Singapore-China Special Economic Relations
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© Institute of International Relations and Area Studies, Ritsumeikan University Singapore-China Special Economic Relations: In Search of Business Opportunities SHEE Poon Kim* Abstract The main thesis of this paper is to argue that Singapore’s China policies is based on “enlightened” economic pragmatism. The island Republic saw China’s push for modernization from l978 onwards as a good business opportunity to get a foothold in China as part of its “second wing” strategy to expand its markets, region- ally and globally. Similarly, China’s policies toward Singapore is mainly based on economic rationality. Singapore’s strategic posi- tion, its population’s ethnic Chinese background, its strong and stable government, plus the success of its economic development strategy has attracted China’s interest to learn from Singapore’s experience of modern management of its economy, including run- ning ports, managing the public housing programmes, and social security. Economic pragmatism and seeking business opportunities and profits are the main thrusts in pushing both Singapore and China to widen and deepen their special symbiotic economic rela- tions in the areas of trade, investments, joint developments and finally free trade area and economic integration in the 21st century. Keywords: Special, pragmatism, trade, investment, model. RITSUMEIKAN INTERNATIONAL AFFAIRS Vol.3, pp.151-176 (2005). * Visiting Professor, Faculty of International Relations, Ritsumeikan University. I am grate- ful to the East Asian Institute, National University of Singapore for providing the research facilities for writing this paper and to Dr. Lam Peng Er for his valuable comments.
152 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 INTRODUCTION When Singapore became an independent Republic on 9 August 1965, Lee Kuan Yew became its first Prime Minister, a post he held until he stepped down in November 1990. Goh Chok Tong became Singapore’s second Prime Minister on 28 November 1990. He resigned on 11 August 2004 so that Lee Hsien Loong could become its third Prime Minister on 12 August 2004. The focus of this paper is to analyse Singapore’s special economic rela- tions with China mainly from Singapore’s perspective. Its central theme can be depicted as Singapore’s search for business opportunities in China. The paper is divided into three parts: first, it briefly describes the basic precepts and principles of Singapore’s foreign policy; the second section deals with Singapore’s economic policies toward China; the third part analyses the economic issues between Singapore and China and finally, the conclusion. Why is it important to study these special economic relations? First, Singapore’s special economic relations with China can be an important pil- lar for China-ASEAN economic relations. Second, the emergence of the ‘flying dragon’ model of ‘developmental regionalism’1) can be an alternative ‘flying geese’ model for economic integration. Third, they offer a possibility of creating a greater ‘flying dragon’ model of an economic commonwealth, including Taiwan, Hong Kong, Macao and the ethnic based Chinese bam- boo network. Fourth, for Singapore, a Singapore-China economic nexus will imply an alternative to the western oriented ‘human capital’ develop- ment such as from advanced higher-education training in the Ivy Leagues in the US to Chinese universities in China. In the long run, it will revi- talise Confucian culture as the core of East Asian civilisation and bring about the emergence of a Sinic cultural renaissance as happened in the 10th century during the Tang dynasty (AD 618-907). . BASIC PRINCIPLES OF SINGAPORE’S POLICIES TOWARD CHINA Singapore’s diplomatic interactions with China raises a theoretical 1) Developmental regionalism can be defined as a type of East Asian new regionalism in which states intervene to promote national agendas. See Nesadurai, Helen, E.S. Globalisation, Domestic Politics and Regionalism: The ASEAN Free Trade Area, (London: Routledge 2003), Chapter 1, p.41.
2005 Singapore-China Special Economic Relations SHEE 153 question, i.e. how and why a small state adopts certain policy options vis- à-vis a rising major power in East Asia with the desire to ensure the sur- vival, economic development and the sustenance of a democratic and multi-racial nation. The foreign policy outputs of a state cannot be formu- lated in a vacuum and therefore Singapore’s foreign policies towards China can be examined and analysed in the context of the following basic precepts and principles.2) From Singapore’s perspective, the first basic principle is to ensure the survival and security of its democratic, multi-racial state through econom- ic development. Thus one of the most important goals of Singapore’s poli- cies towards China is to promote economic prosperity and well being for Singaporeans as a whole. Second, Singapore’s foreign policy is not based on any fixed ideology. Singapore will establish diplomatic relations with any state, whose national interests coincide with Singapore’s basic national interests, irre- spective of differences in ideology and political systems. Third, Singapore believes in free trade and will trade with any coun- try based on the principle of mutual benefits. Fourth, Singapore believes in the principle of peaceful coexistence with the neighbouring states and operates within the framework of ASEAN. Due to geographical imperatives, Malaysia and Indonesia are the top priorities in Singapore’s foreign policy. The importance of Malaysia and Indonesia to Singapore can best be described as a “lips and teeth” relationship. Singapore’s future is therefore closely linked with the future of Malaysia and Indonesia. Geo-strategic considerations are important cal- culations in Singapore’s China policies, especially during the earlier years of Singapore’s independence. Survival was of paramount concern and Singapore’s China policy was a function of both domestic needs and exter- nal imperatives. Fifth, Singapore believes in the principle of the balance of power of international politics in Southeast Asia. Therefore, Singapore supports the legitimate interests of and the presence of all the major/superpowers in 2) For details of the basic precepts of Singapore’s foreign policy, see, Michael Leifer, Singapore’s Foreign Policy: Coping with Vulnerability, (London: Routledge, 2000), Chapter 1, pp.10-42; see also Bilveer Singh, The Vulnerability of Small States Revisited, A Study of Singapore’s Post-Cold War Foreign Policy, (Yogyakarta: Gadjah Mada University Press, 1999), Chapter 2, pp.11-36; Bilveer Singh, Singapore Foreign Policy Imperatives of a Small State, (Center for Advanced Studies, National University of Singapore, 1988).
