Advancing Singapore-China Economic Relations 9789814519359

This book presents a detailed account of the development of strong and substantive economic relations that existed betwe

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Advancing Singapore-China Economic Relations
 9789814519359

Table of contents :
Contents
List of Tables
List of Figures
Preface
The Contributors
1. Evolution of Singapore-China Economic Relations
2. The Political Economy of Singapore’s Unique Relations with China
3. Suzhou Industrial Park: Going Beyond a Commercial Project
4. Translating Concept into Practice: Sino-Singapore Tianjin Eco-City Project
5. China’s Foreign Direct Investment in Singapore since the 2000s
6. Singapore’s Direct Investment in China since the 1980s
7. Singapore-China Trade and CSFTA
8. Growth of Tourism between China and Singapore
9. Enhancing Educational Collaborations between China and Singapore
Index

Citation preview

Advancing Singapore-China Economic Relations

The East Asian Institute (EAI) was set up in April 1997 as an autonomous research organization under a statute of the National University of Singapore. It is the successor of the former Institute of East Asian Political Economy (IEAPE), which was itself the successor of the Institute of East Asian Philosophies (IEAP), originally established by Dr Goh Keng Swee in 1983 for the study of Confucianism. The main mission of EAI is to promote academic and policy-oriented research on contemporary China, including Hong Kong, Taiwan and Macau, and other East Asian economies. The long-term vision of EAI is to develop into the region’s foremost research institution on East Asian development, with a strong focus on China. For more information on EAI, please visit http://www. eai.nus.edu.sg. The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued more than 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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Advancing Singapore-China Economic Relations Edited by Saw Swee-Hock andjohn Wong

EAI I5EA5 INSTITUTE OF SOUTHEAST ASIAN STUDIES SINGAPORE

First published in Singapore in 2014 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: http://bookshop.iseas.edu.sg jointly with East Asian Institute National University of Singapore 469A Bukit Timah Road Tower Block #06-01 Singapore 259770 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2014 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the publishers or their supporters. ISEAS Library Cataloguing-in-Publication Data Advancing Singapore-China economic relations / edited by Saw Swee-Hock and John Wong. 1. Singapore—Foreign economic relations—China. 2. China—Foreign economic relations—Singapore. 3. Investments, Chinese—Singapore. 4. Investments, Singaporean—China. 5. Singapore—Commerce—China. 6. China—Commerce—Singapore. 7. Chinese—Travel—Singapore. 8. Singaporeans—Travel—China. 9. Singapore—Relations—China. 10. China—Relations—Singapore. I. Saw, Swee-Hock, 1931– II. Wong, John, 1939– HF1595 Z4C5A24 2014 ISBN 978-981-4519-18-2 (soft cover) ISBN 978-981-4519-19-9 (hard cover) ISBN 978-981-4519-35-9 (E-book PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Mainland Press Pte Ltd

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Contents List of Tables

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List of Figures

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Preface The Contributors

xiii xv

1. Evolution of Singapore-China Economic Relations 1 Saw Swee-Hock Background 1 Mechanism for Developing Bilateral Ties 3 Joint Government Projects 7 Two-Way Investment and Trade 12 Cooperation in the Services Sector 15 Other Means of Advancing Bilateral Ties 22 Prospects for Better Bilateral Relations 25 2.

The Political Economy of Singapore’s Unique Relations with China John Wong and Catherine Chong Introduction China’s Relations with Singapore: A Historical Perspective Deng’s Nanxun Remark: A Foundation for China-Singapore Relationship Bilateral Cooperation Framework Institutionalized at Both Central and Provincial Levels

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31 31 32 36 38

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Burgeoning Trade and Investment Ties Looking Forward 3.

Suzhou Industrial Park: Going Beyond a Commercial Project Lye Liang Fook Introduction Origin of the Suzhou Industrial Park Software Transfer to Suzhou Industrial Park Suzhou Industrial Park Today Political Impact of Suzhou Industrial Park Conclusion 4.

Translating Concept into Practice: Sino-Singapore Tianjin Eco-City Project Chen Gang and Zhao Litao Introduction Need for Eco-Cities Tianjin and Binhai Ideas and Norms of Eco-City Planning Bilateral Cooperation on the Tianjin Eco-City Low-Carbon and Other Investment Projects in Tianjin Eco-City Social Aspect of Tianjin Eco-City Conclusion 5.

China’s Foreign Direct Investment in Singapore since the 2000s Yao Jielu Introduction Rationale for China’s FDI in Singapore

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39 50 62 62 64 68 71 83 88 94 94 95 100 102 107 116 118 121 126 126 131

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Contents

Chinese FDI in Singapore by Sector Challenges Ahead 6.

Singapore’s Direct Investment in China since the 1980s Fan Ying and Huang Yanjie Introduction Development of Singapore’s Investment in China Features of Singapore’s Investment in China Problem of Investing in China Prospects for Singapore’s Investment in China Conclusion 7. Singapore-China Trade and CSFTA Chen Wen and Zhai Baiquan Introduction Development of China-Singapore Bilateral Trade Structure of Bilateral Trade Analysis of Intra-Industry Trade in the Bilateral Trade: Electrical and Electronic Products Analysis on Complementarity and Competition Impact of CSFTA on Bilateral Trade 8.

Growth of Tourism between China and Singapore Chiang Min Hua Introduction

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137 144 149 149 152 160 167 171 174 181 181 181 186 188 194 210 216 216

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Inbound Tourism Development in China and Singapore Visitor Arrivals Between China and Singapore Bilateral Tourism Promotion Chinese Visitors in Singapore Tourism Development in Perspective: China vs Singapore 9.

Enhancing Educational Collaborations between China and Singapore Saw Swee-Hock and Ge Yun Introduction Changing Educational Landscape in China Singapore as an Education Hub Bases for Educational Collaboration Training Programmes Links at Tertiary Education Links at School Level Profile of Chinese Students Conclusion Index

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218 228 233 237 241 264 264 265 268 270 273 275 278 281 284 289

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List of Tables 2.1 2.2 2.3 5.1 5.2 7.1 7.2 7.3 7.4 7.5 7.6 8.1 8.2

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China Trade with Singapore by Major Category, 2005 and 2010 43 Listing of Chinese Companies on the Singapore Stock Exchange, 2010 54 Capitalization of Listed Companies in Singapore, 2010 54 China’s FDI in Singapore by Major Industry, 2006–10 139 Return on Chinese FDI in Singapore by Major Industry, 2006–10 140 Bilateral Trade Indices between China and Singapore, 1990–2010 183 Trade Intensity Index of China-Singapore Bilateral Trade, 1990–2009 186 Commodity Structure of the Bilateral Trade, 1992–2009 187 Intra-Industry Trade Analysis for Electrical and Electronic Products, 1992 and 2009 190 Top 15 Commodities of China’s Trade with Singapore, 2009 195 RCA of China and Singapore at SITC-Three-Digit Level, 2009 196 Percentage of China’s Tourism Receipts by Country, 1995–2010 223 Number of Asian Visitors to Singapore by Country, 1995–2010 227

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8.3 8.4 8.5 8.6 8.7 9.1 9.2 9.3

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List of Tables

Growth Rate and Share of Visitors by Country in Singapore, 1995–2010 China’s and Singapore’s Departure by Destination, 2007–10 ASEAN-China FTA Trade in Services, 2007 China-Singapore FTA Trade in Services, 2008 Tourism Development Plans in China and Singapore by 2015 Chinese Students Studying in Foreign Countries, 2000–11 International Students in China, 2003–10 International Students Studying in NUS, NTU and SMU, 1992–2006

229 231 235 236 243 267 268 271

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List of Figures 1.1 2.1 2.2 2.3 2.4 2.5 2.6 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1 5.1 5.2

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Joint Council for Bilateral Cooperation 6 Singapore’s Trade with China, 1990–2010 40 China’s Trade with ASEAN, 1980–2010 42 Singapore’s Cumulative Direct Investment in China, 1985–2009 45 Top Six Visitor-Generating Markets for Singapore, 1990–2010 46 China’s Trade Balance with Selected Countries, 2008–10 48 China at the Centre of Global and Regional Production Networks 49 SIP’s Local GDP Contributions, 1996–2010 73 Committed and Utilized Foreign Investment in SIP, 1996–2009 74 Geographical Distribution of Foreign Investors as of March 2011 76 Sectoral Distribution of Foreign Investors as of March 2011 77 Profits of CSSD, 2001–10 78 Six Major Bases for Industrial Transformation and Upgrading 80 Initial Bilateral Cooperation Platform 84 Overview of Supervisory Mechanism 110 China’s FDI in Singapore, 2001–10 128 China’s FDI by Country, 2010 130

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6.1 6.2 6.3 7.1 7.2 8.1 8.2 8.3 8.4 8.5 8.6 8.7 9.1

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List of Figures

Singapore’s Cumulative Direct Investment in China, 1985–2010 Singapore’s Trade with China, 1990–2011 The Assessment by Senior Managers of the Sample Enterprises on their Business Performances in China China’s Trade with Singapore, 1990–2010 Share of Bilateral Trade in China and Singapore’s Total Trade, 1990–2010 Visitor Arrivals and Tourism Receipts in China, 1978–2010 Share of Visitor Arrivals in China by Country/Region, 2010 Visitor Arrivals and Tourism Receipts in Singapore, 1991–2010 Share of Visitor Arrivals in Singapore by Country, 2010 Visitor Arrivals between China and Singapore, 1995–2010 Chinese Tourist Expenditure in Singapore, 1992–2009 Chinese Tourist Expenditure in Singapore by Item, 2009 Reasons for Mainland Chinese Students to Study in NUS

151 165 169 184 185 220 222 225 226 232 238 239 283

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Preface The East Asian Institute (EAI) at the National University of Singapore participated in the 20th anniversary celebration of the establishment of diplomatic ties between the Republic of Singapore and the People’s Republic of China in late 2010 by launching two important projects. The first was the International Conference on 20 Years of Advancing Singapore-China Relations held in May 2011 and attended by participants from government departments and agencies, the business community, and academia. The well-attended Conference succeeded in providing the participants with a better understanding of the dynamics underlying the strong economic relations existing between the two countries. The second project is this book, Advancing SingaporeChina Economic Relations, which was designed to put on permanent record the multifaceted nature of the economic cooperation and links between the two countries during the last twenty years or so. The book consists of five chapters that were originally presented at the Conference, but were all substantially revised and updated to include events happening after the Conference. The other chapters did not originate from the conference papers, but were specially commissioned for inclusion in the book. The book has been constructed in such a manner as to provide a more comprehensive chronicle of the complexity and intricacy involved in the major areas chosen by the public and private sectors to develop the

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economic links that have brought immense benefits to the two countries. We would like to thank the chapter writers who have put in so much effort to prepare their conference papers for publication in this book, as well as those who have kindly agreed to write the completely new chapters at our request. Our thanks go to Mrs Triena Ong of ISEAS Publications Unit for overseeing the expeditious publication of the book. We are delighted to have ISEAS as a co-publisher. Saw Swee-Hock and John Wong March 2013

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The Contributors Chen Gang is a Research Fellow at the East Asian Institute, National University of Singapore. He is a member of the Global Emerging Voices programme jointly sponsored by the German Marshall Fund of the United States, Stiftung Mercator, Torino World Affairs Institute and the Australian National University. His research interests are in China’s environment and energy policies, and sustainable development of China. His major publications are China’s Climate Policy, Politics of China’s Environmental Protection Problems and Progress and The Kyoto Protocol and International Cooperation Against Climate Change. He obtained his Ph.D. in contemporary international relations from the China Foreign Affairs University. Chen Wen is Professor in the Department of International Economics and Business, School of Economics, Xiamen University. She was a Visiting Scholar at the University of Illinois. Her research interests are international competitiveness and industrial development, international trade and investment. Her main publications are ASEAN Regional Economic Cooperation (co-author) and ChinaASEAN Trade Relation: A Discussion on Complementarity and Competition (co-author). She received her Ph.D. in economics from Xiamen University.

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Chiang Min-Hua is a Visiting Research Fellow at the East Asian Institute, National University of Singapore. Before joining the Institute, she was involved in several research projects at the Institute of International Relations at Chengchi University, Taiwan External Trade Development Council, and the Commerce Development Institute in Taipei. Her research interests include East Asian economic integration and cross-straits economic relations. She obtained her Ph.D. in international political economy from the Université PierreMendes-France in Grenoble. Catherine Chong was a Research Assistant at the East Asian Institute, National University of Singapore. Her research interests cover China-ASEAN international relations and political economy, China-Taiwan cross-strait ties, and the northeast Asia economy and development. She received her M.A. degree in contemporary China from Nanyang Technological University. Fan Ying is Professor at the School of International Economy, China Foreign Affairs University. She was a Fulbright Research Scholar at Duke University and Visiting Senior Research Fellow at the East Asian Institute, National University of Singapore. She is a member of the Leading Expert of Trade and Investment Facilities Working Group, Network of East Asian Think-Tanks, and Task Force for the Promotion of Infrastructure Investment in East Asia. She specializes in international trade and investment, with emphasis on East Asian and ASEAN economic integration. She obtained her Ph.D. in economics from Renmin University. Ge Yun is a fourth-year Ph.D. student in the Department of Sociology, National University of Singapore. She received

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her master’s degree in educational administration from the University of Macau. She was a Visiting Fellow in the Harvard-Yenching Institute. Her research interests lie in sociology of education, internationalization of higher education, and international student mobility. Huang Yanjie is a Research Assistant at the East Asian Institute, National University of Singapore. His research interests cover the economic and social development of China, particularly the labour market and state-owned enterprises. He obtained his Bachelor of Social Science degree from the National University of Singapore. Lye Liang Fook is Research Fellow and Assistant Director at the East Asian Institute, National University of Singapore. He was formerly foreign service officer in Singapore’s Ministry of Foreign Affairs. He manages the Singapore Secretariat of the Network of East Asian Think-Tanks, a Tract II organization dedicated to the fostering of ASEAN Plus-3 cooperation. He is also a member of the China-Singapore Forum, a Tract II body that brainstorms ideas to strengthen bilateral cooperation between Singapore and China. His research interests cover China’s central-local relations, political legitimacy, ChinaASEAN relations, and Sino-Singapore ties. He obtained his Master of Social Science degree from the National University of Singapore. Saw Swee-Hock is Professorial Fellow at the Institute of Southeast Asian Studies and President’s Honorary Professor of Statistics at the National University of Singapore. He is an Honorary Fellow of the London School of Economics and Honorary Professor at the University of Hong Kong, and also Xiamen University. He is a member of the Board

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of Trustees of the National University of Singapore. His publications are mainly on statistics, finance and economics. Among his major publications are Economic Problems and Prospects in ASEAN Countries (co-editor), ASEAN Economies in Transition (co-editor), Growth and Direction of ASEAN Trade (co-editor), ASEAN-China Relations: Realities and Prospects (co-editor), ASEAN-China Economic Relations (editor), Regional Economic Development in China (coeditor), Managing Economic Crisis in East Asia (co-editor), Sovereign Wealth Funds (co-author), Introduction to Islamic Finance (co-author), Investment Management, fifth edition, and The Population of Singapore, third edition. He received his Ph.D. from the London School of Economics. John Wong is Professorial Fellow and Academic Advisor at the East Asian Institute, National University of Singapore. Until very recently, he was Research Director of the Institute. He taught economics in the University of Hong Kong and the National University of Singapore. He was a Fulbright Visiting Professor at Florida State University and held the Chair of ASEAN Studies at the University of Toronto. He has held short-term visiting positions at Harvard University, Yale University, Oxford University and Stanford University. His main research interests are in the economy of China as well as the ASEAN economy. Among his major publications are Understanding China’s Socialist Economy, China’s Emerging New Economy: The Internet and E-Commerce (co-editor), China’s Reform in Global Perspective (co-editor), Regional Economic Development in China (co-editor), Interpreting China’s Development (co-editor), and Economic Development in China (co-editor). He received his Ph.D. from the University of London.

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Yao Jielu is a Research Assistant at the East Asian Institute, National University of Singapore. Her primary research interests lie in macroeconomics, international finance and applied econometrics. She is also interested in economic reforms and transformation in mainland China. She received her Bachelor of Economics from Fudan University and Master of Social Science in economics from the National University of Singapore. Zhai Baiquan is a graduate student in the Department of Economics, Centre, Tilburg University. His research interests are health economics and empirical microeconomics. He received his bachelor’s degree in economics from the Department of International Economics and Business, School of Economics, Xiamen University. Zhao Litao is a Senior Research Fellow at the East Asian Institute, National University of Singapore. His research interests include social stratification and mobility, sociology of education, organizational analysis, and China’s social policy. He is the Editor of China’s Social Development. His major publications are Paths to Private Entrepreneurship: Markets and Mobility in China, China’s Reforms at 30: Challenges and Prospects (Co-editor), China’s New Social Policy (co-author), Singapore’s Experience in Social Development, and China’s Social Development and Policy (co-editor). He received his Ph.D. in sociology from Stanford University.

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1 Evolution of Singapore-China Economic Relations Saw Swee-Hock

Background The origin of official bilateral relations between Singapore and China can be traced to 3 October 1990 when the two countries finally established diplomatic ties. Singapore had decided to be the last among the major countries in Southeast Asia to formalize relations with the People’s Republic of China as it wished to ease the concerns of the neighbouring states which had encountered some difficult times during the Cold War days in the 1950s to the 1970s. Bilateral contacts between the tiny city-state and the giant country endowed with a huge population, vast land area, and an enormous economy have in fact taken place before the official recognition of one another. The more important events were the first state delegation led by the then Singapore Minister for Foreign Affairs S. Rajaratnam in 1975, the then Prime Minister Lee Kuan Yew’s first visit in 1976, the exchange of Trade Representatives in 1981, and the establishment of direct air links in 1985 with Singapore Airlines (SIA) flying to Beijing

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and Shanghai and Chinese airlines coming to Singapore. Another noteworthy event occurred in 1985 when the late Dr Goh Keng Swee, the then Deputy Prime Minister and Finance Minister of Singapore, was appointed by the Chinese Government as an Adviser to the development of the coastal states and economic zones in mainland China. What eventually proved to be a significant occasion was the landmark visit of paramount leader Deng Xiaoping to the island-state in November 1978. The visit of Deng Xiaoping was carefully planned to allow him ample time to meet with the then Prime Minister Lee Kuan Yew and his top leaders and to give him sufficient time to observe the achievements in the various areas of social and economic development since the attainment of independence in August 1965. He was certainly impressed by what he saw in his various itineraries as proof of the remarkable socio-economic progress chalked up by the city-state within such a short period of time. He told Lee he was glad he had come to Singapore, long after his last visit in 1920 on his way to Marseilles in France, to witness the dramatic transformation that occurred in recent years. The favourable impression of the Chinese leader quickly filtered down to the top officials and the Chinese mass media which began to portray Singapore as a good model to emulate. Prior to his visit, Deng and his delegation seemed to think of Singapore as part of the backward region in Southeast Asia. What he saw was indeed a small country utilizing foreign capital and multinationals to generate income for the state and for the workers, and to develop the services sector. He continued to ponder over the possibility of adopting some of the experiences of the city-state to develop his own country.

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His momentous pronouncement took place during his famous southern tour or Nanxun in 1992 when he remarked that Singapore could provide some useful lessons for China to implement reforms under an open-door policy. This edict by the paramount leader sent a clear signal to senior Chinese officials to intensify their contacts and visits to Singapore to consult and learn about its development experiences for possible application back home. In consonance with this purpose, no less than 400 delegations from mainly the coastal regions soon flocked to the city-state. On its part, Singapore was quick to seize the golden opportunity offered by the huge Chinese economy to strengthen its economic links in areas such as real estate, manufacturing, finance and tourism. Mechanism for Developing Bilateral Ties An essential element required for establishing an effective mechanism to pursue strong and lasting relations would be regular contacts among the top leaders of the two countries through frequent visits to discuss and learn about the latest happenings. These visits can of course be used to explore new areas for possible cooperation that can be beneficial to the two parties concerned. Bilateral ties have a better chance of moving towards a higher level when these frequent contacts can permit the visiting officials to gain easier access to the top leaders and the bureaucracy. The Chinese word for this is guanxi which can be loosely interpreted as having the right connection. The official visits will always lead to a thorough review of the progress of the existing projects, as well as the signing of memoranda of understanding or agreements on new areas of collaboration.

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Saw Swee-Hock

The Singapore leaders, from Lee Kuan Yew, then prime Minister, Senior Minister and Minister Mentor, Goh Keng Swee, then Deputy Prime Minister, Goh Chok Tong, then Prime Minister and Senior Minister, Lee Hsien Loong, then Deputy Prime Minister and now Prime Minister, Wong Kan Seng, then Deputy Prime Minister, and Tharman Shanmugaratnam, now Deputy Prime Minister, to ministers in-charge of various portfolios have made it a point to meet their counterparts in Beijing regularly, some even on an annual basis. The top Chinese officials, with a huge country and large provinces to govern, would naturally have extremely busy work schedules which would prevent them from making frequent visits to Singapore. Nevertheless, the top leaders of China, such as Jiang Zemin, then President, Hu Jintao, then President, Wen Jiabao, then Prime Minister, Xi Jinping, President, and Li Keqiang, Prime Minister, have visited Singapore for consultations. Such face-to-face meetings have reinforced the mutual trust between the top leaders of the two countries, and have helped to initiate bold and new areas of cooperation, as well as to resolve any difficulties arising out of existing projects. A high point in the bilateral relations in more recent times was the visit of the then Vice-Premier Xi Jinping in November 2010 to mark the 20th anniversary of the establishment of ties between the two countries. It is of some significance that Singapore was the first country that Xi visited after his appointment as Vice-Chair of the Central Military Commission, a position that cemented his status as the next President of China. He was accompanied by a high-level delegation of some 50 officials, including six vice-ministers. It is a testimony of the high regard that China holds towards

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the city-state. Indeed, the reputation of Singapore has also spread to the various regions as some provincial governors and city mayors have visited the city to observe, learn and try to persuade Singapore companies to set up business in their provinces. While policies and plans can be decided at the highest level, the implementation of the various areas of cooperation has to be closely supervised and monitored. The cooperation between the two countries was therefore put on an institutionalized basis in November 2003 when the highlevel Joint Council for Bilateral Cooperation (JCBC) was launched by the then Prime Minister Goh Chok Tong and the then Premier Wen Jiabao. The JCBC, co-chaired by the Deputy Prime Ministers of the two countries, was designed to allow the two countries to review annually the state of existing relations and to identify new areas of collaboration that could be introduced. It has provided a regular and systematic platform for the political leaders, government officials, and businessmen from the two nations to network and deliberate on existing and future ventures. Figure 1.1 shows the organization chart of JCBC which consists of the Joint Steering Council on Suzhou, the Joint Steering Council on Sino-Singapore Tianjin Eco-City, and the seven other bilateral cooperation councils linked to seven provinces with substantial activities. The Council for Shandong Province was formed in 1993, for Sichuan Province in 1996, for Liaoning Province in 2003, for Tianjin Province in 2007, for Jiangsu Province in 2007 and Guangdong Province in 2009. These provincial councils have provided additional avenues to local government officials and businessmen from China and officials from Singapore to

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Joint Steering Council (JSC) on Sino-Singapore Tianjin Eco-City

Joint Working Committee

JV Company

Joint Steering Council (JSC) on Suzhou Industrial Park

Joint Working Committee

JV Company

Secretariat

Singapore-Guangdong Collaboration Council (2009)

Singapore-Jiangsu Cooperation Council (2007)

Singapore-Tianjin Economic & Trade Council (2007)

Singapore-Zhejiang Economic & Trade Council (2003)

Singapore-Liaoning Economic & Trade Council (2003)

Singapore-Sichuan Trade & Investment Committee (1996)

Singapore-Shandong Business Council (1993)

Other bodies

Figure 1.1 Joint Council for Bilateral Cooperation  Saw Swee-Hock

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consolidate and strengthen collaboration in these provinces. These second-tier councils are co-chaired by top officials of the two countries. The inaugural meeting of JCBC was held in 2004 under the joint chairmanship of the then Deputy Prime Minister Lee Hsien Loong and the then Vice-Premier Wu Yi. Since then the meeting has been held annually to consider the state of cooperation with the view of improving existing activities and seeking new projects for implementation. The latest meeting was held in Beijing in July 2012 with VicePremier Wang Qishan, who succeeded Wu Yi in 2008, and Deputy Prime Minister Teo Chee Hean co-chairing. In this meeting both sides agreed to put social issues as an item on the agenda since both countries have decided to place greater emphasis on the social aspects of developing their countries. The two-day Singapore-China Forum on Social Management was subsequently held in Singapore in September 2012 with the attendance of Chinese security chief Zhou Yongkang and some 90 senior government officials, discussing cooperation on managing social issues. Zhang Gaoli, who was elevated as the first Executive Vice-Premier in March 2013 under the new leadership of Xi Jinping, has been appointed the new co-chair of JCBC, replacing Wang Qishan who stepped down from his vice-premier post. Joint Government Projects In September 1992, the then Prime Minister Lee Kuan Yew visited Suzhou and met with the mayor Zhang Xinsheng for consultation as part of his whole itinerary planned for his trip to China. Among the many topics covered in their

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discussion was the possibility of Singapore investing in Suzhou as brought up by the mayor. The idea of collaborating with Suzhou was not warmly received by the Singapore side at the outset. It was only after intense discussion during many more meetings among senior officials on both sides that the setting up of an industrial park to attract foreign companies to spearhead industrialization was finally agreed by the two countries. The momentous event took place in 1994 when the two countries put their signature to the agreement that established the Singapore-Suzhou Industrial Park (SIP) to share the island’s experience in industrial development with mainland China. The plan for the SIP was to develop a 70-square kilometre site in the east of Suzhou towards the direction of Shanghai. The new town would essentially consist of three parts devoted to industrial, commercial and residential areas, scheduled to be completed in ten to fifteen years. It was planned to support a population of about 600,000 and be able to provide jobs to some 300,000 workers. By early 2011, the SIP had attracted some 4,300 foreign-owned projects, with 84 from the Fortune 500 multinational companies. The amount of capital invested by these foreign projects reached about US$19.7 billion, while that of the 16,125 Chinese-owned came to about US$32.0 billion, giving a total of US$51.7 billion. About half of the total investment originated from the United States and Europe, and the other countries of some significance are Japan, South Korea, Taiwan and Singapore. This first Singapore-China industrial park was overseen by the Joint Steering Council (JSC) on Suzhou initially under the co-chairmanship of the then Deputy Prime Minister Lee Hsien Loong and the then Chinese Vice-Premier Li Lanqing. The JSC, which has members from relevant ministries from both

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sides, is tasked with the responsibility of adapting Singapore’s economic management and public administration experiences. Below the JSC, there is the Joint Working Committee (JWC) co-chaired by senior officers from Jurong Town Corporation and from the Suzhou Municipal Government, with representatives from some government ministries and agencies from both sides. The JWC is involved in mainly the operational aspects of software transfer from Singapore. At the highest level, the SIP is under the supervision of the Joint Steering Council on Suzhou within the supreme Joint Council for Bilateral Cooperation (JCBC). The SIP is the first flagship project to be undertaken by the two governments, with active participation from the private sector, particularly the foreign multinational companies from all parts of the industrialized world. The joint SIP project is not quite the same as other industrial parks, whether government-owned or privately owned, run on a purely commercial basis where profit would determine the success or otherwise of the park. The SIP is underpinned by a much broader objective of serving as a government-backed platform to effect the transfer of Singapore’s software to the management of industrial parks in the mainland. This occurred at a time when China was undergoing radical reforms under the open-door policy to embark on industrialization as the first step towards achieving sustained economic growth, while the tiny city-state was looking for a second economic wing by venturing into its neighbouring countries to overcome the small domestic market at home. No less significant is the useful channel offered by the joint industrial park to political leaders, government officials and businessmen from both countries for interacting very closely, understanding the two working cultures, establishing mutual trust and cultivating

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long-term friendship — all essential for maintaining lasting bilateral relations. The next joint government project is the Sino-Singapore Tianjin Eco-City which was established on a completely different set of principles. It was during a visit to China in April 2007 that the then Senior Minister Goh Chok Tong came up with the idea of setting up an eco-city in Tianjin when he met with Premier Wen Jiabao in Beijing. The latter was quite familiar with the concept of an eco-city as China has been experimenting with the setting up of small-scale eco-cities in various parts of the mainland. After considerable deliberations, the Framework Agreement on the Development of the Eco-City was agreed and signed by the two countries in November 2007. What is different in the case of the Tianjin Eco-City is the huge scale of the project backed by two governments, with the resources and expertise of both sides made available to this joint venture. The companies in the private sectors of the two signatories and other countries were expected to participate heavily in this second government project. The choice of Tianjin to establish an eco-city, with Singapore as a partner, fits into the declaration of the central government that the city should be the economic centre of North China. The relentless industrialization and urbanization that took place in mainland China since the open-door policy was adopted have resulted in water pollution due to uncontrolled chemical waste discharge, air pollution due to foul emissions from factories and vehicles and other types of damage to the environment. It is not surprising that the Chinese Government should welcome the willingness of Singapore to embark on the mission of building a completely new eco-city. By

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becoming a partner in this new project so important to the Chinese, Singapore viewed this as a venture in expertisesharing and mutual-learning experience. As in the case of the Suzhou project, the Tianjin Eco-City was put under the charge of a similar framework known as the Joint Steering Council on Sino-Singapore Tianjin Eco-City co-chaired by then Deputy Prime Minister Wong Kan Seng and then VicePremier Wang Qishan, and supported by a lower level Joint Working Committee. Both the Council and the Committee are represented by senior officials from many ministries and agencies from the two countries in order to tap their expertise on environmental issues. The inaugural meeting of the Council was held in September 2008 when the two co-chairs expressed their satisfaction that the development of the joint project has made good progress. It was agreed that the main task ahead should encompass the formulation of policies in accordance with the vision of the eco-city and in line with attaining harmony between man and man, between man and the environment, and between man and the economy. The Committee has met regularly to address mainly operational issues relating to the development of the project. In many respects, the Tianjin Eco-City project is quite different from the earlier Suzhou Industrial Park, being implemented at a time when China had decided to shift its economic strategy from an export-oriented manufacturing base to a service-driven and low-carbon economic structure. By and large, the process of planning and building the eco-city has engendered new ideas and experiences beneficial to both partners. There are many other projects which are smaller in scale and have little or no government involvement, but

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collectively they have also helped to strengthen economic links between the two countries. Some of these projects are the Wuxi Industrial Park, Guangzhou Knowledge City, the Nanjing Eco High-Tech Island, the Singapore-Sichuan High-Tech Innovation Park and the Jilin Food Zone. The last project, a joint venture between Singbridge Holdings and the Government of Jilin, has not only attracted many private companies helping the city-state to seek new sources of food supply, but also fits in well with the current interest of China to develop the Northeast. As mentioned earlier, the new economic strategy adopted by mainland China to place greater emphasis on developing the inland areas, other than the eastern coastal regions, will offer new opportunities to Singapore and its businessmen to expand further the overseas economic wing. Two-Way Investment and Trade Since the open-door policy was introduced in the early 1990s, China was able to attract foreign direct investments (FDI) from countries all over the world to take advantage of the low labour cost to manufacture their products for export to the world as well as to satisfy the rapidly growing domestic market. Singapore was early to move into China with a continuous stream of investments from both the public and private sectors. Singapore’s cumulative direct investment stood at only about S$60 million in 1985, and edged up very slowly to reach S$280,000 million in 1992, the year when the two established diplomatic ties. Thereafter, it rose sharply to touch a high of S$15.7 billion in 2000, and even went up much faster in recent years to reach a high of S$70.6

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billion in 2010. Today, mainland China has become the top investment destination for the city-state, but not all the investments come from Singapore as some of them would have originated from other countries through their multinational companies operating in the city. Singapore has emerged as the fourth-largest source of foreign direct investment, surpassed by Hong Kong, Taiwan and the United States. The investment is mainly concentrated in manufacturing (51 per cent), real estate (16 per cent), commerce (16 per cent) and finance (9.0 per cent), with clearly half in the labour-intensive sector. In sharp contrast, the flow of Chinese investment into the city-state really started only in the last decade or so, and has never emerged as a significant player. Since achieving independence in 1965, the city-state has depended on multinational corporations from developed regions to propel and sustain the economy. In a way, the rapid growth of the Chinese export-orientated economy is also heavily geared towards foreign investments that can build its export capacity. The Chinese cumulative total investment stood at S$877 million in 2001, dropped to S$360 million in 2004, climbed to S$2.3 billion in 2007 and finally to S$11.5 billion in 2010, which is in sharp contrast to the S$70.6 billion Singapore investment in China in the same year. Besides, Chinese investment constitutes only 2 per cent of the total FDI in Singapore. Chinese investment has traditionally focused on the services industry related to trade, such as financial intermediation, commerce, transport and communications. The inflow of Chinese investment is expected to grow faster in the future, and this is beneficial to the city-state in providing an additional source of FDI.

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One of the most significant events in the promotion of bilateral relations is the signing of the China-Singapore Free Trade Agreement (CSFTA) on 23 October 2008 after a long period of negotiation. This landmark agreement, the first comprehensive bilateral FTA concluded between China and an East Asian/Southeast Asian country, came into force on 1 January 2009. Briefly, the agreement permits all Chinese exports to the city-state to be granted free-tariff access upon entry-into-force, and almost 97.1 per cent of Singapore’s exports to China will be free of tariff. The agreement contains many rules designed to encourage bilateral trade in goods and services, promote FDI, facilitate movement of personnel, and other forms of economic cooperation. In many respects, the various rules contained in the CSFTA will exert an important and positive impact on bilateral trade between the two nations. Firstly, it will speed up the development of bilateral trade in commodity since the two countries possess comparative advantages, and hence enjoy complementarity. Secondly, it will promote the development of bilateral trade in services, help China boost its trade in services which is not as large as commodity trade. Thirdly, it can trigger a reduction in China’s surplus trade with Singapore since the Chinese import tariff was much higher than that of the city-state before the implementation of the FTA; the removal of bilateral tariffs will lead to China importing more of the cheaper goods from the city-state. Lastly, it will increase the flow of bilateral investment, particularly in the case of countries without any FTA agreement with China which will choose to site their export-manufacturing outfits in the city-state.

