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People often compare how Hong Kong is competing with Singapore in "a tale of two economies". However, it is a misconception to think that their competition is an economic battle resulting in the survival of one and the fall of another. To some extent, Hong Kong and Singapore are competitive as they conduct similar economic activities, but serve different clients. Singapore serves economies mainly in Southeast and West Asia, while Hong Kong serves the Chinese mainland and East Asia. Thus, they assume similar economic policies and strategies, especially given the fact that both Hong Kong and Singapore are island economies and have achieved similar growth patterns.

Hong Kong's per capita gross domestic product (GDP) before 1997 was slightly higher than Singapore. Today, Singapore's per capita GDP is way ahead of Hong Kong. The difference was that Hong Kong resorted to a "demand-driven" strategy after 1998 that aimed to provide short-term alleviation, while Singapore concentrated on expanding and maintaining its industrial development.

In the 1970s and 80s, when the electronics' industry was in a nascent stage of development, Singapore authorities committed to research and development, targeting the export of electronics as a winning industry. Although today the export of the industry has moved to China and other lower-cost economies, Singapore still takes a lead in the electronics industry. While Singapore has lost out to Hong Kong as an international financial center, Singapore is the financial center of Southeast Asia. Singapore thus has a greater balance between industries and services, while Hong Kong has lost much in the manufacturing industries. Industries usually pay more than services as industrial jobs in general require a higher level of skill. In addition, employment life tends to last longer in industrial jobs. There are also more jobs available, more secure work and more chances of promotion in industries than in a large number of low-skilled service jobs. Industrial development often leads to additional services. This explains partially why Singapore's per capita GDP has exceeded Hong Kong's since the Asian financial crisis.

Another key difference between Hong Kong and Singapore is the housing policy for the low-income group. In Hong Kong, low-income families are provided with public housing, and the occupiers of public housing have to pay a rent for the entire residence period. This is considered a government subsidy. It is true that low-income families are being assisted, but the rental payments they make to the government could not be capitalized. Public housing in Hong Kong has become a "lifetime" subsidy, but the occupiers remain "poor" as they will not be given back the rental payments.

Singapore regards housing as a necessity, and each household is encouraged to have their own "property', regardless of their income. The government will aid low-income households to purchase a property. This is known as "forced saving", as rent payments to government become mortgage payments. As such, low-income families pay "mortgage" and not rents. Mortgage payments will eventually be capitalized and when the mortgage period has matured, the family will have a property. This is how low-income families can become 'rich' through government assistance to purchase a property. There are two advantages: The family will have a property by the end, and the government assistance becomes temporary, not "lifetime", as is the case in Hong Kong's public housing policy. In short, Singapore's strategy is helping needy families to help themselves, and does not encourage permanent reliance on government assistance.

A Chinese proverb says: "Teaching the person to catch a fish is better than giving the person a fish". Through housing provision to the needy, Singapore teaches the families how to fish. In Hong Kong, the welfare system just provides the fish. This has wide economic implications on society.

The Hong Kong economy needs "repackaging" in order to widen her economic scope and activities. It is true that Singapore is not as free as Hong Kong, and there are others complaints in Singapore, but it can provide a few lessons for the Hong Kong economy. One is the greater balance between industry and service. Hong Kong needs to restructure in order to revitalize the industrial sector for greater employment and exports. Welfare assistance should not be "permanent", and assistance given to needy families should aim to help them to survive and not rely on the government for an unnecessarily long period.

The author is an associate professor of the Department of Economics and Finance at City University of Hong Kong.

(HK Edition 08/30/2013 page9)