154 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 the region, including China, Japan, the U.S. and Russia. Sixth, Singapore believes in world peace and order and therefore sup- ports the UN Charter to promote world peace and order. It also believes that inter-state conflicts should be solved by peaceful means. Singapore thus condemns using force as an instrument to resolve conflicts, in partic- ular by a bigger state’s hegemony against a smaller one. . ECONOMY IN COMMAND: IN PURSUIT OF BUSINESS OPPORTUNITIES The hallmark of Singapore-China relations since l965 can best be described as “economy in command”. During the period from l965 to l975 and even at the height of the Cultural Revolution (hereafter CR) in China, for example and despite all the ideological polemics, the mutual suspicion and hostilities, including the Bank of China crisis in l969, economic inter- ests were the most important consideration. The trade data on Table 1 show that the volume of trade between Singapore and China ironically was at its peak during the period from l967 to l969, even at the height of the CR. In l949, the total amount of trade between the two countries amounted to S$453.3 million but did reach the S$593.3 million mark in l969, i.e. the highest in the twenty years period from l949 to l969.3) These data support the thesis that despite the political turmoil during the CR, ideology and trade were clearly separated in the diplomatic relations between the two countries during l965 to l975. In this sense, one can argue that geo-strategic considerations were not as important in China’s Singapore policy as was the case for Vietnam. Economic rationality was an important factor in China’s policy formu- lations towards Singapore, as the latter has historically always been per- ceived by China as an important gateway to Southeast Asia. This argu- ment can be supported by the seven great journeys by Zhen He (Cheng Ho) (1405-1433) to Southeast Asia during the early part of the l5th centu- ry. In fact, since the l9th century, after the Opium War (1840-1842) and with the establishment of Hong Kong as a British Colony, Singapore had increasingly emerged as an important hub in China’s trade with Southeast 3) See, Table 1, Singapore’s Trade with China: 1965-1999. See also Shee Poon Kim, “Singapore’s Foreign Policies Towards the People’s Republic of China since l965”, in ed by Theresa C. Carino, China ASEAN Relations: Political, Economic and Ethnic Dimensions, (Manila: De La Salle University, l99l), p.111.
2005 Singapore-China Special Economic Relations SHEE 155 Asia.4) From Singapore’s perspective, being a resourceless entrepot city, it had historically no choice but to be the middleman of all the trading nations, including China. Due to its strategic and well-located geographi- cal position, Singapore had emerged as an important middleman and re- export centre for natural rubber from Malaya to be exported to China and a distribution-centre for China’s goods to Southeast Asia.5) Singapore’s economic importance to China’s economic modernization can be seen from fact that Singapore has consistently been one of Beijing’s top ten economic partners in the areas of trade and investment in China. Singapore was also China’s largest overseas labour market and the second largest overseas contractual engineering market.6) How does one explain China’s special interest in Singapore? First, Singapore’s strategic location and infrastructure are one of the important factors. China can make Singapore as a centre for its trading in Southeast Asia because Singapore has the advantage of being an interna- tional trading and distribution hub for China. For example, Singapore has been the second largest oil-refining centre in the world next to Huston, Texas. With the discovery of oil in the l970s China could gain from Singapore to upgrade its oil products so that Beijing can meet the require- ments for its oil products in the international markets. Singapore, with its sophisticated technology, skills, market and industrial management, can share its experience with China. The Suzhou Industrial Park project (SIP), for example, is a good illustration that Singapore can transfer its modern management skills to China. China could use Singapore as a stepping stone for a regional opera- tion centre or a gateway to other markets (530 million people) in Southeast Asia. This could be seen from the fact that more and more Chinese compa- 4) Wong, John, The Political Economy of China’s Changing Relations with Southeast Asia, (London: MacMillan Press, l984), p.66-68. 5) For details of Singapore’s and Malaysia’s trade with China, see John Wong, The Political Economy of China’s Changing Relations with Southeast Asia, (London: MacMillan Press, 1984), p.65-91. 6) See, Xiao Zhengrong, “Sino-Singapore Relations: Its Present and Future”, unpublished Conference Paper, 11 August l998, Joint Seminar Between Singapore and The People’s Republic of China Research Institutes, (Singapore: East Asian Institute, National University of Singapore, 11 August l998), p.2; see also i.e. journal (international enterprise, a Journal published in Singapore), Issue 15 August 2004, at accessed 15 November 2004.
156 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 nies are operating in Singapore. Singapore can act as a middleman and regional representative to help China to get more markets and invest- ments. Furthermore, China can use Singapore as an area from which sophisticated technology from Multi-National Cooperations (MNCs) oper- ating in Singapore can be transferred to China. Second, the dynamic growth of Singapore’s economy for more than thir- ty years, with the exception of the recession in 1985 and l986 and the slow growth in 1997 and 1998, impressed China. The small ‘flying dragon’ can be a limited model for the big ‘flying dragon’ to gain inspiration and experience. Third, the ethnic bond and the cultural ties between Singapore and China added to the closer economic ties between the two countries. Singaporean Chinese businessmen have the ability to speak Mandarin and skilfully cultivate ‘kuanxi’ (connections) with their Chinese counterparts which may give them some advantage in doing business in China vis-à-vis other non-Mandarin speaking competitors like Malays, Indonesians, etc. It is easier for Chinese to communicate with Chinese speaking Singaporeans than with non-Chinese speaking foreign investors. Fourth, Singapore can be a useful place for China to raise international funds for its huge financial appetite for economic modernization. By 2004, there were 46 Chinese companies listed on the Singapore Stock Exchange.7) Fifth, Singapore’s political stability is an attraction to China to do business in the Island Republic. It was no coincidence that Deng Xiaoping visited Singapore twice that is in 1978 and 1981. Unlike other countries in Southeast Asia, domestic political inputs, such as pressure groups do not come into play in Singapore’s China policy. In Indonesia, for example, direct trade was suspended after the unsuccessful communist coup in l965, until Indonesia signed a Memorandum Of Understanding with China in July, l985.8) Domestic political considerations were one of the main reasons for Indonesia to suspend its diplomatic relations in l967 until August, l990.9) 7) See i.e. journal, Issue 15 August 2004 at accessed 15 November 2004. 8) Prior to l990, Indonesia engaged from time to time in pro and anti-China debates within Suharto’s military dominated government. The ABRI was the most important political group to set Indonesia’s China policies from l966 to l990. The Straits Times, (Singapore), 5 July l985. 9) See, Leo Suryadinata, Indonesia’s Foreign Policy Under Suharto, (Singapore: Times Academic Press, l996), p.121.