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The value of China’s exports to Singapore grew by 128 per cent from US$1.97 billion in 1990 to US$4.50 billion in 1999, and by an enormous 568 per cent during the next decade when the value escalated to US$30.07 billion in 2009, and continued to expand to US$32.35 billion in the following year. On the other hand, the value of China’s imports from the city-state started on a much lower level of US$0.84 billion and grew by 383 per cent to reach US$4.06 billion in 1999. The second decade saw the value grow slower by 338 per cent to touch US$17.80 billion in 2009, but expanded at a much faster pace of 39 per cent in the following year. This down-up trend is due to the dip of 12 per cent in the recession year of 2009 when the value was pushed down from US$20.17 billion in the previous year to a low of US$17.80 billion. In fact, for the whole period under consideration, 2009 was the only year when the total value of bilateral trade declined. Another noteworthy point is that China has always recorded a trade surplus with the city-state, just as it has achieved with most trading partners. What is more significant is that the recent uptrend in bilateral trade provides another indication of the strengthening of ties enjoyed by the two countries in recent years. Cooperation in the Services Sector Singapore has always focused on developing the service industry as an integral part of its economic strategy by building major infrastructures and other facilities to prop up the tourist sector under the charge of the Singapore Tourism Board (STB). Over the years, major tourist attractions

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such as the zoo, bird park, Sentosa Island, the Flyer, the Esplanade, Gardens by the Bay, panda exhibit, hotels, night clubs, shopping malls, gourmet restaurants, F1 race, the two integrated resorts with casinos, and special entertainment events were put in place to woo visitors to the city-state and to stay longer. The other advantages for the Chinese visitors are proximity, almost similar culture and language, and easy air connections. With rising income and relaxation of travel restrictions, there are now more opportunities for the Chinese to travel abroad for holidays and business, and certainly the Lion City is becoming one of their favourite destinations. As for China, the government need not be so heavily involved in the building of new tourist sites since the vast country is endowed with beautiful natural places of interest and manmade monuments like the Great Wall, the Forbidden City, Tiananman Square, the Xi’an Terrocotta warriors, and many more. Singapore visitors have been going to the mainland to visit these tourist attractions and ancient cities. The two countries have cooperated in making it easier for their citizens to visit each other country for business and leisure since 2003. The visa application procedure for Chinese residents in Beijing, Shanghai and Guangzhou intending to travel to the city-state was simplified. In 2010 the two countries signed the China-Singapore Visa Exemption Agreement which allows ordinary citizens without visa to enter for short stay and diplomats and government officials to enjoy visa waiver for at least 30 days. The Singapore Tourism Board signed several Memoranda of Understanding (MOU) with various cities in China aimed at promoting tourism between these cities and the Lion City. In order to provide better services to Chinese travellers in Singapore

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the Singapore Tourism Board signed an MOU in 2011 with China Union Pay Co. Ltd. (CUP), a Chinese bank card service provider, to promote the use of this bankcard among Chinese travellers. Furthermore, China Union Pay will issue new CUP-Singapore Tourism bank cards to existing holders of CUP bank cards to provide more efficient services for card users when in Singapore. The STB’s Greater China offices have an arrangement with Ctrip.com. to provide Chinese travellers with a convenient way of purchasing online their air tickets and hotel rooms in Singapore. It should also be mentioned that some of the rules contained in the CSFTA are designed to facilitate and develop the tourist industry in the two countries. The number of Chinese visitors received by the city-state amounted to 202,000 in 1995, and increased by 115 per cent to reach 434,300 in 2000 and a further 139 per cent in 2006 to go beyond the one-million mark of 1,078,200. Since then, the growth has slowed down somewhat, and even dipped to 936,700 in 2009 as a result of the world financial crisis. In 1995 about 262,000 Singaporeans travelled to China, and by 2000 the number had risen to 1,004,000. It is interesting to note that despite the vast difference in the size of the population in the two nations, the volume of tourists between the two countries has not differed very much. The difference lies in the proportion of each country’s visitors to the total number of visitors for that country. The share of Singapore visitors to China’s total visitor arrivals stood at only 0.8 per cent in 2010 in contrast to the corresponding proportion of 10 per cent for the Chinese visitors in Singapore. Among tourist arrivals by country, the Chinese visitors rank second in Singapore, while the Singapore visitors rank third in China. In Singapore, the

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Chinese visitor expenditure amounted to S$74.5 million or 2 per cent of the total expenditure of all visitors in 1992, and by 2010 it had risen to S$1.05 billion or 11 per cent of the total, highlighting the emergence of more big spenders. In the area of financial services, there were various collaborations put in place by the two countries that yielded some important mutual benefits for both parties. When China started to develop its financial sector, the city-state was already well established in running the financial institutions such as the stock exchange, insurance and banks. In the early years when China was in the process of establishing its stock exchanges, senior officials at the Singapore Exchange (SGX) were able to share their experiences in the application of hardware and software with their Chinese counterparts. Nowadays, the SGX is focused on the listing of Chinese firms, and has taken the opportunity to collaborate with the mainland authorities. In October 2010, the SGX signed a memorandum of understanding (MOU) with the Financial Affairs Office of Jiangsu to encourage the listing of companies on the SGX. This agreement with Jiangsu came after the earlier MOU with Wuxi Financial Affairs Office and Suzhou Industrial Park. Today, the SGX is focused on attracting Chinese companies for them to use it as a convenient platform to gain access to local and international capital by seeking a listing on the SGX. Out of a total 461 companies listed on the SGX in 2010, 321 or 70 per cent were foreign companies, and out of the latter companies 136 or 42 per cent were from the Mainland. The SGX organizes corporate training courses in Singapore, Beijing and Shenzhen for senior officers of new and old listed Chinese companies to have a better

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understanding of the rules and regulations for listing, as well as for remaining listed on the SGX. There are certainly more opportunities for SGX to concentrate on Chinese companies to enlarge the number of new listings and capitalization in the coming years. As noted earlier, the sustained high rapid growth of the Chinese economy has engendered new trade and investment opportunities for the two countries. To take advantage of these opportunities to develop further the economies of the two nations, the People’s Bank of China (PBC) and the Monetary Authority of Singapore (MAS) announced the establishment of a bilateral currency swap arrangement. This arrangement is for an initial period of three years and can be extended by mutual consent. The swap arrangement will provide Chinese renminbi liquidity of up to RM150 billion and the Singapore dollar liquidity of up to S$30 billion. The bilateral currency swap arrangement constitutes one of the most important financial cooperation agreements between the two central banks designed to strengthen regional financial stability and hence economic resilience. The People’s Bank of China has recently decided to push for a greater role for the renminbi to be used in global trade and investment in order to reduce its great reliance on the US dollar. In May 2011, Singapore submitted a bid to become an overseas centre for the trading of renminbi, and on 8 February 2013 Beijing announced that the bid was successful notwithstanding fierce competition from many financial hubs. The Chinese-owned Industrial and Commercial Bank of China (ICBC) in the city-state was named as the official clearing bank, which will allow it to have direct access to the Chinese currency rather than the

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cumbersome practice of routing transactions via commercial banks in the Mainland. Among all the bidders, Beijing’s choice of Singapore could signal the priority of the new leadership in regionalizing the yuan in Asia, particularly among its resource-rich ASEAN neighbours for economic and strategic reasons. It is the intention of China to make the city-state an active and viable yuan trading hub, and this will certainly advance further the development of the international financial hub that Singapore is noted for. Another landmark development occurred in May 2013 when a representative office in Beijing was set up by the Monetary Authority of Singapore (MAS). The Beijing office, the first in Asia, is the third to be established by the MAS; the two existing ones are located in London and New York. The new Beijing office will help the MAS to strengthen further its warm ties with the key Chinese regulatories, such as the China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), and China Insurance Regulatory Commission (CIRC). In fact, the MAS has been holding annual meetings with CBRC to exchange views and examine market developments. The MAS Beijing office can certainly facilitate and expedite engagements with the Chinese regulators in areas of mutual interest. The other area in the services sector that has contributed to the close bilateral ties is education which has provided not only education service providers additional opportunities to expand their overseas business, but also the two countries to broaden their bilateral relationship. China has always been interested in upgrading the skills and knowledge of the top government officials by sending them to the citystate to attend specially tailored training courses and even

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formal degree programmes conducted by some government departments and institutions of higher learning. On its part, Singapore is willing to offer officials from both the central and provincial levels with some financial assistance to benefit from its educational offerings as part of its foreign aid and as part of its economic strategy to develop the island-state into an education hub. On the other hand, there are some Singapore students who opt to participate in short immersion programmes and to attend the universities, but not on such a big scale as those coming from the Mainland. In 1999 the two Ministries of Education of Singapore and China signed the first Memorandum of Understanding (MOU) to promote educational exchanges and cooperation, followed by many other agreements to streamline existing programmes and introduce new ones. One of the most popular collaborations at the school level is the twinning programme whereby a school from the Mainland twins with another school in the island-state to organize regular student exchanges, accompanied by teachers. These student exchanges offer new experiences to both the students and teachers alike. Special training programmes are organized by some government departments and the universities in Singapore for senior officials from the central and provincial governments to upgrade their knowledge and learn about the experiences of the city-state in social and economic development. Apart from such institutionalized collaborations, there are the educational links forged by Chinese students who come on their own, some with scholarships provided, to study in the universities and polytechnics. We must not forget there is a considerable number of Chinese teachers working in schools and the highly skilled ones are engaged as

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lecturers in institutions of higher learning and as researchers in research institutes. Another economic link has been provided by education service providers who take in private students from the Mainland for their special programmes such as English language and other vocational courses. The Singapore companies like Raffles Education, EtonHouse and Education Overseas have expanded into the major cities of the Mainland to take advantage of the rising demand for quality education by the children of the affluent locals and expatriates. The cross-border educational links have provided better opportunities for participating students to enrich their skills and knowledge, apart from cementing greater friendship and understanding. Cooperative efforts in the area of education are encouraged by both the government and the people in the two cultures where education is universally valued as a sure means to attaining a better standard of living for the younger generations. By and large, the comprehensive educational links have contributed to the upgrading of human capital so necessary for the two nations to meet the challenges of the future fraught with great uncertainties. Other Means of Advancing Bilateral Ties An interesting project implemented in the late 2012 is the ten-part documentary series featuring Singapore being produce by China Central Television (CCTV), which is part of its series on the Rise of Great Nations covering nine countries, including the United States and Japan. Members of the CCTV crew had been interviewing politicians from both the ruling party and the opposition parties, trade unionists,

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academics, and the general public. The Chinese Communist Party has been eager to ascertain how Singapore maintains a one-party dominant system in a prosperous and stable society. While the Lion City has been a model of some kind for China since the 1980s, the new President Xi is keen to reaffirm the Singapore model under his leadership in the years ahead. The broadcast of the ten-part series will show the high regard China has for the small city-state and the deep relationships between the two nations. There are some private organizations in Singapore involved in the advancement of bilateral ties between the two countries. One of the more important ones is known as Business China launched in November 2007 by Lee Kuan Yew and Wen Jiabao, targeted at nurturing bilingual and bicultural Singaporeans who can thrive well in the Chinese business environment. Its activities in the form of forums, talks and study tours to the Mainland are aimed at businessmen, professional and students. In 2010, it started the Business China Award by conferring the Business China Excellence Award and the Business China Young Achiever Award to individuals and the Business China Enterprise Award to organizations. These annual awards are meant to honour individuals and organizations for their contributions to Singapore-China relations and for the appreciation of Chinese language and culture. The Singapore Government has set up three Singapore Centres in Guangzhou, Chengdu and Beijing to bring its agencies such as Contact Singapore, International Enterprise Singapore, Economic Development Board and Singapore Tourism Board to offer one-stop services to the large group of Singaporeans and Chinese residing under one roof in these

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cities. Furthermore, the Overseas Singapore Club has been set up in major cities like Beijing, Shanghai and Xiamen to serve as the link between citizens and home. These clubs are conveniently located in Singapore-managed hotels where Singaporeans can network and enjoy the Singapore food and newspapers. In the universities in Singapore, there are departments and institutes devoted to the study of Chinese language, literature and economy. At the National University of Singapore, the Department of Chinese Studies offers courses leading to degree-level qualifications and the well-established East Asian Institute (EAI) conducts substantive research on the political, economic and social aspects of China, apart from holding conferences, seminars and talks. To some extent, such activities covering China are also carried out in the other universities in Singapore. In the Mainland, there is the recently-established Centre for Singapore Studies in Shenzhen University. Close ties between the two countries could also be seen in small but important gestures. In 2011 the Chinese built the China Cultural Centre in the city-state that allows Singaporeans to experience China’s rich cultural heritage by conducting lessons on Mandarin, calligraphy and wushu, screening films, holding exhibitions, and running a library with books on China. China has honoured the people of Singapore by agreeing to a ten-year loan of a pair of giant pandas, a collaboration between China Wildlife Conservation and Wildlife Reserves Singapore. The two giant pandas, named Kai Kai, meaning ‘victorious and successful’, and Jia Jia, meaning ‘beautiful and fine’ have been on display since early this year, bringing great joy and love to the visitors. The other significant landmark is the bust

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and plaque of Deng Xiaoping situated on a prominent site near the Singapore River and unveiled by the then Vice-Premier Xi Jinping in 2010 to mark twenty years of bilateral relations between the two countries. Prospects for Better Bilateral Relations The future of bilateral relations would depend on the new leadership in China as in the previous years when a good relationship was maintained, if not improved, by assiduously cultivating the friendship and trust of the top leaders. The prospects seem to be sanguine as Singapore has paid special attention to the two new leaders, Xi Jinping and Li Keqiang, both of whom became President and Prime Minister respectively in March 2013. The new Vice-President Li Yuanchao is also familiar with Singapore, having been involved in the Suzhou Industrial Park in his capacity as leader of Jiansu Province. Moreover, most of the other new leaders in the central government and in the provinces and major cities are no complete strangers to the Singapore leaders. Over the years, the Singapore leaders have been carefully building guanxi or connections that will be useful for developing bilateral relationships in the years to come. Well before his ascendancy to the top post, Xi Jinping has visited Singapore a few times to meet with the top leaders; while on their visits to China the Singapore leaders have also made it a point to meet with him to exchange views on the latest developments in China and the world in general. In fact, a long time ago in the early 1990s when he was a young 40-year-old party secretary of Fuzhou city, Xi visited Singapore and was invited by the then Prime Minister Lee

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Kuan Yew for a private lunch. Since that historic encounter, they have met many more times in either Beijing or Singapore. As mentioned earlier, his latest visit was in November 2010 to celebrate the 20th anniversary of the establishment of diplomatic ties between the two countries, and to renew contacts with leaders in the city-state. They met again in China in May 2011 when Lee was on his way to Tokyo to attend an international conference. In 1995 a delegation of the Young People’s Action Party led by George Yeo visited Beijing and met with Li Keqiang who was then leader of Communust Youth League. Since then Li has met with many of the top leaders from Singapore, with the latest meeting with Lee Hsien Loong being held in Beijing during his three-day visit to China in 2012. The new Foreign Minister Wang Yi visited Singapore in early May 2013 as part of his four-nation tour of ASEAN (Association of Southeast Asian Nations) that also included Brunei, Indonesia and Thailand. The inclusion of Singapore in his maiden overseas trip is a clear sign of the prevailing strong bilateral ties. His choice of these countries in Southeast Asia shows Beijing’s desire to establish closer ties with its neighbours in the south and to help assuage tensions over disputes in the South China Sea. Singapore has always adopted the position that it does not take sides in its relationships with other countries, preferring to serve as a middleman particularly between business enterprises in the West and its neighbouring countries. In political matters, it would like to remain neutral, but Singapore has been put in a difficult spot as four members, Philippines, Vietnam, Brunei and Malaysia, of the ten-member ASEAN became embroiled in territorial disputes in the South China

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Sea. Singapore has stated that it remains neutral and the disputes must be resolved on a bilateral basis, and possibly with ASEAN playing a positive role. In May 2013, the Foreign Minister Wang Yi agreed to commence talks with ASEAN to prepare a Code of Conduct (COC) to manage the disputes in the resource-rich South China Sea. As a member of ASEAN, Singapore would like to see the territorial disputes settled peacefully so that there will be peace and stability in the region. In response, China has stated that it understands and appreciate Singapore’s position, and it is hoped that the disputes will be settled eventually to the satisfaction of all parties concerned. The new challenge for the close relationships built over decades is to identify new areas of collaboration, improve greater understanding, and handle regional issues to promote peace and prosperity. REFERENCES Cai Haoxiang. “Xi Jinping in Singapore to strengthen friendship”. Straits Times, 15 November 2010. Chen, Gabriel. “Chinese banks muscle further into Singapore banking scene”. Straits Times, 20 January 2011. “China back to centre stage”. Straits Times, 17 November 2010. “China Vice-Foreign Minister Fu Ying: building new power relationship with US”. Straits Times, 12 September 2012. Chuang Peck Ming. “Sino-Singapore ties increasingly driven by private sector”. Business Times, 8–9 September 2012. “Deepening China-Singapore business links”. Business Times, 13 January 2012. Department of Statistics. Yearbook of Statistics. Singapore. Goh Keng Swee. “Doing Business in China”. In Goh Keng Swee

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edited by Zheng Yongnian and Wang Gungwu. Singapore: World Scientific, 2013. Goh Sui Noi. “Singapore, China clearer on each other’s position”. Straits Times, 12 September 2012. Ho Ai Yi. “China welcomes Singapore role in ties with ASEAN”. Straits Times, 1 September 2010. ———. “Li Keqiang named as China’s Premier”. Straits Times, 16 March 2013. Huang, Ryan “More firms from Greater China to invest in Singapore”. Today, 29 August 2011. Khoo, Lynette. “Business China awards up for grabs”. Business Times, 5 April 2011. ———. “Building lasting relationship”. Business Times, 29 November 2011. Kor Kian Beng. “China signals desire for closer ties with S-E Asia”. Straits Times, 30 April 2013. Lee Hsien Loong. “Singapore can be bridge between China and ASEAN”. Straits Times, 6 September 2010. Lee Kuan Yew. From Third World to First. Singapore: Singapore Press Holdings, 2000. Lim Hwee Hua. Keynote Address delivered at the International Conference on 20 Years of Advancing Singapore-China Relations organized by East Asian Institute on 10 May 2011. Lin Zhaowei. “Visits will boost ties with Singapore, says China envoy”. Straits Times, 22 September 2010. ———. “China, Singapore share know-how on social policy”. Sunday Times, 23 September 2012. Lye Liang Fook. “China and Singapore: An asymetrical but substantive relationships”. In China: Development and Governance edited by Wang Gungwu and Zheng Yongnian. Singapore: World Scientific, 2013. Ong, Clarissa. “The dragon and the red dot”. Straits Times, 2 October 2010.

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Peh Shing Huei. “China hails Lee Kuan Yew for building bilateral ties”. Straits Times, 24 April 2011. ———. “China understands Singapore position on South China Sea”. Straits Times, 8 September 2012. ———. “CCTV goes big on Singapore with 10-part”. Straits Times, 26 October 2012. Quek, Tracy. “Singapore-China ties entering new phase”. Straits Times, 21 November 2006. Raj, Conrad. “Singapore can be bridge for China business: DPM”. Business Times, 3 May 2006. Saw Swee-Hock, ed. ASEAN-China Economic Relations. Singapore: Institute of Southeast Asian Studies, 2008. “Singapore, China to jointly develop Eco-City”. Straits Times, 26 April 2007. “Singapore, China witness strong bilateral trade growth”. China Daily, 5 February. “Singapore aims to be renminbi hub”. Financial Times, 19 April 2011. “Singapore seeks broader, deeper ties with China”. Straits Times, 7 February 2012. “Singapore’s foresight in forging early friendship”. Singapore Press Holdings Website, 15 November 2012. Siow Li Sen. “10 Liaoning companies headed for SGX listing”. Business Times, 24 June 2006. ———. “ICBC opens renminbi clearing bank in Singapore”. Business Times, 3 May 2013. Spence, Michael. “Lessons from Singapore for China’s new leaders”. Straits Times, 21 November 2012. “Vice-President Xi arrives in Singapore”. China Daily, 15 November 2010. Wang Luyao. “China’s expanding investment in Singapore”. East Asian Policy 4, no. 2 (April and June 2012). Wang Gungwu and Zheng Yongian, eds. China: Development and Governance. Singapore: World Scientific, 2013.

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Wong, Edward and Jonathan Ansfield. “Singapore link in Xi Jinping’s reform agenda”. Straits Times, 25 October 2012. Wong Yee Fong. “Bridging China and SEA”. Today, 27 November 2010. “Xi Jinping appointed China’s president, completes rise to top”. Business Times, 14 March 2013. “Xi faces delicate balancing act as he takes full power”. Today, 15 March 2013. Zheng Yongnian and John Wong, eds. Goh Keng Swee in China. Singapore: World Scientific, 2013. Zubaidah Nazeer. “China to start code of conduct talks with ASEAN soon”. Straits Times, 3 May 2013.

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2 The Political Economy of Singapore’s Unique Relations with China John Wong and Catherine Chong

Introduction The year 2010 marks the 20th anniversary of the establishment of diplomatic relations between Singapore and China. Yet, well before formal ties were established, Singapore and China had extensive interactions as an important part of China’s overall relations with Southeast Asia, then known as Nanyang. Furthermore, during the height of Beijing’s Cold War relations with Southeast Asia in the 1950s and 1960s, Singapore still maintained economic ties with China while China’s ties with other Southeast Asian states had been disrupted or suspended. Today, Singapore-China bilateral ties are broad-based, substantive and rapidly expanding. The achievements today are extraordinary given their past ideological differences. In several ways, ties between the two countries can be described as special and unique. Chinese leader Deng Xiaoping during his Nanxun in 1992 specifically singled out Singapore’s development experience as being useful to

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China. This set the basis for the two countries to cooperate in various fields and benefit from each other’s growth. Other Chinese leaders have also mentioned Singapore from time to time to push relevant reforms in China. Besides the close personal ties between the leaders of the two countries, there is the high-level Joint Council for Bilateral Cooperation headed by the Deputy Prime Ministers of the two countries that oversees various forms of bilateral cooperation. A strong bilateral relationship has thus given rise to strong bilateral economic relations. Singapore’s two-way trade with China over the past two decades has increased 30 times, from US$2.9 billion in 1990 to US$75 billion in 2010. China was also Singapore’s third-largest trading partner and second-largest source of tourist arrivals in 2011. From China’s perspective, Singapore is China’s ninth largest trading partner and seventh-largest investor with Singapore’s cumulative foreign direct investment (FDI) in China amounting to US$48 billion in 2009. Singapore’s special economic relationship with China can best be epitomized by Singapore’s three flagship projects in China: Singapore-Suzhou Industrial Park; Sino-Singapore Tianjin Eco-City; and Knowledge City in Guangzhou. Singapore’s expanding relations with China are truly about how a tiny state has carved out for itself a special place in the world’s second-largest economy. It is also an opportunity for China to demonstrate to the region that China’s rise is peaceful and economically mutually beneficial. China’s Relations with Singapore: A Historical Perspective Singapore has geographically and historically been an integral part of Southeast Asia. Its interactions with China, in the past

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and present, can be viewed not only within a bilateral context, but also as part of a wider region. China’s relations with Southeast Asia, or Nanyang as called by the Chinese, have been extensive and deep-rooted, due to history, geography and migration. Historically, the South China Sea had an important place in “South-eastern Asia” which is considered as a regional unit and Singapore has been historically seen as an important gateway to Southeast Asia. The South China Sea was the main round of what may be called the Asian EastWest trade in commodities and ideas, and is also known as the second Silk Road. A “fair amount” of trade was recorded in as early as the Tang Dynasty (618–907). During the Sung Dynasty (10th–13th centuries), China had already established tributary relations with many Southeast Asian states, such as Siam (Thailand) and Annam (Vietnam). A vibrant “Nan-hai” trade was already in existence then and China’s relations with Southeast Asia soared to greater heights with Admiral Zheng He’s expeditions into the region.1 In fact, the Chinese had frequented the Malay land before the Portuguese conquered Malacca in 1511. It was not until 1819 when the British East India Company established a settlement that sizeable Chinese communities began to grow. With the expansion of trade and other economic opportunities, Chinese immigrants began to flock to the Straits Settlements.2 By 1860, ethnic Chinese constituted 60 per cent of Singapore’s population of 82,000, 15 per cent of Malacca’s 67,000, and nearly 30 per cent of Penang’s 67,000.3 Most Chinese, mainly from Fujian and Guangdong, migrated to Malaya under the contract-labour system. But they soon became traders and craftsmen, and eventually dominated the economic life of the Straits Settlements.4 After the founding of the People’s Republic of China (PRC) in 1949, however, China’s relations with Southeast

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Asia assumed new dimensions, with complex ideological and geopolitical forces coming into play. This gave rise to more than two decades of Cold War relations. It was not until the early 1970s, with the advent of international détente, that individual Southeast Asian countries started to normalize relations with China. Singapore was the last country in the Association of Southeast Asian Nations (ASEAN) to formalize relations with China, out of respect for the concerns of its neighbours such as Indonesia and Malaysia. This move allowed Singapore’s relations with China to develop incrementally, in line with the prevailing circumstances. In this way, a firmer footing was established for relations to develop further. Looking back, Singapore’s relations with China have been guided by a high degree of pragmatism. Pragmatism in this chapter is defined as actions that are guided by what works and what is mutually beneficial to both sides, on the basis of mutual respect of each other’s interests. This approach has served both countries well, providing a sound basis for ties to grow. For instance, in separating trade from politics, pragmatism had enabled Sino-Singapore relations to withstand the vagaries of the Cold War period. When China’s trade with Indonesia, the Philippines and Thailand was either seriously disrupted or banned altogether in the 1950s and 1960s, China’s trade with Singapore continued unabated. In fact, for more than three decades from 1950 to 1990, Sino-Singapore trade persisted in the absence of a formal diplomatic framework. Contacts between the two countries began to increase since the mid-1970s. After 1979 when Deng Xiaoping started economic reform and open-door policy, China’s approach to foreign relations was also characterized by pragmatism.

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This spurred the growth of two-way relations between China and Southeast Asia in general and between China and Singapore in particular. The two sides established their Commercial Representatives Office in each other’s country in 1981 and started their air service in 1985. Also in 1985, Singapore’s former Deputy Prime Minister and Finance Minister, Dr Goh Keng Swee, was asked to serve as economic adviser on the development of China’s coastal states and economic zones. China-Singapore ties received a further boost when Deng mentioned Singapore during his Nanxun or Southern Tour in 1992. During his tour Deng said that “Singapore enjoys good social order and is well managed. We should adapt their experience and do better than them” ( ). This set off a “Singapore fever” in China. Numerous official “observation groups” ( ) came to Singapore to examine Singapore’s development experience. In 1992 alone, about 400 delegations from China reportedly came to Singapore to study various aspects. This culminated in the joint development of the two countries’ first flagship project in Suzhou in 1994 which eventually took off after overcoming initial hurdles. The significance of Deng’s remarks continues to reverberate today. To be sure, China has since made tremendous socio-economic progress. On its part, Singapore has not stayed stagnant either. It is in the mutual interest of the two countries that they should learn and benefit from each other’s experience as they try to improve the quality of lives of their citizens. Besides economics, they have moved into many new areas of cooperation.

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Deng’s Nanxun Remark: A Foundation for China-Singapore Relationship Deng’s Nanxun remark has laid the foundation for China and Singapore to develop a strong relationship. This had been iterated by Guangdong’s Party Secretary Wang Yang. During the Second Plenary Session of the Tenth Guangdong Provincial Party Committee Congress held on 25 December 2007, Wang Yang urged his Guangdong officials to “‘emancipate their thoughts’ and pay close attention to Singapore’s economic restructuring experiences” ( ).5 In a recent visit to the Lee Kuan Yew School of Public Policy at the National University of Singapore, Chinese Politburo Member Li Yuanchao said that “We see Singapore as our first choice for our leading cadres’ overseas training, not just because Singapore and China are having very good relations, but Singapore is sincerely and willing to assist China in its development and training of our cadres, and also China can learn much from Singapore’s experiences” (

).6 It is not surprising that Singapore has been the preferred training choice for China’s government officials. In 1992 alone, about 400 delegations from China reportedly came to Singapore to study various aspects of its development. Since that year, Singapore’s Nanyang Technological University (NTU) has been running short- and mid-term programmes for more than 10,000 government officials from China and more than 1,000 senior officials had graduated from its Mayors’ Class since 1998. In 2011, another 108 mid-senior

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officials enrolled into the Mayors’ Class, making this intake the most senior one ever.7 The National University of Singapore’s (NUS) Lee Kuan Yew School of Public Policy and the NUS Business School jointly started the Master in Public Administration and Management (MPAM) programme in April 2010. Targeted at senior Chinese government officials and business leaders, the ten-month MPAM Chinese-language programme started with its first batch of 57 students.8 Between 1996 and 2009, Singapore had trained over 16,000 Chinese officials.9 In manifestation of their strong bilateral relations, political leaders from both sides constantly keep in touch. On China’s end, Chinese Politburo Members and Ministers frequently visited Singapore. Apart from Deng Xiaoping’s first and only official visit to Singapore in November 1978, many Chinese officials, such as Guangdong’s Party Secretary Wang Yang and Chinese Politburo Member Li Yuanchao, also follow suit. In November 2009, Chinese President Hu Jintao paid a state visit to Singapore before attending the Asia-Pacific Economic Cooperation (APEC) Economic Leaders Meeting. A year later, Chinese Vice-President Xi Jinping also visited Singapore to “consolidate the traditional friendship, expand strategic mutual trust, deepen practical cooperation and promote common development”. His visit coincided with the mark of the twenty years of bilateral relations. The visit was his first as China’s vice-president, although he had been to Singapore four times before. The last was in 1993 when he was party secretary of Fuzhou, capital of Fujian province.10 Recently, Chinese State Councillor and Defence Minister Liang Guanglie met former Minister Mentor Lee Kuan Yew. Liang was visiting Singapore at the invitation of Singapore

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Deputy Prime Minister and former Defence Minister Teo Chee Hean. Separately, he also met with Teo and Singapore Prime Minister Lee Hsien Loong.11 Singapore’s top leaders also made it a point to visit China at least once a year. Official delegations at different levels frequently exchange visits. In 2010 alone, Singapore leaders like Prime Minister Lee Hsien Loong (September), President S. R. Nathan (August), former Deputy Prime Minister Wong Kan Seng (twice in May and July), Deputy Prime Minister and former Minister for Defence Teo Chee Hean (April), former Minister Mentor Lee Kuan Yew (May), Emeritus Senior Minister Goh Chok Tong (June–July) and former Foreign Minister George Yeo (twice in September and March) had visited China.12 On 23 May 2011, Mr Lee Kuan Yew, who is now Senior Advisor to the Government Investment Corporation of Singapore (GIC), visited China and met Chinese Vice-President Xi Jinping at the Great Hall of the People in Beijing. This is his first visit outside of Singapore after the Singapore’s General Election on 7 May 2011.13 Bilateral Cooperation Framework Institutionalized at Both Central and Provincial Levels The development of China-Singapore ties is overseen by a high-level institutional mechanism known as the Joint Council for Bilateral Cooperation (JCBC) that meets on a regular basis. The JCBC was launched by the then Prime Minister Goh Chok Tong and Premier Wen Jiabao in November 2003. This mechanism has enabled both sides to periodically review the state of bilateral ties and proactively suggests ways to improve existing cooperation or identify new areas to work on. The JCBC also provides a useful platform for political

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leaders and officials as well as businessmen from both sides to get to know each other better by collaborating on joint projects. This network of interactions has helped to lay the groundwork for stronger political and economic ties. Maintaining the momentum of the bilateral relationship, the JCBC held its seventh meeting in Beijing chaired by VicePremier Wang Qishan and former Deputy Prime Minister Wong Kan Seng in July 2010. Under the JCBC are two Joint Steering Councils (JSCs), also headed by Vice-Premier Wang and former DPM Wong, that oversee policy-related issues on the Suzhou Industrial Park and the Sino-Singapore Tianjin Eco-City.14 The collaboration on the industrial park and now the eco-city provides vivid examples of how the two countries are constantly finding ways to stay relevant and benefit from each other’s growth. The success of these two flagship projects have strengthened and will add substance to bilateral ties. Below the JCBC framework are seven other key bilateral cooperation councils that Singapore has with Shandong (1993), Sichuan (1996), Liaoning (2003), Zhejiang (2003), Tianjin (2007), Jiangsu (2007) and Guangdong (2009). They provide additional platforms for leaders from both sides to get to know each other better and for Singapore to explore meaningful collaboration with respective Chinese provinces based on their comparative strengths.15 Burgeoning Trade and Investment Ties Since 1992, trade between China and Singapore has developed rapidly. The bilateral trade grew from around S$5.2 billion in 1990 to S$95.3 billion in 2010 (see Figure 2.1). Singapore is now the ninth biggest trade partner16 of China, whereas China is Singapore’s third-biggest trade partner, after Malaysia and

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Figure 2.1 Singapore’s Trade with China, 1990–2010

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the European Union. Within ASEAN, Singapore was also one of the largest trading partners within the ASEAN grouping (see Figure 2.2). Singapore is the traditional export market for China’s textiles, grain and oil products, specialties and petrochemical products. In recent years, petrochemicals, electromechanical equipment, communication equipment, electronic and electrical products, plastic products/modules, textiles and clothing have been added to the list. Trade in electronics and machinery (including parts) remains a major component of China-Singapore bilateral trade. Singapore’s exports in this category rose from around US$9.9 billion in 2005, to US$12.8 billion in 2010. This accounted for 52 per cent (2005: 60 per cent) of its exports to China in 2010. On the other end, China’s exports to Singapore in the category electronics and machinery forms around half of the total exports by China to Singapore. China often served as the last point in the production chain of the regional production network, thus finished products may be exported back to Singapore (see Table 2.1). The China-Singapore Free Trade Agreement (CSFTA)17 that came into force on 1 January 2009 is the first comprehensive bilateral FTA18 that China has signed with another Asian country. This deepens the bilateral trade, and since its implementation, notable benefits can be seen in the bilateral trade figures. This is certainly the view shared by Singapore and Chinese officials when they met for their first review of the CSFTA in April 2010.19 To ensure its continued relevance, the CSFTA will need to continually evolve to meet the needs of the Singapore and China’s business communities.

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Figure 2.2 China’s Trade with ASEAN, 1980–2010 (US$ Billion)

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Source: China’s Customs Statistics, various years.

Total

Mineral Products (including fuels and oils) Products of Chemical and Allied Industries (including   organic chemicals Plastic and Rubber Articles Textile and Textile Articles Electronics and Machinery (including parts) Vehicles, Aircrafts, Vessels (Transport Equipment)



Category



100

9 11 0 60 0

11 11 0 52 0 100

13

2005

19

2010

Import

Export

100

3 2 3 48 17

10

2010

Percentage

Table 2.1 China Trade with Singapore by Major Category, 2005 and 2010

100

3 1 9 58 5

8

2005

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Since the early 1980s, the Singapore Government has been taking a positive view of the direct economic involvement in China by local and Singapore based foreign firms. This had enabled them to gain an early foothold in the Chinese economy and ultimately enlarged Singapore’s share in the China market. By 1997, China overtook Malaysia as the most important destination for Singapore’s foreign direct investment in cumulative terms. In 2009, Singapore’s cumulative direct investment in China reached S$58.1 billion, from S$60 million in 1985 (see Figure 2.3). Singapore’s investments in China are predominantly in manufacturing (55.6 per cent of Singapore’s direct investment in China or S$32.2 billion), real estate activities (18.4 per cent or S$10.7 billion) and financial and insurance services (11.5 per cent or S$6.7 billion).20 In 2009, Singapore is China’s seventh largest investor.21 The number of Chinese tourists travelling overseas had risen from 0.9 million in 1999 to about 48 million in 2009.22 Chinese tourists to Singapore also rose from around 0.4 million in 1999 to 0.7 million in 2009, and nearly 1.2 million in 2010. Although the number of tourists dipped during the 2002–03 severe acute respiratory syndrome (SARs) epidemic, China nevertheless overtook Malaysia and Australia to take third place in the top six visitor-generating markets for Singapore, and overtook Japan in 2003 to take the second place (see Figure 2.4). Singapore’s tourism industry suffered a great hit due to the global financial crisis in 2008, but Singapore had not been taking any chances. The Singapore Tourism Board (STB) has been promoting several campaigns to attract Chinese tourists. One of which is the New Family Branding Campaign ( ). Launched in May 2008 the campaign

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Figure 2.3 Singapore’s Cumulative Direct Investment in China, 1985–2009

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Figure 2.4 Top Six Visitor-Generating Markets for Singapore, 1999–2010

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is to attract single-child families to visit Singapore during the new long public holidays (i.e. the 5 new long weekends and 2 long holidays, a total of 11 days).23 STB has also been partnering with the Singapore Airlines and other airlines to offer promotional packages for Chinese tourist coming from Beijing, Shanghai, Nanjing and Guangdong.24 Apart from the surge in Chinese tourists, many AsiaPacific economies have experienced positive spillovers from China’s economic growth. China has been an engine of growth for many Asia-Pacific economies. In recent years, China’s import from Japan, Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and Australia has exceeded its exports to these economies, thereby incurring trade deficits with them which were offset by China’s trade surplus with USA, EU, and to an extent, Singapore. This means that many Asian countries are tapping into China’s vast domestic market and its growing demand for capital and technology, raw materials, semi-completed parts and components, and financial services (see Figure 2.5). Being the centre of the global and regional production networks and an integrator of regional and global manufacturing activities, China has imported large volume of raw materials, intermediate products, machinery and equipment, and services from different Asian economies, Singapore including, and then re-exporting the finished products to different markets in the region and beyond (see Figure 2.6). Singapore’s export in electronics and machinery (including parts) is an integral part of Singapore’s bilateral trade with China.25 A year after the implementation of the China-Singapore Free Trade Agreement (CSFTA) on 1 January 2009, trade between Singapore and China reached

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Source: China Statistical Yearbook 2010, China Monthly Statistics, December 2010.

