Keynote Address By Minister Of State For Finance And Transport Mrs Lim Hwee Hua At The Singapore International Foundation (SIF) International Student Symposium 2005 On 4 August 200504 Aug 2005
The Asian Century: Possibility or Pipe Dream?
Mr Gerald Yeo, Director, International Networking, SIF
Distinguished speakers, guests, ladies and gentlemen,
The end of the 20th century was marked by the dominance of the United States as the world's only hyperpower. Its economy, language, popular culture from burgers to jeans to Hollywood movies, and its model of capitalism and liberal democracy exerted tremendous influence on the rest of the world. In recent years, we have witnessed the emergence of China and India as the twin engines of regional and global growth. In the same way that commentators referred to the 20th century as the "American Century", the 21st century may be seen as the time when Asia becomes the world's most dynamic and vibrant region.
2 What does this "Asian century" portend for Singapore ? new opportunities and a new role within Asia, or insurmountable challenges? There are many uncertainties which will shape the future of Asia and our place within it. Will internal weaknesses in China and India hold them back in their quest for economic dominance? How will China and India exercise their growing power, in relation to the rest of Asia and the world? How will the rest of Asia adjust? Will the global security and economic order be stable? These are the critical but unanswered questions which you will be grappling with over the course of this symposium.
3 The rapid economic growth of China, India, and other Asian countries in recent years has reshaped the global and regional economic landscape. In a world that has become "flat" according to one commentator, the key beneficiaries of the lowering of trade and political barriers and the digital revolution are freelancers and innovative start-ups especially in India and China. They are proving that they can compete, not just in low-wage manufacturing but the highest-end research and design work as well.
4 China's Growth Story. China's transformation has been nothing short of spectacular. China's real GDP grew by 9.7 per cent each year on average from 1990 to 2003. But that in itself is not remarkable for a country at China's stage of development. The real impact is the scale on which this growth is played out. China's contribution to global GDP growth since 2000 has been almost twice as large as that of the next three biggest emerging economies, India, Brazil and Russia, combined. While China's global output and exports have risen tremendously, its hunger for imports, be it commodities or components, have also risen. For many of the regional economies, the share of total exports going to China has also doubled since the start of 2000.
5 Because of its scale, China's influence extends far beyond trade and GDP. Global inflation rates, interest rates, bond yields, property prices, wages, profits and commodity prices are also increasingly being driven by China. Inflation in many developed countries, for example, has slowed due to the sheer amount of cheap products made in China and sold in their markets. This is a rare phenomenon.
6 In recent years, China has become not just a magnet for foreign direct investment (or FDI), but has also emerged as an outward investor, driven by the desire to develop a competitive edge by gaining access to new technologies, knowledge, natural resources, or brand names. In 2003, China became the 6th largest outward investor among the developing countries. By 2004, China's direct investment overseas rose by 27%, raising the outward FDI stock to over US$41 billion. While China's outward FDI flow is still small compared to its inward FDI, its rising role as an outward investor reflects a significant shift in policy towards internationalisation and expanding its sphere of influence. Other countries must take stock of China's changing role in the international economic landscape and adapt quickly.
7 India's Untapped Potential. India currently lags behind China on most economic measures, but it also has the potential to become another economic dynamo. With a projected population of almost 1.3 billion by 2020, a huge pool of professional young talent, working capital markets and world-class firms in major IT and pharmaceutical industries will boost India's competitiveness.
8 India has also been focused on stepping up economic and military exchanges with regional countries. Last month, Singapore and India concluded a Comprehensive Economic Cooperation Agreement (or CECA). This is the first comprehensive free trade agreement, covering goods, services and double taxation that India has signed with any country. By maintaining an outward orientation, with a strong commitment to continue economic liberalisation and market reforms, India is set on becoming a regional if not global power.
Pitfalls and Stumbling Blocks
9 While Asia's economic possibilities appear endless, the outlook is not entirely rosy. There are numerous sources of economic and geopolitical volatility that are likely to affect the emergent economies of Asia, including China and India.