2005 Singapore-China Special Economic Relations SHEE 157 Sixth, the economies of both Singapore and China are more comple- mentary than competitive. Singapore’s open, modern, sophisticated urban economy can be complementary to China, which has vast and abundant labour and is rich in natural resources. China needs high-value added technology-based goods and services that Singapore can offer. Singapore requires China’s resource-based materials, which include among others such items as energy, industrial and agricultural raw materials and food- stuffs, etc. The bulk of China’s imports from Singapore mainly consists of electronic components, plastic resins, computers and computer peripherals and other industrial products. Thus the trade structure shows that there is a complementary need for each other’s economies. The comparative advantages and international specialization of both economies augur well for sound and stronger economic cooperation. Why does Singapore have special economic interests in China? From Singapore’s perspective, China with a huge population of close to 1.3 billion people is a very attractive market for Singapore’s “second- wing” strategy of regionalization and globalisation of its economy. China is an important partner for Singapore’s push for the free trade area zone in East Asia. As an clairvoyant and futuristic-oriented state, Singapore will benefit most by adopting a bandwagon strategy to fly together with the rising big dragon in the 21st century. As a ‘small dragon’, Singapore in fact has shown the ‘big dragon’ how to modernize its economy by transferring its management and governance skills to China. Not surprisingly, Singapore has been keen in promoting a bilateral free trade area with China besides actively pushing for multi-lateral free trade areas in the Asia-Pacific. The most recent attempt is to conclude a free trade area agreement between Singapore and China.10) As China has opened up since the late l970s Chinese Singaporeans (particularly Mandarin speaking Chinese businessmen) have been active- ly pursuing economic opportunities in China. When Deng Xiaoping embarked upon China’s economic modernization in the 1970s and early 1980s, the Chinese-speaking graduates from Nanyang University were the first batch of ethnic Chinese from Singapore who went to China in search for business opportunities. Singapore’s investments have been growing steadily, more so after the diplomatic normalization of relations 10) See accessed 13 November 2004.
158 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 on 3 October, l990. From l990 to June, l994, for example, Singapore has invested in more than three thousand eight hundred and thirty-four pro- jects in China amounting to a total contract volume of US$6.8l billion,11) and by the end of l997, Singapore’s actual investment increased to US$8.78 billion.12) By the end of 1999, the total contracted amount went up to US$34.3 billion with the actual amount being US$14.8 billion.13) From the ASEAN grouping, the Republic is the largest direct foreign investor in China. More than eighty percent of Singapore’s investments in China are in real estate, tourism and industrial parts. Among Singapore’s major investment projects is the SIP, the Wuxi Industrial Park, Shanghai Sanlin Housing Development, Beijing Xiangjian Garden, the Dalian Container Terminal, etc. Most of the investments are concentrated in southern China, mainly in the provinces of Fujian and Guangdong from where their ancestors came from.14) In 1996 alone, for instance, Chinese Singaporeans invested about US$418 million in Guangdong (about 3% of China’s FDI, and US$529 million (about 3.8% of China’s FDI) in Fujian Province.15) Over all, Singapore was the third largest foreign investor in Xiamen (Fujian Province)16) and the fourth largest in China in 2000.17) By the end of March 2000, Singapore became China’s seventh largest trading partner, whereas China was Singapore’s sixth.18) In 2004, China became Singapore’s fifth largest trading partner, whereas Singapore was China’s seventh largest foreign investor with more than 12’000 projects and a 11) Lianhe Zaobao, (Singapore), 6 October l994. 12) See, Xiao Zhengrong, Supra note 6, p.2. See also Business Times, (Singapore), 28 May l998. 13) Data provided by China’s Ambassador to Singapore, Her Excellency, Chen Baoliu, on 15 March 2000. 14) See John Wong, Southeast Asian Ethnic Chinese Investment in China, Institute of East Asian Studies (EAI), National University of Singapore (NUS) Working Paper No. 15, 23 October 1998, p.16. 15) See John Wong, Southeast Asian Ethnic Chinese Investment in China, October 1998, ibid., pp.27-28. 16) Lianhe Zaobao, 6 December 1997. 17) John Wong, “Sino-Singapore Relations: Looking Back and Looking Forward,” in Singapore China: 1990-2000, Commemorative Souvenir in Celebration of the 10th Anniversary of the Establishment of Diplomatic Relations Between The Republic of Singapore and The People’s Republic of China, (World Scientific Publishing Co. Pte. Ltd., 2000), p.75. 18) Data provided by China’s Ambassador to Singapore, Chen Baoliu, on 15 March 2000. See also John Wong, “Sino-Singapore Relations: Looking Back and Looking Forward,” in Singapore-China 1990-2000, Commemorative Souvenir in Celebration of the 10 th Anniversary of the Establishment of Diplomatic Relations Between The Republic of Singapore and The People’s Republic of China, (World Scientific Publishing Co. Pte. Ltd., 200), p.76.
2005 Singapore-China Special Economic Relations SHEE 159 cumulative contractual FDI value of about US$43.5 billion.19) China is complementary to Singapore as Beijing has the world’s largest relatively cheap labour force, which can be an attractive alterna- tive labour force to substitute the increasingly high labour and land costs of doing business in Singapore. Thus it is logical to transfer labour inten- sive light industries from Singapore to a developing economy like China. Singapore can also depend on China’s abundant semi-skilled labour-force to minimize its labour shortage problem. Finally, the new wave of Chinese migrants20) from China (mainly professional, semi-skilled and skilled workers) are important to sustain the continued growth in Singapore’s economy, especially in the areas of sophisticated technologies, like the life sciences, information technology, communication, etc. China can be an important alternative to minimize Singapore’s trade dependencies on advanced industrialized economies such as the U.S. and Japan. In the past, Singapore’s economy has been vulnerable to the oscil- lation of the economic health of the advanced industrialized economies, such as Japan and the U.S. It is mainly dependent on the MNCs.21) China can therefore be an important market to cushion off, to some extent, its lopsided trade dependency. Since the late 1970s Singapore has emerged as one of the leading trading partners for China. Table 1 shows that the trade volume between the two countries has increased steadily since the beginning of the l980s. In 1992, the total trade volume amounted to about S$5.48 billion (US$3.22 billion) and it increased to about S$ 6.95 billion (US4.27 billion) in l993. In l997, the total amount was about S$14.5 billion (US$9.14 billion), making Singapore China’s largest trading partner among the ASEAN states.22) In 1998, the total two-way trade increased to US$8.2 billion and rose to US$8.60 billion in 1999.23) China’s share of Singapore’s total trade was 4.2% (1998 data), whereas Singapore’s share of 19) Xinhua News, 2 November 2004, at , accessed 13 November 2004. 20) There are between 200,000 + 300,000. See Sin Chew Jit Poh, (Malaysia) 24 April 2004. 21) See, Shee Poon Kim, “Singapore in l99l: Endorsement of the New Administration,” Asian Survey, Vol. 32, No. 2, February l992, p.121. 22) See, Yearbook of Statistics, Singapore, 1993, l995 and l997, (Singapore: Department of Statistics). 23) China’s Ambassador to Singapore Chen Baoliu’s speech to NUS on 15 March 2000 enti- tled: China-Singapore Relations in the 21st Century. Goh Chok Tong disclosed that the total trade for 1999 was US$9.5 billion as compared to US$3 billion in 1990, an increase of 12% for each year. See The Daily Yomiuri, 4 October 2000.
