Address by PM Lee Hsien Loong to the Chicago Council of Global Affairs (Apr 2010)

“Asia After The Financial Crisis – Singapore's Perspective”

Thank you very much for that very warm introduction. Mr Lester Crown, Chairman of the Chicago Council for Global Affairs; Mr Marshall Bouton, President of CCGA; Mr Minow, our Honorary Consul-General, ladies and gentlemen, I am delighted to be here to give you Singapore’s perspective on Asia after the financial crisis. If I had been here last year, the subject would have been Asia during the financial crisis, but what a difference a year makes. The world economy is on the mend, the markets are stable, confidence is returning, economies are turning around. I was in Washington this week talking to some of the Administration’s key economic officers. Nobody wants to say there will not be another bump in the night because you never can tell, but all of them were quietly confident that they had done the right things, the medicine was working, it will take some time but they’re heading in the right direction. In any case, the world is no longer staring into an abyss which it was 18 months ago. There are problems and risks remaining, but now, we have the luxury of standing back to survey how the landscape has changed, what trends have emerged and what the future holds.

In Asia, the countries are emerging strongly, led by China and by India. Fortunately, Asian banks were sound and had not been as adventurous and as cutting-edge as some of the other global banks. Our economies have rebounded and the countries are continuing to transform themselves, as they were doing before the crisis and have continued even through the crisis. China, of course, is a big part of the Asian story. It has come through the crisis better than many had feared. There was massive government pump-priming which supported demand. So, last year, they had 8.7 plus per cent growth and this year, they are expecting more. The pump-priming was comprehensive -- subsidies on white goods for populations, even for rural populations. We saw bicycles trundling washing machines, delivering to farmers in houses with dirt floors. Six months of salary worth of a washing machine, you ask whether the farmer needs it. Probably not, but it kept the washing machine factory open and may be necessary in a crisis but not sustainable, but it has seen us through. But other than that, they have also done other things, like infrastructural investments, building highways, high-speed trains and so on. So, it helped to stabilize their own economy, it helped to stabilize and boost the economies in the rest of Asia before the Western economies recovered.

Beyond these extraordinary measures, there is genuine and deep vitality within the economy and society in China. The Chinese know that in the longer term that they have to shift their model to rely more on domestic demand for growth, but such a structural change will take time and the key to this structural change is urbanization, moving people off the land, where there are too many farmers, into the cities, but housing them, providing them with jobs, making them productive, making a social economic transformation so that there are adequate social safety nets and people are provided with healthcare, education, retirement needs. And that is how China can increase its demand and rebalance its economy. But it is something which will take time because the pace of the transformation going on in China is already the fastest in human history.

India is also growing rapidly, this year projecting nine per cent growth, but although the population is about the same size as China’s, the economic size and weight is much smaller. India’s economy for GDP is about one-third of China’s, its external trade is only about one-fifth of China’s. Part of this is because India started reforming and opening up, dismantling its Licence Raj 15 years later than China and has been growing slower than China since then. It is also because Indian politics is complex and fractious and the current governing coalition, just to give you a sense of how complicated it is to govern that country, has 13 coalition partners. So, naturally, it is not easy to reach a consensus and decide on the direction to go. Therefore, sustaining growth in India will require difficult liberalization and reforms. It will also require massive infrastructure investments, but provided India progressively frees up its economy, it is well placed to be another major growth engine in Asia. It has certain strengths – English-speaking at certain levels, it has a younger population than China, the demographics are more favourable. There is a rule of law, it takes a long time to get judgments, but there is a system for getting judgments and I think it is an environment which Western firms will be more comfortable with. But it needs to become more transparent, more open and more welcoming of foreign investments and of business in general.

In Southeast Asia, the Asean countries are watching this regional transformation. We see Asia on the move, we understand that we, in Asean, have to band together to remain competitive and attractive to investors. Therefore, we are integrating our economies and we have a programme to establish an Asean Economic Community in five years’ time by 2015. As we integrate -- there are ten Asean members amongst ourselves -- we are also building our links with the rest of Asia without our neighbours so as to make Asean the natural focus and hub of economic cooperation and, in fact, regional cooperation. Thus we have free trade agreements with China, with Japan, with Korea, India, Australia and New Zealand. We, meaning the Asean group as a whole. So, it is the centre of the spider web. Several Asean countries have domestic preoccupations. Thailand has been in the news recently, Myanmar is holding elections this year, but it is in a difficult situation. The Philippines has difficulties in the southern Philippines and they are also holding presidential elections this year. But generally speaking, the countries are stable and doing well, for example,Indonesia, which is progressing steadily, or Vietnam, which is full of drive and dynamism.

