For China’s wealthy, Singapore is the new Hong Kong

This article first appeared in The Edge Financial Daily, on February 8, 2018.
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WHEN more than 80 of China’s wealth managers gathered recently at the Shangri-La hotel on Singapore’s resort island of Sentosa, the chatter during tea breaks kept returning to one theme: Hong Kong is starting to be eclipsed by Singapore as the favourite destination for the wealth of China’s rich.

At stake for banks in both cities is a huge pile of money. China’s high-net-worth individuals control an estimated US$5.8 trillion — almost half of it already offshore, according to consulting firm Capgemini SE. 

For some, the city-state of Singapore is preferable because it is at a safer distance from any potential scrutiny from authorities in Beijing, according to interviews with several wealth managers. 

Multiple private banking sources in Singapore, who would not comment on the record because of the sensitivity of the subject, report seeing increased flows at the expense of Hong Kong.

The rich may be feeling exposed by changing banking practices. Hong Kong has signed tax transparency agreements that for the first time last year required all banks to report their account holders’ information to Hong Kong tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China. 

Singapore will have similar agreements with 61 jurisdictions. But they do not include either Hong Kong or Beijing, meaning its accounts and account holders are not visible to the Chinese government. 

“Many rich people from the mainland believe Hong Kong is still a part of China, after all,” says Xia Chun, chief research officer at Noah Holdings Ltd of Hong Kong, an asset management service provider. “They think there’s no difference in putting money in Hong Kong, compared to Beijing.”

At the same time, more Chinese banks in Hong Kong are “trying to synchronise their internal systems with those on the mainland to improve service efficiency,” says Eva Law, the Hong Kong-based founder of the Association of Private Bankers in Greater China Region. 

“This also means the clients’ information will become more transparent and the mainland can identify fund flows more easily, or will have fuller and faster access to your asset holdings, thus enabling easier investigation and tracing.”

Overall, Hong Kong remains the primary destination for China’s offshore money, according to a Capgemini survey, followed by Singapore and New York. Yet the number of Chinese high-net-worth individuals who view Hong Kong as their preferred overseas place of investment is down to 53%, from 71% two years ago, according to a survey in July by Bain & Co. 

More than 20% favour Singapore, up from 15% two years ago. “Singapore is the Zurich of the East,” says Xiao Xiao, the Beijing-based chief operating officer of Chinese wealth manager Fortunes Capital.

“We see Singapore, not Hong Kong, as the bridgehead of China’s investment overseas,” says Li Qinghao, co-founder of NewBanker Tech Consulting, which organised the Sentosa conference last year. 

About 78% of S$2.7 trillion (RM8 trillion) in assets under management in Singapore comes from overseas sources. Morgan Stanley, JPMorgan Chase & Co, and other firms with big private banking operations are building up their teams of China relationship managers in Singapore.

China has been tightening its grip on Hong Kong. A year ago, Chinese financier Xiao Jianhua was reported by local media to have been seized from a Hong Kong hotel by Chinese authorities and taken to the mainland. The incident followed the disappearance of several Hong Kong booksellers who sold books critical of China’s Communist Party and were reported to have been taken involuntarily across the border.

Then there are the increased restrictions on Hong Kong’s financial practices, such as a 2016 crackdown on sales of certain types of insurance products to mainland Chinese. The products pay dividends over a number of years and are essentially viewed as investments — and potentially a way to send money out of China and evade capital controls. 

“The Hong Kong market is now heavily affected by mainland China,” says Guan Huanyu, president of Beijing-based wealth manager Zhenghe Holdings, who attended the Sentosa event.

While Hong Kong’s Securities & Futures Commission does not break down the origin of funds, its data show that growth in the city’s private banking business has been slowing. Hong Kong logged 10.7% growth in private banking assets under management in 2016, down from 18% in 2015.

Singapore has additional attractions for the wealthy of China. Mandarin is one of its four official languages, and it has world-class health facilities and international schools. Not far from the Shangri-La Hotel, Sentosa’s casinos are a popular draw for Chinese tourists. Mainland Chinese were the largest foreign buyers of luxury properties in Singapore during the first half of last year, according to consultancy Cushman & Wakefield. Real estate is far cheaper than in Hong Kong.

But mainly, the rich like to diversify — not only among asset classes, but among political regimes. 

“Most of our clients have undergone a shift from poor to rich,” says Kou Quan, vice-president at Tianjin-based Xinmao S&T Investment Group. “And they’re all worried about becoming poor again.”

The bottom line is that Hong Kong’s financial sector is becoming more entwined with the mainland, prompting more and more of China’s rich to turn to Singapore. — Bloomberg