160 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 China’s total trade was 7.5%.24) In 2003, the total two-way trade jumped to S$36.9 billion. 25) From January to September 2004 alone it already amounted to about US$22 billion (about S$36.1 billion)26) and by the end of the year, is likely to pass the S$40 billion mark. . ECONOMIC ISSUES The following sections deal with a) the trade deficit; b) the competi- tion over foreign investment funds; c) the changing roles of middlemen; d) whether Singapore can be a model for China’s economic modernization and finally a case study of the SIP. 1. Trade Deficit Since l949, but with the exception of l950, Singapore has been consis- tently suffering a trade deficit with China.27) Has this persistent trade deficit adversely affected political relations with China? From Singapore’s perspective, the trade deficit does not politically affect Singapore’s diplo- matic relations with China, as the problem has not been a serious political and economic issue. Imports from China to Singapore could be for re- export to Malaysia and Indonesia.28) Singapore benefited economically from the Suharto government’s suspension of diplomatic relations from l967 to l989, as there was no direct trade between Indonesia and China. Thus, Singapore and Hong Kong became the two destinations for the ongoing trade between Indonesia and China. The trade deficit did not lead to deterioration of diplomatic relations and to serious political conflicts, partly also due to China’s flexibility. From time to time, China offered special discount prices below those in the inter- national markets on its exports to the Southeast Asian countries so as to win their political friendship.29) In other words, China can be sensitive and 24) John Wong, supra note 17, p.78. 25) See Table 1 for trade data. 26) Xinhua English 2 November 2004, at accessed 13 November 2004. 27) See, Yearbook of Statistics, Singapore, from l950 to l997. See also Table 1, Singapore’s Trade with China: l965-1999. 28) Wong, John, supra note 4, p.117. 29) Shee Poon Kim, ‘The Politics of Thailand’s Trade Relations with the People’s Republic of China’, Asian Survey, Vol. 2l, No. 3, 1981, pp.310-24.
2005 Singapore-China Special Economic Relations SHEE 161 take certain measures to minimize the trade deficit between its trading partners so as to safeguard larger political and strategic relations with the ASEAN states, especially, for example, with Thailand. China could do the same, if necessary to minimize Singapore’s trade deficit vis-à-vis China. 2. Competition Over Investment Funds In one dimension, Singapore and China have been competing to attract foreign investments from the MNCs. Singapore is slowly loosing its competitiveness to China partly due to increasingly higher costs of doing business in the island Republic. In September l994, Siemens, a giant German MNC announced the company’s plan to establish its overseas headquarters in China and decided to reduce its investment in Singapore. The high cost of running its business in Singapore has deterred Siemens to invest large amounts of money in Singapore. Instead, in November, l994, Siemens announced that the company decided to invest US$3.5 bil- lions in Asia from l995 to the year 2000. About US$l billion and US$500 millions will be allocated to China and India respectively.30) From 1987 to 1993, China attracted FDI US$53910 million, whereas Singapore received US$33400 million in the same period. In 2000 China received US$40.7 bil- lion whereas Singapore acquired US$21.7 billion.31) China has the advan- tage over its neighbouring states when attracting more FDI, because the MNC’s perceive China as a future rising economic superpower in the 21st cen- tury. Singapore on the other hand is constrained by its size and population. Aware of the intense competition for foreign investments funds among the Asian states, former Prime Minister Goh Chok Tong raised the issue at the ruling People’s Action Party’s (PAP) anniversary dinner on 8th November, l994, in which he highlighted the adverse effect Asia’s rapidly changing economic order had for Singapore’s economic competitiveness. He described the opening up of China and India to foreign investments like switching on powerful big vacuum cleaners simultaneously which sucked away the low and semi-skilled manufacturing industries from the established centres, including Singapore. Furthermore, due to China’s huge population who provides a vast labour force, China has the advan- tage over Singapore to attract labour intensive industries to its cities.32) 30) Business Times, 11 October l994. 31) Shri Prakash, “China’s Relationship with the ASEAN Countries: Conflict Management in a Multi-Polar World,” in . p.9.
