SM Goh Chok Tong’s Interview with Xinhua News Agency (Sep 2009)

Xinhua News Agency: Mr Senior Minister, the first question. What’s your view on the world economy at present, as well as its outlook in the near future?

SM Goh Chok Tong: Senior Minister:To use an imagery — the world economy is like a man who has fallen from a very high position, a great height. Many bones have been broken and the body is bruised; but the person has survived. So, that’s the state of the economy. The worst is behind us. The stimulus package is like medication, so we are recovering from the stimulus package. But unlike a ball that has fallen from a great height, the person doesn’t bounce back; whereas a ball, if it drops from a very high position, is going to bounce up.

So the prospect for the world economy will be one of slow recovery, and crawling forward for the next several quarters, and if you are not lucky, maybe for many more years. But I would also add that some people feel that there’s still a danger of another dip, because the financial problems of some banks and some countries are not over yet. There is a possibility that we may see another dip. But my own view is, I think we are more likely to be crawling forward.

Xinhua: And what do you think the world leaders would do during the upcoming G20 summit in the US later this month?

SM Goh: At the London G20 meeting of the Finance Ministers, they debated the question as to whether the stimulus package each country has put in should continue, or should it be ended as soon as possible? It’s a delicate question because if the stimulus package for each country is ended too early, then there is a real danger of the economy reverting back to what it was some months ago. So I think the agreement was that it is necessary for the G20 summit in Pittsburgh - the leaders - to agree that they should carry on with the stimulus package. This means a loose monetary economy, in order to encourage growth to continue. But the question still remains - when do you exit from the stimulus package? Because if you do not exit from the stimulus package, the likely consequence would be inflation and that will be another problem down the road. So the question is - when do the leaders think we must have a coordinated exit from the stimulus package? That decision has not been taken, as they do not want to upset the stock market and the process of recovery.

Xinhua: Now, many countries hope that the green economy may revive the growth of the world economy. What do you think of this idea?

SM Goh: I don’t think we should put much emphasis on using green technology or the green economy as a vehicle to recover from the current crisis. The green economy is important, but in the longer term; because we want to have sustainable development in a green environment, and not growth for the sake of growth, while disregarding environment. But it cannot be a tool to combat the crisis, which was caused by the property bust in the US. It’s a financial crisis resulting from the subprime loans to purchases of property in the US. So the green economy will not be the answer to the recovery from the recession.

Xinhua: In your perspective, what would be the answer to launch the growth of the world economy?

SM Goh: Well, there’s no simple answer, but I would agree with the conclusion of the Finance Ministers that we should just keep on stimulating our economies and watch out for the danger of inflation. But a country like China can do much more because China requires investment in infrastructure and China can stimulate domestic demand to support its own growth, and this is exactly what China is doing. I just came back from the opening ceremony (of the WEF conference in Dalian), where Premier Wen Jiabao spoke at length and confidently on China’s efforts to recover from the international financial crisis. So, it’s important that China stimulates its domestic demand in a wise way. Not in a way that will lead to a bubble in property prices or to inflation.”

I like the emphasis given by Premier Wen on spending on the medical sector. That means to look after the people and make sure that their medical needs in the longer term will be taken care of. And also the emphasis on social support for the people, such as public housing, which is very important for the people. Public housing means more construction (of homes) for people to live in, which means generating growth in the construction sector and contributing to the economy. Also, very importantly, the emphasis on education — invest in people. Because then, people can become much more productive, more skilled for the next phase of economic growth. So, countries like China, can look into the longer term to see how it can restructure its economy, bearing in mind that China cannot depend as much as it did before on an export-led strategy. The US would still be the largest market. The US would still be buying. But the US consumer will in future, I believe, begin to put more emphasis on saving. They have been spending so much, suddenly they discovered that the country is in deficit, they themselves are in deficit, with no savings and negative equity. So for a few years, I think the US will move into a saving mode, which means less demand for our goods. But China is in a position to make up for this fall in demand in the US. China can take the lead in creating some power for growth in Asia, which will then benefit the world.

Xinhua: Just now, you also heard Mr Wen Jiabao say, China achieved a growth rate of 7.1 percent in the first half of the year. What’s your comment on this?

