Asia Times: Singapore nervously eyes emergence of Chinese dragon


	August 23, 2001	atimes.com

Southeast Asia

Singapore nervously eyes emergence of Chinese dragon
By Kalinga Seneviratne

SINGAPORE - The rise of China's economic power is sending shivers down the spine of Singapore's economic planners.

That is because the city state is increasingly seeing the production bases set up here by multinational firms - whose export-oriented manufacturing plants were key to Singapore's phenomenal economic rise - moving northward to China. These multinational corporations (MNCs) are drawn by the opening up of China's economy and its far lower labor costs and even more obedient workforce, causing concern among planners in this city state of 3 million people, 70 percent of whom are of ethnic Chinese descent.

Singapore's export-oriented economy, after all, has raised its living standards from Third World to First World within just a generation. Likewise, one of the pillars of its economic growth in the last three decades has been the export-oriented manufacturing plants, especially for electronic components, set up here by MNCS.

An 18-page economic survey, released here this month by the Ministry of Trade and Industry (MTI), warned that the prospect of the crouching tiger Taiwan joining its economy with China could turn it into a hidden dragon - one whose breath could puff out some of Singapore's business activities.

The study looked at several possible outcomes on how Singapore will be affected by the growing embrace of the Chinese and Taiwanese economies. One outcome saw the two feuding neighbors - China considers Taiwan a renegade province - turning into business buddies. This would have "serious implications" not only for Singapore, but also for a "weaker and fragmented" Association of Southeast Asian Nations (ASEAN), warned the MTI report.

The second scenario the study painted was a rosier one for Singapore. In this case, it said, Taiwan-China relations would remain tense. Singapore could carry on its role of being the "reverse gateway" for investments to China, providing the vital link between Taiwan and the mainland. Investments brought in here by Taiwanese business will have a flow-on effect on Singapore's banking and manufacturing sector.

It is likely that Singapore will be faced with the first scenario.

According to an analysis in the Straits Times newspaper last week, many Taiwanese enterprises have moved their manufacturing bases to China, while keeping their headquarters in Taiwan. This move is taking place under the very nose of politicians who are bickering over the issue of integration of the mainland and Taiwan, because Taiwanese high-technology companies have decided that it is better to make use of China's low wages to remain competitive in the global market.

The outward shift of export-oriented production bases is also worrisome to Singapore because it comes after two consecutive quarters of negative growth in its gross domestic product (GDP), which has put the city state in a technical recession. In the last quarter, 5,600 people have lost their jobs and things are likely to get worse with estimates of up to 20,000 people losing their jobs this year. Most of this would be due to MNCs closing shop here and moving to cheaper locations in Asia - especially China.

In addition to losing its manufacturing plants and in turn fueling unemployment here, Singapore also faces the added burden of facing competition from China for its manufacturing products in the global marketplace. According to latest figures from the World Trade Organization (WTO), Singapore's merchandise exports have fallen in the last year, shrinking its share of the global export trade by 0.5 percent. By comparison, China's has risen by 3.5 percent during the same period.

The cornerstone of Singapore's success in the last two decades has been its export of electronic components to the US market. But since 1997, China has been challenging this, cornering 10 percent of the US market, while Singapore's share has dropped by about 5 to 6.7 percent share of the market. China has also overtaken Singapore's share in the European Union market for the same components, commanding a 9.3 percent share to Singapore's stagnant 6.7 percent share.

With the downturn in the US market for electronic goods, Singapore has been hit twice, raising questions here about its development strategy. Figures from the Trade Development Board (TDB) show that among Asian countries, Singapore is the most dependent on the electronics export market for economic growth. Singapore's electronic exports account for 66 percent of its non-oil domestic exports, while in the other two Asian powerhouses in this trade - South Korea and Taiwan - the figure is less than 40 percent.

"If our manufacturing sector continues to depend largely on electronics to grow, we will have a highly volatile Singapore economy. Instead of steady growth, we will have a see-saw pattern of economic growth," warned Deputy Prime Minister and Defense Minister Dr Tony Tan in a speech to the Economic Society of Singapore last week. He argued that Singapore needs to remedy this over-concentration of the manufacturing sector on the export of electronic goods. Dr Tan is the first Cabinet minister to talk publicly about the need to curb this dependence on electronic exports.

Malaysian venture capital and acquisition strategy consultant, V Sivapalan, writing in the New Straits Times last week, cited Singapore's experience in seeing production hubs moving to cheaper locations like China an example for countries like neighboring Malaysia to watch out for. "Even the tax and financial incentives offered to these MNCs are never enough to keep them, if labor and operational costs make the difference between profitability and liquidation," observed Sivapalan.

He added that it is not only the low-cost producer factor that makes China a formidable competitor to the manufacturing industry in Singapore, but also its marketing strategy. He said other low-cost manufacturers in the region - Indonesia, Myanmar, Vietnam and India - have not been that successful in marketing their products overseas. "Other than being a low-cost producer, China is also savvy at marketing its products," noted Sivapalan.

So, for countries like Singapore, analysts see very tough going for a few years until a clear strategy emerges. MTI's chief economist Tan Kong Yam told a recent media briefing that there is always a darkest period before dawn, but at this stage there is no telling for sure how far away that dawn is.

MTI officials said that although there are downsides to China's rapid rise, there are also lots of opportunities to be exploited in the Chinese market once Beijing joins the WTO. They also reckoned that India's expanding economy provides many opportunities for Singaporean business - and that Singapore is better placed than Hong Kong or other North Asian countries to leverage the opportunities in India.

Singapore also plans to latch onto the growing Chinese tourist market, with the island republic planning to hike the current number of half a million visiting Chinese a year to 1 million in a few years - and even more.

The way for Singapore to get out of this recession is to build up an "enterprise ecosystem," said Deputy Premier Tan. By this he means creating a network of businesses of all sizes reinforcing each other by using knowledge-based technology.

Thus, the next stage of Singapore's economic development is expected to focus on developing homegrown service industries with the regional market - including China - as the focus.

(Inter Press Service)

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