162 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 3. Changing Roles of Middlemen How can one minimize Singapore’s weaknesses and strengthen its com- petitiveness? One way is to change the role of the middlemen in Singapore’s economy. In order to compete more effectively, Singapore must go regional and global. The traditional role of its entrepot services must be widened to include a larger and wider range of services for the MNCs such as invest- ment consultancies, management, finance, information and intellectual ser- vices, joint partnerships, etc. One practical way, for example, is to form con- sortiums, which can be joined by western MNCs investing in China. Singaporeans’ rich experiences in doing business and their ability to speak Chinese and English adds to their advantage when performing the roles as “investment advisors” not only for western MNCs to invest in China but also for China’s state enterprises which want to invest in Southeast Asia. Similarly, Singapore and Taiwanese MNCs can form con- sortiums to invest in China as Singapore had signed an Investment Protection Agreement with China in September 1996 and the Double Taxation Agreement in April l986.33) Hence, Taiwanese MNCs registered in Singapore with Singaporean companies as their partners could thus be legally guaranteed of their investments in China. 4. Singapore as a Model for China’s Economic Modernization? Can Singapore be a model for China’s economic modernization?34) A Model connotes a framework, which can be used as a means to achieve certain goals. The extent of usefulness or application of a model from one country to another cannot be completely or comprehensively emulated, as the conditions of each state are different. Four prerequisites must be met for a meaningful transfer of a model to China. First, the country must have a culture and working ethics similar if not identical to China; second, that country’s economic development policies must have been tested suc- cessfully; third, the country has moved from a poor developing society to a prosperous industrialized nation. Finally, that political system must dis- 32) Lianhe Zaobao, 9 November l994; Business Times, l0 November l994; The Straits Times, 9 November l994. 33) See, Shee Poon Kim, supra note 3, p.108. 34) Former Minister of Finance and Deputy Prime Minister Dr. Goh Keng Swee was appoint- ed as advisor to the Chinese government in l985.
2005 Singapore-China Special Economic Relations SHEE 163 play tight political control in line with China’s centralized political system. The debates of how to make China a rich nation and have a powerful army has always been a central concern for China’s modernizing elite since the l9th century. Since Deng’s embarkment on the four moderniza- tions in l978, some Chinese thinkers believe that Singapore’s economic prosperity can be an alternative model to the Western model of “protes- tant ethics and the rise of capitalism.”35) Singapore seems to be qualified to be emulated as a limited model for China as it fulfils the above four pre- requisites, i.e. the efficient work ethics of Chinese Singaporeans with an authoritarian political culture, the role of the state spearheading economic development, and the ideology of economic pragmatism attract the top Chinese leaders’ attention. In November l978, for example, when Deng Xiaoping visited Singapore, he was deeply impressed with Singapore’s economic achievement. Two years later, i.e. in l980, Jiang Zemin visited Singapore. He too, was impressed with the success of the Jurong Town Corporation’s Industrial estate. Likewise, in August l98l, the then Chinese Premier Zhao Ziyang while visiting Singapore, praised the island Republic for its achievements in managing economic and social development.36) In June, l990, the then mayor of Shanghai, Zhu Rongji who later became Prime Minister of China came to Singapore to study public housing, social security and how to attract investments for the Pudong Special Economic Zone.37) In the minds of the Chinese leaders, Singapore can be used as a possi- ble limited model to emulate. It can be argued that Singapore can share some of its experience of economic development, skills of management of a modern city with China because, first Singapore’s thriving economy and prosperity has proven that a majority of ethnic Chinese with hard working ethos can ensure economic development and success.38) Second, Singapore’s political stability, law and order appeal to the top Chinese political lead- ers. Finally, Singapore’s success in managing corruption also has attracted 35) Max Weber, The Protestant Ethic and the Spirit of Capitalism, (New York: Charles Scribner’s Sons, l958). 36) See, The Straits Times, 12 August l98l; The Mirror, (Singapore), l September l98l; Singapore Bulletin, September l981. 37) Tan Kong Yam, “Singapore’s Role in the Economic Development of China,” (Singapore: National University of Singapore, Faculty of Business Administration, Working Paper No.55 1991), p.12. 38) See, Hung-Chao Tai, ed., Confucianism and Economic Development, (Washington D.C.: The Washington Institute Press, 1989), pp.214-18.
164 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 China’s interest. Singapore’s model of political authoritarianism and economic liberal- ism attracted the top Chinese leaders as they witnessed the collapse of Gorbachev’s Perestroika and Glasnost policies, which brought about the collapse of the communist system. Moreover, Chinese leaders do not accept either the Western model of modernization, which would necessitate development along the Western line of liberal democracy. However, there are constraints and limitations in applying Singapore’s model to China. First, historically, Singapore has always been performing the role of a middleman entrepot economy, whereas China was mainly a peasant economy. Singapore is a small city-state whereas China has a huge hinterland economy. Second, Singapore’s economy is based on the principles of an export- oriented open free-market economy, whereas China’s economy is extensive- ly controlled by the state. Hence how can a free-market export economy be fitted into a socialist Chinese economy with capitalistic characteristics? Third, it is difficult for the ruling CCP government to do away with the socialist ideology, as it is the basis of legitimacy of its rule. Hence, any attempt to emulate liberal capitalism can result in ideological debates and conflicts in the Chinese political system. Can China therefore preserve socialism as its state ideology and follow capitalism for its economy? How can Singapore’s unique ideology be transferred, which can be described as “encompassing the pragmatism of America, the rules of law of the British, the democratic socialism of the Europeans, and Chinese Confucianism”.39) In other words, when looking into the feasibility of transferring a model from one society to another, the uniqueness of culture and ideology of these societies has to be taken into consideration. The top Chinese leaders however, are fully aware that their political tradition, culture, social and economic conditions are very different from Singapore. China is now at the crossroad. On the one hand, China cannot reverse its course of modernization and open policies, which will inevitably bring about political democratisation in the political system, but this political modernization, will result in the challenge to the authority of the CCP rule. On the other hand, without political modernization, China cannot sustain its economic growth in the long run. As Lee Kuan Yew argued, the 39) The Straits Times, 12 April 1994.