Figure 2.5 China’s Trade Balance with Selected Countries, 2008–10 (US$ Billion) 48 John Wong and Catherine Chong

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Figure 2.6 China at the Centre of Global and Regional Production Networks

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a new high of US$95.3 billion in 2010 (see Figure 2.1). Apart from trade, financial services from Singapore also formed an integral part in China’s global and regional production networks. This will be discussed later in this chapter. Singapore also established three flagship projects in China: Singapore-Suzhou Industrial Park; Sino-Singapore Tianjin Eco-City; and Knowledge City in Guangzhou. Beyond trade, both China and Singapore have sought ways to strengthen their economic resilience and financial stability. Established in 1994 as a government-to-government project, the 80-square kilometre Singapore-Suzhou Industrial Park situated in Suzhou, Jiangsu Province, was the first flagship project between China and Singapore. This project encountered some initial start-up problems, but eventually took off after overcoming them. It is now a showcase as a successful China-Singapore joint development project. The Sino-Singapore Tianjin Eco-City26 was mooted in 2007 as another project. Learning from the past experience from the Singapore-Suzhou Industrial Park, the Sino-Singapore Tianjin Eco-City developed rapidly without much start-up problems. Mooted in 2009, the Knowledge City in Guangzhou is a “private sector” project but with governmental support. Jointly developed by the Guangzhou Development District and Singbridge International, which is wholly owned by Temasek Holdings, the Knowledge City offers a platform in restructuring Guangdong’s economy. Looking Forward In a meeting celebrating China and Singapore’s 20 th anniversary of diplomatic ties, Chinese Vice-President Xi Jinping noted that China and Singapore have increased

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mutual understanding and expanded cooperation since the establishment of diplomatic relations. China has drawn useful experiences from Singapore’s development as it undertake its reform, opening-up and the modernization drive. At the same time, China’s increasing national power has provided broad market and huge potential for Singapore’s continuous development.27 For Singapore-China relations to grow further, both sides need to constantly explore ways and means to stay relevant to each other. Singapore is seen as a good stepping stone for China’s businesses to go out into the region. ASEAN occupies an increasingly important strategic position due to the acceleration of ASEAN integration and the implementation of China-ASEAN Free Trade Agreement.28 Singapore is situated at the southern tip of Peninsular Malaysia, and is a strategic outlet to connect to other parts of ASEAN. On 25 April 2011, the Chinese Government started its construction of the Kunming-Singapore High-Speed Railway project at the Yunnan (China)-Laos section. The entire high-speed railway, expected to be in operation by 2020, is in fact the central line of the southeast part of the Trans-Asian Railway Network. It will also pass by Bangkok and Kuala Lumpur, and end in Singapore, with a total distance of 3,900 kilometres.29 Another possible project is the proposed Nanning-Singapore Economic Corridor, linking China’s Nanning in the north to Singapore in the south, which is said to have the potential of becoming a new growth engine for China and ASEAN.30 Singapore is also a good conduit for China to improve its relations with the Southeast Asian states. The CSFTA that came into force on 1 January 2009 is the first comprehensive bilateral FTA that China has signed with another Asian country. This was followed by the implementation of the

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China-ASEAN FTA a year later. When China and the ten ASEAN states began the negotiation of China-ASEAN Free Trade Area (CAFTA) in 2001, it created new impetus for the region to revitalize its integration process. CAFTA had exerted tremendous pressure on Japan and Korea to follow suit with Japan signing a Framework Agreement in 2003 and later concluding an ASEAN-Japan Comprehensive Economic Partnership (AJCEP) in 2008. Korea has also taken a similar move with the signing of the ASEAN-Korea Free Trade Area (AKFTA) in 2005. Following the CSFTA, and later the CAFTA, China, together with Japan and South Korea has now formed a Joint Study Committee (JSC) to assess the feasibility of another FTA among the three countries.31 China’s continuing economic growth has opened up new trade and investment opportunities for Singapore. Singapore has been a high-tech production hub for semi-conductor which forms an integral part of Singapore’s bilateral trade with China.32 To deepen bilateral trade and investment for economic development of the two countries, the People’s Bank of China (PBC) and the Monetary Authority of Singapore (MAS) announced on 23 July 2010 the establishment of a bilateral currency swap arrangement. The bilateral currency swap arrangement is a key pillar of cooperation between the PBC and the MAS to strengthen regional economic resilience and financial stability. The bilateral currency swap arrangement will provide Chinese renminbi liquidity of up to RMB150 billion and Singapore dollar liquidity of up to S$30 billion. The effective period of the arrangement is three years and can be extended by agreement between the two sides.33 In May 2011, Singapore has made a bid to become the first overseas hub for trading renminbi, marking a new stage in the

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internationalization of the Chinese currency. With a Chinese bank to clear renminbi trades in the city state, this would enable Singapore banks to directly access onshore renminbi rather than having to route the transactions via Hong Kong or commercial banks in the Mainland.34 The People’s Bank of China has been pushing for a greater role for the renminbi in global trade and investment so that China can reduce its almost total reliance on the US dollar. Although Hongkong is seen as a pioneer towards the internationalization of the renminbi, Singapore, being a centre for commodities and currency trading, can further internationalize the renminbi by facilitating renminbi trade between China and other Southeast Asian nations.35 Singapore has been a platform for qualified Chinese firms gain access to international finance. Out of the 58 newly listed companies on the Singapore Exchange (SGX) in 2003, 23 are Chinese firms. This accounted for 26 per cent of the newly listed companies that year.36 By 2010 these listed Chinese companies, also known as “dragon chips” has grown to a total of 156 (see Table 2.2). This accounted for almost 20 per cent of all companies listed on the SGX, amounting to 7.7 per cent of the market capitalization on SGX’s mainboard as well as on Catalist, the second board37 (see Table 2.3). From lessons learned from past experiences, such as the Singapore-listed China Aviation Oil Corp. Ltd.38 incident, SGX has begun to organize corporate governance training courses conducted in Mandarin in Singapore, Beijing and Shenzhen to help newly listed or old listed Chinese companies to have a better understanding of the regulations of listing in Singapore. SGX is eager to attract more listing from Chinese firms. In October 2010, SGX signed a listing memorandum of

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Table 2.2 Listing of Chinese Companies on the Singapore Stock Exchange, 2010

Number

Singapore Companies Overseas Companies (Exclude China) China Companies Total

461 165 156 782

Note: SGX only started publishing the breakdown of listed companies from January 2010. Source: Singapore Exchange Ltd.

Table 2.3 Capitalization of Listed Companies in Singapore, 2010

Mainboard

Singapore Companies Overseas Companies (Exclude China) China Companies Catalist

Singapore Companies Overseas Companies (Exclude China) China Companies Total

S$ Billion 664

470 143 51 6.5 4.4 1.6 0.5

670.2

Source: Singapore Exchange Ltd.

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understanding (MOU) with the Financial Affairs Office of Jiangsu to attract enterprises from Jiangsu to obtain additional capital by listing at the SGX. The agreement with Jiangsu was signed after the earlier SGX MOUs with Wuxi Financial Affairs Office and Suzhou Industrial Park in China.39 China and Singapore have been working together more closely to ensure the success of existing collaborative projects, such as the Singapore-Suzhou Industrial Park which celebrated its 17th Anniversary in 2011, the Sino-Singapore Tianjin Eco-City and the Knowledge City project. The success of these projects will certainly strengthen the bilateral relationship between China and Singapore. Singapore has a small economy while China is the secondlargest economy in the world, gaining more regional and global economic and political clout. It remains a challenge for Singapore to keep and maintain this special relationship with China. As a small and export-oriented country, Singapore would like to see a politically stable and economically prosperous China, ready to play a responsible role in regional and global affairs. For Singapore, it can continue to contribute and ride on China’s further economic growth, whereas for China the building of a more comprehensive relationship with Singapore underscores China’s pledge to peaceful development, maintain growth and contribute to prosperity in the region. NOTES   1. Historical record has shown that Zheng He made seven voyages, in which he visited Champa (an Indianized kingdom that controlled what is now southern and central Vietnam), Java, Malacca, Sumatra, Pahang and Palembang.

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  2. Singapore, Malacca and Penang administratively formed the Straits Settlements under the British Government in Bengal at that time.   3. P.R. Pearn, An Introduction to the History of Southeast Asia (Kuala Lumpur: Longman Malaysia, 1963).   4. Victor Purcell, The Chinese in Southeast Asia, 2nd ed. (Oxford University Press, 1965).   5. “Guangdong shengshuji Wang Yang: Guangdong yaoganjiaoban Xinjiapo”, Sina news, 27 December 2007, .   6. “Song ganbudao haiwai peixun Shongguo shuoxuan xinjiapo”, zaobao.com, 18 April 2011, .   7. “Senior Chinese officials to undergo ‘Training-of-Trainers’ programme in public administration and governance in Singapore”, Nanyang Technological University website, 26 April 2011, .   8. “Minister Li Yuanchao officiates launch of new Master’s programme in Chinese”, National University of Singapore website, 19 April 2010, .   9. Quoted from the speech by Mr Lee Kuan Yew, then Minister Mentor, at the S. Rajaratnam Lecture, 9 April 2009, 5:30pm at Shangri-la Hotel, Singapore, . 10. “Xi Jinping in Singapore to strengthen friendship”, Prime Minister’s Office website, 15 November 2010, .

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11. “Singapore’s Lee Kuan Yew meets Chinese defense chief”, China Daily, 16 May 2011, . 12. Other Singapore Ministers that have visited China in 2010 include Education and former Second Minister, current Minister for Defense Ng Eng Hen (August), Minister for Trade and Industry Lim Hng Kiang (April), and former Minister for Environment and Water Resources Yacoob Ibrahim (March). 13. “Lee Kuan Yew meets Chinese Vice President Xi Jinping”, Channelnewsasia.com, 23 May 2011, . 14. Each JSC has a Joint Working Committee (JWC) comprising senior officials from the relevant ministries and agencies from both sides. They provide additional platforms to maximize interactions at the working level. 15. John Wong and Lye Liang Fook, “Singapore’s Growing Relations with China: An Overview” (unpublished). 16. “Vice-President Xi arrives in Singapore”, China Daily, 15 November 2010, . 17. All Singapore goods, except for about 260 products, will enjoy tariff-free access to China by 2010. These make up about 95 per cent of Singapore’s exports to China. Key exports that will benefit include petrochemicals, processed foods, and electronics and electrical products. Specifically, more than 85 per cent of Singapore’s exports to China will enjoy duty-free access upon the FTA’s entry into force on 1 January 2009. The tariffs on the other 10 per cent of exports will be eliminated on 1 January 2010. All Chinese exports to Singapore will be granted tariff-free access on 1 January 2009. 18. The China-Singapore Free Trade Agreement (CSFTA) covers

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19

20. 21. 22. 23.

24.

25.

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trade in goods, trade in services, rules of origin, trade remedies, sanitary measures, technical barriers to trade, customs procedures, economic cooperation and dispute settlement, among others. “China and Singapore officials hold 1st review of the ChinaSingapore Free Trade Agreement, 14–15 April 2010”, Press Statement, 15 April 2010 by Singapore’s Ministry of Trade and Industry at . “Singapore’s Investment Abroad, 2009”, Department of Statistics, Singapore, . “China and Singapore”, Ministry of Foreign Affairs (The People’s Republic of China) website, 23 August 2010, . Data from China Statistical Yearbook, 2002 and 2010. See “Singapore Tourism Industry Conference 2009” powerpoint slide, presented by the Singapore Tourism Board at the STB Tourism Industry Conference 2009 on 11 February 2009, . Promotional package from Beijing including airfare, taxes and hotel cost RMB4,880 (US$734), from Shanghai including airfare, taxes and hotel cost RMB3,460 (US$534), from Nanjing, the promotion is a “three paying, one free” package, and from Guangzhou, airfare only cost RMB2,009 (US$310). Singapore’s export in Electronics and Machinery (including parts) constitute more than half of its total export to China. Singapore has been one of the suppliers of Electronics and Machinery parts for China’s processing/assembling industry. Although Singapore’s trade in with China may seem to drop from 60 per cent in 2005 to 52 per cent in 2010, in actual

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26.

27.

28.

29. 30.

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fact, the rapid growth of China’s import from Singapore has over taken the growth rate of the bilateral trade in Electronics and Machinery (including parts). Between 2005 and 2010, China’s import from Singapore grew around 30 per cent, from US$16.5 billion in 2005 to US$24.7 billion in 2010, but China’s import of Electronics and Machinery (including parts) from Singapore grew almost 50 per cent, from US$9.8 billion in 2005 to US$12.8 billion in 2010. The Sino-Singapore Tianjin Eco-City site is located 40 km from Tianjin city centre and 150 km from Beijing. The site is 10 km from the core district of the Tianjin Binhai New Area, with the southern tip of the site only a 5 to 10 minute drive from the Tianjin Economic – Technological Development Area, the current driving force behind Tianjin’s economic growth. “China, Singapore reaffirm cooperative relationship”, Chinese Government’s Official Web Portal, 16 November 2010, . In November 2001, China and the 10-member ASEAN states began negotiations to set up a free trade area. A year later, the “China-ASEAN Framework Agreement on Comprehensive Economic Cooperation” was signed. Over the years, agreements on trade and services were signed, and Investment Agreement, signed on 15 August 2009, marked the successful completion of main CAFTA negotiations. On 1 January 2010, CAFTA was fully implemented. “Kunming-Singapore High-Speed Railway begins construction”, China Daily, 25 April 2011, . The proposal for a Nanning-Singapore Economic Corridor was first raised by Guangxi Academy of Social Sciences in 2004, and later proposed by Guangxi, China, to be a blueprint for China-ASEAN economic integration during the

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31.

32. 33.

34. 35.

36. 37.

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first Pan-Beibu Gulf Economic Cooperation Forum in 2006. For more details, refer to John Wong and Catherine Chong, “The Nanning-Singapore Economic Corridor: It’s promises and problems”, EAI Background Brief no. 587. “Joint Statement of the Joint Study Committee for an FTA among China, Japan and Korea”, Ministry of Commerce PRC, . See footnote 26. “The People’s Bank of China and the Monetary Authority of Singapore Announce Bilateral Currency Swap”, MAS’ press release, 23 July 2010, . “Singapore aims to be renminbi hub”, Financial Times, 19 April 2011, . “Singapore can be an offshore yuan center, but won’t surpass HK”, China Daily, 12 April 2011, . Also see “Singapore aims to be renminbi hub”, Financial Times online, 19 April 2011, . “103 Chinese firms listed in Singapore”, China Daily, 26 May 2006, . Catalist evolved from the former SESDAQ, the second board of the SGX, to meet the fund raising needs of local small and medium enterprises (SMEs). The transformation into Catalist serves to expand its relevance to international companies from a diversified range of sectors, fuelling further growth in the long term. Also see SGX website, .

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38. “Costly lessons from the CAO scandal”, China Daily, 23 December 2004, . 39. “SGX aims to attract more Jiangsu-based companies”, Channelnewsasia.com, 22 October 2010, .

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3 Suzhou Industrial Park: Going Beyond a Commercial Project Lye Liang Fook

Introduction Most industrial parks are run on a commercial basis, with minimal or no governmental intervention. If the government is involved, it is usually to provide a conducive regulatory framework or the right incentives to give the industrial park a head start in attracting investors. It would appear that the lesser the government involvement the better it is for any particular industrial park to reach its full market potential. Yet, the Suzhou Industrial Park (SIP), which Singapore and China embarked on in 1994, was and still is no ordinary industrial park. Like other industrial parks, it had to be commercially viable in order to be sustainable. Unlike other industrial parks, the SIP served a broader strategic and political function that is less known. More specifically, it provided a platform for government and business leaders, especially the younger ones, from both sides to come together and work on a common project. By working on the details of the project,

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both sides would get to know each other better. This would lay the basis for a long-term and robust relationship. More significantly, arising from the SIP, a high-level institutional mechanism was developed and consequently expanded to oversee all areas of bilateral cooperation. Moreover, the Singapore brand name that is often associated with the project has generated positive mileage for both sides. On these counts, the SIP performs a function that goes beyond that of a purely commercially-run industrial park. This chapter examines the SIP within the broader context of the Sino-Singapore relationship. It argues that the project laid a good foundation for the development of bilateral ties. To flesh out this argument, we will focus on four key aspects. First, it will touch on the origin of the SIP. It will discuss the broad political context in which the SIP was conceived. This will show how the governments of the two countries were actively involved in conception of the project. Second, we will outline the defining feature of the project which is the transfer of Singapore’s economic management and public administration software. We will also highlight one difficult issue faced by both sides in the implementation of Singapore’s software. On the surface, this issue ostensibly reveals the gap that exists between the two countries. Upon deeper analysis and with hindsight, this difference underscored the value of the software that Singapore was transferring to the Chinese side. This value became even more obvious as the years went by. Today, the success of the SIP can be traced to the foundation laid in the early years. Third, we will look at some of the key achievements of the SIP in terms of economic performance and, more importantly, in terms of non-economic indicators such as

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environmental protection and creating a quality environment for residents to live in. The non-economic indicators have essentially set the SIP apart from other industrial parks in China. Fourth, we will examine the long-term political implications of the SIP which is still in play. This would include the high-level institutional mechanism set up initially to drive the SIP but later expanded to oversee other areas of bilateral cooperation. The success of the SIP today has generated greater awareness of the Singapore brand name in China, notwithstanding the teething problems encountered in the initial years. It is important to ensure the continued success of the SIP as it has a direct bearing on the bilateral relationship. Origin of the Suzhou Industrial Park The SIP was the outcome of political factors that came together in the early 1990s. Both Singapore and China saw value in embarking on the SIP project. From Beijing’s perspective, the collaboration with Singapore on the SIP fitted well into its overall strategy of moving well beyond the shadows of the 1989 Tiananmen incident. At the international level, China’s external image was severely battered by this incident, with key countries like the US even imposing sanctions on China. At the national level, the incident triggered an intense ideological debate within China on the merits of capitalism and socialism. Eventually, it was China’s paramount leader Deng Xiaoping who succeeded in reaffirming the reform and open-door policy when he embarked on his famous Southern Tour or Nanxun in 1992. In his Nanxun speech, Deng had said that “Guangdong should catch up with Asia’s four dragons (Hong Kong,

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Singapore, South Korea and Taiwan) in 20 years, not only in economics but also in social order and social climate. China should do better than these countries in these matters”.1 In particular, Deng mentioned that “Singapore enjoys good social order. They govern the place with discipline. We should tap their experience and learn how to manage better than them ( )”.2 Deng’s remarks opened the political window for Singapore and China to explore closer cooperation. It sparked off a “Singapore fever” in China and led to numerous visits by Chinese delegations to Singapore. In 1992 alone, more than 400 delegations from China came to Singapore. They wanted to understand better how Singapore had established good social order alongside rapid economic growth.3 In September 1992, Zhang Xinsheng, the Mayor of Suzhou, broached the idea of Singapore investing a part of its reserves to help Suzhou industrialize when Senior Minister Lee Kuan Yew visited Suzhou.4 Zhang was cognizant of the improved political climate in China for foreign investments following Deng Xiaoping’s Nanxun speech and he saw an opportunity for Suzhou to work with Singapore. It seemed that Singapore was not immediately receptive to the idea of collaborating with Suzhou.5 It took further discussions and several meetings later before the idea of developing an industrial park was conceived. Even though Deng Xiaoping publicly mentioned Singapore in his 1992 speech, he had been closely following developments in Singapore well before this. In November 1978 Deng visited Singapore and was apparently struck by the socio-economic progress Singapore had achieved since independence in 1965. He reportedly told Singapore’s Prime

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Minister Lee Kuan Yew that he was “glad he had come and seen Singapore again after 58 years”.6 He added that Singapore had undergone a “dramatic transformation” and congratulated Prime Minister Lee. He even said “If I had only Shanghai, I too might be able to change Shanghai as quickly. But I have the whole of China!”7 To Deng, Singapore was a vivid example of a country that had done well after independence. More importantly, Singapore’s experience could provide a reference for China. On its part, Singapore leaders had since the late 1980s and early 1990s began to emphasize the importance of regionalization, i.e. exhorting its businesses to venture into regional markets to develop a second wing to augment Singapore’s small domestic market.8 In a speech to cadres of the ruling People’s Action Party in 1992, Senior Minister Lee Kuan Yew cited the success of Taiwan, Hong Kong and South Korea in building economies outside their geographical boundaries. He noted that these newly-industrializing economies (NIEs) had “two wings with which to take flight. With only one wing, Singapore will stay on the ground and not get airborne”.9 Likewise, at a regionalization forum organized by the government in May 1993, Prime Minister Goh Chok Tong reiterated that going regional was part of Singapore’s “longterm strategy to stay ahead”.10 He outlined three possible modalities on how Singapore businesses can venture abroad: (i) Singapore businessmen could follow their own instincts and go where they think they had the best chance of succeeding, (ii) the Government or a Singapore consortium could identify a few major projects in selected cities in different regions or countries. The identified

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projects should have economic linkages and spin-offs to a wide range of Singapore business entities, and (iii) select one suitable province or state which has the potential to be an NIE and whose leaders are keen to tap Singapore’s experience. This approach would enable Singapore to build a broad and deep relationship with provincial leaders, who in turn could help Singapore businessmen secure some of their development projects. Prime Minister Goh also stressed that this collaboration with the province or state must have the support of the central government of the country concerned.11 The first strategy outlined by Prime Minister Goh in 1993 referred to the usual way that businesses would, on their own accord, go in search of the most viable returns. In such instances, the Government would not be involved. The second strategy involved some form of governmental role in pinpointing projects in certain locations that would generate economic spin-offs for Singapore. The Batam Industrial Park, the Bintan Industrial Estate and the Wuxi-Singapore Industrial Park which were spearheaded by a Singapore-led consortium fell under this strategy. Finally, the third strategy required a much more active governmental role in working with another country’s counterparts not only to implement a project but also to develop a “broad and deep relationship”. The SIP was developed under this strategy. Hence, the SIP was conceived due to a confluence of political factors on the part of Singapore and China. From China’s perspective, Singapore provided a useful reference for its economic development. Apart from Deng’s endorsement in early 1992, Singapore was also more politically acceptable to China compared to Hong Kong which was still under the

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British rule. Taiwan was regarded as a province of China and South Korea diplomatic relations were not established until August 1992. From Singapore’s perspective, China provided an important market for Singapore’s regionalization drive so as to sustain the country’s longterm competitiveness. Software Transfer to Suzhou Industrial Park The SIP has industrial, commercial and residential components. Beginning in 1994, the goal was to develop a 70-square kilometre site east of the old city of Suzhou in the direction of Shanghai. It was estimated to take ten to fifteen years to complete and to attract a total investment of US$20 billion. When ready, the township would be able to support a population of 600,000 and provide employment for more than 300,000 workers. On the surface, the SIP was no different from other industrial parks. To understand why the SIP is different, there is a need to draw a distinction between its hardware development and software transfer. The hardware development of SIP refers primarily to the physical development or tangibles of the industrial park that include the construction of factories and other buildings, the laying of roads, and other public infrastructure and utilities. The software transfer largely refers to the intangibles such as having the right mindset, the right attitude and even value system of leaders and officials in handling any issues or problems encountered. It is this software aspect that will be elaborated in the following paragraphs since this is the defining feature of the SIP, making it a cut above most other industrial parks.

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In the 1990s many Chinese delegations came to Singapore, especially after Deng’s Nanxun speech to better understand how Singapore works. However, it was uncertain how much knowledge they could absorb and bring back to China during their short study visits. Hence, the governments of both countries saw value in working hands-on on a project, namely the SIP, so that Singapore could better share its experience in economic management and public administration with China. This experience was known as Singapore “software” which was essentially embodied in its laws, rules, regulations, together with its work processes and systems and, most importantly, in the values and problem-solving attitudes of its experienced officers. An example that is often cited by Singapore’s leaders to illustrate its software is the Changi International Airport. The airport’s reputation as a world-class airport does not come from the physical manifestation of its terminal buildings, but in its excellent software in terms of management mindset, leadership and efficiency.12 On the SIP in particular, some of the key values, concepts and practices that Singapore imparted to their Chinese counterparts included the importance of providing one-stop service, being responsive to investors’ needs; providing transparency and accountability, inculcating a sense of community among residents, and raising environmental awareness through, for instance, greening efforts and setting aside sufficient green spaces. These may be standard practice today, but they were less understood back then when proposed in Suzhou in 1994. Hence, difficulties were naturally encountered when introducing the concepts to guide the development of the SIP. The following highlights one such difficulty in the initial years of SIP’s development.

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One software concept which took some time to gain traction with the Chinese side was the importance of master planning. At that time, the common practice in development zones in China was that of rolling development ( ). This essentially meant that land would be developed if there was a need or demand for it. It was an approach skewed in favour of quick development. Moreover, the needs of investors could be quickly met once they are ready to invest in a particular location. On the other hand, Singapore, due to land constraints, has adopted master planning. This essentially means that before a piece of land is developed, a plan would have to be drawn up in advance to decide how that piece of land was to be used and the type of investments to attract. Master planning facilitates the long-term and systemic use of land. It also fostered transparency and predictability which investors would generally be in favour of. In one particular instance, during the initial years of SIP’s development, the Suzhou Industrial Park Administrative Committee (SIPAC) that oversees the administration of the SIP purportedly took over two choice plots of land next to the scenic Jinji Lake for the purpose of constructing government buildings. According to the master plan, however, these two plots of land were not zoned for government use. One of the arguments put forth by SIPAC was that land use rights for these two plots of land had yet to be transferred to the Singapore-led Joint Venture Company (JVC) responsible for developing the SIP.13 There was thus no need to apply to the JVC for these two plots of land to be transferred to SIPAC. Since it was agreed to develop a properly planned industrial township, it was important that the master plan for the entire SIP to be adhered to. Based on the practice in Singapore, a

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piece of land does not just have value on its own, and the value comes from the way the land is being zoned. Applying the Singapore practice in the SIP, it was thus not appropriate for SIPAC to take over these two plots of land and to build on it. At the very least, SIPAC should raise the matter formally and perhaps explore the possibility of negotiating an acceptable price to buy the land from the JVC. This tussle between SIPAC and the Singapore-led JVC revealed the different practices and belief systems held by both sides, each with their apparent valid reasons. Both sides could not find a resolution in the short-run. It was only later that this was resolved as a package of issues at the governmental level by both sides. This episode provides a sense of the difficulties faced in implementing Singapore software in the SIP during the initial years. Yet today, master planning is adhered to in the SIP as one of its key competitive advantages. Industrial, commercial, residential, green belts, educational zones, incubation hubs are clearly delineated. With hindsight, therefore, the early years of difficulties underscored the value of the software that Singapore was transferring. The value has become even more pronounced in SIP today. Suzhou Industrial Park Today SIP has moved well beyond its teething problems of the initial years to what is widely regarded as a successful industrial park today. It has performed well both in terms of economic and non-economic indicators. On the non-economic indicators in particular, the elements of the success today can be traced to the software that the Singapore side transferred to the Chinese

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side. However, credit must also be given to the Chinese side, i.e., the Suzhou Municipal Government and SIPAC in particular, for building on this foundation and bringing the SIP to greater heights especially after they became primarily responsible for the SIP in 2001. This section will highlight some of the key economic and non-economic successes of the SIP. As of March 2011, SIP had attracted over 4,303 foreigncapital projects, including 84 Fortune 500 MNCs. The total capital of these foreign-invested projects amounted to US$19.73 billion. In addition, there were a total of 16,125 domestic-capital projects with a total capital of US$31.99 billion (RMB207.34 billion).14 The total capital for domestic projects and foreign projects amounted to more than US$51 billion. This is more than twice the initial target investment of US$20 billion by 2009 (fifteen years from the start date of the SIP in 1994). In 2010 SIP’s GDP contribution was RMB134 billion, an increase of 19.6 per cent from the previous year figure of RMB112 billion (see Figure 3.1). In 2009, the SIP posted a commendable economic performance despite the global economic downturn. While SIP’s total trade dipped 18.1 per cent to US$51.28 billion as a result of weakened external demand,15 its GDP grew 15.1 per cent to reach RMB112 billion. Its foreign direct investment remained healthy at US$1.81 billion, similar to that in 2008, signalling continued investor confidence in the SIP (see Figure 3.2).16 In terms of geographical distribution, almost 50 per cent of the investment in March 2011 are from the US and Europe. The next big group of investors, comprising 22 per cent comes from Taiwan, Hong Kong and Macao. In the early years of

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Source: SIP Investment Guide (published by SIPAC), China Singapore Suzhou Industrial Park Development Company (CSSD) and Straits Times (Singapore).

Figure 3.1 SIP’s Local GDP Contribution, 1996–2010

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Source: SIP Investment Guide (published by SIPAC) and Straits Times (Singapore).

Figure 3.2 Committed and Utilized Foreign Investment in SIP, 1996–2009

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SIP’s development, there were very few of investors from these countries as the focus then was on attracting international investors from the US, Europe, Japan and South Korea. The share of investments from Japan, South Korea and Singapore are 13 per cent, 5 per cent and 6 per cent respectively (see Figure 3.3). The latest figures show that the SIP has continued to remain an attractive destination for foreign investors from not only the US and Europe but also Asia. In terms of sectoral distribution, the bulk of the investments fall under the high-tech categories of electronics, software and R&D (48.8 per cent) and mechanical and precision engineering (17.5 per cent). Also gaining emphasis is the chemical, health care and pharmaceutical sector at 11.9 per cent (see Figure 3.4). The services sector covering food and beverage, business process outsourcing, financial services and risk management is another growth area. In another indication of its economic success, the JVC or the China Singapore Suzhou Industrial Park Development Company (CSSD) has been preparing for a public listing since 2004 and an impending listing is on the cards.17 According to the existing Chinese regulations, a company has to have at least three consecutive years of profits before it can qualify for a listing. CSSD has recorded a profit since 2001, the year when the Chinese-led consortium took over majority ownership of the company (see Figure 3.5). By the third year of registering a profit in 2003, CSSD recouped its losses incurred in the previous years and paid out dividends to shareholders for the first time. A listing in the near future, most likely on the Shanghai Stock Exchange, will allow CSSD to raise SIP’s international profile and reaffirm the success of the SIP model.

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Source: CSSD.

Figure 3.3 Geographical Distribution of Foreign Investors as of March 2011

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Source: CSSD.

Figure 3.4 Sectoral Distribution of Foreign Investors as of March 2011

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Source: CSSD.

Figure 3.5 Profits of CSSD, 2001–10

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Equally impressive has been the achievements of SIP on the software front. Today, SIPAC prides itself for having a pro-business orientation, providing one-stop service, and offering transparent policies and regulations to investors. It is well aware of the importance of keeping SIP transparent and predictable, and the need to be responsive to investors. Worth mentioning here is that on its website, SIPAC prominently highlights its “Scientific Master Plan” that divides the SIP into six major clusters for industrial transformation and upgrading (see Figure 3.6). They are the science and technology cluster (around the Dushu Lake), modern service industry cluster (around Junji Lake), environment protection cluster; trade and logistic cluster, hi-tech industry cluster, and recreation and tourism cluster (around Yangcheng Lake). From this master plan, the unequivocal message to investors is that SIP’s development is based on long-term orderly and systemic planning, hence the inclusion of the word “scientific” in the term “master plan”. When the world financial crisis occurred in late 2008, SIPAC officials visited individual investors in the SIP to get a better sense of the impact of this crisis on investors’ business operations. As a follow-up, SIPAC published a booklet titled Policies on Supporting Enterprise Development in January 2009 that were distributed to investors in SIP. The booklet contains relevant policies, regulations and measures at the Suzhou, Jiangsu and even Beijing levels related to growth and consumption, external trade, scientific innovation, development of small and medium enterprises, modern services, human resource and financial services that are of interests to investors. The booklet even contains a list of telephone numbers with the names of officials from the

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Figure 3.6 Six Major Bases for Industrial Transformation and Upgrading

Source: SIPAC Website at (accessed 20 June 2011).

various local departments and agencies that investors could reach to raise any issues. More recently, when the 9.0 earthquake struck Japan in March 2011, SIPAC leaders and officials were quick to touch base with the Japanese companies in SIP. The purpose

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was to better understand how these companies’ production and exports could be affected by the crisis, and to propose measures to help them tide over the difficult period. In his visit to Hitachi Display Devices in Suzhou on 14 March 2011, the Secretary of the SIP Party Working Committee Ma Minglong, the highest-ranking party official in SIPAC that oversees the SIP, reportedly told the Japanese management that “they could count on the local government for the help they need. He said the Chinese people wouldn’t forget the support from the Japanese friends after Wenchuan was hit by a massive earthquake and this was a time to reciprocate….”18 Beyond being pro-business, SIPAC also champions the policy of being “pro-people and pro-environment”. On the environment, there was a noticeable difference between the SIP and other industrial parks in China in terms of its greening efforts during its initial years. In the 1990s, SIP was known as a park with well-paved roads lined with trees and shrubs on both sides. Since then, SIPAC has done much more to green and protect the environment. For instance, one of the most well-known lakes in SIP is Jinji Lake which used to be a major freshwater fish farm but has been discontinued to reduce water pollution. Green areas now surround the lake, including the Red Maple Forest and Camphor Tree Park, and there are green islands on the lake such as the Peach Blossom Island and Linglong Island. The green areas in and around the Jinji Lake cover an area of more than 200 hectares,19 making it an ideal location for not only residents in SIP but outside of SIP to visit and to relax. Other large green belts in SIP include the Central Park (12.6 hectares), Baitang Botanical Gardens (47 hectares), Dongsha Lake Ecological Park (68 hectares), Fangzhou Park (11.4 hectares) and Zhongtang Park (7 hectares).