For Singapore, one of the smallest Asean countries, the crisis was a daunting challenge. Last January, we watched as our exports fell by one-third over a year ago. Our tourist arrivals plunged, our airport, which had just built a new terminal, was not fully occupied, hotels and shops were suffering and we were forced to batten down and apply emergency measures. So, for the first time since half-a- century of independence, we were forced to tap on our reserves to fund a major fiscal package to support companies and jobs. Fortunately, our unions and our workers were with us. They could see the direct impact on the economy and on their members. When you drive past the port, you can see straightaway, the key cranes carrying containers, if they were down, that means they are busy working, if their arms are up, that means there are no ships and when you drove past, you could see key cranes arms up. Volume had plummeted. SIA, Singapore Airlines, was cutting flights and mothballing planes, which meant workers without work, at risk of losing their jobs. So, the unions worked with employers and worked with the government to keep our firms viable and to save these jobs and because of this unified national response and also because the global situation improved, we came off better than we had feared.

Post-crisis, we are in a totally different situation. We have just announced our first quarter economic growth this year. Last year was minus ten per cent, this was plus 13 per cent. So, we have bounced back with more to spare. On a quarter-on-quarter basis, if you annualize it, it is plus 30 per cent. We have not broken out the champagne, we are relieved, but we are making the most of this opportunity to prepare ourselves for the longer term. We see many chances in Asia for us, but we also see challenges because the Asian economies are developing rapidly, advancing rapidly and closing the gap with us. We benefit from having prosperous neighbours, but to ride their growth, we must progress in tandem with them and preferably ahead of them and, therefore, we are focusing on qualitative upgrading of our economy to keep our capabilities always one step ahead. And we are making a major national effort to upgrade our productivity, training our workers, upgrading our firms and our industry clusters, adapting our economic structure to the changing global environment and allowing the economic structure to readapt and upgrade over and over again. It means flux, it means some uncertainty for workers because when you graduate from school, you must expect your skills to become obsolete and so, you must renew them. You must expect to change jobs several times in your career. So, you must have that possibility of another change always in mind, even when you are in your 40s and 50s and maybe have teenaged children and family. But it is necessary if we are going to continue to prosper. It is the only sustainable way for us to improve our standard of living, raise wages and uplift poorer households.

Our workers and unions understand that this difficult task is necessary and support this move and the basis for this is a deep reservoir of trust. The trust comes from the experience overcoming, not just this last recession together but, in fact, many previous crises and challenges together and knowing that in a crunch, we will look after each other and we in the same boat together. So, ministers, employer group leaders, union leaders, we meet regularly. We even golf regularly together, no, for work, of course, early in the morning before working hours. And, therefore, with these informal and deep links, people can be confident that after workers have made difficult adjustments, the employers will share out the gains with them and last year, we tightened the belt. This year, the economy is doing well, well, there will be some cake to share and some smiles to go around and this trust is a critical strength for Singapore.

Beyond our national situation and our Southeast Asian corner of the world, countries in Asia are deepening links with one another. Their economic ties are growing, intra-regional trade is knitting the economies together and Japan, if you ask what is Japan’s biggest export market, it is not the United States, it is China. Similarly with South Korea and, in fact, all of America’s allies, if you are look at Australia, Japan and New Zealand, South Korea, Singapore and Thailand, all your allies in the Asia-Pacific have China as either trading partner Number One or trading partner Number Two. It is the reality of an emerging economic superpower. India, too, is growing and our links with India are also increasing, but still not yet catching up. Of course, Indian companies are venturing abroad, like Chinese companies. So, thousands of them have set up business in Singapore and really, they are using Singapore as a base to cover the region. In some cases, they are even using Singapore to cover India, but certainly to get their feet wet to understand how to do business internationally, regionally and ultimately, globally.

