9th July 2024 – (Hong Kong) Hong Kong is poised to reclaim its crown as Asia’s premier financial hub, capitalising on Singapore’s recent regulatory crackdown on money laundering. This shift in the financial landscape is sending ripples through the world of high-net-worth individuals, particularly those from mainland China, who are increasingly looking to Hong Kong as a safe haven for their wealth.

For years, Singapore had been the destination of choice for wealthy Chinese seeking to diversify their assets and establish a foothold outside the mainland. The city-state’s stable political environment, robust financial infrastructure, and relatively relaxed regulatory stance made it an attractive proposition for those looking to safeguard their wealth. However, the tides are turning, and Hong Kong is emerging as the beneficiary of this sea change.

The catalyst for this shift can be traced to Singapore’s recent $3 billion money laundering scandal, which has sent shockwaves through the financial community. In response, Singapore has significantly tightened its regulatory framework, introducing new measures to combat money laundering and enhance due diligence processes. While these steps are undoubtedly necessary for maintaining the integrity of Singapore’s financial system, they have inadvertently created an opportunity for Hong Kong to reassert itself on the global stage.

In stark contrast to Singapore’s tightening grip, Hong Kong has been rolling out the red carpet for high-net-worth individuals. The city has introduced a series of initiatives designed to attract and retain wealthy investors, including family office tax concessions and streamlined visa and residency programmes. These measures are already bearing fruit, with Hong Kong expected to welcome approximately 200 high-net-worth individuals in 2024, reversing a five-year trend of millionaire outflows.

The numbers tell a compelling story. Hong Kong’s assets under management grew by 2.1% to HK$31 trillion in 2023, with net fund inflows jumping more than threefold to nearly HK$390 billion. This surge in inflows is particularly noteworthy given the 80% slump in private banking and wealth fund inflows witnessed in 2022.

Singapore’s response to the money laundering scandal has been swift and comprehensive. The Monetary Authority of Singapore introduced a digital platform in April to facilitate the sharing of customer information among financial institutions, a move aimed at bolstering the city-state’s defences against illicit financial activities.

However, this increased scrutiny has not been without consequences. Private bankers report that wealthy Chinese clients in Singapore are now under the microscope, with banks re-evaluating their know-your-customer processes. The resulting frustration among clients is palpable, with many expressing dissatisfaction with the invasive nature of the questions being asked and the overall process.

This regulatory tightening has created an unexpected opportunity for Hong Kong. Service providers in the city report a surge in inquiries from wealthy Chinese individuals seeking to move or establish family offices in Hong Kong. The contrast in regulatory approaches between the two financial hubs is stark, and it is tipping the scales in Hong Kong’s favour.

Hong Kong’s resurgence is not solely attributable to Singapore’s regulatory shift. The city’s unique position as a gateway to mainland China continues to be a significant draw for wealthy Chinese investors. The reopening of Hong Kong’s borders in 2023 and its efficient connections to Shenzhen and the Greater Bay Area via high-speed rail have reinforced its appeal to those who wish to maintain close ties with their mainland business interests.

Moreover, Hong Kong’s introduction of the top talent visa programme, targeting high-income earners and university graduates, has been a resounding success. With over 68,000 applications approved since its inception in 2022, 95% of which are from mainland China, the programme is injecting fresh talent and capital into the city’s economy.

The impact of these shifts is already being felt in the financial sector. Private bankers report double-digit revenue growth in Hong Kong in 2024, driven primarily by Chinese clients. While most of these clients fall into the $5 million to $10 million asset range rather than the ultra-high-net-worth category, the trend is nonetheless significant.

Insurance products, long popular among wealthy mainland Chinese, have seen a remarkable resurgence in Hong Kong. Sales jumped 63% to HK$15.6 billion in the first quarter of 2024 compared to the same period in 2023, providing further evidence of the city’s renewed appeal to Chinese investors.

However, Hong Kong’s resurgence is not without its challenges. The city must navigate the delicate balance between attracting wealth and maintaining the integrity of its financial system. Concerns have been raised about the origins of some of the new capital flowing into Hong Kong, particularly in light of the revelations from Singapore’s money laundering scandal. Hong Kong’s authorities will need to strike a careful balance between welcoming foreign investment and ensuring robust due diligence processes to prevent the city from becoming a haven for illicit funds.

The shifting dynamics between Hong Kong and Singapore are playing out against a backdrop of broader global trends. As geopolitical tensions rise and the global economy navigates uncertain waters, the competition between financial hubs for mobile capital is intensifying.

Hong Kong’s resurgence is not just a story of its rivalry with Singapore; it is emblematic of the city’s resilience and adaptability in the face of challenges. Having weathered political upheavals and the stringent COVID-19 measures that dampened its appeal during the pandemic years, Hong Kong is now demonstrating its capacity for renewal and reinvention.

As Hong Kong regains its footing as a premier financial hub, the implications for the broader Asian financial landscape are significant. The city’s renewed appeal to wealthy Chinese investors could catalyse a broader shift in capital flows across the region, potentially reshaping investment patterns and economic relationships.

For Hong Kong, the challenge now will be to sustain this momentum while addressing the concerns raised by its rapid influx of new wealth. The city will need to continue refining its regulatory framework to strike the right balance between attracting investment and maintaining the integrity of its financial system.

Singapore, for its part, faces the task of recalibrating its approach to maintain its attractiveness to global investors while adhering to stricter regulatory standards. The city-state’s response to this challenge will be closely watched by financial centres around the world, as they grapple with similar issues of compliance and competitiveness.