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There is even an ecological science hub where projects that focus on green architecture, energy-saving, environmental protection and renewable energy are implemented. There was indeed a conscious effort since the early years not to attract high-polluting industries to set up shop in the SIP. The waste generated and waste disposal by businesses are well regulated and managed. SIPAC has claimed that the standard coal consumption in SIP is 0.34 tons per RMB10,000, which is one-quarter the national average. Moreover, the emission of chemical oxygen demand (COD) and sulphur dioxide (SO2) in SIP is 1/18 and 1/40 respectively of the national average.20 Due to its environmental protection efforts, the SIP and the Suzhou New District21 were designated by China’s National Administration of Environmental Protection under the Ministry of Commerce as the first national demonstration zones of ecological industrial development in China in 2008.22 Equally important, is that SIP is known for its liveable environment. In particular, expatriates enjoy living in SIP due to its beautiful surrounding as well as convenient access to amenities such as malls, recreational outlets, educational institutions, medical facilities and sport halls. To add vibrancy to life in SIP, activities involving the local community are organized regularly by the relevant city authorities. For example, the Suzhou Jinji Lake Half Marathon was held in April 2011. Most of the estimated 10,000 runners were reportedly Chinese residents from Suzhou and the surrounding areas. Over 20 per cent were foreigners like Americans, Germans, Australians, Japanese, South Koreans and Singaporeans.23 In addition, there is a newly-revamped indoor rock-climbing facility at the Sports Development Center of Dushu Lake

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Higher Education Town in the SIP. According to the sports centre, it has so far received nearly 20,000 domestic and foreign fans of the sports from the US, France, Britain, and Finland since it opened a few years ago.24 Political Impact of Suzhou Industrial Park Following a review of the successes of the SIP, it is timely to look at some of its lesser known but more significant political impact. This political impact remains at work today and has a direct bearing on bilateral relations. Two main aspects will be mentioned here. The first is the high-level institutional mechanism that was initially set up to drive the SIP and was later expanded to include other areas of bilateral cooperation. The second is the Singapore brand name that is often associated with the success of the SIP. The SIP has a political rationale that is often overlooked. As mentioned, the SIP was intended to offer a platform where the leaders and officials from both sides could come together to work jointly on a project. In doing so, leaders and officials could get to know their counterparts from the other side better. This is intended to facilitate the building of longer-term relationships that would buttress bilateral ties. To put the above fundamental principles into practice, an institutional platform for both sides to engage each other on the SIP was agreed upon at the start of the project in 1994. It has three levels (see Figure 3.7). At the top is the Joint Steering Council (JSC), headed by the then Deputy Prime Minister Lee Hsien Loong and Vice-Premier Li Lanqing. The role of the JSC is to examine all major issues relating to the

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Figure 3.7 Initial Bilateral Cooperation Platform

adaptation of Singapore’s economic management and public administration experience in SIP. The JSC brings together various ministries and agencies from both sides to facilitate the development of the SIP.25 In addition, on the Chinese side officials from the Jiangsu government and Suzhou municipal government are included. Below the JSC is the Joint Working Committee (JWC) that looks at the operational issues of software transfer. The JWC was jointly headed by a senior representative from the Jurong Town Corporation (JTC) and a senior official from the Suzhou Municipal Government. Officials from the relevant government ministries and agencies on both sides were also involved at this level. The JWC reports to the JSC, as represented by the upward-pointing arrow.

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At the commercial level, a Singapore-led and Chinese-led consortium of companies known as CSSD is responsible for the physical development of the project as well as ensuring that the project is commercially viable. Hence, there are regular interactions at the commercial level, intended to build relations that may extend to ventures beyond the SIP. The involvement of the private sector is to convey an unequivocal message that while both governments oversaw the project and would actively create the right conditions for the project to succeed, the real test was in its ability to compete in the market place. Strictly speaking, the consortium does not need to report to the JWC or JSC. However, there are informal channels for the consortium members to provide feedback on the development of the SIP to the JWC or JSC especially on issues that they want to be taken up at the official level. Hence, the relationship between the JVC and JSC is represented by a dotted line in Figure 3.7. Building on this foundation, the institution mechanism was further expanded when the Joint Council for Bilateral Cooperation (JCBC) was launched by Singapore’s Prime Minister Goh Chok Tong and Chinese Premier Wen Jiabao in November 2003. Both sides held their first meeting in 2004 chaired by Singapore’s Deputy Prime Minister Lee Hsien Loong and Chinese Vice-Premier Wu Yi. The purpose of this mechanism is to periodically review the state of bilateral cooperation, including the SIP, and proactively suggests ways to improve ties or identify new areas to work on. The JCBC provides a more comprehensive platform for political leaders and officials as well as businessmen from both sides to know each other better by collaborating on more joint projects. This network of interactions has helped to strengthen political and economic ties between the two countries.

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Besides the high-level JCBC framework which holds meetings every year, the other important political impact of the SIP is the greater awareness of the Singapore brand name in China. More specifically, SIP’s success today as evident in its software features of being pro-business, proenvironment and pro-people has vindicated the early efforts of Singapore in embarking on this project. Looking back, the teething problems or differences encountered in the early years reflected Singapore’s commitment to transfer what it thought would be useful to the Chinese side. Over the years, the value of what Singapore had transferred became more apparent. Today, the SIP has moved well beyond its early difficult years with due credit to the leadership and hard work put in by the leaders and officials of SIPAC and the Suzhou Municipal Government. Nevertheless, it did not go unnoticed to these leaders and officials that Singapore did play a role in sowing the seeds of success earlier on. In recent years, the SIP has embarked on a “going out” strategy by establishing other industrial parks in China based on the SIP model. Mini-SIPs have sprung up in two localities in northern Jiangsu, thus bringing growth to these less developed areas. The two locations are the Suzhou-Suqian Industrial Park of about 10 square kilometres and the SuzhouNantong Science and Technology Park, an ecologically protected, integrated industrial zone and modern new town, of about 50 square kilometres in the Nantong Economic and Technological Development Area.26 While venturing out of the SIP, the leaders in SIPAC and CSSD have made clear that the Chinese side was not doing it alone. They have emphasized that these ventures were undertaken on the basis of the successful experience

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of the Sino-Singapore collaboration on the SIP. In a way, they were leveraging on the Singapore brand name to explore opportunities elsewhere. With regard to the SuzhouNantong Science and Technology Park in particular, it is worth noting that CSSD owns 51 per cent of the company formed to develop this science and technology park, and of this figure the Singapore-led consortium still has a 28 per cent share.27 The Singapore component in CSSD therefore remains important in distinguishing SIP ventures from its other competitors. Going forward, the Chinese side most likely wants the Singapore side to retain its share in CSSD and to be involved in SIP in view of the mileage that the Singapore brand name can generate not only within but also increasingly outside of China.28 On its part, the Singapore side is certainly committed to stay on in this project as it offers a vital conduit for its leaders, officials and businessmen to interact and explore opportunities in accordance with China’s economic strategy. It is noteworthy that since 1994, the two sides have continued with the SIP software training programme. This programme was launched to provide relevant training to Chinese officials to enable them to better appreciate and implement Singapore’s software in the SIP. This training, held in Singapore, has continued to this day with the majority of officials coming from the SIP and to a lesser extent from Suzhou. To date, a total of 2,313 Chinese officials have received training in various areas, which have been modified to suit the progress and needs of SIP. Lately, some of the areas that the Chinese side is interested in include economic restructuring and industrial upgrading, research and development, external

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trade, business outsourcing, logistic management, social order and security, and manpower management. Conclusion This chapter has examined the SIP within the broader context of Sino-Singapore relations. It has argued that the SIP has laid an early and strong foundation for the development of relations between the two countries. The SIP is not a run-ofthe-mill commercial project. In terms of its origins, the SIP was a government-to-government project made possible by the confluence of political factors, namely, Deng Xiaoping’s specific mention of Singapore in his 1992 Nanxun speech and Singapore’s desire to work on a hands-on project with China in line with its regionalization strategy. In terms of the SIP itself, its defining feature involves the transfer of Singapore’s economic management and public administration software. The value of the software was not immediately apparent, but became more obvious as the years went by, especially after the Chinese side became primarily responsible for SIP’s performance since 2001. The success of the SIP today can be attributed to the sound foundation laid in the early years when the Singapore side led its development and the hard work put in by leaders and officials from the Suzhou Municipal Government, SIPAC and CSSD. The SIP stands out not only in terms of economic performance but, more importantly, in terms of its noneconomic strengths. These would include the mindset and practice of being responsive to investors’ needs, protecting the environment and creating a place where residents can call it home. These are the conducive aspects that set the SIP apart from other industrial parks in China.

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Finally, the SIP has exerted an impact that remains today and goes beyond the project itself. This is attributed to SIP’s high-level institutional mechanism devised to drive the project. This mechanism was subsequently expanded to oversee all aspects of bilateral cooperation between the two countries, with the SIP model being replicated in other parts of China. This venturing-out is undertaken on the basis of the Singapore brand name, a valuable asset which both the Singapore and Chinese parties can continue to leverage on as they ride on the opportunities that China’s growth offers. Viewed in this light, it is important to ensure that the SIP and other projects, particularly the Sino-Singapore Tianjin Eco-City project, remain on track and continue to reinforce bilateral ties and the Singapore brand name. NOTES   1. Lee Kuan Yew, From Third World to First (Singapore: Singapore Press Holdings, 2000).   2. Shenzhen Propaganda Department, ed., Deng Xiaoping yu Shenzhen: 1992 Chun (Deng Xiaoping and Shenzhen: Spring 1992) (Shenzhen: Haitian chubanshe, 1992).   3. John Wong, “China’s Fascination with the Development of Singapore”, Asia-Pacific Review 5, no. 3 (Fall/Winter 1998).   4. Lee Kuan Yew, From Third World to First, p. 719. Lee Kuan Yew was prime minister of an independent Singapore from 1965 to November 1990. From November 1990 to August 2004, he was Senior Minister. From August 2004 to May 2011, he was Minister Mentor.   5. Ibid.   6. Fifty-eight years earlier, in 1920, Deng had visited Singapore

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  7.

  8.

  9.

10.

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while on his way to Marseilles in France after the end of the First World War to work and study. At that time, Singapore was still a British colony. According to Lee Kuan Yew, at the end of the visit, after Deng Xiaoping had boarded the plane to depart Singapore, Lee had said to his colleagues that Deng’s staff was going to get a “shellacking” as Deng had witnessed a Singapore that “his brief had not prepared him for”. Sure enough, after Deng’s visit, articles in the main Chinese Communist Party (hereafter the Party) newspaper, the People’s Daily, took a different line and portrayed Singapore in a positive light. No longer seen simply as “running dogs of the American imperialists”, Singapore was described as a “garden city worth studying for its greening, public housing and tourism”. Another indication of the positive impression of Singapore was Deng’s speech in October 1979 when he mentioned how Singapore had utilized foreign capital to generate revenue for the state, income for the workers and promoted the growth of the service sectors. Singapore had become a point of reference for China. See Lee Kuan Yew, From Third World to First. Tan Chwee Huat, Venturing Overseas: Singapore’s External Wing (Singapore: McGraw-Hill, 1995); “Singapore’s Second Wing Looks Set to Take Flight”, Straits Times, 17 April 1994; “Ventures Abroad: Panel of Advisers Named”, Straits Times, 31 January 1993; and, “SM Lee: Singapore will become failed NIE if its people do not venture abroad”, Straits Times, 3 January 1993. “SM: Singaporeans Must Now Build Up External Economy”, Straits Times, 16 November 1992. See also remarks by then Deputy Prime Minister Lee Hsien Loong in “Walking with Two Legs”, Straits Times, 9 November 2008. Speech by PM Goh Chok Tong titled “Staying Competitive through Regionalization” at the Regionalization Forum, Mandarin Hotel, 21 May 1993.

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11. Ibid. 12. Lee Kuan Yew, From Third World to First. 13. The JVC, known as the China Singapore Suzhou Industrial Park Development Company (CSSD), comprised a Singaporeled and a Chinese-led consortium. The Singapore-led consortium held majority ownership of the JVC from 1994 to end 2000. From 2001 onwards, the Chinese-led consortium took over majority ownership of the JVC. 14. Figures from the China-Singapore Suzhou Industrial Park Development Company (or CSSD). 15. Out of this US$51.28 billion, US$24.16 billion was from exports. 16. “Trade at Suzhou Industrial Park Rises 68% in H1 to US$35.6b”, Channelnewsasia, 23 July 2010. 17. “Suzhou Industrial Park to Face IPO Test”, Straits Times, 14 February 2011. 18. “SIP officials Visit Japanese Companies and Promise Help”, Press Release by SIPAC, 14 March 2011. 19. “Zaochu yige yiju tiantang (Creating a Livable Paradise)”, Suzhou Daily, 10 April 2009, (accessed 20 July 2011). 20. See SIPAC website at (accessed 20 June 2011). 21. The Suzhou New District is another industrial park that lies to the West of Suzhou Old Town. The SIP lies to the East of the old town. 22. “SIP and SND Approved as National Ecological Demonstration Zones”, Singapore-China Economic and Trade Cooperation, 12 March 2008, (accessed 20 July 2011). 23. “2011 Suzhou Jinji Lake Half Marathon Opens”, Suzhou

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24.

25.

26.

27.

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Government Press Release, 12 April 2011, (accessed 20 July 2011) and “New Highlights in 2011 Suzhou Jinji Lake Half Marathon”, SIPAC Press Release, 11 April 2011, (accessed 20 July 2011). “Dushu Indoor Climbing Gym Launches Bouldering Facility and 20 New Routes”, SIPAC Press Release, 19 January 2011, (accessed 20 July 2011). On the Chinese side, the current members include the Ministry of Commerce, Ministry of Foreign Affairs, National Development and Reform Commission, Ministry of Science, Ministry of Finance, Ministry of Land and Resources, Ministry of Construction, General Administration of Customs, Jiangsu Provincial Government, Suzhou Municipal Government. On the Singapore side, the members are the Ministry of Trade and Industry, Ministry of Foreign Affairs, Ministry of National Development, Ministry of Environment and the Economic Development Board. See Suzhou Industrial Park Investment Guide 2007. The agreement to embark on the Suzhou-Suqian Industrial Park was signed between the Suzhou Municipal Government and the Suqian Municipal Government in November 2006. In Nantong, a Letter of Intent was signed among CSSD, SIPAC and the Nantong Economic and Technological Development Area Administrative Committee in November 2008. “Suzhou gongyuan moshi yunniang laowo fuzhi, Zhongxin ni mingnian shangshi (SIP model under preparation for replication in Laos, Sino-Singapore to intend to list next year)”, First Financial Daily, 25 September 2009.

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28. It was reported that CSSD was mulling over the possibility of developing a special economic zone in Vientiane, Laos. See “Suzhou Industrial Park to Build Laos Economic Zone”, China Economic Review, 31 January 2008.

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4 Translating Concept into Practice: Sino-Singapore Tianjin Eco-City Project Chen Gang and Zhao Litao

Introduction The rapid process of industrialization and urbanization in China has brought about greater environmental and social problems, including water and energy shortage, air pollution, overcrowding, traffic congestion, loss of biodiversity and desertification. Influenced by the internationally popular concept of eco-city that focuses on integrating sustainability into city planning, the Chinese Government in recent years has been paying increasing attention to the know-how of building cities in balance with nature. As the notions of eco-city and garden city are imported and China is still in the take-off stage of economic development, the country has been enthusiastic about cooperating with other foreign partners in eco-city projects, with the flagship Sino-Singapore Tianjin Eco-City Project being the most well-known and successful up to date. Based on its indigenous experience with the construction of “ecological garden cities” (shengtai yuanlin chengshi),1 China has started to plan and build its own eco-cities in some localities.

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The trajectory of the Singapore-China project based cooperation from the Suzhou Industrial Park (1994) to the Tianjin Eco-City (2008) has manifested China’s shift in its economic strategy from building itself into an exportoriented manufacturing base to a service-driven and lowcarbon economy. Compared with the unilateral knowledge transferred from Singapore to China in the Suzhou Industrial Park, the Singaporean side has found its participation in the Eco-City project to a larger extent an expertise-sharing and mutual-learning interaction between the two countries when the pollution and energy problems have pushed the rising China to lead the world in tapping renewable energy. At the strategic level, it marks Singapore’s continued effort to stay relevant to China’s rise by identifying a niche area for collaboration with China. In doing so, Singapore can leverage on China’s growth. On the other hand, the project enables China to devise a model that balances the goals of economic growth, environment protection and social harmony, one that is based on Singapore’s own developmental experience which may be more realistic and attractive to China compared to other models. This is in line with the top leadership’s call for a scientific concept of development enshrined in the constitution of the Chinese Communist Party. Furthermore, the project will facilitate the implementation of China’s regional development strategies.2 Need for Eco-Cities People’s living standards have been greatly uplifted due to the rapid industrialization and urbanization throughout the world in the past fifty years, but this process has also brought negative by-product for the ecological system of our planet. Increasing environmental problems have received

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the attention of governments, media, business circles and civil society in various parts of the world. Climate change, water and air pollution, ozone depletion, loss of biodiversity, desertification and other environmental degradation are now so severe that they not only threaten the sustainable development of economy, people’s health and ordinary life, but also pose an acute political challenge to the global governance. Considering the increasing importance of today’s cities and urban construction in determining the carbon intensity and pollutant amount of our modern life, how to build our cities more environmentally-friendly and sustainable has become a possible solution to tough environmental problems faced by the international community. The relatively new concept of eco-city has been envisioned and later put into practice by avant-garde architects and urban planners to create the smallest possible ecological footprint for city dwellers. The city exists, like everything else, in an evolving universe, but it appears to have a special role in evolution that may have a great deal to do with how we build and use it.3 A successful city must balance economic, social and ecological needs from all sides. The notion of eco-city or ecopolis is a big step forward in the long-time evolution of human urban construction. Such a city minimizes the required consumption of energy, water and raw materials and its waste discharge of air, solid and water pollutants. The year 2007 marked a watershed in human history, when for the first time, half of the world’s population were living in cities.4 As hubs of prosperity, cities have also been blamed for causing environmental degradation due to the high-carbon lifestyle and huge amount of waste output. It is important to understand that one of the most effective solutions to current

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environmental problems on a global scale lies in the way we plan and build our cities. No single recipe for urban sustainability can be applied to all cities, but the various eco-city schemes should share the three common goals of conservation, recycling and preservation of biodiversity. Designers of these cities should always bear in mind that economic, social and environmental considerations are always interconnected, and that current urban development should not compromise the ability of future generations to meet their own needs. It is important for eco-city planners to manage environmental resources as strategic assets that are essential for the long-term interest of urban residents. Environmental resources such as clean air, fresh water, forest and open space are often taken for granted by city planners who do not pay enough attention to the efficient and sustainable utilization of them. In an eco-city, clean air and drinking water sources that are crucial to the human health should not be polluted in exchange for economic development. Biodiversity inside and nearby the city should be protected for the balance of nature and the resilience of ecosystems to environmental change. Forests should be preserved not only because they are necessary watersheds and habitats, but also because they absorb huge amount of greenhouse gases and thus slow down the global warming trend. More trees should be planted in the city area or the suburbs to purify the atmosphere and avoid the formation of urban heat centres. Other important environmental resources such as wetlands, coral reefs and mangroves should also be preserved in the process of urban expansion. A typical eco-city, underlining the urgency of the global climate change issue, should be a low-carbon city with

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improved public transport and an increase in pedestrianization and cycling to reduce car emissions. To minimize the use of automobiles, the city should be compact and different from the general urban pattern today, i.e., skyscrapers in the middle with tens of thousands of acres of skyscrapers sprawling all around. Instead, the blueprint should be a multi-centre one and in each centre or subcentre, catering, education, medical care and shopping services are available to most residents. Dense subcentres and compact neighbourhood centres are situated fairly close to the major city hub. High-rise buildings are still encouraged in centre areas to save land and thus reduce long-distance commuting that may have to depend on cars. Some of the outlying communities will be agricultural villages providing their own farm produces for the city hub and subcentres. High population density is necessary for a sustainable city because it not only reduces the per capita demand for occupied land, but also cuts per capita cost of supplying piped water, sewer systems, garbage collection, postal delivery and other public services. An eco-city must provide easy access to daily necessities and entertainment by walking, cycling and public transportation. New transportation hierarchy should be established with preference on pedestrians, cyclists, subways, buses and finally private automobiles. Roads may be narrow to make walking easy and driving difficult. New energy-saving building materials should be widely used in the construction of eco-city. To achieve low emissions, architects sometimes need to fit the buildings with solar panels to produce electricity, which will be used for lighting, office equipment and air conditioning. Better ventilation strategies need to be worked out for reducing dependence upon airconditioning. Blinds, the opacity of windows and airflow need

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to be regulated throughout the building to conserve energy for heating and for balanced natural lighting. The eco-city should carefully make use of water resources and interfere minimally with the intrinsic patterns of the water cycle in the ecological system. A compact city layout is necessary to reduce the footprint on the permeable soil. Efficient water recycling systems making full use of creeks and reservoirs should be established to regulate run-offs in the rainy and dry seasons and convert rainwater into useful and drinkable freshwater resources. Urban aquifers should be strictly protected from overuse or pollution, while the soil’s permeability should be guaranteed to ensure the absorption of groundwater from time to time. An eco-city should be a garden city surrounded by green belts and woodlands, with the preservation of local species and harmonious coexistence between humans and other creatures. Biodiversity increases the resilience of ecosystems to environmental changes. Rivers, lakes, wetland and forest resources can be used as protected areas to add to urban biodiversity in the way the city is built. If the urban wastes are carefully limited and recycled and local people take full responsibility to ensure their daily activities are not threatening the existence of other species, the city itself can become a botanic garden where urbanism does not lead to humanity’s confrontation with other animals and plants. An eco-city also includes the arcologies that take less land, less energy to operate and less connecting materials such as pipes and wires. In an arcological city, major social, economic and civic activities are available within short distances, and farm production is just located outside the city gates. Individual buildings, communities and the city as a whole are to be maintained with great efficiency and little waste.

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Tianjin and Binhai Tianjin, designated by the central government as the economic centre of North China, has the ambition and potential to become the low-carbon model city in China. Japan’s trade minister, Masayuki Naoshima, said after an APEC ministerial meeting in June 2010 that Tianjin may be chosen as APEC’s first low-carbon city to test new technology, including smart grids and renewable power generation as part of efforts to reduce dependence on fossil fuels. It would appear difficult for Tianjin, a manufacturing powerhouse with double-digit GDP growth, to lead the low-carbon and circular economy. But according to the Tianjin Municipal Master Plan (2005–20), one of Tianjin’s strategic goals is to build itself into a liveable city with good ecological environment. Designated as China’s third growth pole parallelled to Shanghai and Shenzhen, Tianjin differs from its peers in its special focus on environmental protection and energy conservation. Such green commitment is closely related to China’s long-term ambition of improving energy efficiency and restructuring its economy in a low-carbon direction. On the eve of the Copenhagen Climate Summit in 2009, China for the first time declared that it was targeting a hefty 40–45 per cent cut in carbon intensity, the amount of carbon dioxide emitted per dollar of GDP, by 2020. Climaterelated low-carbon effort is not only an image issue for China, but also a good opportunity to address the country’s serious energy shortage problem caused by growing demand, inefficient use and limited energy reserves. In the context of sustainable development, it is no wonder that as a pilot city of new round of reform and opening-up, Tianjin is expected

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by the central government to function not only as a business hub and international port, but also as a model city for lowcarbon economy and environmental protection. Tianjin’s Binhai New Area has decided to invest RMB14 billion yuan (US$2.06 billion) in 2011 and 2012 to build a low-carbon industrial cluster and develop renewable energy. The Binhai New Area is determined to prohibit energyguzzling and heavily-polluted enterprises from being located in the New Area, and has directed local administrative regions to distribute emission-cutting targets to individual companies and projects. The Binhai New Area has been devoted to the construction of Tianjin Economic-Technological Development Area (TEDA) and Dagang District as ecological industrial park, as well as the development of solar energy, methane and geothermal energy. Tianjin Dashentang Wind Farm, the first wind farm under construction in Tianjin, had started the installation of equipment in February 2010. It lies south of Sajintuo Village of Hangu of Binhai New Area and is 4 km from the east of Dashentang village. It has a capacity of 26 MW based on an investment of RMB370 million. The wind farm can provide clean and reliable green power of 52,130,000 kilowatt-hours each year for the development and construction of Binhai New Area and for over 50,000 households on the basis that each household consumes 87 kWh each month. Each year, the wind farm is expected to save for the country of 19,000 tons of standard coal, 30,400 tons of water, and reduce emission of 6,000 tons of carbon dioxide, 88 tons of nitrogen oxides, 10.4 tons of smoke dust, and 39.2 tons of sulphur dioxide. The Asian Development Bank (ADB) approved a US$135 million loan to help China build a 250-megawatt coal-fired

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integrated gasification combined cycle (IGCC) plant in Tianjin City that can generate up to 1,470 gigawatt-hours of electricity every year. To reduce greenhouse gas emissions and acid rain, China has launched a clean coal power generation programme, GreenGen, with the Tianjin project being the cornerstone of the first phase. ADB will also provide US$1.25 million in technical assistance for the second and third phases of the programme which will result in a scaled-up IGCC plant fitted with carbon capture and storage technology by 2013. As the IGCC technology reduces greenhouse gas emissions, the project will be eligible to produce certified emission reductions (CERs) under the Clean Development Mechanism (CDM) of the Kyoto Protocol. The US United Solar Ovonic, a subsidiary of Energy Conversion Devices, and Tianjin Jinneng Investment Company, set up a joint venture in Tianjin to convert US-made solar cells into solar modules for the Chinese market. The United Solar Ovonic does about 75 per cent of the manufacturing in Michigan and then rolls the solar panels up and ships to Tianjin, where the joint venture completes and cuts them up into proper sizes. Ideas and Norms of Eco-City Planning In order to achieve urban development projects with integrated sustainable solutions across all sectors, eco-city guidelines and objectives have to be woven together with local requirements.5 Confronted with the complexity that characterizes the real processes of the construction of the city today, urban planners need to promote cooperation in a multidisciplinary planning team as well as among all stakeholders. An eco-city should be understood as a single integrated system and not as a combination or result of many sectoral

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developments planned in isolation.6 The idea of integrated planning is the basis for sustainable urbanism, demanding repeated and ongoing processes of analysis and a multidisciplinary approach to sustainability. In eco-city planning, those sectors related to the metabolic and environmental functions of the city (transport, energy and material flows and socio-economic aspects), which conventional planning considers as subsidiary to urban structure, are considered at the same level of importance.7 Extensive participation is an important part of the knowledge-based eco-city planning because the more the stakeholders are involved in decisionmaking, the more knowledge they will contribute to the bottom-up planning process. As grass-roots democracy has been regarded as an indispensable element for good environmental governance, public participation should be an iterative process throughout the planning process. With active participation of different sectors and relevant stakeholders, the whole process of eco-city planning and construction is usually focused on such key areas as urban structure, transportation, energy and other resource efficiency as well as the socio-economy aspect. The main principles underlying urban development, i.e., minimizing use of land, energy and materials and minimizing the impairment of natural environment, should always be followed throughout the construction process. Urban Structure The efficient use of land resource is a basic requirement for eco-city planning. Eco-city planners need to pay sufficient attention to the spatial level of buildings and neighbourhoods. It is necessary to optimize the density of settlements with

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regard to the potentially contradictory requirements of transportation (higher density of origins and destinations), solar architecture (depending on the climate: either avoiding shading between buildings or using it for passive cooling) and quality of life issues e.g. open spaces for climatic and social functions and personal comfort.8 Instead of detached, single-family houses with large gardens, compact building structures such as multi-storey residential, commercial or mixed-use buildings, should be considered.9 Habitats for plants and animals must be created or conserved in urban contexts, with enough open space and green areas maintained in forms of gardens, parks, street trees, green roofs, green facades and natural water features. Transportation There is no doubt that the eco-city planning should put public transport in the top priority to address the air pollution and climate change issues. A variety of tools that involve policies on car parking, car access and car ownership should be used for reducing travel by private car. Economic tools including road tolls for lorries and private cars as well as subsidies for rail transport can be adopted to encourage people to choose low-carbon transport. Eco-city designers should give preference to reducing the need for transport, to those measures that encourage travel at low speed, to public transport and mass-transit, and finally to limited use of car transport. The compact and multi-centric layout of an eco-city should allow most of the travel to take place on foot, by bike and by public transport. Only a small proportion of the population drive private cars, with special tax tools in place to encourage them to buy hybrid vehicles that use energy more efficiently. Yet

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urban planners should bear in mind that alternatives must be of maximum quality when reducing the accessibility for the car. Otherwise the transport inconvenience will incur public dissatisfaction or even sharp criticism. Energy and Resource Efficiency The ability to use energy and other resources efficiently and sustainably is the key part of an eco-city project. Measures should be taken to reduce the energy demand of the built urban structure and minimize energy losses of buildings. The use of fossil fuel for air-conditioning and other electricity supply should be limited while a variety of renewable energy are to be used widely. Urban architect should design more solar architecture in the city to better use the clean energy from the sun, giving preferences to environmentally friendly and sustainable produced materials. Advanced devices should be adopted to treat wastewater so that it can be recirculated into the water cycle without negative impacts, and the collection and purification of rainwater will help city dwellers use natural resources more efficiently. Solid waste should be recycled or reused, with special devices introduced to use landfill gases as a kind of new energy and thus reduce greenhouse gas emissions. Social Infrastructure and Economic Viability Besides environmental protection, the eco-city as an attractive and prosperous place has to provide a social and economic infrastructure that is conducive to high-quality life. One important element is the easy access to day-to-day facilities. Kindergartens and elementary schools should be

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located within walking distance, while other schools, clinics and hospitals should be within walking/cycling distance or take at most thirty minutes by public transport. Leisure and recreation facilities such as cinemas, theatres and fitness centres should also be within walking distance or easily reached by public transport. To launch the eco-city with comparatively high construction costs and make it sustainable, economic viability is another important aspect that warrants attention. To achieve economic sustainability, it is generally helpful to involve a plurality of investors including home owners, real estate companies and professional developers at the planning stage. A public-private partnership (PPP) is one of the tools available for implementing eco-cities, with different partners from the public and the private sectors working together.10 Cooperation of all sectors on eco-city projects makes it possible to divide the risks among partners, to attain the public, social and societal goals with reduced funding from public sources, and to raise the return on investment on related private investments.11 Short-term investments and returns should not be the only index for measuring the profitability of an eco-city project, whose long-term success relies on whether it helps to create a unique city context with significant reduction of pollution, minimized use of fossil fuel and other resources, improvement of people’s health, high quality of life, less car accidents and more convenience for social activities. Monitoring and Evaluation When the physical construction is completed, it is time to evaluate the real performances of the eco-city and test

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whether the planning hypotheses are validated. Certain monitoring and evaluation mechanisms and procedures must be in place to ensure that the urban development process serves the goals of conserving resources, reducing pollution, increasing greening spaces and improving the quality of people’s life. Such evaluation is also important for getting valuable empirical knowledge that can be used as reference information for future improvement and other eco-cities’ design. One indispensable feature of the eco-city is public participation so that a good monitoring system depends not only on the technical ways of date-collecting on energy saving, emission reduction and water consumption, but also on well-designed social feedback mechanisms that assimilate public opinions and assessments. Continuous evaluation with the participation of all relevant stakeholders is essential for maintaining the vitality of the eco-city, which needs to rely on qualitative and quantitative tools to assess whether the proposed environmental, economic and social objectives have been met. A set of indicators associated with urban structure, transport, energy, material flows, and socio-economy need to be developed to monitor the urban maintenance and management. Appropriate adjustments must be made from time to time in response to the latest evaluation result. Bilateral Cooperation on the Tianjin Eco-City The Sino-Singapore Tianjin Eco-City was mooted by Senior Minister Goh Chok Tong and agreed to in-principle by Premier Wen Jiabao when they met in Beijing in April 2007.12 The project was regarded as mutually beneficial since Singapore and China could jointly share their experience

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and expertise and achieve a demonstration effect that went beyond the confines of the project itself. Both sides have moved briskly to implement the idea. The distinctive features of the Sino-Singapore Tianjin Eco-City can be viewed from two levels. The first, at the broad strategic level, will examine the framework of cooperation that oversees the implementation of this project. This framework is lacking in most other eco-city projects. The second, at the operational level, will highlight the features directly related to the project. These features may be common to other ecocity projects although the extent of these features and the targets set may differ. The focus on the key features is not meant to suggest that this project is either bound to succeed or will not succeed. Rather, the focus on the key features is intended to highlight some of the major differences between this project and other projects elsewhere. The Sino-Singapore Tianjin Eco-City project is not an ordinary commercial undertaking. In most other eco-city projects, the government’s involvement is either minimal or even non-existent. The usual practice is to let the private sector take the lead on the project with the government playing the role of creating the right conditions for the project to succeed. In contrast, in the case of the Sino-Singapore Tianjin Eco-City projects the Singapore and Chinese Governments have not only attempted to create the right conditions for the project to take off but also brought it under an official supervisory mechanism. In fact, the project has been set within the framework of bilateral cooperation between the two countries. In this respect, both governments regard the development of the project as indicative of the substantive relations between

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the two countries. If the project progresses well, this would strengthen bilateral ties. If it does not, this would likely have some negative impact on bilateral relations. It is reasonable to assert that neither the Chinese nor Singapore Governments would want to draw such a linkage if either side was not confident that the project would have a fair chance to succeed. The two sides have already set up a mechanism to oversee the development of the project. The mechanism can be divided into two main levels (see Figure 4.1). The highest and first level is the Joint Steering Committee (JSC) comprising heads of the relevant ministries and government agencies from both countries and the Tianjin municipal government. Co-chaired by Deputy Prime Minister (DPM) Wong Kan Seng and VicePremier Wang Qishan, the JSC examines all major policy issues related to the development of the eco-city.13 The JSC reports to the Joint Council for Bilateral Cooperation (JCBC) that oversees all aspects of cooperation between Singapore and China.14 Under the JSC, the relevant ministries and agencies on the Singapore side include the Ministry of National Development, Ministry of Environment and Water Resources, Ministry of Foreign Affairs, Ministry of Trade and Industry, Building and Construction Authority, International Enterprise Singapore, Jurong Town Corporation, National Parks Board, Public Utilities Board, Urban Redevelopment Authority, Housing and Development Board, and National Environment Agency. On the Chinese side, the relevant ministries and agencies include the Ministry of Housing and Urban-Rural Development, Ministry of Environmental Protection, Ministry of Land and Resources, Ministry of Foreign Affairs and other relevant agencies.