SM Goh: Oh, my comment is it is a very respectable growth rate. You have to compare 7.1 percent, not with China’s previous growth rate of 9-10 percent, but compare 7.1 with the negative growth rates in major economies like the US, the Japan and the Europe. In the case of Singapore, we are seeing a negative growth rate of -4 to -6 per cent. So if you compare 7.1 percent against negative growth rates of other countries, it’s a tremendous achievement. But more importantly, can China achieve its 8 per cent growth rate target for the whole year? My own expectation is yes, because as I put it just now, the worst is behind us, the world economy has fallen, the global economy has fallen, and despite that, China is growing by 7.1 percent. Since we are now recovering, albeit very slowly, with very flat growth, the second half must be better than the first half. So, to get 8 per cent, China should be able to do around 9 to 10 per cent in the second half. Maybe if you average it out, you will get eight per cent growth. I think China can achieve it.

Xinhua: It may be a little bit difficult.

SM Goh: It may be a bit difficult, but I think there is a possibility. But as Premier Wen put it, his emphasis is not on the GDP growth rate. Let’s say China achieves only 7.5 percent growth, is it important that you have not achieved eight per cent? I think the answer is ‘no’. Have you curbed the unemployment problem? Have you made life better for the Chinese, especially for the poorer Chinese in the rural areas, in the provinces? So Premier Wen was emphasising raising the standard of living of the people, making sure that people can be employed, making sure there is a social safety net, old age pensions, medical services and so on. That is more important than just generating the growth rate to hit the target of eight percent.

Xinhua: Up till now, the package of measures, the stimulus of the Chinese economy by the Chinese government seems effective, but we still face a lot of challenges, like insufficient overseas demand.

SM Goh: China has built factories to meet the demand of the world before the crisis. So when the demand fell, there was over-capacity in many of the factories. In Shenzhen, for example, when I was there recently, I was told that many factories there had to close because they were exporting toys, textiles and garments to the United States and to Europe. So there was over-capacity because the capacity was meant for an old, huge demand. So China would have to restructure. China cannot expect that demand to come back to the same level as that before the international financial crisis. In restructuring itself, there are tremendous challenges. But if China can succeed in restructuring its economy, then of course, there will be a new boost to China's growth in the coming years. It is not easy, because to restructure means you’ve got to change mindsets, you’ve got to equip people with new skills. You’ve got to produce new goods which people want and you’ve got to stimulate demand in China; and I say it is not easy because I know that the Chinese are very frugal people. They were told to save, and don’t spend too much. It is a good habit. Now the government is telling them, “Please spend”. Can you get the peasants, the farmers, the poorer people, even the middle income Chinese to suddenly go on a spending spree? They will say if I spend, and if I lose my job, who is going to look after me? So I don’t think it is that easy just to spend, because the government says you should spend.

Xinhua: Buy more and you save a lot.

SM Goh: You will save less.

Xinhua: You will save a lot if you buy more; because if you buy a lot of products, you can save a lot because goods are very cheap.

SM Goh: No, you save when the goods are cheaper, but if you buy more cheap goods, you will still have less savings. So if you are wise, you will buy those durable goods which will last you for many years, so you buy now instead of buying later. Some will do so, but generally I think the Chinese people are quite frugal. I think they would not just want to spend for the sake of the economy. I mean they will say, ‘Look is there a social safety net? If I am unemployed, who is going to help me?’ So, China is in the process of putting in place the social safety net, but I think most people will still depend on themselves. But I told your leader, Vice-Premier Li Keqiang, China should consider spending more on leisure activities. As people have more income, leisure becomes very important, because nobody wants to work 16 hours a day. You want to work eight hours or 12 hours, and you want time to enjoy yourself. So find ways to stimulate the leisure activity sector as a growth sector. For example, sports and tourism

Xinhua: People enjoy sports...

