It has not been so long since China-Singapore relations were fraught with tension. In July of 2004, Lee Hsien Loong, then deputy prime minister of Singapore, visited Taiwan and offered to facilitate talks between Formosa and the PRC. An infuriated Beijing reacted with a stern reprimand: Singapore must observe the "One China" rule or face consequences.
Since the Taiwan incident almost two years ago, Singapore-China affairs appear to have sweetened. This past year, two-way trade between the two nations was around US$30 billion. Singapore was China’s seventh-largest overall trading partner, and, if one factors in the trade figures of Hong Kong and Taiwan, it jumps to fifth.
The China-ASEAN Free Trade Agreement (FTA) was brought to fruition primarily through the efforts of Singapore and its special access to Beijing. Singapore, incidentally, is the largest ASEAN trading partner of China, with over 20% growth in trade in each of the past two years.
Is this the beginning of a special relationship? Proponents of this view will point out that the majority of Singaporeans are of Chinese origin, sharing a language and a host of cultural attributes with the mother country. As China continues its "peaceful rise" towards Asian hegemony, they say, this bilateral relationship will become all the more intertwined.
In 1994, this rationale factored into then Prime Minister Lee Kwan Yew’s decision to pursue the massive Suzhou Industrial Park ("SIP") project. As much as US$30 billion was slated to be pumped into in the SIP, with the idea of recreating a "mini-Singapore" over the next 20 years. The ambitious design of the project figured to transform the SIP into a sprawling 70-kilometer showcase of state-run capitalism.
But the SIP did not progress on the grand scale that was envisioned. To blame were the usual impediments to doing business in China: vagaries of the law, excessive controls and red tape, and cronyism. While there continues to be a robust amount of direct investment flowing from Singapore to China (last year Singapore businesses invested over US$5 billion in more than 2,300 projects) many caveats remain.
So which country needs the other more? History and geographic location have endowed Singapore with unique advantages. As was the case with Hong Kong, the British did not simply leave behind a sound and transparent legal structure; they also left a functioning administrative system, efficient governmental institutions and a gold-mine of old British and European trading houses. This good fortune, combined with the well-known economic revolution over the last 40 years, has resulted in the deveopment of Singapore into a key global financial center.
Chinese firms need access to Singapore’s financial markets. As of this year, some 90 major Chinese companies are listed on the Singapore Stock Exchange, representing a value of over US$1 billion. Envisioning a similar financial hub anywhere in China (other than Hong Kong) is improbable – although there are high hopes for Shanghai. Beyond the obvious FDI benefits to Chinese companies seeking access to capital, China would do well to emulate elements of Singapore’s success formula. This extends beyond economic policies: what large Chinese metropolis, for example, couldn’t use a healthy dose of Singapore’s urban planning aesthetic, from its cultivated green spaces and landscaping to preservation of historical architecture?
Singapore’s economic growth, on the other hand, requires access to both China’s consumer market and its labor pool. The future of the city-state depends on carving out a niche in the high-tech/biotech sectors. Other than oil refining, four out of five of Singapore’s top exports to China are high-tech (integrated circuits, micro-electron modules, automatic data processing equipment and related high-tech goods). Thus, Singaporean firms must confront the familiar issues of IPR theft and a business ethos that, so far, has not cultivated a healthy entrepreneurial climate.
Ironically, cracks and fissures are forming under both the Chinese and Singaporean systems. For China to create an environment that rewards entrepreneurs and safeguards innovation, the autocrats must strike a balance between intrusive bureaucracy and precarious laissez-faire. Singapore’s paternal government, on the other hand, in addition to economic controls, has manipulated every aspect of civil, political and social life of its citizens. This has stifled creative market forces, particularly among the young. How both governments react to these challenges will affect not only their bilateral relationship but the greater Asia Pacific economic landscape.
Despite the strong economic ties that bind Singapore and China, other geopolitical forces in Asia will compel Singapore to simultaneously seek closer ties with the West, particularly America. There are looming regional balance-of-power and geopolitical issues involving China and other Asian powers. That Singapore should play a role as some kind of an intermediary is likely; whether this invites another scolding from China remains to be seen.