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Vice Premier Wang Qishan Other relevant ministries & agencies

DPM Wong Kan Seng

Other relevant ministries & agencies

Minister Wang Guangtao Other relevant ministries & agencies

Minister Mah Bow Tan

Other relevant ministries & agencies

Chinese Consortium Tianjin Eco-City Investment and Development Company Ltd. (TEC)

Singapore Consortium

Singapore Tianjin Eco-City Investment Holdings Pte. Ltd. (STEC)

JV Company

Chinese Side

Singapore Side

Joint Working Committee

Chinese Side

Singapore Side

Joint Steering Committee (under the Joint Council for Bilateral Cooperation)

Figure 4.1 Overview of Supervisory Mechanism 110 Chen Gang and Zhao Litao

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The JSC held its inaugural meeting in Tianjin in September 2008. At that meeting, DPM Wong and Vice-Premier Wang noted that the development of the eco-city had made “rapid and good progress” since the idea was mooted about oneand-a-half years ago. Most significantly, the meeting agreed that the key areas of work ahead would not only include the physical and infrastructural development of the eco-city but also cover the formulation of policies in accordance with the vision of the eco-city and the principle of the three harmonies (i.e. harmony between man and man, between man and the environment, and between man and economic activities) to complement and support the project’s development.15 The second level of the supervisory mechanism is the Joint Working Committee (JWC). The upward-pointing bold arrow line indicates that the JWC reports its key deliberations directly to the JSC. Co-chaired by Minister for National Development Mah Bow Tan and Minister for Housing and Rural-Urban Development Jiang Weixin, the JWC addresses operational issues related to the development of the ecocity.16 So far, three JWC meetings have been held since the signing of the Framework Agreement on the Development of the Eco-City in November 2007. The JWC has addressed issues such as the key performance indicators (KPIs) to guide the planning and construction of the eco-city, the Master Plan for the entire thirty square kilometres, the detailed plan for the three square kilometres start-up area; the work schedules and key milestones of the project; and the roles, powers and responsibilities of the EcoCity Administrative Committee (ECAC) that will administer the eco-city. Furthermore, the JWC draws upon the resources and expertise of the relevant ministries and government agencies on both sides to carry out its tasks.

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The above supervisory mechanism was formalized with the signing of the Framework Agreement on the Development of an Eco-City in the PRC in November 2007.17 The agreement was signed by Prime Minister Lee Hsien Loong and Premier Wen Jiabao at the Istana, the official residence of the President of the Republic of Singapore, during the visit of Premier Wen to Singapore in November 2007. In addition to the Framework Agreement, a Supplementary Agreement was signed at the same time between Minister Mah Bow Tan and Minister Wang Guangtao (former Minister for Housing and Rural-Urban Development) to facilitate and support the joint development of the eco-city in accordance with the Framework Agreement. These agreements underscore the active role that the governments on both sides have played and intend to play to ensure the success of the project. Besides the official supervisory mechanism, there is the commercial component that comprises the joint venture (JV) company. The rationale of having a JV company is to ensure that the eco-city will be guided by sound commercial principles in its development. This will ensure its financial sustainability. Operationally, the JV company exists as an independent entity. Nevertheless, the JV company indirectly reports the progress or issues that cannot be resolved at their level to the JWC which in turn reviews or addresses them. In this way, the JWC can give the project an added push when needed. This indirect relationship between the JV company and the JWC is denoted in the diagram by the upward-pointing bold dotted arrow. Known as the Sino-Singapore Tianjin Eco-City Investment and Development Company, the JV company has an initial registered capital of RMB4 billion (US$583 million) with equal contribution from the Singapore consortium and the Chinese consortium.18 The Singapore consortium, the

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Singapore Tianjin Eco-City Investment Holdings (STEC), is currently wholly owned by Keppel Corporation. Keppel, however, is seeking international institutional investors to co-invest in STEC. Already, the Qatar Investment Authority has entered into a Memorandum of Understanding (MOU) with Keppel to accept Keppel’s invitation to participate as an equity investor in the project by taking up a 10 per cent stake in STEC.19 The Chinese consortium, the Tianjin Eco-City Investment and Development Company (TEC), is led by the Tianjin TEDA Investment Holding Company. The Tianjin TEDA Investment Holding Company is wholly owned by the Tianjin municipal government. The company has spearheaded the development of the Tianjin Economic and Technological Development Zone (TEDA) since 1984. The company is also involved in various sectors such as property, finance, transport and energy in the TBNA (with a total land area of 2,270 square kilometres) where both TEDA and the SinoSingapore Tianjin Eco-City are located.20 The Tianjin TEDA Investment Holding Company therefore brings to the JV company not only valuable experience and expertise but also a strong network for conducting business. Most recently, the JV company signed on its first business partner when an MOU was signed in January 2009 with Sembawang Engineers and Construction Pte. Ltd. to work on the feasibility study for the development of a US$1 billion solar polysilicon production plant in the Sino-Singapore Tianjin Eco-City. Sembawang will be the project sponsor and developer of the plant and will lead a consortium of private investors to fund the development.21 The Sino-Singapore Tianjin Eco-City aims to be environmentally friendly, socially harmonious and

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economically sustainable. It is located in the Coastal Leisure and Tourism Zone of the TBNA. In terms of timeline, the target is to complete the three-square kilometre start-up area by 2013, while the entire development is expected to be completed in ten to fifteen years’ time, with a projected population of 350,000 residents.22 A major feature of the eco-city lies in its conversion of otherwise unproductive land to good use, where ecological rehabilitation is balanced with urban development. The ecocity will be built on a thirty-square kilometre site consisting largely of non-arable land, including salt farms and vacant land. There will be a central core, known as the eco-core, of conserved ecological wetlands and rehabilitated water bodies including a wastewater pond currently being used as an effluent discharge ground. The areas surrounding the eco-core will be divided into four main districts, each to be served by an urban subcentre. Each district will have a mixture of residential, commercial, industrial, cultural and recreational land. The second key feature of the eco-city is the focus on maximizing convenience for residents by locating the necessary services and facilities nearby. The basic building block of the eco-city is the eco-cell that integrates different land uses within a modular 400 metre by 400 metre grid. Educational institutions, commercial areas, workplaces, and recreational areas are distributed within these eco-cells which are in turn sited with walking or cycling distance of residential areas. Together, the eco-cells form neighbourhoods, districts and eventually urban centres. The main mode of transport will be a light rail line running through the eco-city, complemented by cycling paths and green connectors. There will be a secondary network of buses

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or trams. The aim is to make commuting via public transport and non-motorized means so convenient that residents will gradually rely less on or even relinquish the use of fossilfuelled vehicles. Certain incentives may also be introduced to achieve this goal.23 This approach takes into account current realities of individual preferences of owning private cars as a status symbol. The third distinguishing feature of the eco-city is its strong message of social harmony or, more specifically, efforts to meet the needs of ordinary people. The eco-city has positioned itself as a model of harmonious living where people from all walks of life, regardless of their income or social status, can come together. This is akin to Singapore’s concept of neighbourhood communities where different ethnic groups, professions and religions can coexist as a vibrant and cohesive entity. In particular, about 20 per cent of the residential areas in the eco-city will be set aside for public subsidized housing.24 To meet this goal, Singapore and China aims to leverage on their experience of providing public housing and devise the most feasible way forward.25 It remains to be seen how this will be operationalized. Related to the goal of social harmony is the resettlement of a group of about 2,000 villagers that would be affected by the development of the eco-city. Elsewhere in China, there have been umpteen instances of resettlement cases gone awry, leading to affected residents protesting against the developers and local authorities. Given the sensitivity of resettlement cases, the Singapore and Chinese sides have paid particular attention to address the concerns and needs of would-be affected residents. It has been reported that the 2,000 villagers who need to relocate will be guaranteed jobs and housing in

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the eco-city.26 Meticulous handling of this issue will generate good publicity for the eco-city and strengthen its positioning as a place for people from all walks of life. A final attractive feature of the eco-city is the emphasis on putting into practice the best practices from both Singapore and Chinese sides. Both sides appear willing to share and learn from the other. The collaboration can be described as a partnership rather than a one-way street of one side telling the other side of how things should be done. By jointly contributing, the parties involved would have greater vested interest to see the ideas to their fruition. For instance, the green area per person in the eco-city is set at 12 square metres by 2013. In terms of water quality, the target is to make all water in the eco-city potable. All buildings in the eco-city will conform to green building standards that will marry Singapore’s Green Mark with China’s green standards.27 Low-Carbon and Other Investment Projects in Tianjin Eco-City On 1 December 2009, Sino-Singapore Tianjin Investment and Development Company (SSTEC), master developer of the Singapore Tianjin Eco-City, inked an MOU with Samsung C&T Corporation to create the first-of-its-kind green central business district (CBD), also known as the Eco-CBD, in the Sino-Singapore Tianjin Eco-City. This Eco-CBD aims to integrate economic, social and community activities in a sustainable manner and demonstrate that environmental conservation and urbanization can progress in tandem with economic activities.

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On 30 December 2009, the SSTEC started to develop a 130-hectare Eco-Industrial Park (EIP) in the Sino-Singapore Tianjin Eco-City. Positioned as a premier eco-manufacturing base for eco-investors in the Bohai Rim area, the EIP will be home to light clean industries from green business clusters including clean energy, green building, green transport, clean water, clean waste management, and clean environment. Estimated to cost RMB4 billion to develop, the park is expected to generate 10,000 jobs when completed. In May 2010 the SSTEC signed three industrial land deals involving more than RMB1 billion in investments in the Eco-Business Park and the Eco-Industrial Park. Besides, SSTEC also announced strategic collaborations with three companies in the green technology field. Tianjin House Construction Development Group Co. Ltd. announced to invest RMB300 million to develop low carbon and energyefficient green buildings in the Eco-Business Park. Keppel DHCS Pte. Ltd. (KDHCS) planned to develop and operate a district heating and cooling system in the EBP. SSTEC signed an MOU with Hitachi Group as strategic technology partner for test-bedding and development of eco-solutions in the areas of Home Energy Management Systems and Electric Vehicle Charging solutions, Building Energy Management Systems, Community Energy Management Systems, smart grid, and water management solutions. SSTEC also inked a strategic partnership with Singapore Technologies Electronics Limited (ST Electronics) for the development of green solutions for intelligent building management and energysaving systems, intelligent transport management systems, eLearning solutions and training and simulation systems for the Eco-City.28

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China’s Ministry of Housing and Urban-Rural Development announced on 6 April 2011 the results of the 2011 National Green Building Innovation Award. The Wan Tuo Residential Project (First Phase) in the Start-Up Area of the SinoSingapore Tianjin Eco-City clinched the third class award. It was ranked 11 out of a total of 16 nationwide projects. On 29 March 2011, the Pan Asian Water Manufacturing (Tianjin) Co. Ltd. (PAW) became the first investor in the Tianjin Eco-City Eco-Industrial Park. A groundbreaking ceremony was held for the construction of PAW’s China headquarters and its key manufacturing base in the EIP. With this base, PAW will consolidate its existing manufacturing operations in China. The base will also serve as PAW’s global logistics and warehousing hub, R&D centre and control centre for brand-building and marketing for Duvalco products. The total investment is RMB100 million. On the same day, the topping out for Phase I of the Ready-Built Factories (RBFs) in the EIP took place. SSTEC will invest RMB220 million for the construction of RBF Phase I with a built-up area of 63,800 square metres, to cater for a range of high-value, low-carbon footprint clean-tech production and other value-added operations. This green industrial space will provide manufacturing companies with a cost effective and convenient platform to jump-start their business in the Eco-City. Social Aspect of Tianjin Eco-City The Tianjin Eco-City project is different from the Suzhou Industrial Park project in many important ways. First, there has been a change in the way of cooperation from knowledge

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transfer to knowledge sharing. The Suzhou Industrial Park is a model of knowledge transfer from Singapore to China. For the Tianjin Eco-City project, the Chinese side is more or less an equal partner with a shift in working relationship shifting from knowledge transfer to knowledge sharing. Secondly, if the Suzhou Industrial Park is more of an economic project, Tianjin Eco-City is more than an economic project. Its social dimensions are also very important. Both governments have emphasized this point. That is why social harmony is one of the “three harmonies” underpinning the planning and development of the Tianjin Eco-City. The Tianjin Eco-City project was officially launched in September 2008. One of the plans for 2009 was to produce a social policy framework for the Eco-City. Two research institutes were involved. Major work was done by the Shanghai-based Huaxia Research Institute. This institute is well-known in China for its research on community development and management. It worked closely with the Bureau of Legal Affairs of the Eco-City Administrative Committee, which is responsible for social policy-making. On the Singapore side, the East Asian Institute of the National University of Singapore was invited by the Ministry of National Development to play a supporting role in the process. Developing a social policy framework touches upon the institutional aspect of building an eco-city. In many ways it is very different from the technical aspect of building an eco-city. The technical aspect would allow more room for knowledge transfer and knowledge sharing than the institutional aspect. Over the years, China has already put in place a set of policies. Tianjin Eco-City has to work within this framework. For instance, China’s social security system

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is very different from Singapore’s CPF system. It is not possible to model Tianjin Eco-City’s social security system after Singapore’s CPF system. Within the constraint of the broad policy framework, the Chinese team felt that there is still much room to learn from Singapore’s experiences in social development. Both countries place priority on GDP growth, but the social consequences of high economic growth are very different in the two countries. Singapore has achieved a high level of economic development with relatively low social costs. The society has been remarkably stable as its economy develops. By comparison, China has encountered some difficulties balancing its economic and social development. As its economy develops, the society seems less stable as evidenced by the rising social protests and social grievances. Against this backdrop, the Chinese team had a strong interest in Singapore’s experiences in social development. HDB has been an important foundation for Singapore’s racial and social harmony. HDB is not only responsible for the public housing programme, but also plays important political and social functions beyond the public housing function. Historically, it is a political project for the People’s Action Party to win elections, and to build the nation. HDB is also the basis for community development, political communication, radical integration, and public transport development. Seen from this light, HDB is a core institution that makes Singapore a stable and harmonious society as it is today. The description of HDB was well received by the Chinese side. They visited Singapore and had the chance to see HDB themselves. Gradually both teams converged on the importance of HDB as a public housing programme

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and as a foundation for a stable and harmonious Singapore. The finalized policy proposal, completed in late 2009, placed a great deal of emphasis on making local residents “stakeholders” of Tianjin Eco-City. The Chinese side is also interested in Singapore’s experiences in education and healthcare. The Singapore system features both high quality and high efficiency. As a percentage of GDP, China’s spending is considerably higher than those of Singapore, but the latter has done better in almost every health indicator. China is now trying to reform its public hospitals. Tianjin officials have shown strong interest in Singapore’s experience in restructuring and managing its public hospitals. In addition, Tianjin Eco-City is keen to cooperate with Singapore in the area of education. Even on the basis of knowledge sharing, Singapore still has much to offer to the Chinese side. Incorporating Singapore’s experience into the eco-city is an ongoing process, depending on many factors such as China’s general policy framework, the willingness of the Chinese side to learn from Singapore, and the ability of Singapore to market its experiences to China. As the project is still at the start-up stage, much has yet to happen. Hopefully, the Tianjin EcoCity project will follow Suzhou Industrial Park to become a success story. Conclusion Over the years, the governments of China and Singapore have been instrumental in identifying new projects to stay relevant to each other’s development needs, providing various platforms for political and economic engagement, and

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proactively addressing any issues that arise. Suzhou Industrial Park and Tianjin Eco-City underscore the determination of the two countries to add substance to their relationship. The seven other bilateral cooperative mechanisms, though less well-known than the two flagship projects, are equally important in promoting political and economic interactions at the provincial levels. These bilateral cooperative bodies between Singapore and China’s provincial governments are aimed at further strengthening the foundation of the bilateral relationship. While differences may arise from time to time in carrying out various projects, both sides have accumulated experiences in managing the differences. In fact, by working through differences together, both sides can foster better understanding of each other, and this will create a more realistic basis for both sides to move forward. A bigger challenge is posed by the growing divide between the two countries in terms of geopolitical importance. How to make Singapore still relevant to China will be a key factor shaping the future bilateral relationship. Seen in this light, the Tianjin EcoCity project is very important. If successful, it can add new evidence that Singapore’s experience in social development and management is still relevant and valuable to China. NOTES   1. China’s Ministry of Housing and Urban-Rural Development has standardized the assessment indexes to measure “ecological garden cities”, with a string of environmentally friendly cities like Qingdao, Yangzhou, Nanjing, Hangzhou, Weihai, Suzhou and Guilin already on the list. The per capita green land in an ecological garden city must reach at least 12 square metres with greenery coverage of over 45 per cent and more than 300

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  2.   3.   4.

  5.   6.   7.   8.   9. 10. 11.

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“blue sky” days in a year. A “blue sky” day is when the Air Pollution Index (API) is equal to, or lower than, 100, which means the pollutant concentrations of SO2, NO2, PM10, CO and O3 in the atmosphere should not exceed 0.15, 0.12, 0.15, 10 and 0.2 milligramme/cubic metre respectively. “First Meeting of the Sino-Singapore Tianjin Eco-City Joint Working Committee in Tianjin”, Press Release by Singapore’s Ministry of National Development, 31 January 2008. Richard Register, Ecocities: Building Cities in Balance with Nature (Berkeley: Berkeley Hills Books, 2002). Cities Alliance, Livable Cities: The Benefits of Urban Environmental Planning, Washington D.C., 2007, . Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book II: How to Make it Happen (Vienna: Facultas Verlags- und Buchhandels AG, 2008). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book II: How to Make it Happen (Vienna: Facultas Verlags- und Buchhandels AG, 2008). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book I: A Better Place to Live (Vienna: Facultas Verlags- und Buchhandels AG, 2005). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book II: How to Make it Happen (Vienna: Facultas Verlags- und Buchhandels AG, 2008). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book I: A Better Place to Live (Vienna: Facultas Verlags- und Buchhandels AG, 2005). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book II: How to Make it Happen (Vienna: Facultas Verlags- und Buchhandels AG, 2008). Philine Gaffron, Ge Huismans and Franz Skala, Ecocity Book II: How to Make it Happen (Vienna: Facultas Verlags- und Buchhandels AG, 2008).

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12. “Singapore, China to Jointly Develop an ‘Eco-City’ ”, Straits Times, 26 April 2007. 13. Wang Qishan’s predecessor on the JSC was Madam Wu Yi who stepped down as Vice Premier in March 2008. 14. The JCBC was established in 2003. 15. “Inaugural Sino-Singapore Tianjin Eco-City Joint Steering Council Meeting”, Press Release by Singapore’s Ministry of National Development, 3 September 2008. 16. Jiang Weixin’s predecessor on the JWC was Wang Guangtao who stepped down in March 2008. 17. “Agreements to Develop in China Signed”, Press Release by Singapore’s Ministry of National Development, 18 November 2007. 18. Under the JV Agreement signed on 1 July 2008, the Chinese consortium will transfer land for the development of the eco-city to the JV company as its contribution in kind to the registered capital of the JV company. The Singapore consortium’s contribution to the registered capital will be in the form of cash. 19. “Joint Venture to Jointly Develop Eco-City in Tianjin, The People’s Republic of China”, Press Release by Keppel Corporation, 1 July 2008. 20. See website of Tianjin TEDA Investment Holding Company at . 21. “Sino-Singapore Tianjin Eco-City Signs MOU with First Business Partner for US$1 Billion Project”, Press Release by Keppel Corporation, 22 January 2009. 22. “Sino-Singapore Tianjin Eco-City Draft Master Plan Unveiled”, Press Release by Singapore’s Ministry of National Development, 17 April 2008. 23. “Zhongxin hezi gongsi chengli, Tianjin shengtaicheng cong guihua jinru shizhan” (Sino-Singapore Joint Venture Company Established, Tianjin Eco-City Moves from Master Planning into Real Combat), Lianhe Zaobao, 2 July 2008.

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24. “Zhongxin Tianjin shengtaicheng zongti fangan chulu, 2020 nian jiangda 35 wanren” (Sino-Singapore Tianjin Eco-City Master Plan is released, in year 2020 the population will reach 350,000), First Financial Daily (Shanghai), 7 May 2008. 25. “Tianjin shengtaicheng jiangjian gongwu ge jieceng renmin neng hexie gongchu” (Tianjin eco-city will build public housing, various social groups can live harmoniously), Lianhe Zaobao, 17 April 2008. See also “HDB-style living in Tianjin eco-city”, Straits Times, 17 April 2008. 26. “$9.7 b price tag for landmark Tianjin eco-city”, Straits Times, 7 May 2008. 27. On transportation, the target is to achieve at least 90 per cent of residents walking, using public transport or cycling when commuting within the eco-city by 2020. Another target is to have 100 per cent barrier free access for residents in the eco-city. In terms of economic contribution, the target is to have at least 50 R&D scientists and engineers per 10,000 workforce in the eco-city by 2020. Also, at least 50 per cent of the employable residents in the eco-city should be employed in the eco-city by 2013. A total of 26 KPIs (22 quantitative and 4 qualitative ones) have been agreed to by both sides. They can be found at . 28. “Tianjin Eco-City Attracts 6 New Investments in Manufacturing and R&D, with a Total Investment Amount of RMB 1 billion”, .

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5 China’s Foreign Direct Investment in Singapore since the 2000s Yao Jielu

Introduction China has been expanding rapidly its foreign direct investment (FDI) since 2000 when it officially initiated a ‘go global’ strategy. Starting from an insignificant volume of US$28 billion in 2000, the country has accumulated about US$425 billion FDI by the end of 2011, standing as the second-largest source of FDI among developing countries.1 Since Chinese FDI has reached commercially and geo-economically significant level, it has started to affect host country development and challenge international investment norms. Singapore has been an attractive destination for Chinese FDI since 2004. According to Foreign Equity Investment in Singapore 2010, an annual survey conducted by the Singapore Department of Statistics, Chinese FDI in Singapore saw a significant jump when its total investment in the city state grew from S$360 million in 2004 to S$910 million in 2005, an increase of over 150 per cent. In 2007, Chinese investment

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in Singapore gathered new momentum and its stock rose fourfold to S$9.7 billion as at end-2009. By the end of 2010, the Chinese cumulative FDI in Singapore reached a high of S$11.5 billion (see Figure 5.1). In spite of the impressive growth, Chinese investment in Singapore remains small relative to those from traditional investor countries. As at end-2010, FDI from China amounted to just 2 per cent of total FDI in Singapore, compared with 11 per cent (or S$65.4 billion) from the United States, 10 per cent (or S$60.9 billion) from the Netherlands, and 9 per cent (or S$53.9 billion) from Japan. Nevertheless, China has emerged as an increasingly important investor for Singapore and the volume of Chinese FDI to the city state is clearly on the rise. In fact, Figure 5.1 shows that China’s share of FDI in Singapore grew from 0.4 per cent in 2001 to 1.9 per cent in 2010, and its share of FDI from Asian countries in Singapore rose even faster from 1.7 per cent in 2001 to 7.6 per cent in 2010. While official data from Singapore show that Chinese investment has played an increasingly important role in the Singapore economy, China’s official data fail to show accurately how China’s interest in Singapore has evolved over the past decade. According to the Annual Statistical Bulletin on China’s Outward Direct Investment compiled by China’s Ministry of Commerce (MOFCOM), a significant share of China’s FDI is directed through tax heavens (13 per cent as at end-2010) and Hong Kong (63 per cent as at end-2010) (see Figure 5.2). But an unknown amount of those investments was redirected to other countries or ‘round-tripped’ back to mainland China in order to enjoy tax advantages and preferential FDI treatment. It is therefore difficult to ascertain

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Figure 5.1 China’s FDI in Singapore, 2001–10

Source: Foreign Equity Investment in Singapore 2010, Singapore’s Department of Statistics.

the true breakdown of geographical destination of Chinese FDI and thus Singapore’s share in China’s total FDI. China’s inaccurate data, however, can still provide a rough idea of the city state’s relative position in Chinese

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overseas investment. On the one hand, as one of the AsiaPacific’s logistics and financial hubs, Singapore has attracted substantial Chinese investment in the past decade. In 2010, the city state ranked fifth on the list of China’s top ten destinations for foreign investment, followed by Hong Kong, British Virgin Islands, Cayman Islands, and Australia (see Figure 5.1). Although Singapore accounted for only 2 per cent of Chinese total FDI, it dominated China’s FDI in ASEAN with a share of around 50 per cent in recent years. On the other hand, official data for Chinese FDI flows indicate that Singapore has been facing stiff competition from developed countries as well as other ASEAN member countries in attracting China’s overseas investment. An analysis of FDI flows shows that Chinese FDI has taken off in Europe and the United States. In 2010 Luxembourg, Sweden, the United States and Canada received a higher volume of Chinese FDI than Singapore. Other ASEAN countries also drew increasing attention from China and attracted about three-quarters of Chinese FDI to the region in 2010. For example, China has invested heavily in extracting Myanmar’s natural resources like natural gas, gems, timber and rubber, as well as building infrastructure like hydropower dams. As a result, Myanmar ranked as 10th destination for Chinese investment flows in 2010, just after Singapore (see Figure 5.2). Chinese investment is fundamentally beneficial to the Singapore economy because of the importance of FDI to the city state as well as the unique characteristics of Chinese FDI. Since the late 1960s, FDI has been the preponderant form of Singapore’s capital inflow, underlining the pivotal role of multinational corporations in bringing in technology, managerial skills and market networks.2 As Chinese

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Figure 5.2 China’s FDI by Country, 2010

Source: Annual Statistical Bulletin on China’s Outward Direct Investment 2011, China’s Ministry of Commerce.

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investment is poised to grow markedly in the medium- and long-term, it could provide Singapore with a new source of capital. More importantly, the counter-cyclical nature of China’s overseas investment means it could also be a stable source of capital for the city state especially in difficult times. While global FDI contracted an estimated 20–30 per cent in the 2008 global financial crisis, China’s total outflows doubled and its investment in Singapore rose by over 90 per cent. Nevertheless, Singapore’s share in China’s total outflow has been declining after the 2008 financial crisis. Its share in China’s outflows to ASEAN also fell rapidly from the peak of 62 per cent in 2008 to 25 per cent in 2010. This downward trend sets off an alarm for the city state given China’s potential to affect the economic development of the city state. Against this background, we will examine the main factors influencing Chinese investment in Singapore. We will also examine the patterns of China’s FDI in Singapore, with an emphasis on the targeted sectors. Finally, we will touch on the policy implications of Chinese investment in Singapore and recommend initiatives that can be adopted to promote Chinese FDI as an important source of foreign investment for Singapore. Rationale for China’s FDI in Singapore The Chinese economy has grown rapidly at about 10 per cent annually in the past three decades to emerge as the world’s second-biggest economy. As the remarkable expansion was achieved through massive domestic investment and growing trade surplus, Chinese FDI was largely used to secure raw

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materials needed for growth and to help build infrastructure needed to integrate China into the global trading system. Due to the strategic location of Singapore, Chinese FDI has traditionally concentrated in services related to trade activities such as financial intermediation, commerce and transport and communications.3 More recently, China’s increasing investment in Singapore has been a natural outgrowth of Beijing’s ‘Go Global’ strategy. At the same time, given China’s desire to rebalance the sources of economic growth, target industries of Chinese investments have also been expanding beyond trade-facilitation services. Singapore’s Comparative Advantages Singapore’s strategic location as a regional logistic and distribution centre attracts Chinese investment in trade activities and shipping and maritime services. With some 200 shipping lines that lead to more than 600 ports located in 123 countries, Singapore has attracted Chinese conglomerate investors such as China Ocean Shipping Company (COSCO), COFCO and Sinopec.4 Chinese ambitious brands have also chosen Singapore as a regional stronghold by setting up their headquarters there. These include the telecommunications networks provider Huawei, the computer maker Lenovo and the television manufacturer TCL.5 The Chinese companies find investment in Singapore attractive due to the city state’s economic integration with the rest of the world. Through the ASEAN Free Trade Agreement (AFTA) and ASEAN Investment Area (AIA), Singapore has expanded its prospective market size within the region. Singapore has also signed Double Taxation Treaty (DTT) with 58 countries,

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Investment Guarantee Agreement (IGA) with 36 countries, and Free Trade Agreement (FTA) with developed countries such as the United States, Japan, South Korea and Australia.6 All the agreements could benefit overseas Chinese companies in Singapore by improving their market access. Compared with other countries in the region, Singapore offers not only good physical infrastructure that makes the city an efficient transportation hub, but also sophisticated information and financial infrastructure that makes the city into a regional e-trade hub and financial centre. The Port of Singapore Authority Terminals account for 14 per cent of the world’s total container trans-shipment and 5 per cent of global container throughput;7 the Changi Airport has been awarded “Best Airport” in the world; the welldesigned public transportation system facilitates delivery of goods and services. A number of infrastructure projects that will further enhance Singapore’s attractiveness to Chinese investment is also underway. For example, the Sembcorp Marine integrated shipyard facility, due for completion in 2013, will boost its shipping industry. The excavation project under the seabed of Banyan Basin, due for completion in 2014, will substantially enhance Singapore’s petrochemical storage capacity.8 Moreover, Singapore’s efficient information network, coupled with its unique location, allows financial institutions to transact business with any part of the world within the same working day. The city state’s position as the fourth-largest foreign exchange market in the world attracts Chinese traders and companies to conduct treasury management activities in Singapore.9 As Asia’s most internationalized exchange, the Singapore Exchange has more than 40 per cent of listed

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companies originating outside of Singapore and offers its Chinese clients the world’s largest offshore market for Asian equity futures market.10 Through their network in mainland China, those companies that conduct financial activities in Singapore could help bring in more Chinese overseas investments. Another factor that appeals to China’s investors is Singapore’s pro-business environment. According to the World Bank Doing Business Report 2012, Singapore ranked top as the world’s easiest place to do business.11 In 2010 the city state also tied first place with Switzerland in the Profit Opportunity Recommendation score published by US-based Businesses Environment Risk Intelligence, based on the mean average of combined measures.12 In particular, the city state has one of the world’s simplest corporate income tax systems — a single-tier territorial based flat-rate system applied to both domestic and overseas companies. It has one of the world’s lowest effective corporate tax rates, with the effective rate for profits up to S$300,000 at below 9 per cent and capped at a flat rate of 17 per cent for profits above S$300,000. Besides, Chinese investors can enjoy favourable tax rates under Singapore-China Avoidance of Double Taxation Agreement. China’s ‘Go Global’ Strategy The surge in Chinese investment in Singapore has been a natural outgrowth of Beijing’s ‘Go Global’ strategy which was introduced in 1999. Before the introduction of the strategy, the Chinese government had tightened regulatory procedures for overseas investment in order to clamp down smuggling and

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illegal capital flight against the backdrop of Asian financial crisis. From 1999, however, Chinese policy-makers started to take a series of measures to encourage Chinese companies to “go global” in anticipation of WTO accession and growing competition in the domestic market. These measures include the implementation of investmentfriendly policy frameworks as well as preferential financing from state-owned financial institutions. In 2002 the State Council streamlined the regulatory process and started to grant export rebates, financial support and foreign exchange assistance to overseas Chinese companies.13 In 2004, the National Development Reform Commission (NDRC), together with the Export-Import Bank of China, issued a notice to promote overseas investment in specific areas.14 In 2009, a new regulatory framework was implemented to further ease and decentralize the approval procedures of overseas investment. State Administration of Foreign Exchange (SAFE) also allowed companies to use their foreign reserves, renminbi-purchased foreign exchange, and other legal funds to invest abroad.15 Given the significant role of the central government, China’s large state-owned enterprises (SOEs) have been used to serve the state’s interests as they go global. Overseas investment by these SOEs is more likely to receive approval and have better access to credit markets. In fact, the list of top 100 non-financial Chinese enterprises with FDI stock in 2011 shows that Chinese overseas investment is dominated by large SOEs.16 Meanwhile, it is also worth noting that the driving force behind SOEs’ FDI is changing. While SOEs may still forgo profit in favour of strategic market expansion or national interest, they are increasingly profit-driven because

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many bureaucratic entities including those designed to supervise SOEs have a stake in Chinese companies’ overseas investment.17 In the oil industry, for example, the waning of domestic production capacity prompted China’s national oil companies to invest in Southeast and Central Asia, Africa and Russia where they have advantage in experience and technology. Meanwhile, it is known that many national oil companies expanded overseas production in order to help mitigate losses incurred in their refining operations since state-controlled prices for refined products prevented them from passing rising crude oil costs to consumers. Hence, it was natural for PetroChina to buy 45.5 per cent of Singapore Petroleum Corp (SPC) refinery for S$1.47 billion (US$1 billion) from Keppel Corp in 2009. The deal not only gave PetroChina an immediate access to larger refining capacity to meet domestic demand for fuels, but also helped the company to sell fuel at international prices through SPC. China’s Economic Rebalancing Strategy China’s desire to rebalance its sources of economic growth has enlarged Chinese investment beyond traditional industries. Since 2004, the Chinese Government has been seeking to rebalance the economy by promoting consumption-driven growth and industrial restructuring. This transformation of economic growth model has profound implications for Chinese FDI in Singapore. First, as the new growth model is less dependent on exports, the Chinese Government will no longer need to purchase massive amount of US dollars to manage its exchange

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rate, leaving Chinese companies more foreign exchange to invest abroad. Moreover, China’s economic rebalancing entails shifting domestic development focus from heavy industries to labour-intensive light manufacturing and service sector. Chinese companies are therefore encouraged to invest in heavy industrial facilities like smelters, refineries and pipelines abroad. Facing declining profits from large-scale production and increasingly fierce competition from other low-wage countries, the economy also strives to make Chinese manufacturers move up the value chain. This has provided more incentives for China’s companies to go abroad and tap advanced technology, intangible brands, and managerial know-how.18 The investment of China Guangdong Nuclear Power Holding Corporate (CGNPC) provided a good example of how China’s rebalancing strategy affected its overseas investment. In March 2012, CGNPC announced that it will build an integrated biomass-solar power generation plant in Singapore by 2013. The investment occurs as China is moving to balance its energy mix by increasing investment in clean energy. Since Singapore is considered as an ideal gateway for companies keen to develop clean energy solutions tailored for Asia, CGNPC decided to expand its operation in the city state.19 Chinese FDI in Singapore by Sector While Chinese investment in Southeast Asia is predominantly resource-seeking, the profile of the investment in Singapore is considerably different due to Singapore’s unique comparative advantages in the region. As China seeks to rebalance its

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economy and to promote a “Go Global” strategy, preferred industries for Chinese investments in Singapore have also broadened to include new opportunities in a variety of industries. Financial and Insurance Services As shown in Table 5.1, investment in financial and insurance services account for a lion’s share of Chinese FDI in Singapore. This sector grew substantially from S$1 billion in 2006 to S$6 billion in 2010. In 2007 the sector attracted even more than 80 per cent of Chinese overseas investment in Singapore. As at end-2010, the sector received more than 50 per cent of China’s total investment in Singapore. Meanwhile, returns on Chinese investment in financial and insurance services were relatively high compared with investments from other countries in the same sector (see Table 5.2). Presently, there are five Chinese banks in Singapore. The “big-four” state-owned commercial banks — Bank of China (BoC), Agriculture Bank of China (ABC), Industrial and Commercial Bank of China (ICBC), and China Construction Bank (CCB) — have all made their presence in the city state. Over the years, these institutions in Singapore have obtained greater banking privileges and some of them have been allowed to conduct the full range of banking businesses. The BoC and the ICBC, for example, have been granted full banking licences recently by the Monetary Authority of Singapore. Both banks are now able to open branches or automated teller machines in as many as 25 locations across Singapore, as well as to provide a variety of services that include accepting fixed deposits, offering supplementary

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1690

2.6 (s)

2314

7.2 (s)

2007

2009

(s) (s) 4423.7 9726

(s) (s)

2008

16.6 39.8 (s) (s) 77.1 92.5 207.3 189 486.5 78.2 1132.8 2929 (s) (s) 1.1 0.8 138.5 162.6 229.8 687 3 2.7 2.6 (s) 1012 1929 2569.9 (s) –49.7 –1.7 –5.7 (s)

2006

Notes: (s) — Suppressed to avoid disclosure of data of individual companies. Source: Foreign Equity Investment in Singapore 2010, Singapore Department of Statistics.