10 Drags on Economic Growth. China and India have similar problems that may curtail their progress. Both have massive populations with correspondingly massive needs for resources, especially land, water and energy. Their current push for growth at all costs needs to be modified to increase efficiency and reduce the consumption of resources.
11 Existing social problems have not been eradicated by virtue of economic growth. In fact, more problems have been created. Economic development has widened the income and employment divide between cities and rural areas, each with its own, mutually exclusive, economic system. The risk of HIV and AIDS and other epidemic diseases must be tackled as it could seriously undermine economic prospects.
12 China's prospects for sustained, rapid economic growth may also be weakened by demographic challenges. Unlike India whose working-age population will continue to increase in the next two decades, China will be hard pressed to address the issues arising from a society that will be rapidly ageing from 2020 onwards. Calls for reform in China's healthcare and pension systems are beginning to be heard. To maintain competitiveness, China will also need to look into restructuring its inefficient state-owned enterprises and strengthen its financial system to handle the increasing demands of the economy as it moves towards a fuller market orientation.
13 India faces the burden of having a much larger proportion of its population living in desperate poverty, earning far below US$1 a day. India's long term prospects would depend heavily on its ability to address economic vulnerability in rural areas where the major benefits from growth are not evident. Political reforms must be undertaken to eliminate bureaucracy that stifles economic progress.
14 Other emerging Asian countries such as Philippines, Indonesia and Thailand are also likely to be affected by economic and political volatility. Debt burdens will be a drag on the economy and threaten financial stability. Efforts must be undertaken to reduce fiscal imbalances and lower fiscal vulnerability. Financial and corporate restructuring is necessary to improve the investment climate and increase competitiveness for FDI. Political issues must also be tackled as they undermine security and stability.
15 Managing Geopolitical Hotspots. A stable Asia depends on managing potential geopolitical trouble spots in the region. Top among these hot spots are:
a. the Korean Peninsula, where the difficult quest for inter-Korean reconciliation and cooperation is threatened by North Korea's pursuit of nuclear weapon;
b. the cross-straits tension between China and Taiwan, whereby both sides of th e straits need to show flexibility and creativity in order to strengthen their interdependence and stabilise the situation; and
c. Kashmir, where India and Pakistan have made some progress towards peace resolution, but more interactions and dialogues need to be established to tackle mutual problems and concerns by riding on the positive momentum.
16 Terrorist Threats. Life has become more dangerous as terrorism and extremism have been added to the geopolitical security challenges facing our region. Responding to security threats in a world of non-state actors requires close cooperation among countries. In recent years, we have made some progress in the battle against global terrorism. The Taleban in Afghanistan has been toppled and key Al Qaeda leaders have been captured. However, the recent terrorist attacks in London and Egypt are evidence that the deadly threat still reminds. Much still needs to be done, and done quickly, to destruct the underlying infrastructure supporting terrorism, and to dismantle the groups of loosely dispersed, yet highly resistant terrorism networks of Al-Qaeda and Jemaah Islamiyah (JI) militants.
17 If existing disputes over territorial sovereignty and maritime rights are not resolved, it will be more difficult for Asian states to build mutual confidence and trust. There must be shared political resolve and contribution of resources from all major parties in order to ensure the security of Asia.
The Challenge for Asian Collective Action
18 If these critical vulnerabilities are addressed, China and India can play a crucial role in anchoring the Asian economic ascendance. The question then is: how do we strengthen cooperation within Asia, so as to ride on the promise of economic prosperity?
19 Relations with China and India. Deeper regionalism and economic integration in Asia through greater trade liberalisation is essential to Asian growth. Some see Chinese and Indian competition as a threat as they worry about losing market share to Chinese and Indian exports. However, China and India are not self-sufficient and will require manufacturing inputs, primary commodities and other products and services to support their economic expansion.
20 Competition need not be zero-sum. Even in a region whose individual countries display as little natural comparative advantage as Europe, there is considerable trade and investment flows between European countries. The complementary pattern of FDI flows to various Asian countries has demonstrated how other Asian countries may benefit from greater outside investment into China. However, this will require Asian countries to restructure and upgrade their economies, develop new competencies and prepare their people to be flexible and adaptable to the changing demands.
