If any place has been rehearsing for the moment when it overtakes Hong Kong as the economic capital of Asia, it’s Singapore.

The Southeast Asian city-state’s founding prime minister, Lee Kuan Yew, took Hong Kong as a direct model when trying to build a stable future for Singapore after its expulsion from the Malaysian federation in 1965. “I thought I would learn from Hong Kong, which had also been cut off from its hinterland, mainland China,” Lee said in a 1992 speech.

A Tale of Two Cities Hong Kong and Singapore resemble each other closely Nominal GNI/capita $58,770 Singapore Hong Kong $50,310 Top marginal income tax rate 22% Singapore Hong Kong 17% Finance share of jobs 9% Singapore 7% Hong Kong Population Hong Kong 7.5M Singapore 5.6M Land area, sq. km Hong Kong 1,107 Singapore 724 Foreign population share* Singapore 13% Hong Kong 8% Sources: the governments of Singapore and Hong Kong; World Bank

*Non-Chinese nationals in Hong Kong and share of permanent residents in Singapore.

The two ethnically Chinese, former British colonies have been transformed utterly since then, but still resemble each other closely as low-tax, affluent cities that compete to attract white-collar professionals from across the world.

That’s where the similarities end. For Asia’s cosmopolitan classes, Singapore and Hong Kong aren’t so much twins as opposites. Exploring the profound differences between the two is a favorite parlor game — and one Singapore traditionally loses.

The city-state’s tidy, controlling tendencies are often contrasted unfavorably with Hong Kong’s more freewheeling model of entrepot capitalism. It rarely escapes notice that while Hong Kong was a model for Lee, his Singapore in turn was a template for Deng Xiaoping’s vision of the Chinese state.

Hong Kong was traditionally so laissez-faire that the government resisted the official collection of economic and financial statistics until the 1980s, and didn’t have a central banking function until 1993. Singapore is far more interventionist, running its own singles events to support the fertility rate and accommodating 79% of the population in government-built homes.

Visiting Hong Kong in 1954, Lee was astonished to find that a local tailor was able to measure and fit a new suit for him in just 12 hours: “Singapore tailors do not work at that speed,” he said years later. His conclusion, that Hong Kongers were a “leaner and keener people,” isn’t so different from the popular view even now.

The skyway at the Gardens by the Bay in Singapore. Photographer: Roslan Rahman/AFP

Those differences have helped engender a different model of capitalism in Singapore. For all its ambitions to turn itself into the London of Asia, it looks a lot more like the region’s Zurich — dominated by the discreet worlds of private banking and commodities trade, rather than the colorful chaos of capital markets and dealmaking found in its northern cousin.

Walled Garden All but three stocks on Singapore’s Straits Times Index count a handful of tycoons and the country’s investment fund Temasek as key shareholders Temasek Jardine Matheson Lee family Wee family Other tycoons Independent $50B DBS CAPL STE KEP SIA ST AREIT CCT MCT CT SATS SCI $43B JM JS $18B WIL THBEV GENS CIT HKL JCNC DFI $7B SGX $40B OCBC $33B UOB CD VMS Temasek Jardine Matheson Other tycoons Lee family Wee family Independent $50B DBS CAPL STE KEP SIA AREIT CCT MCT ST CT SATS SCI $18B WIL $43B JM JS THBEV CIT GENS HKL JCNC DFI $40B OCBC $33B UOB $7B SGX CD VMS Temasek Jardine Matheson Other tycoons Lee family Wee family Independent $50B DBS CAPL STE KEP SIA AREIT CCT MCT ST CT SATS SCI $43B JM JS $18B WIL THBEV GENS CIT HKL JCNC DFI YZJSGD GGR $7B SGX $40B OCBC $33B UOB CD VMS Source: Bloomberg

Note: Key shareholders defined as those in which named families, companies or individuals have effective control of at least 20% of voting shares.

Of the 30 companies on the FTSE Straits Times index, all but three count as major shareholders either government-owned investment fund Temasek Holdings Pte. or a handful of Asian and British tycoons, led by Hong Kong’s Jardine Matheson Holdings Ltd. That leaves the exchange embarrassingly stunted by financial-center standards, with the total market capitalization of its primary listings slipping below near neighbors in Thailand and Indonesia.

Small Island The value of Singapore’s equity market has dwindled to irrelevance $32T U.S. China Hong Kong U.K. France Germany India South Korea Japan Switz- lerland Taiwan Canada BR TH ID AUS $462B Singapore Source: Bloomberg

Note: Primary listings only. As of Oct. 7, 2019.

The stock market is less than one-tenth the size of Hong Kong’s, where blue-chip mainland Chinese companies such as Tencent Holdings Ltd. and PetroChina Co. make up about a third of the total. That’s a problem for Singapore, because share trading is a core component of a vibrant financial center.

“If your equity market is not efficient, it will not attract high quality firms,” said Meijun Qian, a professor of finance at Australian National University in Canberra. “The situation becomes a spiral, stuck in an inefficient equilibrium.”

This junior status has been a concern for many years. The response has been characteristically Singaporean — harnessing the powers of the state in a multi-decade campaign to compete with a city whose success is based, as much as anything, on its resistance to government intervention.