Total

Manufacturing Construction Wholesale & Retail Trade Accommodation & Food Service Activities Transport & Storage Information & Communications Financial & Insurance Services Real Estate Activities Professional, Scientific & Technical Administrative &   Support Services Others



Table 5.1 China’s FDI in Singapore by Major Industry, 2006–10 (Stock as at Year-End, Millions of S$)

11515.4

90.4 331.7

(s) 206.9 3826.4 (s) 784 (s) 6056.7 56.1

2010

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2007

2008

2009

2010

China Total China Total China Total China Total China Total

2006

per cent

Notes: (s) — Suppressed to avoid disclosure of data of individual companies. nm — Not meaningful. Source: Foreign Equity Investment in Singapore 2010, Singapore Department of Statistics.

Manufacturing   23.2 20.4   77.8 30.5 (s) 18.3 (s)   21.7 (s) 19.5 Construction   7.0 14.6   8.7 23.9   4.3 11.6   31.2   47.8 43.3 29.2 Wholesale & Retail Trade (s) 26.3 nm 24.5 27.0 21.9   17.4   16.2 17.9 18.1 Accommodation & Food Service   Activities (s) 11.4 (s)   8.7 (s)   7.6 –16.4   8.5 (s) 10.0 Transport & Storage   46.6 17.7   3.8 20.7 25.1 13.9   12.8   –0.3   3.1   5.9 Information & Communications –43.4 15.1   –7.5 15.1 –4.9   4.7 (s)   10.4 (s)   7.7 Financial & Insurance Services   12.8 12.6   42.6   9.5 11.6   7.6 (s)   13.4 (s)   9.4 Real Estate Activities nm   4.8 nm 28.9 nm   2.6 (s)   4.8 (s)   6.8 Professional, Scientific & Technical   Administrative & Support Services –95.8 16.4 –61.4 15.8 (s) 11.8 (s)   9.8 (s) 13.8 Others (s) –2.5 (s)   5.7 (s) –0.4 (s) –48.4 (s) 21.2 Total   44.1 17.5   50.5 19.2 14.7 13.0   11.9   13.6 11.5 13.3

Sector

Table 5.2 Return on Chinese FDI in Singapore by Major Industry, 2006–10

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retirement scheme and opening CPF investment scheme accounts.20 Wholesale and Retail Trade Wholesale and retail trade, a major component of Singapore’s services sector, is another sector with significant overseas investments from China. Traditionally, Chinese investors are attracted by Singapore’s competitive trading industry cluster, particularly in oil and agriculture commodities. In recent years, China’s robust economic growth has increased the country’s demand for petroleum and commodities, leading to a large presence of major Chinese trading companies in Singapore. In 2010, the size of Chinese investment in this sector reached a high of S$3.8 billion, accounting for more than one-third of total Chinese investment in the country. Returns on Chinese investment in this sector have also been high and stable over the years. Transport and Storage China has been ramping up its investment in the transport and storage sector recently. By the end of 2010, Chinese investment in this sector has reached S$784 million, an increase of 14.2 per cent annually from 2009, and an almost six-fold increase from 2006. Most of the Chinese investors in this sector were China’s large state-owned enterprises with various incentives, and the returns on this sector fluctuated from year to year. For example, the Bank of China acquired 100 per cent of the issued share of Singapore Aircraft Leasing Enterprise Pte. Ltd. (SALE) in December 2006. The target

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company was the largest aircraft leasing company based in Asia and its fleet was one of the youngest in the industry with an average age of fewer than four years. This deal not only strengthens BoC’s aircraft financing services, but also provides a well-established platform for BoC to diversify its business into aircraft leasing. At the same time, the BoC can leverage on its global client network in China and overseas to support SALE’s global business development, particularly in the fast-growing Chinese aviation sector. Construction Chinese companies have become serious and ambitious players in the global market for large infrastructure projects, becoming investors or contractors. The Chinese Government has identified infrastructure construction as one of the targets for Chinese FDI in 2012. Though the construction sector accounted for less than 2 per cent of Chinese investment in Singapore, the volume of Chinese investment in the construction sector grew steadily from S$77 million in 2006 to S$207 million in 2010. But returns on Chinese investment in this sector were significantly lower than investments from other countries in the same sector before 2010. Real Estate Activities It is worth noting that the reserves of Chinese investment in the real estate sector of Singapore turned from negative to positive in 2010. According to the Singapore Department of Statistics, negative stock of FDI may be recorded in two circumstances: (1) “continuous losses in the direct investment

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enterprise”, or (2) “the value of loans/trade credits/debt securities extended by direct investment enterprise to foreign direct investors exceeding the corresponding value advanced by foreign direct investors to the direct investment enterprises”. For those years of negative Chinese investment stocks (2006–08), official data did not show negative returns but indicated that figures for the returns would not be meaningful if reported. Therefore, it can be concluded that negative reserves were recorded largely because of the second circumstance in which Chinese investors transferred funds back to China in order to profit from the domestic red-hot property market or to tackle cash flow problems. Since 2009, however, the real estate market in Singapore has become attractive for Chinese investors who are subject to restrictions on real estate activities at home on account of cooling measures implemented by the Chinese Government. For example, MCC Land Pte. Ltd., the property unit of China Metallurgical Group Corp (MCC), has been stepping up real estate development in Singapore since 2010, making it China’s first state-owned property company to expand overseas. The company attributed the investment to quick sales and fast capital withdrawal in Singapore and more projects planned in the future.21 As of 2010, Chinese investment in real estate activities reached S$56 million, and the Chinese investors have expanded business into high value-added services of this sector. For example, China Architecture Design and Research Group, the country’s largest diversified stateowned engineering design and services company, bought Singapore’s Public Works Group from Australian heavy engineering firm Downer Group for A$147 million in May 2012. This is the first time that China’s high-tech services

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industry has invested abroad and successfully completed an overseas acquisition.22 Challenges Ahead Though Chinese FDI in Singapore has been growing rapidly in the past decade, China’s official data show that Singapore’s share in China’s investment outflows to ASEAN fell quickly from the peak of 62 per cent in 2008 to 25 per cent in 2010, and its share in China’s total outflows also declined from 2.8 per cent in 2008 to 1.6 per cent in 2010. The decline has been largely due to the stiff competition from other ASEAN countries within the region as well as developed countries beyond the region. The challenge facing Singapore within the region comes from the fact that Singapore’s comparative advantage is very different from the other ASEAN member countries. While Chinese investment in Singapore is concentrated in the service sector, China considers ASEAN as a strategic destination of overseas investment mainly because of the region’s low labour cost, rich endowment of raw materials and high demand for infrastructure development. For example, China has invested heavily in extracting Myanmar’s natural resources like natural gas, gems, timber and rubber, as well as building infrastructure like hydropower dams, after Myanmar lays the ground rules for global companies planning to move into its long-restricted market. As the economy of China continues to grow, the country’s need to secure access to overseas natural resources and to secure first-mover advantage in untapped markets overseas will continue to be a key driving force of its FDI in the region.

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The difference, however, also gives Singapore opportunities to attract Chinese overseas investment. The surge in China’s investment in other ASEAN countries will definitely lead to stronger trade flows between China and Southeast Asia. This requires Singapore to improve its competitive edge as the region’s logistics and distribution hub by promoting greater market integration, promoting e-logistics and encouraging local players to provide higher value-added services. It also means that Singapore must establish a sophisticated international trading network within the region and provide superior trade-related financial services. In particular, Singapore can take more initiatives to promote the use of renminbi in bilateral trade within the region and to develop itself into a regional offshore renminbi centre. Singapore faces challenges beyond the region as Chinese investment in the developed economies such as the United States and Europe have been on an uptrend. In 2010 Chinese companies almost doubled their investment in the United States, spending more than US$5 billion on a combination of 25 green-field projects and 34 acquisitions.23 Chinese investment in Europe also showed a clear upward trend in terms of the number of deals and total investment value. Moreover, energy, natural resources and high value-added services have been key areas of Chinese investment in developed economies. Hence, there is intense competition between Singapore and the developed economies in attracting Chinese investment in those sectors. To increase the city state’s attraction to Chinese investors, Singapore should strengthen its competitive industry clusters which match target industries of Chinese investment. Given the presence of major Chinese banks, Singapore could

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encourage these banks to bring in their advisory, initial public offering (IPO), and debt underwriting services to cater to the capital needs of Chinese investors. Given China’s increasing need to gain access to innovation, advanced techniques, and managerial know-how, Singapore could create a friendly regulatory environment for Chinese investors. Since China is in the process of restructuring its economy, Singapore can look out for opportunities to attract investors from China’s seven strategic emerging industries, including biology, energy-saving and environmental protection, information technology, advanced equipment manufacturing, new energy, new materials and new-energy vehicles. NOTES   1. UNCTAD, World Investment Report 2012: Towards a New Generation of Investment Policies (New York: United Nations Press, 2012).   2. Tilak Abeysinghe and Keen Meng Choy, The Singapore Economy: An Econometric Perspective (Routledge London and New York, 2009).   3. Friedrich Wu and Han Sia Yeo, “China’s Rising Investment in Southeast Asia: How ASEAN and Singapore can Benefit?” Singapore’s Ministry of Trade and Industry, 2001.   4. Ibid.   5. Luyao Wang, “China’s Expanding Outward Investment in Singapore”, East Asian Policy 4, no. 2 (April and June 2012).   6. Ibid.   7. PSA, “Welcome to PSA Singapore Terminals” in the PSA Website, available at .   8. Adam Skuse, “Singapore: A Growing Attraction”, . “Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2010”, Bank of International Settlements, December 2010. Singapore Exchange, . “Doing Business 2012: Doing Business in a More Transparent World”, World Bank, 2012. “Singapore’s Investment Climate Best in the World”, The Singapore Setup, 31 January 2011. John Wong and Sarah Chan, “China’s Outward Direct Investment: Expanding Worldwide”, China: An International Journal, vol. 1, no. 2 (September 2003). “Notice on Credit Support to Encourage Overseas Investments in Key Areas ( )”, National Development Reform Commission, 2004. “Notice on the Administration of Cross-border Loans by Domestic Enterprises ( )”, State Administration of Foreign Exchange, 2009. . Nargiza Salidjanova, “Going Out: An Overview of China’s Outward Foreign Direct Investment”, U.S.-China Economic & Security Review Commission, 30 March 2011. Daniel H. Rosen and Thilo Hanemann, “China’s Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications”, Policy Brief 09-14 (Washington, D.C.: Peterson Institute for International Economics, June 2009). “Singapore’s Moves Further towards Clean Energy”, Asianpower, 5 May 2012.

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20. . 21. “MCC Land Stepped up Development in Singapore”, The Property Guru, 9 February 2011. 22. “China Enters New Era of Services Expansion with Singapore CPG Buy”, Reuters, 27 May 2012. 23. Thilo Hanemann, “Chinese FDI in the United States and Europe: Implications and Opportunities for Transatlantic Cooperation”, Stockholm China Forum Paper Series, June 2011.

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6 Singapore’s Direct Investment in China since the 1980s Fan Ying and Huang Yanjie

Introduction Since the establishment of diplomatic relations between China and Singapore in 1990, the bilateral economic relation has witnessed rapid and spectacular growth that has been beneficial to the two countries. In particular, Singapore’s total foreign direct investment (FDI) in China has grown rapidly since 1985 from a tiny S$60 million to a huge S$70.6 billion in 2010.1 In terms of FDI volume, Singapore ranks eighth among the major investment sources for China, accounting for 4.5 per cent of China’s total paid-in foreign investment. Moreover, Singapore has the largest share of China’s FDI from ASEAN countries. Not only did the total size of investment experienced two periods of rapid expansion in 1992–98 and 2005–10, the portfolio of investment has seen a major diversification, covering almost all the important sectors of the Chinese economy, from traditional sectors like trade and commerce services, industrial parks, real estate, financial services to new emerging areas like education, healthcare and clean energy. In terms of regional distribution, Singapore’s

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investment in China has been spreading from China’s coastal regions to inland and western provinces, especially since the early 2000s, and that fully align with China’s central and western development schemes. At the crossroad of world economy and global network of Chinese diaspora, the city state of Singapore enjoys many advantages in accessing the Chinese market. These are its cultural proximity with China, strategic position in Asian and global trade network, and an active developmental government always bent on seeking new markets across the world. Relying on these strategic advantages, the Singapore government and thousands of private enterprises have so far invested very extensively in China by taking advantage of an increasingly open economy. Singapore’s investment activities in China have encountered some difficulties since China is a far larger and much more complex environment for Singapore investors. There are as many challenges as opportunities in this huge market. Although most Singapore enterprises have so far fared well, there are many perils in China’s informal regulations and institutional complexities. In this hugely different and complex market, even the Singapore Government’s early flagship project Suzhou Industrial Project suffered major setback, not to mention the thousands of untold cases of failures of smaller and medium enterprises. Fortunately, the Singapore Government and enterprises are learning and adapting quickly enough to ensure the visibility and profitability of the projects. As China and the global economy are entering an era of rapid transformation, Singapore’s investment pattern in China is expected to change. With rising labour cost, foreign

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Figure 6.1 Singapore’s Cumulative Direct Investment in China, 1985–2010

Singapore’s Direct Investment in China since the 1980s

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investment in China is expected to move into more high-tech and emerging industries. In order to reap the most benefits and avert possible perils for its future investment in China, Singapore needs to reposition itself strategically and adapt to new changing circumstances, which it has done remarkably in the last two decades. Development of Singapore’s Investment in China The development of Singapore’s direct investment in China over the years can be divided into four stages. The initial stage from 1984 to 1992 coincides with China’s full economic reform in the early 1980s and the formal establishment of China-Singapore diplomatic ties and the launch of full economic reform following Deng Xiaoping’s southern tour in the early 1990s. This period is marked by slow and sometimes interrupted growth. The second stage is between early 1990s and the Asian financial crisis of 1998, when investment suffered a temporary setback under a complex set of global and regional economic situations. During this stage, fuelled by China’s systemic economic reform since 1994, an investment boom ensued and was symbolized in the first significant China-Singapore cooperation project, the Suzhou Industrial Park. The third stage is between 1999 and 2006, when Singapore’s investment activities entered an era of slow and moderate growth. But since 2006, despite another global financial crisis in 2008–09, the investment trend has been characterized by stable rapid growth. The Initial Stage The Singapore FDI to China started at the beginning of the 1980s when China began to adopt the policy of reform and

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opening up. At that time, the Chinese economy was in a stage of recovery with a low level of economic development and relatively unsound legal and institutional environment as a legacy of the Maoist days. Foreign capital introduction was still at an important stage, beginning with experiments in a few selected port cities and the overall economic and political environment was not as favourable to foreign investment. But in the late 1980s, with more Chinese Singapore enterprises joining overseas Chinese in their initial exploration of new Chinese market, investment activities began to grow by leaps and bounds. However, the investment volume was relatively small with only a couple of pilot investment projects. The accumulative investment amount stood at about US$1 billion and the average cost of each investment project stood at about US$1 million.2 Most of the projects fell into the category of real estate, including hotel and light industries with unstable and limited investment returns. In terms of geographical distribution, most of the investment projects by Singapore in China during the initial stage were concentrated in the relatively developed municipalities directly governed by the central government and the coastal regions of China, including Beijing, Shanghai, Guangdong and Fujian, which was mainly the result of the preferential policies of these regions. For example, the central government authorized the establishment of the Beijing Economic Technology Development Area which has access to the preferential investment policies. Four of the five special economic zones were established in Guangdong and Fujian. According to The Brochure for the Investment and Trade between Singapore and China, among the 577 investment projects made by Singapore in China, Beijing ranked top of the list with 106 projects, accounting for 16 per cent of the total investment projects.

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Guangdong ranked second with 71 projects and Fujian third with 60 projects.3 These three regions accounted for 41 per cent of Singapore’s direct investment in China, while Shanghai and Jiangsu ranked fourth and fifth respectively. The Second Stage Following the establishment of China-Singapore diplomatic ties in 1990 and Deng Xiaoping’s Nanxun in 1992, Singapore’s investment in China entered an era of rapid development during the period from 1993 to 1998. In September 1992, Senior Minister Lee Kuan Yew paid a visit to China in search of new economic opportunities. In retrospect, this visit played a significant role in enhancing Singapore Government’s understanding of the Chinese market opportunities, sparking a wave of investment from Singapore to China. Within a space of five to six years, Singapore’s investment expanded rapidly from US$50 million to the record high of US$3.4 billion in 1998, making Singapore one of the key players in China’s international economic cooperation.4 During the same period, the total investment by Singapore in China reached about US$13.0 billion. Many major cooperative investment projects such as the Suzhou Industrial Park and Wuxi Industrial Park marked the type of investment in this period. In both cases, China directly borrowed Singapore’s experience in external-oriented trade and boosting manufacturing growth, and transferred the successful model to regions in China that have similar opportunities. Meanwhile, there emerged a new model of economic cooperation featuring Singapore Government as the chief agent of investment and direct shareholders in the new industrial projects.

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The new model of investment worked quite well at least in the beginning. For one thing, it was blessed with the perfect timing of China’s rapid opening up and economic restructuring since 1994, when local governments and enterprises in China were provided with strong incentives for attracting overseas capital and markets. At the same time, in the new wave of trade and investment liberalization, global capital was also seeking new space for growth and investment worldwide. Singapore had a head start in the race. By 1998, Singapore had already become the fifth-largest source of foreign investment and rose to the fourth place in 1998, preceded only by Hong Kong, Taiwan and the USA. In 1997 China once even surpassed Malaysia as the largest recipient of Singapore’s direct investment.5 Investment in the manufacturing industry, such as textiles, garment, electronics and pharmaceuticals accounted for nearly half of Singapore’s investment in China during this period. The year 1994 can be taken as an example, the total amount of Singapore’s direct investment in China was US$1.6 billion, of which 51 per cent were in the manufacturing industry, 15.7 per cent in the real estate, 15.7 per cent in commerce, and 8.9 per cent and 8.7 per cent respective in finance and other industries.6 It can clearly be seen that most of Singapore’s direct investment in China went to the labour-intensive industries with high investment returns and short cycles. This round of investment came to a grinding halt due to the outbreak of the Asian financial crisis and the chain reaction it set in the global and regional economic environment. The Suzhou Industrial Park, a flagship project in China-Singapore cooperation, suffered a crisis of its

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own in the initial stage of its opening to the world market. The problem was aggravated by the Suzhou Government’s launching a similar project of its own in the neighbourhood area and in the end resulted in the Singapore Government’s disengagement.7 The crisis of Suzhou Industrial Park caused a temporary strain in China-Singapore economic cooperation and resulted in wave of policy retrospection on behalf of the Singapore Government.8 The Third Stage The third stage is characterized by stable development during the period between 1999 and 2006. Confronted with the Asian financial crisis after the year 1999, Singapore’s capability of investing abroad dwindled significantly. This compelled the Singapore Government and enterprises of Singapore to shift their attention to the domestic market. In the case of the Suzhou project, many private Singapore enterprises suffered heavy losses during the crisis and reduce their stakes in China.9 As a result, Singapore’s foreign investment in China dipped to a new low and remained so for a long period of time. The moderate growth was evidenced in the decline in the proportion of Singapore’s investment in China, which dropped from 7.49 per cent in 1998 to 3.59 per cent in 2006. The paid-in investment by Singapore in China in the year 1999 stood at US$2.6 billion, dropped by 22.4 per cent compared with the record high US$3.4 billion in 1998 before the outbreak of the financial crisis. From 1999 to 2006, the yearly investment made by Singapore in China stood at around US$2 billion with only moderate growth.10 But the number of enterprises in China had grown. Till the end of 2006, Singapore has already established 15,980 enterprises

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in China with a total realized investment of US$33.5 billion. In 2006, Singapore was ranked sixth in terms of the paid-in foreign investment.11 In terms of investment structure, manufacturing industry was the focus of the investment by Singapore in China during the second and third stages. During the decade from 1995 to 2004, the proportion of the investment by Singapore in China’s manufacturing industry rose from 50 per cent to 61 per cent, indicating a structural transfer in manufacturing from Singapore to China. Like other foreign investors, Singapore investors were attracted by the relatively inexpensive and efficient labour in China. This pattern was best illustrated by a simple comparison with Singapore’s investment elsewhere. During the same period, the investment by Singapore in Europe and the United States mainly focused on the tertiary industry, such as finance and insurance. In 2004, the proportion of the Singapore’s investment in the financial and insurance sectors constituted 79.5 per cent and 70.7 per cent of its total investment in the United States and the European Union respectively.12 The geographical distribution of Singapore’s investment also changed over time, expanding from the coastal areas of China to the western and northeastern parts of China. For example, the top five recipients of Singapore’s investment were Jiangsu, Shanghai, Guangdong, Shandong and Zhejiang.13 Singapore was the first ASEAN country to show signs of willingness and had the capacity to invest in the western and northeastern part of China. Chengdu City in Sichuan province was the largest recipient of Singapore’s investment in the western part of China with a total amount of US$5 billion and a total of 253 investment projects established as Singapore companies started venturing into

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the Chinese services sector instead of manufacturing and infrastructure sectors.14 Thus, not surprisingly, Singapore emerged as the third-largest overseas investor in this province. The Current Stage The fourth and current stage of Singapore’s investment in China was characterized by a focus on quality and returns. On one hand, the enthusiasm for investing abroad by the Singapore Government and enterprises has been reinvigorated by the improvement of the economic situation. The pace of investing abroad has been accelerated. On the other hand, the effect brought about by the reform and opening up of China has shown benefits with the ending of the transition period for China after its entrance to the World Trade Organization. Following the rules and demands of the WTO, the Chinese Government has gradually rescinded some regional and sectoral restrictions on foreign investment, and has standardized the government regulations on trade and investment to make them more transparent. This institutional change has greatly boosted the confidence of foreign investors, including the investors from Singapore. Seeing the new changes in the business environment in China, the Singapore Government has timely adapted its economic and trade policies in China, encouraging investors to seek market and investment opportunities in China. Owing to the rapid rise of the Chinese economy, the Singapore Government has made plans to increase the scale of its economy abroad to about 25 per cent to 30 per cent of its

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GDP so as to strengthen its presence in the global economy.15 Under the guidance of this foreign investment strategy, China, a country with abundant labour resources and huge market potential, is a favourite destination for Singapore’s foreign investment. Furthermore, the Chinese economy has maintained a strong growth momentum in the first decade of the 2000s, resulting in the rapid increase in the size of the market. A new wave of Singapore investment has begun to emerge with a number of new investment projects that specifically targeted at strategic areas of growth in China. Another feature of Singapore’s investment during this stage is the use of its consortium advantages. With a better understanding of China and its market, today’s investors from Singapore have been combining their resources in terms of capital, technology and human resources more effectively in their investment in China by shifting the focus of their investment from real estate development and the processing industry to industries with great potential for future growth, such as media, science and technology, finance, tourism, clean energy and other modern service and high-tech industries. The recent consortium between the Singapore Telecom and China Mobile, China Netcom and China Telecom can be taken as an example. In response to challenges from new technology and changing market conditions, these three huge global giants in telecommunication have established a partnership in jointly developing the data and mobile telecommunications service in China and getting prepared for the all-round opening up of the Chinese telecommunication market. After learning from the Suzhou experiences, the Singapore Government has launched new strategies to re-engage and

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cooperate with local governments in China. The end of 2006 marked the initiation of the Singapore (Hangzhou) Science Park with the aim of building a new high-tech zone designed to be multifunctional and environmentally friendly. The Tianjin Eco-City16 launched in 2010 is not only one of the major cooperative projects between the Chinese and the Singapore Government, but is also a highlight of Singapore enterprises investing in China. As part of the proposed Jilin-Singapore Agriculture and Food Zone, the integrated pig farm was invested by Singapore Food Industries (SFI) and their joint venture partner, which is designed to provide Singaporeans with a ready supply of healthy vegetables, fruit and meat for decades to come.17 Features of Singapore’s Investment in China According to FDI theories, at the early stage of developing foreign direct investment, a country should adopt the principle of proximity and advance to other regions gradually in selecting investment locations so as to lower the operating risk to the greatest extent.18 Compared with other countries, most of the Singaporeans are ethnic Chinese. There is an undeniable cultural proximity that could be made into useful cultural and social capital in building strong economic relationships. This was vividly demonstrated by a recent study on Poh Choon Ann, a very successful businessman who had made extensive use of his personal connections in China to access the local market through a variety of social and cultural interaction with both the elites, the government and local societies in China.19 Indeed, due to proximity between mainland Chinese and the Southeast Asian Chinese diaspora in terms of a shared

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cultural background, language, custom and tradition, many Chinese Singaporean entrepreneurs are first-movers in ushering a global capital flow into China. This has resulted in a large proportion of the enterprises funded by Chinese Singaporeans among the investment projects by Singapore in China prior to the 1990s.20 It was only after the 1990s did the Singapore Government and some private enterprises, helped by Chinese businessmen of Singapore, increase their investment in China. However, investment by Singaporean Chinese is still dominant in China both in terms of number and size of investment projects. The Active Role of Singapore Government Since the mid-1990s most of Singapore’s investment in China were undertaken under the guidance of the government. This is perhaps the most salient feature in Singapore investment in China, especially compared with the other major countries that invest in China. The factors behind such a unique pattern in Singapore investment can be explained in the following ways. Firstly, the Singapore Government has always kept a strategic vision in its economic relations with China. As the most developed economy of ASEAN in the strategic crossroads of the global economy, the Government of Singapore clearly realized very early that opportunities outweighed challenges in the process of China’s rise, and Singapore should actively adjust its economic policies towards China to seek the opportunities before others could respond. Thus the government has been actively encouraging various enterprises, including large government-linked companies and small

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and medium firms to invest in China since the early 1990s by providing various financial, legal, informational and policy supports and stimuli. Since the entry of the twenty-first century, the Singapore Government has put forward a detailed plan to develop trade and economic relations with China in area centred around and within seven hours’ flight from Singapore so as to make the best use of China and Asia’s rapid-developing economy.21 In 2005 Singapore was among the first to recognize China’s full market economic status, eliminating barriers for the development of comprehensive economic and trade relations between both sides, well ahead of other countries and regions. Secondly, high-level officials of the Singapore Government have visited China to inspect the investment environment in person, sometimes accompanied by groups of representatives of the local businessmen so as to make early preparation for investments and determine the destinations for large investment projects. For example, Lee Kuan Yew’s visit to China in 1992, especially his tour in Suzhou and Wuxi, set the tone for Singapore investment in China in the 1990s. Being a small country, Singapore has the additional advantage of quick centralized policy implementation. In the follow-up to Senior Minister Lee’s visit in 1992, the contract value of Singapore’s investment in China in this single year amounted to the value of total investment made in the thirteen years between 1979 and 1991. From 1993 to 1996, national leaders of Singapore, including Goh Chok Tong, Ong Teng Cheong, and Lee Hsien Loong successively inspected investment environment in China and decided on the destinations for large-scale investments. Later, it became

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a norm that whenever high-level Singapore officials visited China, they would bring a large number of investment projects and launch a slew of economic cooperation between the two countries. Thirdly, the Singapore Government has created favourable conditions for domestic companies to invest in China by formulating multiple supporting measures. For instance, the Singapore Government has been granting ten years of tax exemption for approved overseas investment project since the early years. In 1996, the Singapore Government put forward the regional financing plan, which would provide companies running regional business with low-interest loans, with the credit risk of these loans guaranteed by the Economic Development Board.22 The International Enterprises Singapore (IE Singapore) has played a central role in this regard. Since the 1990s, IE Singapore has set up its overseas centres in Beijing, Shanghai, Qingdao, and Dalian, and plans to set up business support centres in Beijing, Shanghai, Guangzhou, and Chengdu. These centres offered direct multifaceted support for Singapore enterprises entering the Chinese market by providing a wide range of assistance such as market information and business networking. In addition to a centralized agency that directly serve Singapore investors in China, the Singapore Government has also implemented other measures, such as sending government officials to China for study and providing environment and facilities conducive for learning Mandarin, further creating favourable conditions for the consolidation of the economic and trade relationship between Singapore and China.

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Links between Trade and Investment Due to the relatively wide gap between Singapore and China in terms of capital, technology, and R&D, Singapore’s investment in China is mainly vertical integration. This is particularly true in the take-off phase, namely the second and third stage in Singapore’s investment in China. In a typical vertical integration process, Singapore companies will place key links of the value chains, which are knowledge- and capital-intensive production activities, in the home country while China is engaged in the links with lower added value in the value chains, which are labour-intensive production activities. More specifically, Singapore companies that invest in China engage in vertical integration investment by exporting technologies, equipment, and raw materials to China, taking advantage of China’s relatively cheap labour and other resources, and by selling the finished or processed products back to the home country to re-export to other countries in the world. This process simultaneously increases the volume of direct investment and intra-industry trade. The result of such a practice not only fully utilizes the comparative advantages of the two countries and optimizes the allocation of resources, but deepens the international division of labour as well.23 Following this trade-driven investment and vertical integration, trade between the two countries has maintained a sound momentum of development. According to the statistics of the Chinese Customs, the volume of bilateral trade in goods has reached S$101 billion in 2011, growing almost twenty times compared with a mere S$5.2 billion in 1990 (see Figure 6.2). The figures from Singapore

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Figure 6.2 Singapore’s Trade with China, 1990–2011

Singapore’s Direct Investment in China since the 1980s

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also shows that in recent years, China has always been Singapore’s second-largest trading partner, only second to Singapore’s neighbour Malaysia in terms of total foreign trade volume with Singapore. In the beginning of the present century, the trade between China and Singapore has grown rapidly. But investment was not rising in tandem with increasing volume of trade. In other words, the slowdown in investment momentum has not affected the development of bilateral trade between China and Singapore during the period. On the contrary, bilateral trade has been growing with an unprecedented fast pace in the early 2000s, when investment was stagnating. This is mainly due to the opening up of the Chinese market after China joined the WTO, and the positive impact of the China-ASEAN FTA and China-Singapore FTA. Besides, China has been running a trade deficit with Singapore since 2002.24 In general, intra-industry division of labour resulting from direct investment of vertical integration may lead to two effects on trade. Firstly, the input-output relationship between the parent and subsidiary companies of Singapore corporations serve to increase the volume of trade of intermediate goods, thus expanding the scale of intra-firm trade. Secondly, if relevant products are in the same industry, the statistics of international trade will show an increased proportion of bilateral intra-industry trade. In other words, direct investment of vertical integration not only plays a role in expanding international trade, but also in expanding intrafirm and intra-industry trade. Therefore, direct investment of vertical integration is an important driving force in determining the development of intra-industry trade between China and Singapore.

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The commodity composition of China-Singapore bilateral trade is directly related to Singapore’s investment in China. Empirical analysis shows that FDI with direct investment of vertical integration as main component is positively related to the level of intra-industry trade between the two countries.25 Empirically, a 1 per cent increase in Singapore’s investment in China would lead to 0.34 per cent increase in intra-industry index.26 China is a developing country with GDP per capita just over US$8,400, while Singapore is a developed economy with GDP per capita over US$52,000. The two countries differ significantly in terms of factor endowments, industry characteristics and residents’ consumption level. But such differences are essentially the factors propelling trade and investment between the two economies. It is to be expected that as long as the Chinese economy remains open and robust, trade and investment opportunities between the two economies will remain bright in the foreseeable future. Problem of Investing in China Although Singapore’s investment in China has been growing rapidly in the early 1990s, it has also encountered some difficulties over the years. There are still some problems concerning Singapore’s direct investment in China in spite of the rapid growth in the past twenty years. As mentioned above, there is an unbalanced industrial distribution of Singapore’s FDI in China, with over 60 per cent of its foreign direct investment concentrating in China's manufacturing sector in 2005.27 In this way, Singapore investors are in fact utilizing mainly China’s cheap labour and huge market by locating its production centres in China, without transferring much of its

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R&D facilities to China. What Singapore has transferred to Chinese industries are of generally low technological value, indicating that the effect of Singapore technology spillover is not obvious in China. Furthermore, some Singapore enterprises investing in China have not yielded good business profits in certain investment projects due to their poor knowledge about China’s business system, cultural background and market conditions. Tang Jiageng in 2005 led an in-depth interview with 41 senior managers from 36 Singapore companies. In his findings, 44 per cent of the sample enterprises were not satisfied with their operation returns in China.28 It is easy to locate the difficulties of most Singapore enterprises that make investment in China. For one thing, most of them are small or medium-sized companies, without having necessary monopolistic advantages or internalization advantages, or they are of small-scale manufacturing technologies that lack localization capability of their technologies. Worse still, without the support and help of core enterprises, they are not patient enough to learn from others and grow in China. As they are less likely to get the attention and support from relevant authorities in China and Singapore, it is all the more difficult for them to gain an access to the geographical benefits of China’s market. Due to the Singapore Government’s extensive promotion of investment in China and the availability of numerous incentives, Singapore private enterprises have been attracted by the good business prospects in China, namely, a huge market, rapid economic growth and the opening-up policies. However, there are some Singapore enterprises which have made a mistake by regarding the opportunities

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Source: Cited from Tang Jiageng, “Yazhou Quyu Jingji Zhenghe he huashang” [The Operation Performance of FD I in China from Singapore Enterprise], Journal of Yunnan University of Finance and Economics, vol. 5, p. 6.

Figure 6.3 The Assessment by Senior Managers of the Sample Enterprises on their Business Performances in China

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in the market as those for enterprises. In other words, these enterprises only perceived China’s geographical advantages in attracting FDI. According to the survey results, most of the enterprises that did not make good returns had invested in China when they had not possessed strategic advantage in the new market.29 They had made their decisions without making sufficient preparations to understand China’s special conditions, particularly the informal rules and practice in China’s business community. In some cases, they were too optimistic about the market in China, and overestimated Chinese customers’ acceptance of costs.30 In other cases, they failed to fully understand the regional differences in the Chinese political and economic systems.31 When facing competition from Hong Kong and Taiwanese enterprises or small and medium-sized private enterprises in mainland China, these Singapore firms tend to suffer a high rate of failure. Some failed to choose qualified partners. Without making an assessment of their partners’ business performance, they entrusted their partners to manage their investment in China, and assessed the business performance of their partners only by examining the annual financial reports presented. In consequence, they were often cheated or suffered losses due to the poor operation of their partners. It is common that Singapore enterprises with investment in China suffered poor business performance due to various reasons as mentioned above. Unlike their counterparts from Japan, the United States, and Taiwan, many Singapore enterprises in China have been working alone and have not formed a cooperative community. As for the distribution of Singapore investment in China, it has been quite scattered and thus lacks overall advantages.

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In contrast, enterprises from other countries seemed to have their own investment destinations, for example, investment from Hong Kong and Macau concentrate in Guangdong province, Taiwan’s investment in Fujian and Zhejiang, the Russian, Japanese, and South Korean investment in the Northeast and Shandong, and European and American investment mostly in Beijing and Shanghai.32 Prospects for Singapore’s Investment in China After thirty years’ reform and opening up, China has become the second-largest economy in the world. During these three decades of rapid economic development, China has also witnessed remarkable changes in its industrial structure and exports pattern. In response, Singapore has been transferring its labour-intensive industries to its neighbouring countries, including the ASEAN countries and China over the past twenty years. This has helped accelerate the transformation of China’s industrial structure from low-tech industries for process trade to high-tech manufacturing including high-tech electronic products, chemical, and precision machinery and high-value added service industry dominated by finance and trade. Meanwhile, the Singapore economy has also undergone the same dramatic transformation, moving further into more high-tech research and development and emerging services sectors. Consequently, the industrial structure of China and that of Singapore remain strongly complementary. As China is transforming its mode of economic growth and undergoing industrialization and urbanization, it can benefit from the successful experience of Singapore in improving the competitiveness of high-tech industry and service industry.

