SINGAPORE/HONG KONG -- Some of China's wealthy families are turning to Hong Kong as an alternative place to manage their riches as their plans to set up shop in Singapore are slowed by intense scrutiny by the city-state following a massive money laundering bust.
Professionals who work with single-family offices, institutions that oversee the assets of wealthy investors, told Nikkei Asia that some Chinese clients are thinking of parking their capital in Hong Kong as a fallback if their Singapore plans do not work out. Nikkei earlier reported that the Monetary Authority of Singapore has rejected applications from Chinese passport holders.
Hong Kong and Singapore have been vying to attract wealthy Chinese investors in recent years. While some have gone to non-Chinese territories for fear of mainland authorities' control over Hong Kong, recent scrutiny in Singapore over Chinese wealth following a spate of money laundering cases has nudged some back to the Chinese city.
A person who helps rich Chinese set up private offices told Nikkei that three clients in the last six months have gone ahead to establish family offices in Hong Kong as a backup after applying to Singapore to do the same.
"Many just want to move on quick, and in Hong Kong you can just have [family offices] set up in a couple of weeks," said the person, speaking on condition of anonymity. "That's the main reason why they either shift to Hong Kong, or they just bypass Singapore and directly go to Hong Kong."
The person noted that opening a family office in Singapore can take more than a year. The Monetary Authority of Singapore (MAS) which approves tax incentives for family offices, has had to deal with a bigger caseload of applicants in the last few years, while also applying more scrutiny to those seeking tax breaks, which include 100% tax deductions for overseas philanthropic donations under certain conditions.
Another person in the business said that at least two cases from China his company has engaged in the past four months considered Hong Kong as a location to administer their wealth instead of Singapore. "It's becoming a little bit operationally more difficult to set up shop here, so that's definitely something that we are hearing about," said the person, who also requested anonymity.
Two other executives in wealth management said they have received inquiries from Chinese clients to set up family offices in Hong Kong after being rejected for tax incentives in Singapore. Those turned down include wealthy individuals in real estate and trading who already have $10 million to $50 million in assets offshore, one of the executives said.
A lawyer told Nikkei that Hong Kong does not ask whether applicants have been rejected elsewhere, although a spokesperson from the city's Financial Services and the Treasury Bureau said wealth managers are required to follow anti-money laundering practices like due diligence and record-keeping.
"We welcome all lawful and rule-compliant family offices to set up in Hong Kong," an FSTB spokesperson told Nikkei. Hong Kong's Inland Revenue Department asks for previous structures used by family office applicants to make sure they have paid their taxes, said the lawyer.
Hong Kong offers other ways for wealthy individuals to obtain residency in the city. One program, the Capital Investment Entrant Scheme, requires that applicants have no criminal convictions in Hong Kong or elsewhere, said a spokesperson with Hong Kong's Immigration Department in a statement.
There were an estimated 2,700 single-family offices in Hong Kong as of the end of 2023, according to a report commissioned by the government and published by Deloitte in March.
© AFP/JijiNovia Lu, director of business development for the Asia-Pacific at fund manager Ocorian, said she has noted a shift in attitudes toward Singapore among her Chinese clients, whom she helps to set up trusts. A destination with cultural similarities is important for many clients seeking to shift assets out of mainland China in a bid to diversify where their money is managed, Lu told Nikkei.
The options for offshore hubs in Asia with a Chinese-majority population are few. Taiwan is one, but it has longstanding tensions with China, leaving Hong Kong and Singapore. Lu said wealthy Chinese are also looking for another place to live. The possibility of obtaining permanent residency is a key consideration.
Singapore has kept a close watch on fund inflows after police last August arrested 10 people holding passports from China, Turkey, Cambodia, Cyprus, Vanuatu, Dominica, and St. Kitts and Nevis in connection with the biggest money laundering case in the country's history. Authorities have seized or frozen assets worth over 3 billion Singapore dollars ($2.3 billion), and since the first arrests more suspects have been linked to the case. All 10 who were initially detained have been convicted.
Last October, it was disclosed in Singapore's parliament that one or more of those caught up in the money laundering bust may have been linked to family offices that were given tax incentives. The bust netted rich individuals of Chinese origin residing in the city-state who were from Fujian province but held other passports.
In the aftermath, it has become harder for wealthy Chinese to obtain permanent residency in Singapore, Lu noted, as authorities in the city-state carefully screen applicants, prompting some to question whether Singapore is the right place to put their money.
However, the pivot from Singapore to Hong Kong may prove temporary, according to industry players. The Chinese-ruled hub suffers from perceptions that it is moving more tightly into Beijing's political orbit, sparking fears that those who park their assets in Hong Kong will be subject to China's oversight.
U.S. and Canada have also been traditionally popular destinations for riches leaving China.
"Anti-money laundering is an issue for all global offshore [wealth] centers, regardless of whether it's Singapore, or Hong Kong, which is seeing challenges on the traditional anti-money laundering and know-your-clients process," said Cai Hua, chief operating officer at Fosun Wealth, at a conference in Hong Kong last week.
In Singapore, 1,400 single-family offices qualified for tax incentives as of the end of last year, a 27% increase from the end of 2022, the latest official figures show. Hong Kong, using its own tallying method, estimates there were 2,700 single-family offices in the city as of the end of 2023, according to a report commissioned by the government and published by Deloitte in March.
For its part, Singapore is trying to draw capital while weeding out bad actors. Singapore's Minister of State for Trade and Industry Alvin Tan last year in parliament said that the MAS would review its internal incentive administration processes for family offices, tightening them as necessary. Nikkei Asia reported in March that the MAS, which acts as Singapore's central bank and financial regulator, set a one month deadline for family office tax incentive applicants to reply to questions.
The MAS said that along with financial institutions, it has "supervisory engagements" that are "ongoing." The regulator said it will assess whether the institutions have robust protections against money laundering and to counter the risk of terrorism financing, and "will take action" if they fall short.
It told Nikkei the pace of applications for family office tax incentives is "still strong," and higher than before the COVID-19 pandemic. However, the MAS acknowledged that the momentum has come "off the highs seen during the COVID years."
"MAS has streamlined the application process and increased resources this year," a spokesperson for the authority said. "We will clear most of the backlog this year, while reducing the waiting time for new tax incentive applicants."