Over the past few decades, Singapore has built parks, theaters, concert halls, casinos and theme parks in an attempt to shake off the perception that it’s Hong Kong’s straitlaced relative. Six of the city’s 10 top-ranked attractions on TripAdvisor have been built since 2008 (not everything has changed: the number one place still goes to the city’s metro rail system). The Singapore Grand Prix, a major pull for private-banking clients, started the same year.

Water fountain playground at Garden by the Bay in Singapore. Photographer: Roslan Rahman/AFP

Not a Borrower or Lender Cross-border lending by international banks in Singapore looked like it was catching up with Hong Kong, but not any more Singapore Hong Kong $800B 600 400 200 0 2005 2010 2015 2019 Source: BIS

Note: Shows only claims on non-banks on an ultimate-risk basis.

Just a handful of Singapore’s major performance-arts venues existed 20 years ago, and the same goes for the the city’s main nightlife spot, the Clarke Quay district. Until the 1990s, most discos were run by community centers or the police, and weren’t allowed to serve alcohol.

Walking around the coffee shops of the downtown business district, the city now has a distinctly hipsterish vibe that couldn’t be more different from the stereotype. This transformation, combined with its lower cost of living and better-quality housing, appears to have done the trick in luring people to live there. The population of non-citizen permanent residents increased by about 235,000 between 2000 and 2018, outstripping the 199,000 rise in non-Chinese residents in Hong Kong over a comparable period. About 13% of the population are now non-citizens, up from 4.1% in 1990.

Despite all this, the vision from a decade ago that Singapore might finally cement a position as Asia’s pre-eminent financial capital has been thwarted so far by the sheer scale of mainland Chinese growth spilling over the border to Hong Kong.

On one measure of a city’s status as an international banking center — the value of claims that local branches of international banks have on foreign non-banks — Singapore seemed like it had a chance of catching up a decade ago. It’s since been comprehensively left behind.

Private Banking Dwindles Singapore used to lead Hong Kong in assets managed for non-resident owners, before China’s boom Singapore Hong Kong $800B 600 400 200 0 2010 2011 2012 2013 2014 2015 2016 2017 FPO 540PX Temasek Jardine Matheson Lee family Wee family Other tycoons Independent United Overseas Bank Wilmar International Singapore Exchange DBS Jardine Matheson OCBC SingTel Singapore Press UOL Thai Beverage ComfortDelGro Jardine Strategic CapitalLand Hongkong Land Genting Singapore Venture Corp Singapore Tech Jardine Cycle City Developments Keppel Dairy Farm Yangzijiang Shipbuilding Singapore Airlines Golden Agri-Resources Ascendas Capitaland Mall Capitaland Commercial Mapletree Commercial SATS Sembcorp Source: Deloitte

Even in private banking — in theory, one of Singapore’s strong suits — Hong Kong has won out, as the army of rich people minted by China’s boom have sought to stash their wealth over the border, but not too far away.

“We’re a center for Southeast Asia, Hong Kong is for China,” said Joseph Lim, an associate professor of finance at the Singapore University of Social Sciences.

For most of the 22 years since the Hong Kong handover, Singapore’s distance from China has been a disadvantage. Only the individuals and businesses most obsessed with keeping their assets out of Beijing’s reach have gone to the effort of moving their wealth so far from the dynamic engine of the world economy.

Now, that liability may gradually be turning into an asset. Mainland China is already in demographic decline, with the labor force shrinking by 1.4 million people in 2018 — more than three times the combined 436,000 lost by Japan and the European Union. Meanwhile, the trade war is diverting supply chains towards Singapore’s backyard in Southeast Asia, causing wealth to spring up in new locations.

Chasing China By 2035, the economies of South and Southeast Asia will be pulling ahead as measured by GDP at purchasing power parity China India, Indonesia, Pakistan, Philippines, Vietnam, Bangladesh, Thailand, Malaysia $80T 0 2016 2035 2050 Source: PwC

After years of leading every other major economy, the growth rate of China’s gross domestic product is now falling behind the Philippines, Vietnam, and India. Even its vast size is subject to the law of gravity: By 2035, the eight largest economies in South and Southeast Asia will have pulled level in terms of aggregate output, according to forecasts by PricewaterhouseCoopers LLP. They’ll accelerate further after that.

Indeed, it’s possible that this weakening in the economy — with its violation of China’s unofficial social contract, where dramatic improvements in citizens’ material well-being were seen as compensating for the lack of civil liberties — is one factor that’s contributing to Beijing’s tightening political grip. Unable to placate the population with wealth, China’s government is resorting to harsher methods to keep control. That’s an alarming prospect even for rival financial centers.

“It’s not in anybody’s interest to have an unstable greater China,” said Yougesh Khatri, a Singapore-based fellow with British foreign-policy think tank Chatham House. “We all would like to see a stable and prosperous Hong Kong economy.”

If Singapore takes over from Hong Kong as Asia’s pre-eminent financial center, it won’t be because it’s become a better place for global capital to shake hands with China. Instead, it will be because global capital may one day come to regard China the same way it now regards Japan — as a vast but challenging market overshadowed by faster-growing rivals.