies look to set up their Asian headquarters in the region, according to the country's Economic Development Board.
With Hong Kong becoming more focused since 1997 on servicing the massive Chinese economy, it's given Singapore a leg up as a hub for companies' Asia-Pacific operations, said Dr Beh Swan Gin, chairman of the EDB, a government agency that helps attract investment to the Southeast Asian city.
"The importance of China to the Hong Kong economy has grown disproportionately," Dr Beh said in an interview with Bloomberg on Tuesday (March 27).
"If you're a company that's thinking about coordinating, managing your activities across Asia, then Hong Kong becomes, I suppose, more and more China-centric and it becomes perhaps less suitable for those activities."
About 37,400 international companies base their operations out of Singapore, including 7,000 multinational corporations, with more than half of those running their Asia-Pacific businesses from the city state, according to the EDB website.
ATTRACTING INVESTORS "The numbers speak for themselves," he said. "More companies are now having their APAC headquarters, or at least APAC non-China headquarters, in Singapore."
Dr Beh sees that lead continuing to widen as Singapore bills itself as an innovation-led economy, attracting investors with its strong spending on research and development, a still-generous tax regime, and targeted labor laws.
"We're a small country - we'll never be a self-sufficient Silicon Valley that constantly just generates from within," Dr Beh said. "We believe we'll always need to attract industry leaders from outside."
Singapore's government spends the equivalent of about 1 per cent of gross domestic product on research and development, while the private sector contributes about 1.3 per cent of GDP, said Dr Beh.
INNOVATION HUB Authorities are focused on raising the overall R&D expenditure to about 3 per cent of GDP, in line with other small, innovation-focused economies like Sweden and Switzerland, Dr Beh said. Switzerland tallied about 3.4 per cent in 2015 while Sweden was at 3.3 per cent, according to figures from the Organisation for Economic Co-operation and Development.
Businesses scored an extra incentive from Singapore's 2018 budget to boost that spending: The tax deduction for R&D project costs and consumables was raised to 250 per cent from 150 per cent.
While some, particularly smaller, firms have reported difficulty in hiring staff amid stricter rules for foreign workers since 2011, Dr Beh said he's confident that hasn't hurt Singapore's competitiveness.
The government's focus on attracting higher-skilled labour is more in line with the kind of businesses that Singapore wants to have based in the city, he said.