Hong Kong's Loss Is Sydney's Gain

SOCI'ET'E Internationale de Telecommunications Aeronautiques (Sita) isn't ``exactly'' leaving Hong Kong. ``We'll still have an office there,'' a spokesman explains. But one of the world's largest aviation telecommunications firms is now splitting its regional headquarters between Singapore and Sydney. And Sita plans to sink US$150 million in the Sydney operation.

Sita joins a small but growing list of companies effectively pulling out of Hong Kong. Few executives will say the catalyst is concern over Hong Kong's future. Most cite rising rents, soaring wages, and labor shortages.

But a major underlying reason for higher operating costs is the exodus of Chinese professional and skilled workers who fear for the British colony's economic future when China regains control in 1997. The violent Tiananmen Square crackdown, the ensuing economic slide, and the dominance of Beijing's hard-liners have exacerbated such concerns and accelerated emigration.

One in two multinational corporations with regional headquarters in Hong Kong is considering leaving, according to a poll by Business International, a research group owned by The Economist newsmagazine. Singapore is the first alternate for more than half of the surveyed firms.

Unwilling to be neglected, Sydney is hatching plans to woo these bolting multinationals.

``Hong Kong will decline ahead of its reversion to Chinese control in 1997,'' predicts Sydney-based Macquarie Bank chairman David Clarke. ``Singapore does not have the level of democracy that Australia has, and the costs of operating from Tokyo are enormous.''

Next month, Mr. Clark and nine other senior business leaders, plus Nick Greiner, premier of New South Wales, are bound for London to pitch Sydney as a regional financial center. Mr. Greiner will also be calling on corporate chieftains in New York.

The pitch will emphasize the plethora of international-quality services available. Sweeping deregulation in the mid-1980s has created large, sophisticated financial markets.

Although Australia ranks as the 13th largest economy in the world (in gross domestic product), it now ranks as the seventh largest foreign exchange market - just behind Hong Kong and Singapore. The stock market is No. 8 in terms of market capitalization. Sydney's futures exchange is ninth largest in the world. Of 750 United States multinationals operating in Australia, some two-thirds have their Asian regional headquarters here.

Common culture, language, and business practices make the transition to the region easier for Westerners. And, Sydney's renowned quality of life is considered an asset which already attracts top employees. Indeed, two multinationals with Hong Kong headquarters have recently set up offices in Sydney largely motivated by a desire to retain Chinese employees who plan to or already have moved to Australia.

STILL, Sydney isn't in Singapore's league when it comes to costs, government incentives, or the benefits of geographical location.

``Sydney's just not in the right place. Hong Kong serves as a gateway to China and services Asia. Singapore increasingly is servicing the financial needs of Southeast Asia. You just can't make the business contacts in Sydney,'' says Graham Hayward, executive director of the International Chamber of Commerce in Singapore.

Unlike Australia, Singapore is offering a slew of tax breaks to companies setting up regional headquarters in Singapore. Union Carbide and Eveready are among some 40 firms moving in from places such as Hong Kong and Tokyo, notes Mr. Hayward.

As part of its bid to become a regional financial center, in January, Singapore set up an over-the-counter stock market. This is seen as a precursor to an inter-regional stock exchange for top Asia-Pacific firms.

Sydney has 36 offshore banking operators (international banks which use Sydney as a base for making overseas loans to foreign firms) compared to 192 in Singapore. ``Unless we can get federal government revved up and willing to make tax concessions, it's going to be hard going'' to attract offshore banking, admits Clarke. He notes that Singapore offshore banking non-residents pay only 10 percent income tax. Australia gives no concession on the 39 percent income tax.

New South Wales Premier Greiner is realistic about Sydney's shortcomings. ``I don't believe we can offer ourselves as a straight competitor in terms of cost,'' he told foreign correspondents recently. ``On the other hand, we do have those broad environmental quality of life, quality of corporate existence advantages. We have a significant advantage in terms of political stability, and I don't think even in the climate of the 1990s, that ought to be underestimated.''