Singapore companies conversely are active all over the region. We are setting up IT parks in India, we are building townships and power plants in Vietnam. We are developing water management facilities, townships, properties in China. Those of you who have been to Singapore will have heard of Raffles City. It is a mall downtown. We have one Raffles City in Singapore, but we have built five Raffles Cities in China and more to come. People-to-people exchanges are growing too. Thousands of students from all over Asia are studying in Singapore in our schools, in our universities. Millions of tourists from Asia travel abroad every year. Singapore alone expects more than one million visitors from China this year and they will be inSingapore, not just to visit casinos, but also for Universal Studios and many other attractions and activities.

With economic ties come interdependence and also, of course, influence. China and India, to a lesser extent, loom large in the calculations of all Asian countries. China is assiduous and skilful in making friends. Take, for example, the free trade agreement we have between Asean and China. China entered into this FTA around the year 2000, they started negotiations under Premier Zhu Rongji for economic as well as strategic reasons and because of this strategic calculation, it decided that it would not insist upon a balance of benefits. So, it is not an argy-bargy where we trade petty concessions, but a strategic calculation that this was in their national interests and they wanted it done. And Premier Zhu Rongji said publicly that let us agree this first and after ten years let’s review it and if there are any imbalances against Asean at that point, we can put it right. So, it took a very generous stance, it gave Asean an early harvest which was weighted in its favour and they sealed the agreement, which is now in operation. But, of course, China is also firm in defending its national interests. I give you one simple example, in defending its overlapping territorial claims in the South China Sea. China has a claim which covers almost all the islands, atolls, islets in the South China Sea. It has been unyielding in maintaining these claims, it has deployed fisheries administration vessels to patrol the area. These are very capable fisheries administration vessels and it insists on negotiating with Southeast Asian claimants bilaterally and individually, rather than with Asean as a group. Singapore has no stake in this dispute, but we hope that it will be resolved calmly and peacefully in accordance with international law.

It is important for Asia to stay an open region, well-linked up with the US, with Europe, which remain important sources of investment and important markets. It is important for Asia to have a balance of players where the interests of all parties, big and small, are taken into account and American engagement in Asia is important not just for economic reasons but to maintain a balance of power and foster regional security and stability.

America’s relationship with China is the most important bilateral relationship in the world. Right now, the relationship is a troubled one. There are many problems -- the renminbi exchange rate, trade frictions, climate change in Copenhagen, Google’s troubles, cyber-hacking and so on. One underlying factor is the different economic states of both countries -- China is surging ahead, America is just lifting itself out of recession with unemployment still hovering around ten per cent, just under. But more fundamentally, China is still finding the right tone to engage the international community and to apply Deng Xiaoping’s dictum, four character phrase – dao guang yang hui -- to hide your light under a bushel and go quietly in the world. Bide one’s time and do not offend people but go peacefully in the world and grow and develop and resolve its own problems. But now China is strong. So, how do you apply this precept in these new circumstances when there are also other voices and people, Netizens and nationalist sentiments and people who write books China can say no? So, that is something which they are working out and will take some time.

On the US side, America is uncertain over the impact of China’s growing influence on the world system and wants to make sure the world system is not destabilized and its interests are not impinged upon. But it is important for both sides to manage this relationship constructively. Both have much to gain by working together and much to lose if they collide with one another. The two economies are intertwined. The US continues to benefit enormously from your economic relationship and interdependence with China, the trade deficit notwithstanding. You gain when you export to China, like Boeing aeroplanes. Consumers gain inAmerica when you import from China, like Wal-Mart does.

China is still far from being a developed country. It needs US technology, US corporate expertise and, more importantly, a non-adversarial United States which will ensure a stable global environment within which China can continue to develop. The trade imbalances between the two countries are gradually adjusting, coming down as Americans save more and Chinese households consume more and the Chinese exchange rate can move. They demonstrated flexibility when it appreciated from 2005 until the crisis came in mid-2008 and they decided that they would freeze the position. Now that the crisis is over, it is really now in China’s own interests, for it own calculations, to have greater flexibility in its exchange rate and to avoid a showdown, not just with America, but really, with all the rest of its global partners. Therefore, I hope both America andChina will continue to manage their issues with a view to the long-term relationship.

