Hong Kong and Singapore are attractive hubs for startups. But they both share the same big challenge.
❓What’s going on?
Hong Kong and Singapore have been long rivals in the East, and this has especially been the case since Hong Kong started facing challenges like COVID restrictions, social tensions and a talent exodus. With this, the question of whether Singapore is now the “it” city in Asia for business has been a huge topic of discussion – and this is especially the case when it comes to startups and funding.
On the one hand, Singapore is the undisputed startup hub of Southeast Asia, and its government has poured a ton of resources into building a vibrant ecosystem, which is an important part of the country’s economic future.
Hong Kong, on the other hand, has long been known and pitched as the “gateway to China,” and the government has actively pushed the city’s integration into the Greater Bay Area (GBA) economy over the past few years, which includes Hong Kong, Guangdong and Macau.
But even though they’re different, the cities’ statistics are very similar.
🏢Looking at and breaking down the Hong Kong startup scene now
On June 12, Hong Kong passed a major milestone when the government-owned Hong Kong Investment Corporation (HKIC) formed a partnership with a local tech firm for the very first time.
The agreement ensured that artificial intelligence (AI) unicorn SmartMore will use the city as its base and make the Hong Kong stock market its first choice if it decides to go public in the future. SmartMore will also develop an AI talent training academy in the city and work with HKIC on development in the GBA.
“The network and experience of HKIC combined with the AI knowledge and capability of SmartMore will bring Hong Kong’s technology to the next level. I have high hopes that HKIC will use the local reserves to benefit Hong Kong’s technology and economy as a whole,” said Hong Kong chief John Lee.
Now, HKIC has some other similar deals in the works, with CEO Clara Chan saying that Hong Kong’s business-friendly culture, top universities, active financial markets and free-flowing capital and people make it an ideal place for startups to thrive.
The Hong Kong government usually focuses on infrastructure support when it comes to helping the startup scene, for example, with its support of the Cyberport and Hong Kong Science Park. But this latest partnership is an example of a more direct investment by the city in a company.
According to StartmeupHK, Hong Kong had 4,257 startups in 2023, which was a 34% growth since 2019. The sector employs nearly 16,500 people, up 32% since 2019.
🕵️♀️A closer look at the startups in Hong Kong
Where are these startups coming from? Well, given the city’s history, most of them come from mainland China (21.6%) and the UK (16.6%). As a major financial center, most Hong Kong companies are in fintech (601), and the Hong Kong Trade Development Council said education, which had 374 startups in 2023, has a lot of potential to grow.
“In recent years, particularly during the Covid-19 pandemic, edtech even became an essential force in propelling the transformation of the education system,” wrote Cherry Yeung from the Greater China Research Team of HKTDC Research.
The research also showed that “as a percentage of all startups, their share also grew from 5.8% in 2021 to 8.0% in 2022, making them the fourth‑most important startup sector [in the city].”
Crypto has also been big in Hong Kong, especially considering trading and mining cryptocurrency is illegal in the mainland, with the city flexing its muscles as a crypto hub alternative. Last June, the city implemented its retail trading rules and licensing guidelines, which require exchanges to register with strict rules outlined by the Securities and Futures Commission before they can operate in the city. Over 80 companies (in mainland China and abroad) expressed interest in opening a Hong Kong service straight after the rollout of the new rules, according to Christopher Hui, Hong Kong’s financial services and treasury secretary.
Ultimately, though, the Hong Kong startup scene is buoyed by the fintech sector. FintechHK, an industry advocacy group, estimates that the GBA offers a US$2 trillion market opportunity, which is just slightly less than Canada's entire GDP.
The 2023 Global Financial Centres Index ranked Hong Kong as the 14th best fintech hub in the world, which is pretty good considering neighboring Shenzhen ranked fourth. On top of this, the city ranked fourth behind New York, London and Singapore for its financial center status as a whole.
🤔So, what about the Singapore startup scene?
Singapore is home to more APAC high-growth businesses, according to the Financial Times, than any city in East Asia, which is a status the city has held for years.