21 Role of ASEAN. ASEAN plays a special role through its hub position in Asia. It acts as a bridge between China and India and links the Middle East, South Asia, and East Asia. ASEAN countries have been working closely together towards deeper integration, which according to a McKinsey report, could shave almost one-fifth off total costs of production in ASEAN and encourage the growth of a market with a population of 500 million.
22 Some progress has been made today through the web of FTAs and regional trade blocs already firmed up or currently being negotiated. At the regional level, FTA between ASEAN and China, India and Japan are expected to conclude within the next 5 to 7 years. China for its part has been quick to reassure its neighbours of its hopes to reach a win-win solution. For instance, in the China-ASEAN FTA, China has already given concessions for ASEAN agricultural products to enter Chinese market through an "Early Harvest" package. The ASEAN Economic Community is expected to be formed by 2020, which will deepen and accelerate intra-regional economic integration by liberalising trade, investment and skilled labour flows and addressing behind-the-border barriers.
23 Regional cooperation is also important in conquering Asia's shared security challenges. Security structures, such as the United Nations at the global level and the ASEAN and APEC at the regional levels facilitate a concerted, coordinated and integrated effort by like-minded stakeholders towards combating security threats.
Singapore: Enlarging the Red Dot
24 Singapore has a unique vantage point to these regional developments. We are well-positioned to leverage on the growth of India and China and seize opportunities to develop new capabilities. We say that maintaining a secure Singapore and a competitive economy are crucial to our success. But increasingly, it may be our ability to punch above our weight and "enlarge the red dot" that will proactively assure our relevance to the global economy and regional context.
25 Singapore has always sought ways to expand our economic and geopolitical space within and outside of ASEAN. We have concluded FTAs with Japan, Korea, India, US, New Zealand, Australia, Chile and countries in the Middle East and Europe. Negotiations are ongoing for several more. Ties with the Islamic countries and the Middle East are being strengthened for the economic, political and cultural impact they have on the global order.
26 Although a small country, Singapore has helped to sustain international institutions and regulations which underpin a stable and peaceful world order. We are increasingly taking a more proactive and leadership role. Singapore has participated actively in peacekeeping and humanitarian assistance efforts such as the UN peacekeeping mission in East Timor and the tsunami relief effort in Aceh. On the social front, we have successfully concluded the IOC session here. And on the economic front, Singapore will be hosting the 2006 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group next year. We must continue to remain outward looking and multiply our connectivity both within Asia, as well as beyond Asia on all levels.
27 Asia's ascendance also provides opportunities for Singapore to leverage on our entrepreneurship and creativity to convert our strengths into economic value and business opportunities. For example, we can build on our competitive advantage as a trusted reference to other countries and commercial entities. Be it in intellectual property rights, corporate governance standards, legal certification, banking, or accounting, we should continue to build upon our unique Singapore brand name of integrity and trust, to create a new source of economic power for Singapore within Asia.
28 With our diversity in terms of ethnicity and culture, as well as our good knowledge of the region, Singapore is also strategically positioned to develop itself into a knowledge exchange for Asia. Singapore would become a focal point where companies or non-profits seeking to establish operations in Asia can gain access to knowledge, connections and business services. It will not be an easy achievement but the economic payoffs would be high.
29 In a fast-moving and uncertain world, a cohesive society is more important than ever for us to maintain our identity and progress as a one nation. There have been worries in recent years over the widening income disparity. This gap has partly been attributed to the rise of titans like China and India where jobs have been outsourced or whose workers have depressed wages here. The solution is not to close our economy and say we will not hire any more foreign labour; more firms would simply refuse to base their operations in Singapore. Nor is the answer to give out generous social welfare as the price for having an open economy. This would erode the will of Singaporeans to work hard for genuine reward and lead to a breakdown in the fundamental tenets of our society.
Please click here for continuation of the speech.