Apart from China, America has many other partners in Asia and we are cheered by the efforts of the US Administration to reconnect with the region, particularly the Obama Administration. You have challenges inNortheast Asia. You are working out a new relationship with DPJ Government under Prime Minister Hatoyama in Japan, you have to manage the situation in the Korean Peninsula and particularly North Korea’s nuclear weapons. But in Southeast Asia, the challenges are less complex. You have signed the Treaty of Amity and Cooperation with Asean. This was one of the early things which Secretary Clinton did. President Obama attended APEC in Singapore last November where he held a summit meeting with the Asean leaders on the sidelines and all ten Asean countries were represented by leaders and, in fact, all ten of them, includingMyanmar, expressed support for enhancing ties and cooperation with the US.

One critical element of America’s engagement with Asia is an active trade agenda. Promoting trade goes beyond securing markets and economic benefits. It goes to enhancing your relevance and influence and it will complement and give substance to political and security relationships. So, for example, between the US and Singapore, we have an FTA which was signed in 2003 and we also have a Strategic Framework Agreement which was signed in 2005 and the strategic cooperation is a backdrop to the trade cooperation and trade cooperation gives substance to the strategic relationship. I am very happy that America is now actively engaging the Trans-Pacific Partnership. You may or may not have heard of it, it is a small FTA arrangement which is currently four of the smallest economies in the Asia-Pacific – Singapore, Brunei, New Zealand and Chile -- but it is a significant small nucleus because it covers developing as well as developed countries, it covers the Asia side as well as the American side of the Pacific and it was designed as a high-quality FTA which others could accede to over time and so become a nucleus of a significant Asia-Pacific cooperation in trade. And I think that is coming to happen because America, Peru, Australia and Vietnam are now negotiating to join the TPP where officials have already started meeting and the US vision is for a high-standard 21st Century free trade agreement. It is not just a nucleus for promoting free trade in Asia-Pacific and for advancing America’s interests, but also a signal that the US continues to believe in and to promote free trade around the world.

So, for Asia, it is vital that America has an active trade policy despite your high unemployment rate, despite the difficult protectionist mood, despite the lack of appetite in Congress for free trade agreements because any retreat on trade will hurt our economies and damage US interests and even not to advance on trade, not to have an active agenda, is to miss out on opportunities and let others move ahead. So, I hope those of you who have influence in Washington will register this message with them and, if they do not, please write to your Congressman or Senator and explain to them that this is something which is in America’s interests and you have to speak up because, otherwise, the debate is imbalanced and America’s interests will be compromised.

Asian countries understand that America has many priorities and preoccupations. You have just done healthcare reform. The subject will still be there, but anyway, one major hurdle has been passed. You are doing financial sector reform. You have to worry about Iran, Afghanistan, the Middle East, nuclear security and so on. We wish America every success in tackling these issues. We hope it will still be able to develop its attention to cultivate as many friends and interests in Asia.

This financial crisis over the last two years has caused some shift in the public and intellectual climate, inAmerica and I think in other countries, too, somewhat away from free markets and laissez faire and somewhat towards government intervention and regulation and this is influencing the policies of governments as well as the popular moods in many countries. It is natural and necessary after a major crisis to review approach, to fix flaws and to strengthen systems. If you did not learn anything after going through a near-death experience, you deserve to have it happen to you again. But after the review, America should not compromise its fundamental strengths – openness to talent, support for entrepreneurship and wealth creation, confidence that the free market and free competition will create prosperity and progress and that the US will do well in such a contest, in fact, in such a cooperative international environment. These factors will enable the US to regain your strength and dynamism. Despite the recent setbacks, I am confident America will spring back, as you have done many times in the past.

Asia is on the move to a large extent because Asian countries have learnt their lessons from these success factors from America – openness, free competition, markets. Barring a conflict or war for at least several more decades, Asia will continue to grow and develop and lift the lives of billions of people. It will transform Asia and it will change the world. Many Asian countries see the US as a key partner in this transformation. Yours is a powerful economy, full of vitality and resilience, with a vigorous culture of creativity and innovation and you will continue to be a source of market technology, innovation and economic dynamism in the world and a power which others admire and seek to emulate. So, as a longstanding friend, Singapore wishes you well and looks forward to a strong and mutually beneficial partnership between America and Asia and, of course, between America and Singapore. Thank you very much.

Explore related topics

• Economy

• Foreign affairs

• Trade