The biggest news this week is indisputably the visit by Chinese’s President Xi Jinping to Singapore. The visit is a historical moment. Besides the increase in economic cooperation that China will continue to have with Singapore, Singapore also acts as a 3rd party facilitator to the meeting between Chinese President, Xi Jinping, to Taiwan’s president, Ma Ying-jeou. However, what particularly caught my attention was also the decision by China and Singapore to embark on a third inter-governmental development project.

A Look at Historical Project between China and Singapore

Given the close bilateral ties between Singapore and China, Singapore has been a forefront of China’s development as it seeks to reform its economy at different stages. Given Singapore’s experience in this area, from the 1960s to now, we have aimed to share our experience with the Chinese government.

  1. Suzhou Industrial Par– The Suzhou industrial park emerged as a concept in 1994 where after the famous Southern visit by Deng Xiaoping in 1992, the government was looking to further open up to investments after the ideological crisis previously. The Chinese government was particularly impressed during the Singapore visit by the formation of various industrial parks by Jurong Town Corporation(JTC) and was considering the replication of this model to China. Contrary the popular belief, the project was not a complete success. Cultural reasons and also misunderstanding from the emergence of a similar industrial park in Suzhou known as the Suzhou New District resulted in increased competition and the lack of complete success to the project. In 1999, current Transport Minister, Khaw Boon Wan, declared that Singapore will sell 30% of its share in the project to the Suzhou managerial board and retreat from the majority shareholder to that of a minority. Nonetheless, the project was an important stepping stone to future collaborations between both nations. Singapore will learn from the experience.
  2. Tianjin Eco-City– In 2007, as China’s manufacturing economy had fundamentally matured. A new problem emerged for the administration. Economic development had largely come at the expense of the environment. Various food safety issues emerged and 7 of the world’s 10 most polluted cities were situated in China. The Sino-Singapore Tianjin Eco-City was declared as a second governmental-project that serves to act as a model for sustainable development in China. Singapore had a massive edge in the development of clean-water technology(Hyflux), urban planning and transport planning. The project aimed to capitalize on this areas to develop a sustainable city-model that could be potentially replicated across various areas in China.
  3. Guangzhou Knowledge City – By 2009, many of the coastal cities were experiencing slowing growth. This was surprising given Guangzhou’s undisputed status as China’s fasting growing region. Guangzhou is as the forefront of China’s development but many of its capital-intensive industries were gradually shifting out. In 2011, the Guangzhou Knowledge City emerged as a possible growth model for the wealthier regions. Its focus were high end manufacturing industries such as Information & Communication Technology (ICT), Biotechnology and Pharmaceuticals, Culture & Creative Industries, and Science & Education service. The project was a private sector initiative supported by the government. Though it is not considered an inter-governmental project, it still holds particular significance as it reflects Singapore’s position in every stage of China’s development. The Guangzhou Knowledge City is clearly a reflection of China’s intention to reform its coastal economies to high-end technological manufacturing to sustain its economic growth.

Where are we headed?

The next inter-governmental project will be officially known as the “China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity”. Chongqing, with a population of 33 million, beat Chengdu and Xi’an to secure the project. The fact that all 3 possible locations for the collaboration are situated in the western region of China is no plain coincidence.

Firstly, as China now revises its growth towards 6.5%, it is clear that it is at an important crossroad where it must reform its economy to avoid the middle-income trap. The middle-income trap is a situation faced by developing countries where they experience sluggish growth as they are sandwiched in between the undeveloped high-end manufacturing sector, financial and service sector and the gradual erosion of their comparative advantage in labour-intensive industries. Many of its coastal cities are already experiencing diminishing growth, it must thus inject new energy into the economy by improving urbanization, resource allocation and encouraging innovative SMEs.

The Western regions of China is often considered less developed due to its distance away from the central capital and its lack of basic infrastructure. That’s how the idea of ‘1 China, 3 worlds apart’ emerged by the way. But, it is also an untapped region filled with precious water, metal, oil and natural gas reserves. Thus, China desperately need to improve the connection between its Western poorer regions and its rich coastal regions. This can improve trade, investment and narrow the development gap between the 2 regions. That is the fundamental reason behind why all 3 possible cities Xi’an, Chengdu and Chongqing are situated at a strategic linkage between the 2 regions.

Chongqing is probably chosen as it was ranked first in GDP development recently and many Singapore companies are already established within the city. Chengdu already hosts the Singapore-Sichuan High Tech Innovation Park and Xi’an state of development is slower as compared to Chongqing thus they may not attract as many profitable investments.

The project will also serve as a milestone to China’s regional strategie- the “One Belt, One Road” initiative which aim to boost trade and investment along the overland Silk Road Economic Belt and the 21st Century Maritime Silk Road connecting China with South-east Asia, Africa and Europe.

Which industries will stand to benefit:

The official statement declared that the four priority areas of collaboration are in financial services, aviation, transport and logistics, and information and communications technology.

While I may not be an expert in investment, we can expect the 3 local banks to be benefit from such establishments. They already have separate branches in Chongqing and the collaboration will provide opportunities for the further opening up China’s financial sector in terms of issuing corporate bonds denominated in RMB. There may also be increased application for loans as the western regions have massively untapped investments and need for financial services. Moreover, it is quite likely that Chongqing may emerge as a third financial centre after Shanghai and Hong Kong due to its proximity to the western regions and China’s desire to gradually internationalize the Yuan.

I am also drawn to the immense potential of Chongqing becoming a transport and logistics hub. While there is possibility as it emerging as an aviation manufacturing centre or in the areas of data centres as envisioned by its local government, it have an immense potential in becoming a logistical base. It stands at a strategic location bridging the gap between the coastal regions and the less developed areas. Moreover, it can also act as a center to the urbanization trend across the less developed areas. As such, it becomes a perfect place as a logistical base if key infrastructures are in placed for the distribution of goods and services especially with the emergence of online shopping and regional supply chains.

What we can expect

The new project is an important point to a further improvement of bilateral relations between both nations. However, we must be cautious as previous governmental projects have all been situated at the coastal regions, where there is inter-connectivity to global markets, while the Chongqing initiative more likely requires local investments and support. We must also be reminded that the waves of governmental projects and their increased complexity is a reminder that Singapore needs to constantly innovate to be at the forefront of the product life-cycle or we may be left behind. China proves both as an opportunity an a threat to our comparative advantage and we must improve ahead with the times.