Buoyed by the growing affluence of the region, Hong Kong and Singapore have risen through the ranks to become two of the most competitive international financial centres (IFC’s) of the world today. Underlying the success of both IFC’s are the dual roles played by financial regulation in simultaneously ensuring the stability of the financial system and promoting the development of particular financial market niches through the provision of direct and indirect incentives. This paper studies and critically analyzes the stabilizing and promotional roles of financial regulation in driving the success of Singapore and Hong Kong as IFC’s and more importantly, the manner through which these roles are borne out in the regulatory policy instrument mix. Variances in policy instrument mixes are explained by each IFC’s economic governance style, which is in turn influenced by the prevailing political context.
Driven by a centralized strong state, Singapore’s economic governance style of “strategic pragmatism” results in a policy mixed skewed towards the use of more interventionist and flexible instruments that directly promote Singapore’s financial markets. In contrast, the Hong Kong government’s commitment to “positive non-interventionism” requires a policy mix that features more instruments aimed at maintaining financial system stability and minimum state intervention. Nonetheless, both IFC’s feature the judicious design of policy mixes geared towards the ultimate policy goal of financial sector development. The rationale and reasons for each IFC’s choice of policy instrument mix are derived from analyses of official documents and interviews with regulatory officials. Methodological issues pertaining to the identification and analysis of regulatory policy instrument mixes are also discussed.