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It is therefore still beneficial for the two countries to engage in more investment cooperation. After thirty years of reform and opening up, China has gradually built up a legal and institutional framework concerning foreign investment. From the perspective of legal protections, China is a much safer place for global investors than it used to be decades ago. In particular, China has promulgated a succession of new regulations and rules such as the provisions of the Encouragement of Foreign Investment, and Catalogue for Guidance of Foreign Investment, in an effort to guide and encourage foreign investment to move to the central and western regions and to capital-deficient industries like agriculture, high-tech sectors, environmental programmes, infrastructure, and export-oriented industry. The establishment and improvement of legal system concerning foreign investments will boost the confidence of foreign investor doing business in China. These new institutional changes have increased the expectation and confidence of the world’s business community towards China’s market, and the volume of foreign investment in China has witnessed a steady growth. According to the Chinese Ministry of Commerce, China has hosted 698,000 foreign enterprises by July 2010, with actually realized foreign capital reaching US$1.05 trillion.33 For eighteen consecutive years, China has been ranked first among developing countries in absorbing foreign direct investment, and been the world’s second-largest absorber of international direct investment. The World’s Investment Prospects Survey, which was based on a survey of 236 largest multinational companies and investment promotion agencies from 116 countries in the world, reported that among the world’s top fifteen attractive investment destinations, China was ranked second

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most preferred investment destination for multinational corporations.34 Since 2012 China has entered the period for full implementation of the WTO commitment, the effects of which will gradually come into play in further liberalization of trade and investment. In the next five years, the Chinese Government would be committed to open the market for service industries such as aviation transport, banking, insurance, telecommunication and other service industries as promised when it entered the WTO. In this regard, Singapore has a unique advantage in many of the areas mentioned above and benefit from new business opportunities. According to the report 2010 ASEAN Business Outlook published by the Singapore American Chamber of Commerce in August 2010, due to Singapore’s strong economic recovery, US businesses in Singapore were more optimistic about the outlook of the Singapore economy than the other six ASEAN countries.35 According to the 2010 World Competitiveness Report published by Research Institute of International Development in Lausanne, Singapore for the first time surpassed the United States and ranked first in global competitiveness.36 All these will help to enhance Singapore's ability to increase its FDI in China. In the last decade, great changes have taken place in the global patterns of foreign direct investment. Compared with service industry and new industries, foreign direct investment that goes to manufacturing has witnessed a steady decline.37 For example, according to investment projects signed at the International Investment and Trade Fair in Xiamen in the past two years, the pattern of China’s absorption of foreign investment has been changing markedly in terms of both industrial structure and regional distribution. The middle and west regions and the industries

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featuring high-tech are becoming the “new favourites” of the world’s capital. In April 2010, the State Council issued the policy guideline On Further Improving the Use of Foreign Investment as a guide for China’s future utilization of foreign capital. The guideline stated that foreign investment should be encouraged to enter high-end manufacturing, high-tech industries, modern service industry, new energy and energy-saving environmental protection industry, and should be discouraged to enter industries and sectors already in excess capacity. In short, the Chinese official attitude towards foreign direct investment have shifted from an emphasis on quantity to quality and on industrial restructuring. Under the guidance of China’s relevant policies, it is expected that China’s absorption of foreign investment in high-tech and high value-added industries and modern service industry will witness a rapid growth. As China geared itself for another industrial restructuring, the pattern of China’s absorption of foreign investment will also witness a shift from processing trade and low-tech labourintensive manufacturing towards the two ends at the industrial value chain, namely, design and research and development at one end, and service and marketing at the other. All these changes mean new opportunities and challenges for Singapore enterprises, especially those large enterprises operating on a regional or global scale. Conclusion With the growth in the past twenty years, Singapore’s direct investment in China has begun to assume a certain pattern. It has become an important component of China’s opening up and has contributed to the rise of China’s economy.

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Today, Singapore is not only one of the important sources of foreign investment for China, but also a great beneficiary of China’s reform and opening up. Since China and Singapore established formal diplomatic ties, Singapore’s foreign direct investment in China has experienced a phenomenal growth. In this process, the position of China as one of the most important FDI destinations for Singapore has also been firmly established. In the post-financial crisis era, despite rising labour costs, China’s massive market potential and unique geographical and cultural advantages remain attractive to investors from Singapore. Furthermore, the Investment Agreement under the framework of China-ASEAN Free Trade Area that came into effect in March 2003 has been offering investors within the zone a free, convenient, transparent, and fair investment environment. While the full effect of the agreement still remains to be seen, this new framework will certainly serve to promote free flow of capital of Singapore enterprises with FDI in China within the zone. As China is transforming its economic development mode towards a more balanced path of economic growth and a new paradigm of “inclusive growth”, new opportunities for investment will be available to investors from Singapore in a variety of emerging sectors ranging from high-tech manufacturing, clean energy to healthcare services. There is every reason for us to be optimistic about the prospect of Singapore’s direct investment in China in the post-crisis era. NOTES   1. Yearbook of Statistics Singapore 2012, available at .

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  2. Li Yi, “Perspectives on Singapore’s Investment in China”, Journal of Contemporary Asia-Pacific Studies, vol. 10, no. 6 (2000).   3. Yuan Shulin, From “Review and Prospect of Singapore’s Direct Investment in China”, Economic Review, issue no. 7 (2005).   4. Huang Yasheng, Selling China: Foreign Direct Investment During the Reform Era (Cambridge: Cambridge University Press, 2002).   5. Lei Dening, Zhongguo Dongnanya Jingjihezuo de lishi, Xianzhuang yu qushi [History, Current Status and Trends of Sino-ASEAN Economic Cooperation in the Era of Globalization] (Xiamen: Xiamen University Press, 2007).   6. Mei-Lin Goh, Douglas Sikorski and Wing-Keong Wong, “Government Policy for Outward Investment by Domestic Firms: The Case of Singapore’s Regionalization Strategy”, Singapore Management Review 23, no. 2 (2001); ABI/ INFORM Global.   7. Aexius A. Pereira, State Collaboration and Development Strategies in China: The Case of the China-Singapore Suzhou Industrial Park (1992–2002) (London: Routledge, 2002).   8. Ibid.   9. Li Yi, Xinjiapo zaizhongguo zhijie touzi zongguan [Perspectives of Singapore FDI in China], Journal of Contemporary Asia-Pacific Studies, vol. 10, no. 6 (2000). 10. In the aftermath of the SARS epidemic, the investment by Singapore in China experienced another relative decline in 2003. 11. Yearbook of Statistics Singapore 2010, available at . 12. Nei Dening, Zhongguo Dongnanya Jingjihezuo de lishi, Xianzhuang yu qushi [History, Current Status and Trends of Sino-ASEAN Economic Cooperation in the Era of Globalization] (Xiamen: Xiamen University Press).

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13. Ibid. 14. Liu Enfang, “Xinjiapo duihua zhijie touzi yu zhongxin maoyi jiegou fenxi” [An Analysis of Singapore’s Direct Investment to China and Trade Structure between the Two Countries], Science, Technology and Industry, no. 3 (2007). 15. Zhao Hong, “Xinjiapo zaihua touzi jiqi zhengzhi jianyi” [The Development of Singapore Investment in China and Policy Suggestions], Journal of International Trade, vol. 1 (2003). 16. China-Singapore government reached the agreement to build the city in November 2007. 17. The Business Times, 10 September 2010. 18. J. H. Dunning and R. Narula, “The Investment Development Path Revisited: Some Emerging Issues”, in Foreign Direct Investment and Governments: Catalysts for Economic Restructuring, edited by J. H. Dunning and R. Narula (London: Routledge, 1996). 19. Yang Yan, On the Relationship between Social Capitals and Investment Behaviour: A Case Study of Poh Choon Ann (National University of Singapore, 2001). 20. Wang Qin, “Yazhou Quyu Jingji Zhenghe he huashang” [The Regional Economic Integration in the East Asia and the Ethnic Chinese Enterprises], Asia-Pacific Economic Review, vol. 2 (2009). 21. Linda Low, The Political Economy of Singapore’s Policy and Foreign Talents and High Skills Society, Working Paper, National University of Singapore, 2001. 22. Henry Wai-chung Yeung, The Political Economy of Singaporean Investments in China, EAI Working Paper No. 22 (2001). 23. D. M. Haynes Greenaway and C. Milner, “Adjustment, Employment Characteristics and Intra-Industry Trade”, Weltwirtschaftliches Archiv/Review of World Economics 2 (2002).

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24. China Bureau of Statistics database, available at . 25. Ming Xiaoying, “Xinjiaopo zaihua zhijietouzi yu chanyenei maoyiguanxi de Jingyanyanjiu” [Empirical studies on Singapore’s Direct Investment in China and Bilateral IntraIndustry Trade Relationship], Shandong Textile Economics, vol. 5 (2010). 26. Chen Lili, “Xinjiapo zaihua touzi Xiaolu Yanjiu” [Study on the Efficiency of Singapore’s Investment in China], Journal of East China University of Science and Technology, vol. 4 (2008). 27. Wang Qin and Xu Yun, “Zhongguo quyu jingji fazhan yu Xinjiapo zaihua touzi” [China’s Regional Economic Development and Singapore’s Investment in China], Southeast Asian Studies 2 (2007). 28. Tang Jiageng, “Sinjiapo zaihua touzi de xiaoji” [The Operation Performance of FDI in China from Singapore Enterprise], Journal of Yunnan University of Finance and Economics, vol. 5 (2005). 29. Ibid. 30. Ibid. 31. Even the Singapore government official made such misjudgments when they dealt with Suzhou officials in the Suzhou Industrial Park project. See Aexius A. Pereira, State Collabouration and Development Strategies in China: The Case of the China-Singapore Suzhou Industrial Park (1992–2002) (London: Routledge, 2002). 32. Huang Yasheng, Selling China: Foreign Direct Investment During the Reform Era (Cambridge: Cambridge University Press, 2002). 33. (accessed 10 November 2012). 34. UNCTAD, 2010–2012 World’s Investment Prospects Survey. 35. “Duijinnian Yazhou jingji zhanwang” [Prospect of Asian Economies this Year], available at .

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Singapore’s Direct Investment in China since the 1980s

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36. World Economic Forum, 2010 World Competitiveness Report. 37. UNTACT, 2010–2012 World’s Investment Prospects Survey. REFERENCES Chen Lili. “Xinjiapo zaihua touzi Xiaolu Yanjiu” [Study on the Efficiency of Singapore’s Investment in China]. Journal of East China University of Science and Technology 4 (2008). Dunning, J. H. and R. Narula. “The Investment Development Path Revisited: Some Emerging Issues”. In Foreign Direct Investment and Governments: Catalysts for Economic Restructuring, edited by J. H. Dunning and R. Narula. London: Routledge, 1996. Goh, Mei-Lin, Douglas Sikorski and Wing-Keong Wong. “Government Policy for Outward Investment by Domestic Firms: The Case of Singapore’s Regionalization Strategy”. Singapore Management Review 23, no. 2 (2001); ABI/ INFORM Global. Greenaway, D. M. Haynes, and C. Milner. “Adjustment, Employment Characteristics and Intra-Industry Trade”. Weltwirtschaftliches Archiv/Review of World Economics 2 (2002). Huang Yasheng. Selling China: Foreign Direct Investment During the Reform Era. Cambridge University Press, 2002. Lei Dening. History, Current Status and Trends of Sino-ASEAN Economic Cooperation in the Era of Globalization. Xiamen: Xiamen University Press, 2007. Li Yi. “Perspective Singapore FDI in China”. Journal of Contemporary Asia-Pacific Studies, vol. 10, no. 6 (2000). Liu Enfang. “Xinjiapo duihua zhijie touzi yu zhongxin maoyi jiegou fenxi” [An Analysis of Singapore’s Direct Investment to China and the Trade Structure Between the Two Countries]. Science, Technology and Industry, no. 3 (2007).

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Fan Ying and Huang Yanjie

Low, Linda. The Political Economy of Singapore’s Policy and Foreign Talents and High Skills Society. Working Paper, National University of Singapore, 2001. Ming Xiaoying. “Xinjiaopo zaihua zhijietouzi yu chanyenei maoyiguanxi de Jingyanyanjiu” [Empirical studies on Singapore’s Direct Investment in China and Bilateral IntraIndustry Trade Relationship]. Shandong Textile Economics 5 (2010). Pereira, Alexius. State Collaboration and Development Strategies in China: The Case of the China-Singapore Suzhou Industrial Park (1992–2002). London: Routledge, 2002. Tang Jiageng. “Yazhou Quyu Jingji Zhenghe he huashang” [The Operation Performance of FD I in China from Singapore Enterprise]”. Journal of Yunnan University of Finance and Economics, 2005. UNTACT, 2010–2012 World’s Investment Prospects Survey. Wang Qin. “Yazhou Quyu Jingji Zhenghe he huashang” [The Regional Economic Integration in the East Asia and the Ethnic Chinese Enterprises]. In Asia-Pacific Economic Review, vol. 2 (2009). Wang Qin and Xu Yun. “Zhongguo quyu jingji fazhan yu Xinjiapo zaihua touzi” [China’s Regional Economic Development and Singapore’s Investment in China]. Southeast Asian Studies 1 (2009). World Economic Forum. 2010 World Competitiveness Report. Yang Yan. On the Relationship between Social Capitals and Investment Behavior: A Case Study of Poh Choon Ann. Department of Chinese Studies, National University of Singapore, 2001. Yeung Wai-chung. The Political Economy of Singaporean Investments in China. EAI Working Paper, no. 22 (2001). Zhao Hong. “Xinjiapo duihua touzi fazhan yu zhengce jianyi” [The Development of Singapore Investment in China and Policy Suggestions]. Journal of International Trade 1 (2003).

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7 Singapore-China Trade and CSFTA Chen Wen and Zhai Baiquan

Introduction Since the establishment of diplomatic relationship between China and Singapore in 1990, bilateral trade has increased remarkably from US$2.82 billion to US$57.06 billion in 2010,1 with an average annual growth rate of 16.2 per cent.2 According to the statistics of International Enterprise Singapore, China was Singapore’s third-largest export market and import source in 2010. On 23 October 2008, China and Singapore signed the China-Singapore Free Trade Agreement (CSFTA) which further accelerates the liberalization of bilateral trade in goods and services. This chapter examines the general and structural features of China-Singapore bilateral trade and the potential effect of the establishment of CSFTA on bilateral trade. Development of China-Singapore Bilateral Trade Based on trade data for the period of 1990–2010, the development of China-Singapore bilateral trade can be examined in different phases.

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Chen Wen and Zhai Baiquan

Firstly, as shown in Table 7.1 the bilateral trade has kept increasing since 1990, except for two temporary declines in 1998 and 2009 due to the Asian financial crisis and the global financial crisis respectively. The trade value has grown rapidly from US$2.82 billion in 1990 to US$57.06 billion in 2010. To be more specific, China’s export to Singapore has increased from US$1.97 billion in 1990 to US$32.35 billion in 2010, with an average annual growth rate of 15.0 per cent. China’s import from Singapore has reached US$24.71 billion in 2010 compared to US$84.08 million in 1990, with an average annual growth rate of 18.2 per cent. According to trade intensity index (TII),3 as shown in Table 7.2, the bilateral trade relations have remained close. Secondly, China is an increasingly important trading partner for Singapore, while Singapore’s position in China’s import and export remain stable. The share of Singapore’s total export to China has grown from 1.5 per cent in 1990 to 10.3 per cent in 2010, and the share of Singapore’s import from China in its total import has increased from 3.4 per cent to 10.8 per cent. According to the recent statistics produced by International Enterprise Singapore, China has become the largest trading partner of Singapore in January 2011. However, on the other side, the share of China’s export to Singapore in its total export has remained stagnant within the range of 2.0 per cent to 3.0 per cent. The share of China’s import from Singapore in China’s total import first grew from 0.9 per cent in 1990 to 3.1 per cent in 1997, but continued to fall to 1.8 per cent in 2010. Obviously, China’s trade with Singapore merely constitutes a small proportion of China’s total foreign trade. Such phenomenon may be attributed to the huge difference in the economies of China and Singapore. Thirdly, China has experienced both deficit and surplus in the trade with Singapore from 1990 to 2010. For example,

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China’s export to Singapore Value Annual Share in (US$ growth China’s million) rate (%) total export (%) 1,974.58 — 3.18 2,014.19 2.01 2.80 2,030.86 0.83 2.39 2,245.31 10.56 2.45 2,558.05 13.93 2.11 3,500.62 36.85 2.35 3,748.77 7.09 2.48 4,323.30 15.33 2.37 3,943.93 –8.78 2.15 4,502.21 4.16 2.31 5,761.04 27.96 2.31 5,790.71 0.52 2.18 6,984.22 20.61 2.15 8,863.77 26.91 2.02 12,687.60 43.14 2.14 16,632.26 31.09 2.18 23,185.29 39.40 2.39 29,946.49 29.16 2.45 32,305.81 7.88 2.26 30,066.36 –6.93 2.50 32,348.00 7.59 2.05

China’s import from Singapore Value Annual Share in (US$ growth China’s million) rate (%) total import (%) 840.80 — 1.58 1,062.54 26.37 1.67 1,235.94 16.32 1.53 2,645.78 114.07 2.55 2,491.62 –5.83 2.16 3,397.77 36.37 2.57 3,600.83 5.98 2.59 4,464.69 23.99 3.14 4,235.35 –5.14 3.02 4,061.05 –4.12 2.45 5,059.63 24.59 2.25 5,128.28 1.36 2.11 7,046.56 37.41 2.39 10,484.85 48.79 2.54 13,994.47 33.47 2.49 16,514.60 18.01 2.50 17,672.62 7.01 2.23 17,550.37 –0.69 1.84 20,171.26 14.93 1.78 17,796.64 –11.77 1.77 24,710.00 38.85 1.77

Total Trade Value Annual (US$ growth million) rate (%) 2,815.38 — 3,076.73 32.33 3,266.79 6.18 4,891.09 49.72 5,049.66 3.24 6,898.39 36.61 7,349.61 6.54 8,788.00 19.57 8,179.28 –6.93 8,563.26 4.69 10,820.67 26.36 10,918.99 0.91 14,030.78 28.50 19,348.62 37.90 26,682.07 37.90 33,146.86 24.23 40,857.91 23.26 47,496.86 16.25 52,477.07 10.49 47,863.00 –8.79 57,058.00 19.21

Singapore’s Singapore’s export import to China from China Balance (US$ Share in Share in million) Singapore’s Singapore’s total total export (%) import (%) 1,133.78 1.52 3.44 951.65 1.46 3.36 794.92 1.75 3.12 –400.47 2.57 2.82 66.43 2.18 2.82 102.85 2.33 3.25 147.94 2.71 3.38 –141.39 3.25 4.30 –291.42 3.70 4.78 441.16 3.42 5.13 701.41 3.90 5.29 662.43 4.38 6.21 –62.35 5.48 7.61 –1,621.08 6.33 8.12 –1,306.87 7.74 9.33 117.67 8.60 10.26 5,512.68 9.75 11.40 12,396.12 9.66 12.13 12,134.54 9.19 10.56 12,269.73 9.75 10.55 7,638.00 10.33 10.83

Notes: China’s export and import values are based on China as a reporter, while Singapore’s export and import values are based on Singapore as a reporter. Sources: All Singapore’s export and import values for 1990–2009, China’s export and import values for 1992–2009 are from UN COMTRADE database, while China’s export and import values for 1990, 1991 and 2010 are from 1990 International Trade Statistics Yearbook, Yearbook of Foreign Economic Relations and Trade of China and respectively. Singapore’s export and import values for 2010 are from International Enterprise Singapore.

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Table 7.1 Bilateral Trade Indices between China and Singapore, 1990–2010

Source: See Table 7.1.

Figure 7.1 China’s Trade with Singapore, 1990–2010

184

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Source: See Table 7.1.

Figure 7.2 Share of Bilateral Trade in China and Singapore’s Total Trade, 1990–2010

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Chen Wen and Zhai Baiquan

Table 7.2 Trade Intensity Index of China-Singapore Bilateral Trade, 1990–2009 Year

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

TII (%)

1.54 1.28 1.16 0.97 0.80 0.88 0.94 0.92 1.08 1.12

Year

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TII (%)

1.05 1.11 1.13 1.05 1.05 1.05 1.11 1.18 1.03 1.10

China was in deficit for trade with Singapore in the following six years: 1993, 1997, 1998, 2002, 2003 and 2004, and it enjoyed surplus in the other fifteen years. During the period 2005–09, China’s surplus in the bilateral trade continued to increase, and has maintained at a high level of over US$12 billion a year since 2007. Structure of Bilateral Trade As shown in Table 7.3, the bilateral trade has been dominated by manufactured goods. The share of China’s export of manufactured goods has increased significantly from 46.4 per cent in 1992 to 89.2 per cent in 2009. As for China’s import from Singapore, the share of manufactured goods has increased impressively from 29.1 per cent in 1992 to 85.0 per cent in 2005, and decreased slightly to 79.5 per cent in 2009. Meanwhile, the share of China’s export to and import from Singapore in resource-based commodities has decreased from 53.6 per cent and 67.7 per cent in 1992 to 10.7 per cent and 19.9 per cent in 2009 respectively.

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53.58 16.20 2.08 31.08 4.22 46.39 5.45 30.66 10.28 0.03

1995

2005

2009

1992

1995

2005

Export (%)����������� ���������� Import (%) 2009

11.59 1.69 0.13 7.67 2.10 88.14 3.01 21.58 63.55 0.27

10.66 1.30 0.13 8.10 1.12 89.21 3.01 19.67 66.53 0.13

Note: The commodity composition is as follows: all food items: SITC0+1+22+4; agricultural raw material: SITC 2-22-27-28 manufactured goods: SITC 5 to 8-68; ores and metals: SITC 27+28+68; fuels: SITC 3; resource-based commodities: SITC 0 to 4+68 chemical products: SITC5; light manufactured goods: SITC 6+8-68 machinery and transport equipment: SITC 7; unallocated goods: SITC 9 Source: Calculated according to the UN COMTRADE database.

23.96 12.19 2.14 7.33 2.30 76.02 4.58 37.36 34.09 0.02

67.68 6.06 1.22 58.42 1.98 29.12 12.81 4.32 11.99 3.20

41.09 2.00 0.95 35.92 2.22 57.6 10.75 5.97 40.89 1.29

14.64 0.51 0.06 13.36 0.71 85.03 19.02 9.62 56.39 0.33

19.90 2.38 0.08 16.33 1.10 79.53 19.45 11.50 48.58 0.57

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Resource-based commodities All food items Agricultural raw material Fuels Ores and metals Manufactured goods Chemical products Light manufactured goods Machinery and transport equipment Unallocated goods

All products

1992

Commodity Group

Table 7.3 Commodity Structure of the Bilateral Trade, 1992–2009 Singapore-China Trade and CSFTA 187

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Chen Wen and Zhai Baiquan

To be more specific, the bilateral trade is concentrated on the machinery and transport equipment (SITC 7), and the importance becomes increasingly obvious. The share of China’s export to Singapore in this category has increased sharply from 10.3 per cent in 1992 to 66.5 per cent in 2009, and China’s imports from Singapore in this category has increased significantly from 12.0 per cent in 1992 to 56.4 per cent in 2005, followed by a moderate decline to 48.6 per cent in 2009. As for the category of light manufactured goods, it initially played an important role in China’s export to Singapore with a share of 30.7 per cent in 1992, and its share grew quickly by 6.7 per cent in the following three years. However, with the increasingly significant position of machinery and transport equipment, its share in China’s total export to Singapore has decreased considerably from 37.4 per cent in 1995 to 19.7 per cent in 2009. On the other hand, the share of China’s import from Singapore in light manufactured goods was not impressive at the beginning, but it has increased from 4.3 per cent in 1992 to 11.5 per cent in 2009. As for the category of chemical products, the share of China’s export to Singapore is rather low, decreasing gradually from 5.5 per cent in 1992 to 3.0 per cent in 2009. By comparison, its share in China’s import from Singapore is much bigger, and has increased greatly from 12.8 per cent in 1992 to 19.5 per cent in 2009. Analysis of Intra-Industry Trade in the Bilateral Trade: Electrical and Electronic Products With deepening economic integration, the high extent of intra-industry trade for manufactured goods has become a

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Singapore-China Trade and CSFTA

189

notable feature in the bilateral trade. Considering the trade in electrical and electronic products (SITC 75-77) accounts for 39.4 per cent in the bilateral trade in 2009, we will examine in some detail the intra-industry trade of electrical and electronic products for a better understanding of the bilateral trade. As shown in Table 7.4, the aggregate intra-industry index (G-L Index)4 for electrical and electronic products has increased from 0.43 in 1992 to 0.60 in 2009. Specifically, among these 50 items at SITC four-digit level, 19 items have an intra-industry index higher than 0.5 in 2009, which account for 25.6 per cent of the overall bilateral trade in merchandise, compared to 12 items merely contributing 1.1 per cent to the overall bilateral trade in 1992. Obviously, the extent of intra-industry trade between China and Singapore has grown substantially during this period. This also implies that the intra-industry trade is concentrated on a few types of merchandise which account for a considerable part of the overall bilateral trade. For example, in 2009 electronic integrated circuits and micro-assemblies (SITC-7764) have an intra-industry index of 1.0 and contribute 14.0 per cent to the overall bilateral trade, followed by storage units for data processing systems (SITC-7527) and pts and access off mach nes and auto data process mach (SITC-7599), which have an intra-industry index of 0.6 and 0.7 and contribute 4.3 per cent and 2.6 per cent to the total bilateral trade respectively. Bilateral trade between China and Singapore in electrical and electronic products has increased remarkably by 145.50 per cent from 1992 to 2009. Among the 46 items of products (out of 50) with higher trade value in 2009, 18 items are mainly contributed by the growth of intra-industry trade,5 which altogether accounts for 25.5 per cent of the overall

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7511 Typewriters; Word-Processing Machines 7512 Calcultng Machs; Acctg Postge- Frankng Cash Reg Etc 7513 Photocopying Apparatus Incorpng An Optical System 7519 Office Machines, N.E.S. 7522 Digital Automatic Data Processng Machines 7523 Digital Processng Units 7526 Input Or Output Units For Data Processing Systems 7527 Storage Units For Data Processing Systems 7529 Data Processing Equipment, N.E.S. 7599 Pts & Access Off Mach Nes & Auto Data Process Mach 7611 Television Receivers, Color 7612 Television Receivers, Black/ White, Monochrome Etc 0.59

0.33������������������������������������������� ������������������������������������������ 1,001.26 673.29 327.97 1.45 1.52 0.00 0.34 0.66 0.00 0.00

0.08 0.84 0.01 0.00

43.73 –0.99

175.11

765.83

43.53 –0.99

59.58

312.86

0.21 0.00

115.53

452.96

1.91 2.84

2.24

1.88

2.32 6.74

0.28 1.57

3.39

3.84

1.19 0.37

0.08 0.12

0.21

0.08

0.01 0.16

0.23 0.00

2.57

4.28

0.09 2.16

0.13

0.00

0.06

24.58 36.67

0.04

0.03

0.46������������������������������������������������� ������������������������������������������������ 18,714.69 10,140.89 8,573.80 2.58 0.86 0.00 3.44 0.11 486.23 434.53 51.70 4.14 0.59 0.03 0.97

92.96 163.97

2.36

1.77

0.78 0.85

117.54 200.64

3.45

1.45

0.21 0.18

4.22

–0.01

0.46 0.00

38.52

–0.91

0.04��������������������������������������������� �������������������������������������������� 8,339.77 7,975.57 364.20 3.38 1.78 0.00 0.73

42.74

–0.92

0.00

0.04

0.10

0.01

0.37

Share in bilateral trade (%)

2009����������������������������� ������������������������� China Singapore 1992 2009

RCA in 2009

1992

���� G-L Index���� ��������� Commodity ������������ tt Cnt Ciit

Table 7.4 Intra-Industry Trade Analysis for Electrical and Electronic Products, 1992 and 2009

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7621 Radiobroadcast Receivers, With External Powr Sourc 7622 Radiobroadcast Receivers, Without External Power 7628 Radiobroadcast Receivers, N.E.S. 7638 Sound Recording And Reproducing Apparatus Etc. 7641 Electricl Apparat For Line Telephony Or Telegraphy 7642 Microphones & Stands Therefor; Loudspkrs, Etc 7643 Transmission Apparatus For Radiotelephony, Etc 7648 Telecommunications Equipment, N.E.S. 7649 Pts & Access For Telecommunications, Etc. 7711 Transformers, Electrical 7712 Elec Pwr Mach, Nes; Pts Of The Elec Pwr Mach, Nes 7722 Printed Circuits 7723 Electricl Resistrs, Oth Than Heatng Resistrs & Pts 7724 Electrcl App For Switchng Etc Elec Circt, Ex 1000v 0.64 0.64 0.14 0.16 0.57 0.58 1.00

0.78 0.06 0.36 0.82 0.45 0.32

41.03

541.99 27.67

17.02 75.27

30.95

-0.54

–0.57

235.94 11.45

14.56 63.38

11.15

-0.65

1574.92

41.61

306.06 16.22

2.47 11.88

19.81

0.11

93.00

0.35

3.22 1.40

1.27 2.49

2.48

1.24

3.32

3.75

0.00

0.01 0.04

0.05 0.11

0.69

0.33

0.01

0.07

0.01

0.47 0.07

0.06 0.57

1.51

0.01

1.50

0.24

0.03

continued on next page

2.36

1.04 2.71

0.23 1.12

0.85

0.36

1.23

0.65

0.01

0.02

0.02

0.18

1,667.92

1.59

0.37

0.03

0.00

0.06

48.98

3.29

0.92

0.92

0.12

50.57

0.98

3.39

2.58

0.04

58.98

0.00

0.00

0.24

59.96

6.97

366.43

0.02

6.97

366.46

0.00

0.01

0.01������������������������������������������� ������������������������������������������ 2,367.48 2336.35 31.13 3.63 0.67 0.01 0.98

0.00

0.22

0.75

0.00

1.52

0.00

0.00

0.00

44.96

0.00

44.97

0.00

0.00

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7725 Elect App For Switching Elec Circuits Nt Ex 1000 V 7726 Boards, Panels, Consoles, Etc, Equipd Wth Elec App 7728 Pts Of Elec Appat Fr Switch, Protect, Control Elec 7731 Insulated Wire, Cable; Optical Fiber Cables 7732 Electrical Insulating Equipment 7741 Electro-Diagnostic Apparat (Oth Than Radiological) 7742 Apparatus Based On Use Of X-Rays, Etc 7751 Househld Type Laundry Equipmt, N.E.S. 7752 Househld Type Refrigerators & Food Freezers 7754 Shavers & Hair Clippers, Self- Con Elect Motor, Pts 7757 Electromechanical Domestic Appliances, S-C Mt, Pts 7758 Electrothermic Appliances, N.E.S.



0.10 0.25 0.28 0.20 0.52 0.38

0.00 0.80 0.00 0.65 0.33

36.58

121.70

871.69

66.56

28.68

77.57

22.76

58.18

700.07

48.63

21.36

70.94

10.50 216.75

13.82

63.52

171.62

17.93

7.32

6.63

12.49 479.11

3.54

3.82

2.91

1.71

1.64

0.43

1.00 0.43

1.38

0.43

0.20

0.61

0.71

0.04

0.51

0.31 0.37

0.36

0.06

0.00

0.00

0.01

0.01

0.01

0.01 0.00

0.23

0.01

0.16

0.04

0.01

0.02

0.01

0.04

0.02 0.05

0.55

0.15

0.16

0.55

0.94

22.99 695.86

5.71

0.89

0.21

0.40

0.53 0.69

28.60

0.74

0.88

1.42

0.26 0.86

34.31

177.90

0.77

0.96

0.16

12.70

8.00

17.83

0.09

190.60

2.04

1.32

0.93

10.04

19.15

0.64

0.89

0.73

0.12

0.04

Share in bilateral trade (%)

2009����������������������������� ������������������������� China Singapore 1992 2009

RCA in 2009

1992

���� G-L Index���� ��������� Commodity ������������ tt Cnt Ciit

Table 7.4 — cont’d

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Note: Products of SITC 7520, 7521, 7591, 7633, 7753 are omitted due to no trade value either in 1992 or in 2009.