2005 Singapore-China Special Economic Relations SHEE 165 CCP may not want to give up control of the government, but China cannot avoid changing its system now that communism has proven to have failed across the globe.40) But foreign policy influences that come along with for- eign investments cannot be avoided.41) Challenges to the CCP rule and erosion of the leadership’s legitimacy and authority are inevitable as the society is becoming more pluralistic and open and its economy more afflu- ent. Furthermore, as China became a member of the World Trade Organisation (WTO), the process of globalisation will further erode the hegemony of the CCP’s rule. Clearly, globalisation has brought about the retreat of the authority of the state and strengthened the market forces in the Chinese domestic economy. Suffice it to argue that in view of the above differences, the Singaporean model cannot be comprehensively applied to China’s unique conditions. Singapore’s model, which works for the island Republic, may not be totally practicable in China. However, as a latecomer to modernization, China can minimize making mistakes by avoiding the pitfalls from the experi- ences of the New Industrialised Economies (NIEs) in Asia, including Singapore. In this sense, Singapore can share some of its useful and limit- ed experiences of the management of a sophisticated modern economy and even its pitfalls with China. The latter will have to decide ultimately which part of the model could be emulated and which part should be avoided. The SIP, a joint project to create a modern town in China by Singapore is a good example, where Singapore can share its experiences in creating a modern sophisticated industrial city in China. From 1994 to 2000, about 140,000 Chinese officials from different areas visited the SIP to learn and adopt the model to their own cities and development zones.42) Modernization connotes three dimensions, i.e. firstly, physical (i.e. infrastructure); second, institution-building; three, changes of values and ideology. The physical dimensions are less problematic than the second and the third dimensions. The creation of the SIP project, based on Singapore’s Jurong Town model, a transfer of ‘software’ to China was not too difficult, though some adjustments were necessary to suit the local conditions in Suzhou. However, it would be impossible to transfer 40) The Straits Times, 25 September l990. 41) Gerald Segal, “The Challenge of China’s Foreign Policy,” Asian Affairs, Vol. 21, Part III, October l994, p.274. 42) The Straits Times, 6 May 2001.
166 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 Singaporean values and ideology to a socialist/communist state, as the Chinese themselves have not defined exactly what “socialism with Chinese characteristics” entails. Culture, especially values are difficult to transfer. Hence, before China decides which model to emulate, some of these fundamental questions need to be answered. First, what is modern- ization for? Second, what does China hope to achieve? What are the moti- vations and the aspirations of the people? 5. The Suzhou Industrial Project: A Case Study of a ‘Build, Manage and Transfer’ Model In September 1992, both then Senior Minister Lee Kuan Yew43) and Ong Teng Cheong, the then Deputy Prime Minister visited Suzhou. Suzhou’s Mayor, Zhang Xinsheng then requested Lee Kuan Yew to help to industrialise Suzhou like Singapore.44) In 1992, during Deng’s Nanxun (southern trip), he personally instructed the CCP and local officials to learn from Singapore’s development experiences. Deng chose Singapore partly because he perceived the island Republic fit into his image as a sin- isized state and partly because China could not emulate the developmen- tal model of either Hong Kong or Taiwan due to political sensitivity. Moreover, Singapore’s population is predominantly ethnic Chinese and thus shares part of the common cultural heritage and linguistic affinity. The diplomatic normalization in October 1990, made it easier for China to seek closer ties with Singapore. From 1992 onwards, after Deng’s open endorsement of learning from Singapore, many Chinese officials and bureaucrats from national, provincial and city levels came to Singapore to conduct field studies on the Singaporean economic and social development experiences, ranging from studying Singapore’s public housing pro- gramme, social security, that is the Central Provident Fund (CPF), port authority, to industrial management, etc. In February 1994, Lee Kuan Yew and China’s Vice-Premier Lee Lanqing formally signed an agreement to develop a seventy-kilometre industrial park based on Singapore’s Jurong Industrial Park experience. The total cost of the SIP was estimated to be about US$20 billion, to be fully devel- 43) Lee Kuan Yew became Mentor Minister in Lee Hsien Loong’s Cabinet since 12 August 2004. 44) Memoirs of Lee Kuan Yew, From Third World to First, The Singapore Story: 1965-2000, (Singapore: Times Media Private Limited, 2000), p. 719.
2005 Singapore-China Special Economic Relations SHEE 167 oped in twenty years and based on a Singaporean style of industrial, resi- dential, recreational community with a population of six hundred thou- sand providing employment for three hundred and sixty thousand work- ers.45) The first phase of the SIP’s development covered eight square kilome- tres. A company by the name of China-Singapore Suzhou Development (CSSD) was set up as a joint venture enterprise between Singapore- Suzhou Township Development (SSTD), a Singaporean consortium (twen- ty-four companies) led by the Keppel group, which is a Singapore govern- ment linked company and its Chinese counterpart, Suzhou Industrial Park Corporation (SIPC). Singapore took up 65% whereas its Chinese counterpart subscribed to the remaining 35% equities. The central govern- ment of China and Singapore agreed that the objective of the SIP was “software” transfer from Singapore to China. From Singapore’s perspec- tive, the aim was to run and manage an administrative system in Suzhou. It was hoped that the SIP would create a favourable business environ- ment, attracting high-tech companies from among MNCs, generating more jobs and finally to improve the economic well-being of the Chinese workers and employees in the SIP. Although the CSSD works as a commercial prof- it-oriented entity, like any private business enterprise, Singapore hoped that the SIP could be a model of a Singaporean success story, which, if suc- cessfully implemented in Suzhou, can be extended to other Chinese cities. In other words, from Singapore’s perspective, Singapore hoped to “Singaporeanize” the Chinese in Suzhou, a political vision that cannot be ignored. Singapore took the SIP very seriously in particular Lee Kuan Yew himself who had a stake in seeing directly the developing of a successful industrial park in Suzhou. Initially, the development of the SIP went off as planned from 1994 to 1997. By July 1998, the first phase of the eight square kilometre area was already completed with one hundred and three projects worth US$3.19 billion commitments out of which eighty-six indus- trial projects were worth US$2.63 billion.46) Sixty companies started pro- duction and twenty-six companies were under construction. By the end of 45) Asia Times, 22 August 1996. See also Henry Wai-chung Yeung, “Local Politics and Foreign Ventures in China’s Transitional Economy: The Political Economy of Singaporean Investments in China,” Political Geography, Vol. 19 (2000), p.830. 46) Data presented by Singapore’s Ministry of Trade and Industry on 8 July 1998 during a presentation of one of its senior staff to a group of Chinese scholars.
