China's reform and opening up: Partnership with Singapore and way forward

By Hoe Ee Khor
0 Comment(s)Print E-mail, November 28, 2018
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Aerial photo taken on July 20, 2018 shows the Suzhou Industial Park in Suzhou, east China's Jiangsu Province. The Suzhou Industrial Park was established in 1994 as an intergovernmental cooperation project between China and Singapore. [Photo/VCG]

China's reform and opening up has led to many achievements, and more is within reach as it works together with its neighbors. One partnership in particular could be crucial for the country's continued success: Singapore.

Driven by its leaders' vision and commitment, China has gone from a low-income country to an upper-middle income one, with annual growth averaging 9.5 percent over the past 40 years, and the poverty rate dipping from 98 percent in 1978 to 3 percent today.

A sharp rise in foreign direct investments (FDIs) and trade since China's accession to the World Trade Organization (WTO) in 2001 enabled it to become a manufacturing powerhouse. The successful transformation of the economy from a centrally planned system to a market-based one unleashed the potential of China's factors of production.

The result has been impressive. China's share of world GDP was 1.8 percent in 1978 and its share of global trade was almost zero. According to a recent study by the ASEAN+3 Macroeconomic Research Office (AMRO), these numbers would have risen to 15.5 percent and 14.2 percent respectively this year, and could reach 21 percent and 22 percent by the year 2035.

Such unprecedented achievements are attributable to several key characteristics of the reform process. First, an experimental and result-based approach for new policies, which involves testing policies on smaller scales before nationwide adoption. Second, decentralized implementation by local governments who proved to be powerful agents of change. Third, strong political leadership — decisively resolving problems that emerge, making necessary changes, and staying the course of reform.

In its 40-year journey, China learned from the experience of other East Asian economies that industrialized and opened up earlier. Singapore is one country that contributed significantly to China's development, and is seen as a trustworthy strategic partner.

Although Singapore is a small country, it successfully pursued a "manufacturing for export" growth strategy, built world-class infrastructure, established and managed competitive government-linked companies, and ran a clean and effective civil service. Many developing countries, including China, drew inspiration.

Over the years, there have been many exchanges between the two countries. These included field trips to Singapore by senior Chinese officials at both the central and local government levels. China's enterprises invested in Singapore, and Singaporean firms have also ventured boldly into the Chinese market. Singapore's institutions of learning offered attractive scholarship programs for bright Chinese students to study in Singapore. As these exchanges broadened at all levels, interaction between government agencies also has become more frequent and institutionalized. All these activities deepened relationships and built trust.

With this trust, Chinese and Singaporean leaders shared experience and exchanged views candidly, and found mutually beneficial ways of collaboration and cooperation. The key takeaways from the close partnership are anchored around a strategic and disciplined approach to policymaking, readiness to making policy adjustments in response to changing circumstances, embracing openness and the need to subject enterprises to the discipline of market competition, ensuring fiscal prudence, and deepening human capital and technology.

The benefits over the past four decades are tangible.

In 1979, just a year after Deng Xiaoping's historic visit to Singapore, Deng and then-Singapore Prime Minister Lee Kuan Yew signed a trade agreement and, in 1981, trade offices were set up to strengthen economic linkages between the two countries. Fast forward to the early 2000s: A high-level Joint Council for Bilateral Cooperation (JCBC) was established in 2004 to oversee several tracks of economic collaboration focusing on trade and investment. Through these years, Singapore helped to develop special economic zones in China. These include the Suzhou Industrial Park, Tianjin Eco-City, and the Chongqing Connectivity Initiative.

Private sector enterprises have been key drivers of economic collaboration. Singapore was among the pioneering foreign direct investors in China in the 1980s, and remains a major source of FDIs in China. It invested US$105 billion in China in 2016, ranking third among all foreign investors. Singapore has also become a hub for FDIs flowing from China to ASEAN, and hosts several Chinese firms' regional headquarters. In 2017, the stock of Chinese enterprises' investment in Singapore was US$25 billion, most of which was channeled to other ASEAN countries.

Financial cooperation has broadened with regular meetings between prudential regulators to exchange views on developments in financial systems and thoughts on how to evolve policies to maintain financial soundness. The central banks also shared experience regularly, as China sought to adjust its framework for managing monetary conditions through the years to facilitate trade and capital flows, financial stability, and boost economic development. When China decided to internationalize the RMB, Singapore was China's first foreign partner in establishing RMB clearing houses.

Looking ahead, the prospects for further cooperation are bright.

Regional integration will continue to grow and deepen, as China and ASEAN are natural trade and investment partners. The current protectionist climate in the U.S. and Europe will catalyze this integration. Singapore will play a significant role as a financial center and a hub for trade and investment.

The Belt and Road Initiative (BRI) is a major initiative by China to improve connectivity in the region, and Singapore is poised to play a key role. The Singaporean government this year established the Asia Infrastructure Risk Management Center to settle disputes related to infrastructure projects. This sets Singapore up to broaden its role in the BRI, intermediating cross-border financing as a major financial center.

China and Singapore can also share their experience in addressing challenges related to population ageing. Both are grappling with issues related to labor productivity, future healthcare costs, and even adaptation of the elderly to digital technologies including those embedded in Smart City initiatives.

Similarly, China and Singapore can learn from each other on how to ride on the Fourth Industrial Revolution to accelerate development, keep growth inclusive, and anchor resilience. There are clearly synergies to tap. China is transitioning to the "new economy," with digital technologies proliferating. Singapore is also transforming its economy to become more technology-driven and service-oriented. It is positioning itself as a node of technology, innovation and enterprise in the region.

The China-Singapore relationship is a special one. Both overcame heavy odds to become economic miracles in their own ways. Placed together in one of the fastest-growing regions of the world, China and Singapore understand the immense potential of integrating more deeply with other neighbors in East Asia.

Hoe Ee Khor is the chief economist of the ASEAN+3 Macroeconomic Research Office (AMRO).

Opinion articles reflect the views of their authors only, not necessarily those of

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