7761 Television Picture Tubes, 0.04 0.12 –0.96 –0.92 –0.03 2.64 0.21 0.19 0.00 Cathode-Ray 7762 Electronic Valves & Tubes Nes 0.07 0.11 2.34 2.05 0.29 1.16 0.80 0.02 0.01 7763 Diodes, Transistrs & Similr 0.63 0.21 168.29 134.01 34.28 2.27 2.63 0.11 1.31 Semiconductor Devices 7764 Electronic Integrated Circuits 0.05 0.96�������������������������������������������� ������������������������������������������� 1,577.20 64.85 1512.35 0.88 8.25 0.13 13.96 & Microassemblies 7768 Piezoelectric Crystals, 0.35 0.71 354.04 ���������������������������������� 101.47 ��������������������������� 252.57 0.54 12.08 0.03 0.67 Mounted And Pts Nes 7781 Batteries & Elec Accumulator, 0.08 0.65 82.93 28.26 54.67 2.24 1.18 0.05 0.30 & Pts Thereof 7782 Elec Filament Or Discharge 0.09 0.05 15.11 14.41 0.70 2.77 0.26 0.09 0.10 Lamps; Arc Lamps & Pts 7783 Electrical Equipmt, N.E.S. 0.43 0.19 23.29 19.01 4.29 0.83 0.26 0.03 0.04 For Internl Combus Engs 7784 Electromechanical Tools For 0.21 0.00 56.69 56.89 -0.20 3.86 0.17 0.01 0.06 Working In The Hand 7786 Electricl Capacitrs, Fixed, Var, 0.43 0.73 79.80 21.35 58.44 1.29 2.75 0.07 0.41 Or Adjustble 7787 Electricl Machs & Apparatus, 0.14 0.54 30.75 13.59 17.16 1.94 2.38 0.05 0.10 Havng Individ Functns 7788 Electrical Machry & Equipmt, 0.96 0.53 75.05 35.47 39.58 1.31 1.28 0.04 0.22 N.E.S. Sum������������������������������������� ����������������������������������� 0.43 0.60 145.50 — — — — 3.91 39.37

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Chen Wen and Zhai Baiquan

bilateral trade and 64.87 per cent of electrical and electronic products. Analysis on Complementarity and Competition Competition between China and Singapore in Trade in Goods Revealed comparative advantage (RCA) has been widely used to analyse export competitiveness. Developed by Balassa (1965, 1979), RCA is used to approximate the comparative advantage of a country in producing a certain category of product, which refers to the share of a commodity in total merchandise export of a country divided by the commodity’s share in world merchandise export.6 If RCA indices of two countries for a certain product are all over unity, then both countries have comparative advantage in exporting the product to the world, which implies that these two countries probably compete with each other in the export of the product in the world market. Table 7.6 displays China’s and Singapore’s RCA indices at SITC three-digit level in 2009. Among 260 products, China has 94 products with RCA higher than 1, while Singapore has only 41 products with RCA higher than 1. China competes with Singapore in the world market in 13 products, such as Carboxylic Acids Etc Halides Etc & Derivatives (SITC513), Nitrogen-Function Compounds (SITC-514), Synthetic Organic Coloring Matter, Color Lakes Etc (SITC-531), Tools For Use In The Hand Or In Machines (SITC-695), Nonelectric Parts & Accessories Of Machry Nes (SITC-749), Office Machines (SITC-751), Automatic Data Process Machs & Units Thereof (SITC-752), Parts Etc For Office Mach &

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  1   2   3   4   5   6   7   8   9 10 11 12 13 14 15

792 751 775 333 763 752 813 762 749 771 743 776 678 689 848

16.77 14.05 12.90 7.03 5.16 3.37 3.06 1.54 1.35 1.29 1.27 1.24 1.01 0.96 0.93

776 334 752 898 759 575 793 571 098 874 511 741 728 574 772

21.08 14.89 6.34 6.27 4.41 4.10 3.94 3.70 1.90 1.90 1.80 1.76 1.75 1.62 1.62

792 751 776 775 334 752 333 763 898 813 759 575 793 571 764

10.55 8.93 8.62 8.15 5.72 4.47 4.41 3.25 2.84 1.93 1.87 1.53 1.48 1.38 1.18

Export to Singapore Import from Singapore Trade with Singapore Rank SITC Share (%) SITC Share (%) SITC Share (%) 792 751 776 775 334 752 333 763 898 813 759 575 793 571 764

SITC

0.07 3.24 1.10 2.76 0.26 4.23 0.03 3.62 1.36 3.45 1.86 0.27 1.98 0.07 2.82

China

Table 7.5 Top 15 Commodities of China’s Trade with Singapore, 2009

1.39 1.75 7.50 0.39 3.69 1.32 0.00 0.67 3.38 0.27 3.97 1.46 0.73 1.82 0.96

Singapore

RCA

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Commodity Code 001 Live Animals Other Than Animals Of Division 03 011 Meat Of Bovine Animals, Fresh, Chilled Or Frozen 012 Meat Nes & Edible Offal, Frsh, Chld, Frz 016 Meat, Edible Offal, Salted, Dried, Smk, Flour, Etc 017 Meat & Edbl Meat Offal Prepared Or Presrved N.E.S. 022 Milk, Cream, Milk Products Except Butter Or Cheese 023 Butter And Other Fats And Oils Derived From Milk 024 Cheese And Curd 025 Birds’ Eggs & Yolks, Frsh, Drd, Pres, Egg Albumin 034 Fish, Fresh (Live Or Dead), Chilled Or Frozen 035 Fish, Drd Sltd R N Brne; Smkd; Flrs Meals Pellets 036 Crustacean Etc Frsh, Ch, Fz, Drd, Salted, Etc. 037 Fish/Crustaceans/Molluscs/Aq Invbrte Prep/Pres Nes 041 Wheat (Including Spelt) And Meslin, Unmilled 042 Rice 043 Barley, Unmilled 044 Maize (Not Including Sweet Corn) Unmilled

RCA Singapore China 0.02 0.27 0.02 0.02 0.02 0.13 0.00 0.01 0.01 0.73 0.28 0.02 0.17 0.01 0.02 0.00 0.00 0.29 0.22 1.13 0.17 0.68 0.10 1.05 0.12 1.91 0.00 0.00 0.04 0.33 0.00 0.01 0.00 0.02

TABLE 7.6 RCA of China and Singapore at SITC-Three-Digit Level, 2009

0.00 0.02 0.00 0.00 0.04 0.00 0.00 0.00 0.01 0.03 0.00 0.03 0.12 0.00 0.00 0.00 0.00

Share in bilateral Trade (%)

196 Chen Wen and Zhai Baiquan

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045 Cereals, Unmilled Except Wheat, Rice, Barley, Maiz 046 Meal And Flour Of Wheat And Flour Of Meslin 047 Cereal Meals And Flours, Nes 048 Cerl Preps & Preps Of Flr Or Strch Of Frts Or Vegs 054 Vegs Fr, Chld, Froz; Roots, Tubers Etc Fresh, Drie 056 Vegs, Roots And Tubers, Prepared Or Preserved, Nes 057 Fruit, Nuts (Not Including Oil Nuts) Fresh Or Drie 058 Fruit Prsvd, Fruit Preparations (Excl Fruit Juice) 059 Fruit/Veg Juices Unfermented Not Incl Added Spirit 061 Sugars, Molasses And Honey 062 Sugar Confectionery 071 Coffee And Coffee Substitutes 072 Cocoa 073 Chocolate & Other Food Preparations Cntg Cocoa Nes 074 Tea And Mate 075 Spices 081 Feeding Stuff For Animals Not Incl Unmilled Cereal 091 Margarine And Shortening 098 Edible Products And Preparations, N.E.S. 111 Nonalcoholic Beverages, N.E.S. 112 Alcoholic Beverages 121 Tobacco, Unmanufactured; Tobacco Refuse 122 Tobacco, Mfg Whether Containing Tobacco Substitute 211 Hides & Skins (Except Furskins), Raw 212 Furskins, Raw

0.01 0.25 0.04 0.17 0.02 0.04 0.07 0.12 0.06 0.17 0.24 0.30 0.85 0.62 0.15 1.24 0.14 0.54 1.06 0.21 1.05 0.06 0.95 0.15 0.00

0.24 0.00 0.23 0.00 0.02 0.00 0.16 0.04 0.93 0.07 1.42 0.06 0.35 0.08 1.33 0.03 0.61 0.00 0.19 0.02 0.65 0.01 0.05 0.00 0.04 0.03 0.04 0.01 1.22 0.02 1.43 0.02 0.33 0.02 0.03 0.00 0.38 0.81 0.29 0.00 0.06 0.03 0.47 0.02 0.15 0.12 0.01 0.00 0.00 0.00 continued on next page Singapore-China Trade and CSFTA

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Commodity Code 222 Oil Seeds/Oleaginous Frt For Extr Soft Fix Veg Oil 223 Oil Seeds, Oleaginous Fruit For Extr Fixed Veg Oil 231 Natural Rubber In Primary Fm Or Plts, Shts Or Strp 232 Syn Rubber, Reclm Rub; Waste Etc Of Unhd Rubber 244 Cork, Natural, Raw & Waste (Incl Blocks Or Sheets) 245 Fuel Wood (Excluding Wood Waste) & Wood Charcoal 246 Wood In Chips Or Particles And Wood Waste 247 Wood In The Rough Or Roughly Squared 248 Wood, Simply Worked And Railway Sleepers Of Wood 251 Pulp And Waste Paper 261 Silk Textile Fibers 263 Cotton Textile Fibers 264 Jute Etc Text Fibers Nes, Raw, Proc; Tow & Waste 265 Veg Tex Fibers; Raw Or Proc But Not Spun; Waste 266 Synthetic Fibers Suitable For Spinning 267 Manmade Fibers Nes For Spinning; Manmd Fiber Waste 268 Wool & Other Animal Hair (Including Wool Tops) 269 Worn Clothing & Other Worn Textile Articles; Rags 272 Fertilizer, Crude, Other Than Those Of Division 56 273 Stone, Sand And Gravel

TABLE 7.6 — cont’d RCA Singapore China 0.01 0.14 0.00 0.35 0.75 0.01 0.08 0.19 0.03 0.13 0.19 0.29 0.03 0.01 0.01 0.01 0.08 0.34 0.16 0.03 0.52 8.55 0.13 0.02 0.00 0.04 0.00 0.13 0.10 1.21 0.31 0.65 0.00 1.23 0.56 0.02 0.01 0.45 0.03 0.27 0.01 0.00 0.00 0.03 0.00 0.00 0.00 0.00 0.02 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01

Share in bilateral Trade (%)

198 Chen Wen and Zhai Baiquan

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274 Sulfur And Unroasted Iron Pyrites 277 Natural Abrasives N.E.S. (Inc Industrial Diamonds) 278 Crude Minerals, N.E.S. 281 Iron Ore And Concentrates 282 Ferrous Waste & Scrap; Rmltng Iron Or Steel Ingots 283 Copper Ores & Conc; Cooper Mattes; Cement Copper 284 Nickel Ores & Conc; Nickle Mattes, Oxide Sint, Etc 285 Aluminum Ores & Concentrates (Including Alumina) 286 Ores & Concentrates Of Uranium Or Thorium 287 Ores & Concentrates Of Base Metals, N.E.S. 288 Nonferrous Base Metal Waste & Scrap, N.E.S. 289 Ores & Concen Of Precious Metal & Waste, Scrap Etc 291 Crude Animal Materials, N.E.S. 292 Crude Vegetable Materials, N.E.S. 321 Coal, Pulverized Or Not, But Not Agglomerated 322 Briquettes, Lignite And Peat 325 Coke, Semicoke Etc Of Coal, Lignite Etc; Re Carbon 333 Crude Oil From Petroleum Or Bituminous Minerals 334 Oil (Not Crude) From Petrol & Bitum Minerals Etc 335 Residual Petroleum Products, N.E.S. Etc 342 Liquefied Propane And Butane 343 Natural Gas, Whether Or Not Liquefied 344 Petroleum Gases & Other Gaseous Hydrocarbons Nes 345 Coal Gas, Water Gas, Producer Gas Etc, N.E.S. 351 Electric Current

0.53 10.83 0.09 0.00 0.53 0.00 0.01 0.00 0.00 0.03 0.24 0.19 0.12 0.19 0.00 0.01 0.00 0.00 3.69 1.52 0.19 0.00 1.76 0.09 0.02

0.14 0.01 0.61 0.00 1.12 0.02 0.00 0.00 0.00 0.01 0.00 0.00 0.01 0.00 0.03 0.00 0.00 0.00 0.09 0.00 0.01 0.01 0.03 0.01 1.90 0.00 0.50 0.06 0.29 0.00 0.10 0.00 0.55 0.50 0.03 4.41 0.26 5.72 0.42 0.53 0.19 0.01 0.03 0.00 0.00 0.01 0.00 0.00 0.35 0.00 continued on next page Singapore-China Trade and CSFTA

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Commodity Code 411 Animal Oils And Fats 421 Fixed Veg Fats & Oils, Soft, Crude, Refined Etc 422 Fixed Veg Fats & Oils Crude, Refined Etc, Not Soft 431 Anml/Veg Fats/Oils Process/Waxes/Inedible Prep Nes 511 Hydrocarbons Nes & Specified Derivatives 512 Alcohols, Phenols Etc & Halogenated Etc Derivativs 513 Carboxylic Acids Etc Halides Etc & Derivatives 514 Nitrogen-Function Compounds 515 Organo-Inorganic & Heterocyclic Compounds Etc 516 Organic Chemicals, N.E.S. 522 Inorganic Chemical Elements, Oxides, Halogen Salts 523 Metallic Salts And Peroxysalts Of Inorganic Acids 524 Inorganic Chemicals Nes; Precious Metal Compounds 525 Radioactive And Associated Materials 531 Synthetic Organic Coloring Matter, Color Lakes Etc 532 Dyeing & Tanning Extracts; Synth Tanning Materials 533 Pigments, Paints, Varnishes And Related Materials 541 Medicinal Etc Products, Except Medicaments 542 Medicaments (Including Veterinary Medicaments) 551 Essential Oils, Perfume And Flavor Materials

TABLE 7.6 — cont’d RCA Singapore China 0.00 0.18 0.12 0.06 0.34 0.01 0.82 0.11 1.49 0.38 1.57 0.33 1.43 1.00 3.21 1.07 1.68 0.78 1.35 0.70 0.25 1.07 0.15 2.08 0.47 1.01 0.10 0.19 1.04 1.80 0.65 0.20 0.83 0.28 0.65 0.60 0.56 0.04 1.67 0.15 0.03 0.00 0.00 0.10 0.73 0.75 0.35 0.15 0.13 0.46 0.09 0.02 0.00 0.07 0.01 0.05 0.39 0.19 0.05 0.15

Share in bilateral Trade (%)

200 Chen Wen and Zhai Baiquan

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553 Perfumery, Cosmetics Or Toilet Prep, Except Soaps 554 Soap, Cleansing And Polishing Preparations 562 Fertilizers (Except Crude Of Group 272) 571 Polymers Of Ethylene, In Primary Forms 572 Polymers Of Styrene, In Primary Forms 573 Polymers Of Vinyl Chloride & Other Hal Olefins Etc 574 Polyacetals Etc, Epoxide Resins Etc, Primary Forms 575 Plastics, N.E.S., In Primary Forms 579 Waste, Parings And Scrap, Of Plastics 581 Tubes, Pipes And Hoses Of Plastics 582 Plates, Sheets, Film, Foil & Strip Of Plastics 583 Monofil, Cr-Sect Ov 1 Mm, Rods Etc, Of Plastics 591 Insecticides, Disinfectants Etc, Retail Packed Etc 592 Starches, Inulin & Wh Gluten; Albumin Subst; Glues 593 Explosives And Pyrotechnic Products 597 Additives For Min Oils Etc; Antifreeze Etc Preps 598 Miscellaneous Chemical Products, N.E.S. 611 Leather 612 Mfr Of Leather (Inc Composition) Nes; Saddlery Etc 613 Furskins (And Pieces), Tanned Or Dressed 621 Materials Of Rubber (Pastes, Plates, Sheets, Etc.) 625 Rubber Tires, Inter Treads, Tire Flaps & Inn Tubes 629 Articles Of Rubber, N.E.S. 633 Cork Manufactures 634 Veneers, Plywood, Particle Bd, Oth Worked Wood Nes

1.06 0.52 0.03 1.82 1.35 0.32 1.50 1.46 0.23 0.20 0.32 0.03 0.33 0.29 0.47 3.40 0.87 0.14 0.57 0.00 0.32 0.27 0.59 0.01 0.07

0.28 0.05 0.31 0.11 0.68 0.01 0.07 1.38 0.30 0.21 0.31 0.07 0.56 0.67 0.27 1.53 0.03 0.04 0.55 0.15 0.50 0.12 0.34 0.04 0.65 0.06 0.81 0.02 2.36 0.01 0.10 0.65 0.55 0.33 0.15 0.00 1.84 0.00 2.17 0.03 0.32 0.18 1.43 0.04 0.68 0.05 0.10 0.10 1.39 0.04 continued on next page Singapore-China Trade and CSFTA

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Commodity Code 635 Wood Manufactures, N.E.S. 641 Paper And Paperboard 642 Paper & Paperboard, Cut To Size Or Shape, Articles 651 Textile Yarn 652 Cotton Fabrics, Woven (Not Narrow Or Spec Fabrics) 653 Wov Fabrics, Mm Text Mat (Not Narrow Or Spec Fab) 654 Woven Fabrics Of Text Mat Not Cotton Or Manmade 655 Knitted Or Crocheted Fabrics, N.E.S. 656 Tulles, Lace, Embroidery, Ribbons, Trimmings, Etc. 657 Special Yarns, Special Textile Fabrics, Etc. 658 Made-Up Articles Of Textile Materials, N.E.S. 659 Floor Coverings, Etc. 661 Lime, Cement & Fabricated Construct Materials Nes 662 Clay And Refractory Construction Materials 663 Mineral Manufactures, N.E.S. 664 Glass 665 Glassware 666 Pottery 667 Pearls, Precious & Semiprecious Stones 671 Pig Iron, Spiegeleisen Etc. Iron & Steel Powd Etc.

TABLE 7.6 — cont’d RCA Singapore China 0.05 1.49 0.29 0.31 0.26 0.86 0.21 2.03 0.07 3.55 0.17 3.33 0.14 2.20 0.19 3.15 0.34 2.92 0.19 1.78 0.08 4.41 0.08 1.33 0.04 1.91 0.02 2.11 0.14 0.70 0.24 1.19 0.15 1.83 0.10 4.54 0.31 0.20 0.06 0.64 0.12 0.13 0.13 0.21 0.13 0.10 0.05 0.09 0.18 0.21 0.04 0.12 0.24 0.09 0.16 0.15 0.06 0.00 0.02 0.00

Share in bilateral Trade (%)

202 Chen Wen and Zhai Baiquan

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672 Iron Or Steel Primary Forms & Semifinish Products 673 Iron & Nonalloy Steel Flat-Roll Prod, Not Clad Etc 674 Iron & Na Steel Flat-Rolled Products, Clad, Etc. 675 Alloy Steel Flat-Rolled Products 676 Iron & Steel Bars, Rods, Angles, Shapes & Sections 677 Iron & Steel Rails & Railway Track Const Material 678 Iron And Steel Wire 679 Iron & Steel Tubes, Pipes & Hol Profiles, Fittings 681 Silver, Platinum & Other Platinum Group Metals 682 Copper 683 Nickel 684 Aluminum 685 Lead 686 Zinc 687 Tin 689 Misc Nonferrous Base Metals For Metallur & Cermets 691 Metal Structures & Parts Nes Iron, Steel, Aluminum 692 Metal Containers For Storage Or Transport 693 Wire Products (Excl Insulat Elect) & Fencng Grills 694 Nails, Screws, Nuts Etc, Iron, Steel, Copp, Alumin 695 Tools For Use In The Hand Or In Machines 696 Cutlery 697 Household Equipment Of Base Metal, N.E.S. 699 Manufactures Of Base Metal, N.E.S. 711 Steam Or Oth Vapor Generating Boilers, Etc

0.04 0.31 0.25 0.19 0.28 0.13 0.46 0.91 0.19 0.29 0.79 0.39 0.32 0.63 7.04 0.31 0.18 0.32 0.54 0.44 1.30 0.33 0.12 0.47 0.11

0.01 0.15 0.71 0.22 0.81 0.05 0.41 0.15 0.49 0.04 1.35 0.02 1.43 0.63 1.35 0.07 0.51 0.21 0.38 0.36 0.47 0.22 0.70 0.14 0.26 0.01 0.09 0.02 0.06 0.06 2.49 0.60 1.86 0.09 0.59 0.08 1.62 0.15 1.52 0.16 1.28 0.08 3.05 0.09 3.46 0.42 1.33 0.15 3.19 0.02 continued on next page Singapore-China Trade and CSFTA

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Commodity Code 712 Steam Turbines & Oth Vapor Turbines, & Pts Thereof 713 Internal Combust Piston Engs, And Pts, N.E.S. 714 Engs And Motors, Nonelect & Pts, N.E.S. 716 Rotating Electric Plant And Parts Thereof, N.E.S. 718 Power Generating Machinery & Parts, N.E.S. 721 Agricultural Machinery (Excl Tractors) & Parts 722 Tractors (Oth Than Mechanical Handling Equipment) 723 Civil Engineering & Contractors’ Plant & Equipment 724 Textile & Leather Machinery & Pts Thereof N.E.S. 725 Paper Mill And Pulp Mill Mach, Paper Cuttng Mach 726 Printng & Bookbindng Machinery, & Parts Thereof 727 Food-Processing Machines (Excluding Domestic) 728 Machry Etc Specializd For Particulr Industries Nes 731 Mach Tools Workng By Removing Metl Or Oth Material 733 Machine Tools For Working But Not Removing Metal 735 Parts, N.E.S. & Access For Met Work Machine Tools 737 Metalworkng Machinery, And Parts Thereof, N.E.S. 741 Heatng & Coolng Equipmnt And Pts Thereof, N.E.S. 742 Pumps For Liquids; Liquid Elevators & Pts 743 Pumps, Air Or Other Gas Compressors And Fans

TABLE 7.6 — cont’d RCA Singapore China 0.28 1.46 0.85 0.34 0.97 0.16 0.73 1.30 0.54 0.60 0.13 0.58 0.11 0.17 3.03 0.74 0.74 1.27 0.21 0.48 0.66 0.26 0.22 0.43 0.97 0.52 0.46 0.47 0.38 0.52 0.98 0.44 0.44 1.32 0.46 1.37 0.60 0.66 0.67 0.91 0.09 0.11 0.29 0.12 0.05 0.01 0.27 0.19 0.02 0.01 0.01 0.33 0.69 0.06 0.02 0.06 0.37 0.74 0.33 0.95

Share in bilateral Trade (%)

204 Chen Wen and Zhai Baiquan

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744 Mechanical Handlng Equipmt, & Pts Thereof, N.E.S. 745 Nonelectrical Machry, Tools, App & Pts, N.E.S. 746 Ball Or Roller Bearings 747 Taps, Cocks, Valves & Sim Appliances 748 Trasmission Shafts And Cranks; Bearng Housngs, Etc 749 Nonelectric Parts & Accessories Of Machry Nes 751 Office Machines 752 Automatic Data Process Machs & Units Thereof 759 Parts Etc For Office Mach & Auto Data Process Mach 761 Television Receivers 762 Radio-Broadcast Receivrs Wheth/Nt Incr Snd Rec Etc 763 Sound Recorders, Tv Recorders, Recording Media Unr 764 Telecommunications Equipment, N.E.S. & Pts, N.E.S. 771 Electric Power Machinery, And Parts Thereof 772 Elecricl Apparat For Switchg Or Protectg Elec Circ 773 Equipment For Distributing Electricity, N.E.S. 774 Electro-Diagnostic Apparatus 775 Househld Type Elec & Nonelec Equipment, N.E.S. 776 Thermionic, Cold Cathode, Photocathode Valves Etc. 778 Electrical Machinery And Apparatus, N.E.S. 781 Motor Cars & Oth Motor Vehicles 782 Motor Vehicles For Transpt Of Gds & Spec Pur Vehs 783 Road Motor Vehicles, N.E.S. 784 Parts And Accessories Of Motor Vehicles, Etc 785 Motorcycles And Cycles, Motorized & Not Motorized

0.76 0.45 2.39 0.61 0.33 1.60 1.75 1.32 3.97 0.28 0.84 0.67 0.96 0.89 1.28 0.35 0.45 0.39 7.50 1.27 0.03 0.19 0.07 0.41 0.79

1.29 0.22 0.93 0.17 0.87 0.40 1.32 0.34 0.73 0.23 1.23 1.05 3.24 8.93 4.23 4.47 1.86 1.87 1.91 0.05 2.32 0.97 3.62 3.25 2.82 1.18 2.16 0.86 1.26 1.11 1.35 0.13 0.43 0.22 2.76 8.15 1.10 8.62 1.83 0.46 0.03 0.03 0.36 0.03 0.41 0.18 0.51 0.05 2.56 0.13 continued on next page Singapore-China Trade and CSFTA

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Commodity Code 786 Trailers & Semi-Trailrs; Oth Veh Nt Mechan Propld 791 Railway Vehicles & Associated Equipment 792 Aircraft & Associated Equipmt; Spcecrft Veh; & Pts 793 Ships, Boats And Floatng Structures 811 Prefabricated Buildings 812 Sanitary, Plumbing & Heating Fix & Fittings Nes 813 Lighting Fixtures And Fittings Nes 821 Furniture & Pts; Bedding, Mattresses, Etc. 831 Trunks, Suitcases, Vanity Cases, Briefcases, Etc 841 Men’s Or Boy’s Coats, Jackets Etc, Text, Not Knit 842 Women/Girls Coats, Capes Etc, Tex Fabric, Not Knit 843 Men’s Or Boys’ Coats, Jackets Etc, Text, Knitted 844 Women’s Or Girls’ Coats, Capes Etc, Textile, Knit 845 Articles Of Apparel Of Textile Fabrics Nes 846 Clothing Accessories, Of Tex, Knit Or Nt, Ex Babie 848 Apparel & Cl Acc Exc Textile; Headgear, All Materl 851 Footwear 871 Optical Instruments And Apparatus, Nes 872 Inst & Appls, Nes, For Medical, Dental Etc Purpose 873 Meters And Counters, Nes

TABLE 7.6 — cont’d RCA Singapore China 0.17 2.00 0.03 0.42 1.39 0.07 0.73 1.98 0.20 1.64 0.04 0.63 0.27 3.48 0.07 2.71 0.42 3.92 0.05 3.11 0.06 3.20 0.27 4.61 0.27 4.11 0.18 3.29 0.24 3.67 0.10 3.30 0.11 3.63 0.29 3.36 0.90 0.49 0.57 1.10 0.01 0.02 10.55 1.48 0.02 0.18 1.93 0.36 0.16 0.15 0.26 0.56 0.40 0.04 0.04 0.58 0.22 0.19 0.07 0.29

Share in bilateral Trade (%)

206 Chen Wen and Zhai Baiquan

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874 Measuring/Checking/Analysing & Contr Inst&Appt Nes 881 Photographic Apparatus And Equipment, Nes 882 Photographic And Cinematographic Supplies 883 Cinema Film, Exp/Develop Whet/Nt Incor Sound Track 884 Optical Goods, Nes 885 Watches And Clocks 891 Arms And Ammunition 892 Printed Matter 893 Articles, Nes Of Plastics 894 Baby Carriages, Toys, Games And Sporting Goods 895 Office And Stationery Supplies, N.E.S. 896 Works Of Art, Collectors’ Pieces And Antiques 897 Jewelry, Goldsmiths’ & Silversmiths’ Wares Etc 898 Musical Instruments And Parts, Records, Tapes Etc 899 Miscellaneous Manufactured Articles, N.E.S. 931 Special Transactions & Commod Not Classif By Kind 961 Coin (Other Than Gold Coin) Not Being Legal Tender 971 Gold, Nonmonetary (Excluding Ores & Concentrates)

1.30 2.60 0.89 0.05 0.84 1.56 0.03 1.01 0.37 0.30 0.89 0.31 1.15 3.38 0.49 1.43 0.41 1.10

0.50 0.99 0.50 0.00 1.34 0.83 0.06 0.60 1.48 3.33 1.94 0.03 0.60 1.36 1.82 0.03 0.01 0.00

0.72 0.10 0.16 0.05 0.04 0.10 0.00 0.38 0.46 0.05 0.00 0.06 0.32 2.84 0.16 0.21 0.00 0.00

Singapore-China Trade and CSFTA

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208

Chen Wen and Zhai Baiquan

Auto Data Process Mach (SITC-759), Elecricl Apparat For Switchg Or Protectg Elec Circ (SITC-772), Thermionic, Cold Cathode, Photocathode Valves Etc.(SITC-776), Electrical Machinery And Apparatus, N.E.S. (SITC-778) and Musical Instruments And Parts, Records, Tapes Etc (SITC-898). As for bilateral trade, we will examine the top fifteen products in terms of bilateral trade value, which accounts for 66.3 per cent of the total bilateral trade in 2009. Table 7.5 shows that both China and Singapore have comparative advantages in five products: SITC-751, 776, 752, 898 and 759, which contribute 8.9 per cent, 8.6 per cent, 4.5 per cent, 2.8 per cent and 1.9 per cent to the overall bilateral trade respectively. Therefore, we will further examine the RCA of SITC 751, 776,752 at four-digit level. In these 14 four-digit items of products, both China and Singapore have comparative advantage in seven kinds: Typewriters; WordProcessing Machines (SITC-7511), Calcultng Machs; Acctg Postge-Frankng Cash Reg Etc. (SITC-7512), Photocopying Apparatus Incorpng An Optical System (SITC-7513), Office Machines, N.E.S. (SITC-7519), Storage Units For Data Processing Systems (SITC-7527), Data Processing Equipment, N.E.S. (SITC-7529), and Diodes, Transistrs & Similr Semiconductor Devices (SITC-7763). Among them, only SITC 7527 has G-L index higher than 0.5 in 2009. Complementarity between China and Singapore in Trade in Goods Though China and Singapore compete with each other in certain items of SITC 75, 76 and 77, both China and Singapore have many more items in which they enjoy comparative advantage. From Table 7.5, we can see that China enjoys

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competitive advantage in 81 items, while in the case of Singapore there are 27 items. Firstly, in resource-based commodities (SITC 0 to 4), China has comparative advantage in Fish, Fresh (Live Or Dead), Chilled Or Frozen (SITC-034), Crustacean Etc Frsh, Ch, Fz, Drd, Salted, Etc. (SITC-036), Fish/Crustaceans/Molluscs/Aq Invbrte Prep/Pres Nes (SITC-037), Vegs, Roots And Tubers, Prepared Or Preserved, Nes (SITC 056), Fruit Prsvd, Fruit Preparations (Excl Fruit Juice) (SITC-058), Tea And Mate (SITC-074), Silk Textile Fibers (SITC-261), Synthetic Fibers Suitable For Spinning (SITC-266), Wool & Other Animal Hair (Including Wool Tops) (SITC-268), Crude Minerals, N.E.S. (SITC-278), and Crude Animal Materials, N.E.S. (SITC-291). On the other hand, Singapore has comparative advantage in Spices (SITC-075), Edible Products and Preparations, N.E.S. (SITC-098), Alcoholic Beverages (SITC-112), Natural Abrasives N.E.S. (Inc Industrial Diamonds) (SITC-277), Oil (not crude) from Petrol & Bitum Minerals etc (SITC-334), Residual Petroleum Products, N.E.S. etc (SITC-335) and Petroleum Gases & Other Gaseous Hydrocarbons N.E.S. (SITC-344). Secondly, in manufactured goods, both China and Singapore have many more items in which they enjoy comparative advantage. China has comparative advantage mainly in manufactured goods classified chiefly by material (SITC-6), and miscellaneous manufactured articles (SITC-8), while Singapore possesses comparative advantage mainly in chemicals and related products (SITC-5). Thirdly, among the fifteen leading trading products in the bilateral trade, China and Singapore enjoy complementarity in ten items, which accounts for 39.6 per cent of overall bilateral trade. China enjoys comparative advantage in

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Househld Type Elec & Nonelec Equipment, N.E.S. (SITC775), Sound Recorders, TV Recorders, Recording Media Unr (SITC-763), Lighting Fixtures And Fittings N.E.S. (SITC-813), Ships, Boats And Floatng Structures (SITC-793), and Telecommunications Equipment, N.E.S. & Pts, N.E.S. (SITC-764). Singapore has comparative advantage in Aircraft & Associated Equipmt, Spcecrft Veh; & Pts (SITC-792), Oil (Not Crude) From Petrol & Bitum Minerals Etc (SITC-334), Plastics, N.E.S., In Primary Forms (SITC-575), and Polymers Of Ethylene, In Primary Forms (SITC-571). China and Singapore enjoy complementarity in labourintensive products such as textile and apparel, and chemical products. As for electrical and electronic products, both competition and complementarity exist. Impact of Csfta on Bilateral Trade The China-Singapore Free Trade Agreement (CSFTA) came into operation on 1 January 2009. This is the first comprehensive bilateral FTA concluded by China with a Southeast Asian country covering areas ranging from trade in goods and services to investment and economic cooperation. According to the agreement, all Chinese exports to Singapore were granted tariff-free access upon entry-into-force and 97.1 per cent of Singapore’s exports to China were tariff-free by 1 January 2010.7 The agreement contains many rules designed to encourage bilateral trade in services, mutual FDI, movement of personnel, and other kinds of economic cooperation. Obviously, these rules are bound to have a positive impact on bilateral trade in the future. Firstly, the CSFTA has enhanced the development of China-Singapore trade in goods. As discussed earlier, China

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and Singapore possess different comparative advantages so that there is complementarity in bilateral trade. The elimination of bilateral tariff and import quotas has increased the movement of goods and services between China and Singapore. In addition, since China has established FTA with only a few countries while Singapore has already signed FTA agreements with many countries, some foreign corporations may choose entrepôt trade by way of Singapore to reduce tariff cost. This has promoted the growth of China-Singapore trade. Secondly, CSFTA will have a great influence on the bilateral trade in services. Singapore and China have also liberalized various services sectors, such as business service, hospital service and education service. Compared with China’s commodity trade with the world, China’s trade in service is much less impressive. In 2009 China’s total commodity trade constituted 9.3 per cent8 of the world’s total commodity trade, while China’s total trade in services only accounted for 4.5 per cent of the world’s total trade in services.9 There is therefore much room for development in China’s trade in services. Furthermore, China has comparative advantage mainly in construction service, tourism service, marine transportation of service, and Internet information service. But Singapore possesses more comparative advantage in financial service, air transportation service, exhibition service and business service. For example, 70 per cent of trade in Singapore comes from the tertiary industry. This means that China and Singapore have great complementarity in service trade. The relevant rules in CSFTA have considerably reduced the barrier of bilateral trade in services, and will accordingly contribute to the advancement in trade in services between China and Singapore.

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Thirdly, the establishment of CSFTA may lead to a reduction in China’s surplus in trade with Singapore to some extent. Taking into consideration of the fact that China’s previous import tariff rate before enforcement of CSFTA is much higher than that of Singapore, the removal of bilateral import tariff is likely to bring about greater increase in China’s import from Singapore than that in China’s export to Singapore. This will consequently cause the decline in China’s surplus in the bilateral trade. Meanwhile, accelerated tariff concessions of CSFTA will enhance the competitiveness of Singapore goods vis-à-vis other foreign exports to China. Fourthly, CSFTA will have an impact on the foreign direct investment (FDI) of both countries, which will in turn influence bilateral trade. The relevant facilitative commitments will encourage mutual FDI in Singapore and China, which will further enhance the bilateral intra-industry trade. Besides, companies from countries without any FTA with China may choose to focus their FDI in Singapore in order to reduce tariff cost, thus contributing to the advancement of ChinaSingapore trade. NOTES The authors are grateful for the financial support of the East Asian Institute, NUS. The paper is also supported by National Social Science Foundation of China (Project 09BJL045) and Humanities and Social Science Project, National Ministry of Education, China (Project 09YJA790120). 1. The data source can be found in Table 1. China is the reporter.

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2.

3.



4.



5.

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But according to the statistics of International Enterprise Singapore, China-Singapore bilateral trade value amounts to US$70.06 billion in 2010, with a growth rate of 34.0 per cent compared to the previous year. Trade intensity index measures the bilateral trade relations between two countries. It is the share of one country’s export to another country as a proportion of the latter’s share of the world import. If the index is over 1, the trade relations is comparatively closer. The higher the index, the closer trade relations is. The formula is: I ij =

X ij Xi

/

Mj Mw − Mi

where Xij refers to the export of country i to country j; Xi refers to total export of country i; Mi, Mj, Mw refer to the total import of country i, country j and the world respectively. See Drysdale and Garnaut (1982). For the discussion on intra-industry trade, please see Grubel and Lloyd (1975), Tharakan (1983) and Havrylyshyn and Civan (1985). Here, the Grubel and Lloyd index (GL) is used to measure intra-industry trade between China and Singapore. For one product, the equation is GLij=1-|Xij-Mij|/( Xij+Mij), in which Xij stands for the export of commodity j by country i to another country, and Mij is the import of commodity j by country i to another country. For all products, the equation is    X +M  n ij ij   = GL ij GL i ∑ n   j =1 X + M ( ) ∑ ij ij    j =1 .

The contribution of intra-industry (Ciiti) and net trade (Cnti) to the growth of bilateral trade (tti) is as: tti=Cnti+Ciiti, where Cnti=(1-GLi)nti, Ciiti=GLiiiti. GLi refers to the intra-industry trade index of commodity i at the beginning of the period. Please find the details in Menon (1996).

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Χ wj

6.

The ratio is defined as: RCAij =



where Xij = country i’s export of product j to the world a. Xi = country i’s total merchandise exports to the world b. Xwj = world export of product j c. Xw = world total merchandise exports



Therefore, if RCAij >1, the country i reveals a comparative advantage in the export of product j to the world; if RCAij