And part of its success as the startup hub of Southeast Asia is because the government made the startup economy a top priority of its economic planning over a decade ago, pouring money into both startups and investors.
“To reinvigorate the venture capital sector, initial government support is important to jump-start activity,” Chua Kee Lock, the CEO of Vertex Holdings, a Singapore-based venture capital firm, told TMS.
So, Singapore not only has many startups and investors (StartupSG says the city currently has 5,167 startups and 526 official investors), but the variety of industries is also a big draw for the city-state.
For example, let’s take a look at 14 unicorns the city has minted as of 2024. They are HyralRoute (communications network), Moglix (B2B marketplace), Coda Payments (fintech), Advance Intelligence Group (artificial intelligence), Bolttech (insurtech), Trax (marketing), Insider (data analytics), Carousell (e-commerce), Matrixport (cryptocurrency), NIUM (fintech), PatSnap (business insights), ONE (media), Carro (automotive) and Ninja Van (logistics).
Vertex pinpointed three emerging trends for the city: the adoption of AI into a wide variety of business models, the increase in “as-a-Service” subscription services and the integration of cloud computing, cybersecurity and big data with AI.
The fund also points out that Singapore is part of a robust ASEAN region of 600 million people, with countries like Indonesia, Vietnam and Thailand being particularly attractive for business.
“While the Southeast Asia startup scene has only begun to bloom in the last decade, we believe there is a strong growth potential. Forbes predicts Southeast Asia’s technology startups could reach an astounding valuation of US$1 trillion by 2025, trebling from US$340 billion in 2020.”
While Singapore looks on track to keep growing, it still has some unique challenges and opportunities. One big one is that Southeast Asia is a super diverse region with many differences in culture, taste and business environments.
“As investors, we should be aware of local preferences and cultural sensitivities and not apply a one-size-fits-all strategy across these markets,” said Chua.
💰The truth is, though, both cities face the same huge challenge
As the global economy continues to recover from the pandemic and inflation crises that followed, Hong Kong and Singapore face the same massive challenge –expensive real estate, which means higher salaries and operating costs for companies.
Hong Kong has been the most expensive real estate market in the world for 13 years in a row, but a recent surge in Singapore has the city-state moving up the ladder. According to government data, the Lion City’s public housing prices rose 12.7% in 2021, 10.4% in 2022, and 4.9% in 2023.
“With the rising real estate costs, Singapore’s burgeoning startup scene may face challenges such as securing an affordable office space or an increased operational expense due to the hike in office rental costs. This can limit a startup’s financial ability to invest in talent acquisition, product development, or other growth initiatives,” said Chua.
He also added that those rising costs have also led to the popularity of co-working spaces and remote work to reduce the need for office space, a preference switch that has also been seen in Hong Kong, with the city having felt the pressure of expensive office spaces for much longer.
💬What are people saying?
“Regarding the funding landscape, despite the tight funding conditions and market corrections, Singapore will remain an attractive destination for resilient entrepreneurs. While the overall funding has dipped, competition for high caliber deals remains.”
-Chua Kee Lock, the CEO of Vertex Holdings, a Singapore-based venture capital firm
“By harnessing different approaches and policy tools, we hope to catalyse new industries, new models and new momentum for the economy. By developing new quality productive forces according to local conditions, we are on the way to achieve high-quality economic development in Hong Kong.”
-Hong Kong Financial Secretary Paul Chan, in his official blog
“Strong-growth companies backed by private equity and venture capital have the option to remain private for longer in the high-for-longer interest rate environment. Those that choose to go public tend to gravitate to the US due to its deep and liquid capital market and investor base.”
-Singapore Prime Minister Lawrence Wong in May
“At a time when technologies such as artificial intelligence (AI) and digitisation are advancing rapidly, the government is giving a high priority to the application of technology in education.”
-Cherry Yeung, Senior Economist with the Greater China Research Team for the Hong Kong Trade Development Council.
“Many startups’ priority list is growth potential and opportunity. The Greater Bay Area and the Belt and Road Initiative are bringing additional growth drivers and opportunities for Hong Kong in the long run.”
-HKIC CEO Clara Chan
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