Within a few years, tourists across much of Asia will be able to change money at a Singapore-owned bank and hop a budget airline to the city-state to gamble and drink the night away.
Singapore is not about to emulate Hong Kong, another small, rich former British colony, and deliberately run down the industrial base on which it built its prosperity, analysts say.
But facing inroads from cheap manufacturers such as China and India as well as growing competition from its Southeast Asian neighbors for tourist dollars, Singapore's planners are doing what economists have long advocated by placing more emphasis on higher-end services.
Hedge funds are springing up like mushrooms in the city, while on Tuesday filmmaker George Lucas said he had chosen Singapore as his creative empire's first overseas outpost.
"There's a general sense that you have to maintain Singapore's viability and attractiveness as a regional center, which thrives on having a critical mass of activities and people of diverse backgrounds, jobs and so on congregating in one place," said Manu Bhaskaran, head of economic research in Singapore for Washington-based consultants Centennial Group.
Preserving that critical mass entails tough decisions.
Asia's first terminal dedicated to budget airlines, due to open in 2006, could take business away from flag carrier Singapore Airlines. Plans for a casino are going ahead over the initial opposition of Singapore's founding father, Lee Kuan Yew (
Regional Competition
In the social sphere, Singapore has eased bans on chewing gum and bar-top dancing, extended pub hours and begun to show more tolerance of gays. Significantly for investors, this gradual remodelling partly reflects a growing vibrancy in the 10-member ASEAN.
Adam Le Mesurier of Goldman Sachs said Singapore's port and airport restructuring, as well as its "remarkable U-turn" on allowing a casino, reflected the fact that its government-linked companies for the first time are facing external competition in areas like tourism and transport from Malaysia and Thailand.
"It is early days still, but this theme of greater intra-ASEAN competition in the services sector is starting to become an important new productivity driver in the region," Le Mesurier said in a note to clients.
Under new Prime Minister Abdullah Badawi, Malaysia's sometimes prickly relations with Singapore are warming, and Le Mesurier said this could usher in a wave of Singaporean investment that would boost Malaysian competitiveness.
The two countries' stock exchanges are discussing a tie-up, while Singapore state-owned investment agency Temasek Holdings has already been allowed to buy a 5 percent stake in government-owned Telekom Malaysia.
Temasek is also buying a 15 percent stake of Malaysia's Alliance Bank, adding to a portfolio of minority bank stakes it has built up in India, Indonesia and South Korea.
Hong Kong
Bhaskaran agreed it made sense for Singapore to outsource more low-end services to Malaysia, but he said the city-state would not turn its back on industry in the way Hong Kong has.
In 1983, manufacturing accounted for 23 percent of GDP in both port cities. Today it accounts for more than 24 percent in Singapore and less than 5 percent in Hong Kong, which has moved most of its factories to China.
"We will not go down the path that Hong Kong took. We don't have to, and we will not," Bhaskaran said. "We are very competitive in high-value items where infrastructure, policy support and availability of talent are critical, be it pharmaceuticals, high-end electronics or whatever."
More's the pity, according to Jim Walker of brokers CLSA, who argues that Singapore's leaders indulge their "production mentality" by giving generous investment subsidies in industries they pick as winners, a practice that may yet come back to haunt taxpayers.
"The preferences of politicians, not the market, are reflected in the Singapore industrial structure. Not so Hong Kong," he wrote.
Walker, who works in Hong Kong, predicts a boom for the territory from providing financial and other services for China and catering to mainland tourists freed to travel.
Some firms will choose to list in Singapore over Hong Kong, but he says the Southeast Asian country's location precludes it from becoming a serious competitor for China's riches.
"Singapore is not part of China. It cannot rival Hong Kong for the freedom of access that individual traveller rights have bestowed," he said.
Daniel Lian of Morgan Stanley in Singapore see things differently. He agrees that Singapore will find it hard to extract value from technology manufacturing and top-end services because of its high cost base and stiffening competition.
But Lian sees trouble for Hong Kong, too, if China's leaders decide to marginalize the city for political or other reasons.
"If policy makers want Hong Kong to be a second-tier Chinese city, it will happen," he said in a report.
Lian leaves property-mad Hong Kong residents with a chilling thought: within two decades, he says, prime residential areas in Hong Kong will be much cheaper than in top-tier Chinese cities.
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