18.

Although the Asian economic crisis was brief, it has left a trail of destruction in its wake, and brought great hardship to many regional economies. The cost has been exacting. Some governments were toppled. Great fortunes were lost. Many companies went under; millions of livelihoods were destroyed. Several regional countries have had to take on large public debts to restart their economies.

19.

In contrast, Singapore has weathered the regional crisis well and emerged largely unscathed. There were no widespread unemployment and bankruptcy, social dislocations or political upheavals. Strong economic fundamentals underpinned by years of consistent and rational policies have ensured this. For example, due to the prudent supervision of our banks and financial institutions, our financial system was never in distress. Our banking sector's non-performing loans constituted less than 10 per cent of total loans at its peak, compared to 80 per cent in Indonesia, 48 per cent in Thailand and 15 per cent in Malaysia. Because we did not have to recapitalise our banks, our fiscal health has remained intact. We have avoided the sharp rise in public debts seen in the regional economies - to as much as 100 per cent of GDP in the case of Indonesia - and the ensuing heavy debt servicing burden in future years.

20.

We have successfully ridden out the Asia economic storm with the economy remaining in shipshape. Our strong recovery has enabled us to start the new millennium on a firm footing, and we have every reason to look ahead with optimism and confidence. However, this does not mean we can afford to slacken.

21.

Competitiveness will remain the prime economic challenge for Singapore in the new millennium. In fact, competition will become increasingly intense as more countries join in the economic race. More importantly, globalisation and the onslaught of technological advancement will quicken the competition tempo further. It used to take several months for a new product in one market to reach another part of the globe. Today, virtually any good and service can be bought and sold anywhere in the world with the click of a mouse. The Internet has dramatically reduced the geographical barriers to economic competition.

22.

The twin forces of IT and globalisation have prompted a wave of alliances, mergers and acquisitions around the world as companies consolidate to gain market share and critical mass in preparation of tougher competition ahead. Last year, the value of mergers in Europe surged 50 per cent to US$1.2 trillion, while that in the US has remained high at US$1.6 trillion for the last 2 years. These mergers cut across a spectrum of industries, from traditional ones like oil and automobile, to New Economy ones like info-communications and banking. In recent months, we have witnessed mega-mergers of giant corporations such as Mobil and Exxon, Vodafone and Mannesman, and AOL and Time Warner. The new AOL Time Warner conglomerate, for instance, has a market capitalisation of about US$360 billion, almost 4 times Singapore's GDP. Not only are the deals getting bigger, the tie-ups are also increasingly cross-border, as globalisation of the market place gathers pace. For instance, spurred partly by the Euro, 60 per cent of Europe's mergers last year crossed national boundaries. (Estimated by JP Morgan. Business Week 24 Jan 2000)

23.

The scale and quality of competition have thus risen to a whole new dimension. In this new competitive landscape, it is no longer viable for economies and businesses to think and act only on a national basis. We need to adopt a global mindset, innovate and advance with global trends, or risk being rendered redundant. Unless we are among the world's best, we will be relegated to playing a peripheral role in the global economy. To thrive, our businesses need to adopt a global outlook, and boldly seek out new markets and alliances for expansion. Already we are seeing signs of this happening. SIA has recently acquired 49 per cent of Virgin Airways, DBS is expanding its regional presence through its stakes in Thai Danu Bank and Hong Kong's Kwong On Bank, and SingTel is engaging in merger talks with Cable & Wireless Hong Kong Telecom. To be successful in global competition, our companies will also need to draw in top talent - not only from Singapore, but from the world. Only then can we over time build up a stable of our own world class transnational companies.

24.

In post-crisis Asia, one economy that will bring profound changes to the competitive equation is China. Even without WTO membership, China has been attracting more foreign direct investments (FDI) than the rest of Asia combined. With its impending WTO accession and the ongoing reforms of its state-owned enterprises, China can be expected to become even more competitive both as an exporter as well as FDI destination. (Goldman Sachs estimated that FDI into China would rise to US$100 billion a year over the next five years as a result of its WTO entry. Wu, Fred, WTO Membership: What This Means for China, Goldman Sachs, Apr 99.)

25.

Moreover, China's exports are no longer confined to low value-added or labour-intensive products. Increasingly, they will move towards more sophisticated and higher value-added products in direct competition with the NIEs. China has already made impressive inroads in the electronics industry. In 1996, China's share of the US and Japan electronics market was only 6 per cent and 7 per cent respectively. These shares have now increased to around 10 per cent, comparable to that of Taiwan and South Korea, and higher than most of the ASEAN countries.

26.

But China's rise is not all negative for the other Asian economies. Global trade is never a zero-sum game. China's rise offers tremendous opportunities for all. For example, with the liberalisation of China's tariff regime, ASEAN economies can function more effectively as production bases and export gateways to China's markets. The key challenge for the regional countries, including Singapore, is to devise ways to complement investments and growth in China, to ride on the rise of China.

27.

In any case, China will not be the only source of competitive threat to Asian economies. Outside Asia, Latin America and Eastern Europe have similarly geared up for the new competitive challenges. Argentina, for example, has seen a four-fold increase in its GDP in the last decade as a result of economic reforms. The transitional economies in Eastern Europe are estimated to triple in size in the next decade, if they continue with the privatisation, enterprise restructuring and other institutional reforms. (Estimates by European Bank for Reconstruction and Development. Eastern Europe - Transitional Economies' Output May Triple, July 1999, Reuters)

28.

At the same time, the developed economies are not resting on their laurels. They too are strengthening their competitive lead. Japan is embarking on fundamental reforms to its economic structure and banking sector. The US is in the throes of its New Economy powered by innovations and technological start-ups. The EU countries are reforming their tax systems and trying to inject more dynamism and flexibility into their economies.

29.

It would therefore be a grave mistake to think that it is business as usual in the post-Asian-crisis world. Rapid technological change and globalisation are intensifying competition and posing new challenges for our economy. To thrive in the new millennium, we need to sharpen our competitive edge further, stay nimble, and constantly reinvent ourselves.