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MORE CHALLENGING ENVIRONMENT AHEAD
The next ten years will be tougher than the last ten.
Our operating environment has changed tremendously. We are
now in a new phase of global development. There is only one
pre-eminent world power - the US. Nevertheless, the US cannot
ignore the rapid emergence of China.
US-CHINA RELATIONS
Indeed, the US-China relationship will be the defining factor
in global economics and politics in the coming decades. If
it goes wrong, Asia will suffer. The US sees tremendous opportunities
in China's economic growth, but at the same time, it worries
over China's growing power.
How US-China relations will evolve is still too early to
say. President George W Bush spoke to President Jiang Zemin
on the telephone recently. According to President Jiang, "Although
it was not a video phone where I could see his facial expression,
from his voice, I could feel that he was a President we can
do business with." I hope that when the two Presidents
meet in Beijing in October, and see each other's facial expressions,
they will find that they can do business with each other.
EAST ASIA
Within East Asia, there are other flashpoints. Cross-strait
relations between China and Taiwan are troubled. The momentum
of reconciliation between the two Koreas has slowed down.
In the South China Sea, several countries claim the atolls
and reefs there. If this leads to conflict, sea-lanes of communication
and international trade will be disrupted, affecting us.
The outlook for our immediate neighbourhood also remains
uncertain.
Indonesia has just elected a new President, the third in
three years since Soeharto stepped down in 1998.
President Megawati inherits a country in which parts are
threatening to break away, and the economy is in a grave state.
Indonesia will take many years to recover.
The Malaysian economy bounced back quickly after the 1997
Asian financial crisis. However, international investors remain
wary.
Other countries in ASEAN are also facing various difficulties.
As a result, ASEAN is at a low point. Investors are negative
about the region's prospects.
Singapore will feel keenly the effect of this uncertainty
in the region.
THE CHINA CHALLENGE
Moreover, our economy is uncomfortably sandwiched between
the developing and developed economies.
Many developing economies are fast catching up with us in
technological capability. What's more, they have much lower
costs of production. For example, our wages for manufacturing
workers are more than 12 times that in China and India. Our
industrial land costs about US$300 per square metre. In Shenzhen,
it costs below US$10. Fortunately, we are no longer competing
in low-end manufacturing, where low wages and low land prices
are critical.
But still, China poses a big economic challenge. Some economists
describe China as an "800-pound trading gorilla".
A Hong Kong newspaper added that this gorilla was "very
hungry".
In the early 90s, China took 20% of the total foreign direct
investment into East Asia (excluding Japan), while ASEAN absorbed
50%. Today, the numbers are reversed: China takes in 50% and
ASEAN 20%. China is now dubbed the "sub-contractor of
the world".
Even India is being flooded with cheap but good quality Chinese
goods. Some Indian manufacturers are finding it hard to compete.
So they have done the next best thing. They stick "Made
in China" labels on their products to boost sales.
But China will soon be more than a sub-contractor. A July
article in Asiaweek commented that:
"It's not about cheap stuff any more. From PCs to chips
to software, (China) is becoming an IT powerhouse."
Many Taiwanese companies are investing heavily in China,
not just in low-end activities, but also high tech plants
like wafer fabs. The companies are shifting their activities
out of Taiwan into China. There are 200,000 Taiwanese businessmen
in Shanghai and another 200,000 in Kunshan near Suzhou. The
Taiwanese worry that their manufacturing industry is being
hollowed out.
Richard Lim wrote an interesting article, entitled "A
Wake-up Call from China", in the Sunday Times of 22 July.
He has been to China several times over many years. He found
China's transformation to be:
"Alarming, because China's transformation will impact
greatly on Singapore, especially on the livelihoods of its
less well-educated citizens."
He then urged that:
"The people must be made aware of what is happening,
because their future, or their children's, is at stake."
Richard Lim's article attracted several letters. Many readers
agreed with him.
I was, however, more than a little sad to read the response
of a young reader, probably western-educated and had never
been to China. He revealed that he had drafted his response
with inputs from a few others like himself, all 20-somethings.
He wrote,
"We do not feel any affinity to the Chinese people ……
The cheena people are sucking away all the foreign investments
and along with them, our jobs …… We really cannot
imagine a world with the cheena people in charge.
The cheena people working in Singapore are really such a crude
lot."
He ended sarcastically by asking Richard Lim to consider
migrating to China.
This young man is unable to see beyond his nose. He needs
to grow up, and quickly too. Perhaps he does not know that
Chinese are called "Orang Cina" in Malay. If we
are not Cina, what are we? "Ang Moh"?
I have been to China many times, the first time in 1971.
I have seen China's transformation at close quarters. It is
scary. You go to Beijing, Shanghai, Shenzhen, Dalian, Qingdao
and scores of other cities, and you will be astonished by
how quickly they have learnt and caught up. They write softwares
for Microsoft. They are into life sciences and bio-medical
engineering. They have even succeeded in making their toilets
at tourist attractions shinier and cleaner than ours.
Our biggest challenge is therefore to secure a niche for
ourselves as China swamps the world with her high quality
but cheaper products. China's economy is potentially ten times
the size of Japan's. Just ask yourself: how does Singapore
compete against ten post-war Japans, all industrialising and
exporting to the world at the same time?
I do not mean that China will overpower every other economy,
and grow at the expense of everybody else. As China develops
and exports more, its imports will grow too. There will be
many opportunities for other countries to trade with China,
and for foreign companies to invest in China. We must grasp
these opportunities.
But many of the things we are now doing, in time, China will
do better and cheaper. We will have to stay one step ahead,
and move on to new activities.
Singapore has a window of about ten years to make this transformation,
and upgrade to the next level of economic development. But
as we do so, we compete head-on with the developed economies.
We have to match their level of innovative, scientific, technological
and managerial capability.
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