168 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 1998, the contractual commitment by foreign companies amounted to US$5.8 billion with an actual amount of foreign investment worth US$2.54 billion. Twenty-five of the world’s top five hundred companies invested in the SIP with an average investment each amounting to US$30 million.47) The largest foreign investment company was New Zealand based, namely the Lion Beer Companies, which invested about US$340 million in the SIP to produce beer.48) By April 2001, Philips became the largest investor in the SIP with a commitment of US$1 billion. 49) By September 2000, the accumulated contractual foreign investment reached US$7.383 billion with an utilized capital totalling US$3.888 billion. By the end of 2002 the total contractual foreign investment is expected to be more than US$10 billion, with at least US$5 billion utilized foreign investment.50) By 2003 the SIP successfully attracted more than 1300 pro- jects with cumulative contractual investments of US$15 billion whereas the actual foreign investments over the past ten years amounted to US$7.2 billion.51) In April 1998, the SIP launched a CPF scheme, the first one in China’s industrial relations. There were sixty-nine companies with four thousand and two hundred and eighty-three employees participating in the CPF scheme worth RMB41.6 million.52) However the development of the SIP was not without its problems. By the end of 1997, there were conflicts between Singapore and the Suzhou local authorities. Apparently, the con- flicts started mainly due to the local authorities’ decision to compete with the SIP from another industrial park set up in the late 1980s at the Suzhou New District (SND) run by the Municipal government itself. In November 1998, Suzhou’s vice-major, Wang Jinhua leading a group of Suzhou officials visiting Germany, told a group of German investors that 47) Lianhe Zaobao, 28 December 1998. 48) In 1997, the Lion Beer Co. established a regional headquarter in Shanghai and employed about one thousand four hundred employees. See Lianhe Zaobao, 28 December 1998. 49) The Business Times, 28 April 2001. 50) Synergy, SIP Quarterly July-December 2000, pp.3-4. 51) Data provided in Senior Minister Lee Kuan Yew’s speech of 10 June 2004 in Suzhou at the ceremony to mark the achievements of Suzhou Industrial Park’s 10th anniversary, at accessed 21 November 2004; see also China Daily, 18 May 2004, at accessed 21 November 2004, and , accessed 21 November 2004. 52) Data presented by the MIT on 8 July 1998, op. cit.
2005 Singapore-China Special Economic Relations SHEE 169 they should put their money in the SND which has the full support from the local authorities.53) What was disturbing to Singapore was that the Suzhou delegation advised the German investors to invest in the SDN directly and not via Singapore.54) Another example to show that the local authorities tried to use Singapore’s brand name for its benefit, was the naming of the SND website as “CS-SND”, very similar to the CS-SIP. The “CS” was an abbreviation of “China-Singapore” whereas the other “CS” stands for the local authorities as “China-Suzhou”.55) In Singapore’s view, this is an unfair practice on the part of the Suzhou local authorities. Furthermore, these incidents, together with other difficulties encountered with the Chinese counterparts prompted Singapore to bring up this con- flict openly to the highest authorities in Beijing when Lee Kuan Yew met Jiang Zemin in December 1997. While there, Lee Kuan Yew explained why Singapore decided to bring the SIP conflict versus the rival park into the open. “I have decided that this is an impossible situation and should be resolved once and for all. Otherwise, I will be here every four months, trying to sort things out, and that’s not my job. My job is to get it started, come here once a year, read reports in between, give it an extra push, an added impetus now and then, but not to come fire-fighting every few months.”56) Singapore, in particular Lee Kuan Yew felt that the rivalry between SIP and SNP was unnecessary and wasting time and efforts. Since the central government has openly expressed full support for the SIP, there was no need to have two industrial parks. In Lee Kuan Yew’s view, to have two industrial parks in Suzhou is like having two soccer teams competing for each other instead of playing together as one team, which has better chance to achieve maximum results.57) Lee Kuan Yew was right. The SIP’s performance improved and generated profits by the end of 2001 after Suzhou Vice-Mayor Wang Jinghua became the CEO from January 2001 onwards. Wang decided to terminate all links with the SIP’s rival SND industrial park and to make CSSD a profitable company under his stewardship.58) How can the conflict between the SIP and the SND industrial park be 53) The Sunday Times, 14 December 1997. 54) The Sunday Times, 14 December 1997. 55) The Straits Times, 10 December 1997. 56) The Straits Times, 10 December 1997. 57) The Business Times, 5 December 1997. 58) The Straits Times, 6 May 2001.
170 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 explained? First, the difference between Singaporean political values and atti- tudes and the local authorities in Suzhou was one of the causes. In essence, Singaporean political culture is different from Chinese political culture. Singapore is “ruled by law” whereas China is “ruled by men”. Since politicians are fallible, especially at the local level and are paid mea- gre salaries, there are always some irresistible temptations to be corrupt. As Michael Leifer observed, “In the case of the Suzhou project, the impedi- ment to fruitful economic cooperation had been a culture of corruption at the local level that had not been overcome by a common culture in the tra- ditional sense.”59) Lee Kuan Yew admitted that there was no meeting of minds between the two sides. Furthermore the subtleties of the Chinese language could be another cultural factor contributing to the difficulties. “Probably because I spoke in English rather than in Mandarin, he (Jiangsu province governor Zheng Silin) understood perfectly what I meant, that we should be in the same team, wearing the same jerseys, not in two teams kicking in each other’s goals. It was a different story with Jiangsu Party Secretary Chen Huanyou however.” Lee Kuan Yew said, “I made the mistake of speaking in Mandarin. My mandarin is not good enough to convey the intricacies of international economics.”60) Furthermore, part of the difficulties was also due to the inability of the local authorities in Suzhou to understand the intricacies of international economics as Lee Kuan Yew said, “I don’t think they understand the intricacies of international marketing. If they did, they would not be in the position contrary to their interests.”61) Is the inability to know the Chinese language a liability in doing business with China? Initially, it can be a problem, which can be overcome. However, language is more than an instrument of communication. Language connotes cultural values, attitudes and expectations. There was 59) Michael Leifer, supra note 2, p.121. 60) The Straits Times, 10 December 1997. 61) The Straits Times, 10 December 1997.
