Cost of Living: Hong Kong Versus Singapore

by Carol Ko, 21 December 2011

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topics:
Business Expense Management Management

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business expenses cost management cost of living index

What a difference a strong currency can make. CFOs reviewing HR-recommended increases in compensation packages and cost-of-living allowances and evaluating international assignee plans take note: Singapore is now Asia’s 6^th most expensive city for expatriates, and No. 31 globally.

This is due to Singapore’s strong dollar against major currencies, as well as the actual price of goods and services in the cost-of-living basket monitored by ECA International, the research group that tracks these things. That basket of goods and services, which includes food and general and basic items purchased by corporate assignees (i.e., expats) in 400-plus locations worldwide, is up an average of 5.7% over the last 12 months.

Among Asian cities, Singapore is now a more expensive place for expats than Hong Kong, which slipped from 6^th last year to 9^th regionally, and dropped from 32^nd position globally in 2010 to No. 58 today. That’s largely because the Hong Kong dollar, which is pegged to the US dollar, has weakened against major currencies in the past 12 months.

Currency strength or weakness can even trump the impact of inflation, says Lee Quane, ECA International’s Asia Regional Director. "For example," he points out, "despite dramatic price increases in Vietnam, the devaluation of the dong earlier this year has caused locations there to drop down the ranking. So while locals will see their costs going up, the spending power of assignees will have increased due to the effect of exchange rates."

Of course, cost of living is just one of many factors companies consider in making assignment and expansion decisions. “The fact that the cost of living may be high or low is not the only consideration that companies need to take into account,” says Quane.

Other factors, such as quality of living, availability of good staff, rule of law, and ease of conducting business, are also important.

Hong Kong, Cheap City

The more relevant comparison is probably between Hong Kong and other Chinese cities, particularly Beijing and Shanghai.

This year, Beijing (35^th position globally) and Shanghai (41st position globally) have become the most expensive locations in mainland China (compared to Hong Kong at the 58th position). Of the Asian locations surveyed, Chinese provincial capitals have experienced the largest jumps up the global rankings: Chengdu climbed 21 places to 144th place, and Wuhan was up 20 places to 146. On average, the actual prices of goods and services commonly purchased by international assignees have risen by 9 percent in China in the last 12 months.

In contrast, the price of the items in Hong Kong’s cost-of-living basket has risen by more than 7% on average in the past 12 months.

The renminbi has also strengthened against the Hong Kong dollar – RMB100 can now be exchanged for HK$121, versus HK$116 a year ago. That’s a 4% appreciation over 12 months.

There is a downside. “While this is good news for many companies who have international assignees in Hong Kong, sending staff out of Hong Kong could become more expensive for businesses if allowances designed to protect an employee's purchasing power whilst on assignment need to be increased,” notes Quane.

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