SM Goh: Yes, yes. Go out to eat and encourage domestic tourism. If you do that, then there will be more growth in the sector. This is what you call the services sector and China has enough potential to stimulate a viable domestic services sector. It is already happening. Domestic tourism is taking place in China. Ten years ago, you don’t see Chinese traveling very much from east to west, or north to south, but now they travel all over China. So that is stimulating the domestic leisure sector. More can be done, like encouraging sports, tennis, competitive tennis, which is already happening. Then that is also a source of economic activity. On the financial services side, I think China can do more, because China's financial services sector is relatively underdeveloped compared to China's manufacturing sector. So in that area, China can spend some time to see how it can be developed. Insurance is also an example. I don’t think, if I understand it correctly, many Chinese buy life insurance.

Xinhua: Some, but not many.

SM Goh: It not very popular yet. So life insurance, health insurance, accident insurance, these are areas which can be developed. Then if you buy this, you are creating another area of activities, another economic sector.

Xinhua: In the cities, some people in the cities buy life insurance…

SM Goh: Yes, yes, but I think it is a very small percentage of the total population.

Xinhua: Yes, not very high.

SM Goh: Correct. So there is potential for growth over there.

Xinhua: The last question, Mr Senior Minister, is about Singapore and China. What are the new areas where Singapore and China have cooperation?

SM Goh: The most recent area is the Tianjin Eco-City project. This was a project, agreed between Premier Wen and myself, to develop an Eco-City in Tianjin - 30 square kilometers - to ensure that development in this city will be sustainable and can overcome natural deficiencies like the lack of water. So the Eco-City has to find ways to create a sustainable water supply for a city and the buildings would have to be energy-efficient and in the city itself, the use of cars would have to be minimized. So you’ve got to find ways where you have very ‘green’ living within the city. But we are thinking not just of the economic and physical harmony. The social harmony is also very important within the city. And if the project succeeds and I think it should succeed, because Premier Wen has just told me that ‘the project must succeed’. In other words, it cannot be allowed to fail.

Xinhua: It must succeed?

SM Goh: It must succeed. 一定要成功. He (Premier Wen) put it that way. So if it succeeds – ‘if’ is not the right term, the project must succeed - then the whole idea is it will be replicable, because it is only 30 square kilometers and the model there can be used as a solution to China's urbanization of other cities in China. So that is the reason why we are cooperating in this area. Premier Wen is watching this. Can we borrow ideas from here (Tianjin) and replicate the lessons learnt from here in other parts of China, in other cities in China? And if China gets to urbanize and renovate the old cities, there will be a lot of development which can take place. The old Suzhou city, for example…

Xinhua: The industrial park?”

SM Goh: No, not the industrial park, the old Suzhou city. I am sure if you are prepared to spend some stimulus money there, you can clean up the city; try to recreate the beauty of the old Suzhou. At the moment, it is a little, shall we say, run-down in parts of the old city. So there are many other parts in China which can be renewed. Waste water management is very important. In Singapore, because we are planning for the future when we will not be buying water from Malaysia, we are creating a self-sustaining system. Every drop of water is collected, treated and recycled for use - for industrial use, but the standard is so high, it is actually potable, you can actually drink it. So China in future will face shortage of water in many parts of China. So China can go into waste water management and then we can see how water can be managed and recycled for use for industries, and even for human consumption. So there are many areas where China can take part in.

And one proposal which we discussed – just an idea - ‘we’ meaning Premier Wen, Vice Premier Li and myself, was we decided to have a one-off high level economic strategy dialogue some time early next year. The idea is both of us are facing common global challenges. China, as I understand it, is actually thinking through how China can restructure its economy to face a changed global environment, to overcome the current international financial crisis and then later on, to grow on the basis of the changed economic world environment. Singapore has also set up an Economic Strategies Committee, to brainstorm where Singapore should grow in the future. The old model of growth may not be applicable to the future. So we are looking for a new economic growth model. China is doing likewise. So we agreed that since both of us are doing likewise, and we are facing common challenges in the world, we should have a high-level economic strategy dialogue. This will comprise very senior officials, people who know the subject, and just get them to brainstorm and see how we can help each other. I am sure Singapore can learn from China’s efforts in restructuring its economy, and hopefully, China can also learn from Singapore. And maybe there are areas where we can work together for mutual benefit.

Xinhua: Thank you. Thank you very much, Senior Minister.

SM Goh: You are welcome.