2005 Singapore-China Special Economic Relations SHEE 171 clearly a conflict of goals and expectations on both sides. As former CSSD chief executive officer Lim Neo Chian (a Singaporean) admitted: “The issue is really that there are these differences – of one side having certain expectations and we, on our side, having certain expectations.”62) However, the local authorities in Suzhou expected Singaporeans to know about the cultural differences in China as Chen Seming, mayor of Suzhou said, “When you (Singaporean) or your joint-venture partner decided to invest in China, you must take into account our cultural differences.”63) Although both Singapore and the central government in Beijing want- ed Singapore to transfer the “software” to Suzhou, the local government was mainly interested in “hardware” transfer. The local government want- ed Singapore to build more factories, which could provide more jobs, earn- ing more money and more collection of revenues for the local government. These conflicts show that the Chinese political system is much more com- plicated than its Singaporean counterpart as they are more levels of authorities, including the provincial, municipal, district and the central government which are involved in the joint venture of the SIP. The conflict of interests “is an institutional outcome of “fiscal politics” in a shifting cen- tral-local relationship during an era of decentralization and local autono- my in China.”64) Thus the SIP shows the conflicts of the priorities of inter- ests between the central and the local governments in China. The top leadership in Beijing may not necessarily be informed what has happened at the grass root level. While the SIP is a joint venture project endorsed by both Singapore and China, it however appears that the Central govern- ment in Beijing has little inputs in the implementation of the SIP, as most of the decision-making was made at the local level. Second, the main reason for the conflict was the continuing losses incurred by the SIP. By September 1999, it was reported that the SIP pro- ject would have accumulated losses of US$60 million by the end of the year 2000; the incurred financial loss would be about US$77 millions.65) From Singapore’s perspective, the main reason for the SIP loss was the fierce competition and undercutting of prices on the part of SND, besides 62) The Straits Times, 30 June 1999. 63) The Straits Times, 30 June 1999. 64) Henry Wai-Chung Yeung, supra note 45, p.831. 65) Business China, 17 January 2000, p.8; International Herald Tribune, 10 October 1999; The Straits Times, 27 May 2001.
172 RITSUMEIKAN INTERNATIONAL AFFAIRS Vol. 3 aggressive marketing by the local authorities for the SND. However, the SND municipal authorities denied any attempt at undercutting the SIP joint venture. As a Chinese official from Suzhou’s Foreign Economic Relations and Trade Commission said, “We have treated both zones fairly. In fact, common consensus within the government agrees that the SIP has received more preferential policies than the SND… [The two zones] are both sons of our city; we would likely to see both of them grow up and prosper.”66) Despite Singapore’s efforts to persuade the local authorities of Suzhou to only focus on the SIP for developments, they refused to comply. Thus Singapore decided to scale down its further commitment to the develop- ment of the SIP in order to minimize further loss of money. As a face-sav- ing arrangement, both the Singaporean and the Chinese counterparts signed a memorandum of understanding in June 1999 in which Singapore reduced its equity from 65% to 35%, whereas the Chinese counterpart increased its share from 35% to 65%, thus becoming the major developer of the SIP. Both sides agreed that upon completion of the eight square kilometres park, it would be handed over to the Chinese partner by the beginning of January 2001. After Singapore transferred the SIP to China on 1 January 2001, Suzhou’s vice-major, Wang Jinghua took over the position of the CEO from Singapore’s Lim Neo Chian. Wang decided to relinquish all ties with the SIP’s rival, the SND industrial park and concentrate all energy to turn around the CSSD from a loss making into a profit generating company as the most important goal of his administration. By 7 May 2001, when the SIP celebrated its 7th anniversary, it was reported that for the first time since its operation in 1994, the SIP will be able to make a projected profit of US$7.5 million (S$13.5 million) to US$10million for 2001 and 2002 respectively, a reversal of the previously accumulated loss of US$77 mil- lion at the end of 2000.67) The SIP has become so successful that it con- tributes 10% of Suzhou’s GDP.68) By the end of April 2001, the SIP was 66) Business China, 17 January 2000, p.8; International Herald Tribune, 10 October 1999. 67) This data was disclosed by China’s Ambassador to Singapore, Zhang Jiuhuan, The Straits Times, 27 May 2001. 68) The per capital GDP in the SIP is around US$9200.… (year 2000 data), compared to
2005 Singapore-China Special Economic Relations SHEE 173 able to attract about US$8 billion of investment funds with about 37 of Fortune’s 500 multinational companies investing in the SIP.69) What is the explanation for SIP’s turning around from loss to profit? First, the main reason is the local Suzhou authorities’ decision to elimi- nate competition from the SND, which was the main reason for the losses the CSSD incurred. As mentioned earlier, Lee Kuan Yew publicly took issue in 1997 with Wang Jinhua for making unfair remarks about the SIP to German investors.70) With China now having 65% of the equity stake in the SIP, Wang has vested interests not to send any promotion teams abroad for the SND to compete with the CSSD as he did previously. Second, with credit to Singapore, the Singaporean team has built a first class, competitive and high quality industrial park which is able to attract transnational companies, such as Hitachi, Samsung, Solectron (electronic components), Philips, Advanced Micro Devices, Volex and Bosch, etc.71) Furthermore, the SIP has the advantage of “transparency, no hidden cost, quality and reliable infrastructure and good customer support for expan- sion in the park”.72) In June 2001, Lee Kuan Yew made a trip to Suzhou in connection with the celebration of the seventh anniversary of the development of the SIP. He met Jiang Zemin on 8 June in Suzhou and was assured by him of China’s interest to upgrade cooperation with Singapore on the SIP. Jiang Zemin praised Lee Kuan Yew for his contribution to the development of the SIP when he told the Singaporean leader: “In coming to the Suzhou Industrial Park, one would inevitably think of you. You are the pioneer who initiated the idea for the Suzhou Industrial Park.73) This time, Lee Kuan Yew was optimistic about the SIP’s future, as in his assessment, the SIP has a good chance to reverse its past financial loss into profit. Lee Kuan Yew assured China that Singapore would continue to transfer soft- ware programs to Suzhou as long as China finds it useful.74) “It is impor- US$3200.…for the whole of Suzhou and over US$800.… for the whole of China. The Straits Times, 27 May 2001. 69) The Straits Times, 27 May 2001. 70) The Straits Times, 27 May 2001. 71) Bosch’s managing director, Helmuth Kuklinski explained that Bosch decided to invest in the SIP because of ‘the Park’s Institute of Vocational Technology, which provides for train- ing high school graduates for the training floor.’ The Straits Times, 27 May 2001. 72) The Straits Times, 27 May 2001. 73) The Straits Times, 9 June 2001. 74) The Straits Times, 9 June and Lianhe Zaobao,14 June 2001.
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