Illustration: Peter C. Espina/GT
Amid strained ties between China and Singapore over issues such as the South China Sea and Singapore's military ties with Taiwan, there are talks about the impending collapse of Singapore's economy. It is misleading to conclude that Singapore's economy is headed for a hard landing and such a misinterpretation could cause China to draft the wrong policies toward Singapore.
To be fair, Singapore's economy has great growth potential. The latest figures reinforce that view. GDP grew an annualized 12.3 percent in the last quarter of 2016 from the previous quarter, the quickest pace in more than five years and higher than the government's estimate of 9.1 percent. The economy rose 2 percent in 2016, above the government's previous estimate of 1.8 percent.
Despite challenges from signs of rising protectionism in the US, Singapore's economy has fared well over the past year and remains vibrant. Over the past 20 years, the city state has attracted a workforce of around 1 million young immigrants, of which a majority hold postgraduate and doctoral degrees, who mostly work in pharmaceutical and high tech industries. Given the large talent Singapore has nurtured and attracted, capital has also poured into the country. Among the four Asian tigers, Singapore has the largest pool of young talent. Its economic stamina, backed by the large workforce, should not be ignored. It is quite normal for a developed economy such as Singapore to post an average annual growth between 2 and 4 percent. Some European countries have even registered negative growth while Japan's economy only grew at around 1 percent.
Furthermore, Singapore is the financial hub of Association of Southeast Asian Nations (ASEAN), with massive capital coming in from the nine other ASEAN countries, which serves as a lifeline for Singapore's economy. Additionally, Singapore is a city state with only a population of 5.6 million. As the saying goes, "it is easier for a small boat to slew around," thus it may be easier for Singapore to navigate an economic transition than bigger economies. Take the financial services sector as an example. Singaporeans preferred to use credit cards to foot bills when they travelled to South China's Guangdong Province 20 years ago when credit cards were far from popular. However, Singaporean businessmen or travellers may find it difficult to adjust when they are requested to pay with Alipay and WeChat Pay, widely used digital wallets in China when they travel to Guangdong now. This shows that the financial services sector - a long-time pillar of Singapore's economy - has a lot of catching up to do in the new era. As an affluent developed economy, Singapore is not motivated to transform itself and its growth remains flat. But once Singapore is committed to transitioning and reform, it has an advantage given its solid economic foundation, a professional young workforce and readily accessible capital. Once Singapore finds the right direction to advance its reform, its economy will pick up quickly with its influence farther reaching than that of some Chinese cities such as Guangzhou and Shenzhen.
Some observers believe that Singapore's economy may suffer with US President Donald Trump pulling out of the Trans-Pacific Partnership (TPP). But in fact, Singapore's economy won't necessarily be worse without the TPP. The TPP can only add strength to Singapore's economy but is not something that Singapore needs. With the TPP shelved, Singapore will have a greater drive to seek a new growth engine. This may raise the possibility that Singapore will join the Regional Comprehensive Economic Partnership, the Free Trade Area of the Asia-Pacific and work closely with China under the One Belt, One Road Initiative. And it will make more sense for Singapore to align with China's priorities to boost the country's stamina.
Under the Belt and Road framework, Singapore and China share complementary strength and can seek to work in third-country markets. Jointly developing third-country markets can help the two countries spread out the investment risks and reduce conflicts and frictions that may arise if they were to separately invest in the countries along the route. It is also the practical need of third-country markets to engage both China and developed economies such as Singapore. China can provide them with quality goods at low costs and medium- to high-end manufacturing capacity while Singapore can equip them with high-end technologies and advanced managerial concepts. It would be the best choice for third-country markets to harness the investment synergy of both China and Singapore. Meanwhile, Chinese firms can work with Singapore's sovereign wealth fund Temasek Holdings (Private) Limited on the Belt and Road projects. With deep pockets and aggressive overseas investments, Temasek also seeks steady returns. Chinese firms could learn the best practice from Temasek to minimize risks.
China and Singapore should not allow political disputes to stagger their economic cooperation. Instead they should extend the scope of their economic engagements to maximize benefits especially amid uncertainty and external headwind from the rising tide of protectionism.
The author is the chief economist of China Silk Road iValley Research Institute, a Guangzhou-based think tank. email@example.com