(FORTUNE Magazine) – The news reached Hong Kong on a muggy July morning, as shock waves from the Tiananmen Square massacre were still reverberating: Singapore was relaxing its immigration rules. Almost immediately anxious Hong Kongers descended on Singapore's local consulate. In the first week alone they picked up 300,000 applications. Companies, too, are giving the tiny city-state a closer look. Says Chin Kin-Wah, a political scientist at Singapore's National University: ''The events of June 4 have created a new awareness of Singapore as an alternative to Hong Kong in the minds of many investors.'' With 138 commercial banks and 67 merchant banks, Singapore is already close to overtaking Hong Kong as a center for trading foreign currencies and is light-years ahead in dealing in financial futures. Now multinationals are being lured by fistfuls of government incentives. Executives at Union Carbide, which moved from Hong Kong to Singapore last January, say their welcome wagon included help in arranging permanent residency visas for transferred executives, assistance locating office space in a government-owned building, and special tax breaks granted to companies that establish regional headquarters in Singapore. Fock Siew Wah, who heads Overseas Union Bank, Singapore's fourth largest, has no doubt that more companies will follow Carbide. On the other hand, no massive migration of Hong Kong residents is imminent. Despite the scramble for applications, so far only 8,000 have actually been submitted. That's because rigid Singapore has little natural appeal for freewheeling Hong Kongers. Says political scientist Chin: ''I don't think we have any illusions about how many Hong Kong people will actually move here.'' But as Chin points out, even a modest influx will ease, though by no means cure, the island republic's labor shortage. To enhance its appeal, Singapore has begun working harder to relax. The strait-laced government recently closed Orchard Road, the city's main shopping drag, and let 500,000 mostly youngish citizens dance the night away to the recorded strains of Michael Jackson, Madonna, and other pop stars. The crowd did pick up one nasty Western habit: Singapore's normally pristine streets and sidewalks were strewn with plastic water bottles, cigarette stubs, and confetti. But around midnight, thundering loudspeakers posed the central question: ''Are you having fun?'' There was no doubt about the answer.