Lim Hng Kiang: Singapore - pursuing broader and deeper economic
integration with major economies
Opening keynote speech by Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy
Chairman of the Monetary Authority of Singapore, at Deutsche Bank Access Asia
Conference 2013, Singapore, 20 May 2013.
* * *
Distinguished guests,
Ladies and gentlemen,
A very good morning to all of you. It is my pleasure to join you at Deutsche Bank's Access
Asia Conference 2013.
Let me first thank Deutsche Bank for the invitation to speak at your conference. This is the
largest event hosted by Deutsche Bank each year globally, and a huge turnout is a clear
indicator of the strong corporate and investor interest in Asia.
In the last 10 years, the centre of gravity of the world economy has been moving away from
the US and Europe to Asia. Asia is expected to continue to prosper in the decades ahead as
the middle class expands in line with strong economic growth. China is set to be the largest
economy in the world by 2030 and is already creating megacities of over 10 million at an
average rate of one per year. Besides China, India's middle class is expected to grow to
almost 600 million people by 2025. In Indonesia, almost 60 per cent of Indonesian
households, in a country of 240 million people, are expected to reach middle-class status by
2020.
Being a very small state, Singapore has and will continue to maintain an open economy. We
will participate actively to propagate free and open trading alliances as Asia grows and
becomes more economically integrated. In this way, we help to unlock the value, spin off new
opportunities and create good jobs for Singaporeans.
ASEAN and AEC 2015
One key market for Singapore is ASEAN. ASEAN is a growing region and has a combined
population of 600 million people. ASEAN also has a GDP that is the third largest in Asia,
after China and Japan. In recent years, ASEAN has embarked on an enterprise to integrate
our economies into a regional bloc. ASEAN today, through initiatives like the ASEAN Free
Trade Area, has resulted in virtually no tariffs for flows of goods between our countries.
Going forward, ASEAN is making good progress towards becoming the single market and
product base envisioned in the ASEAN Economic Community (AEC). The realisation of the
AEC by 2015 will result in an even more tightly integrated region, and this has opened up
more opportunities for corporates as well as investors.
A key principle underpinning the AEC 2015 is the free flow of goods, services and investment
within the region by 2015. Let me update you on the progress so far.
•
On trade in goods, virtually all goods in ASEAN already move throughout the region
tariff-free1. We are now working on reducing non-tariff barriers.
•
On services, ASEAN Member States have recently completed the eighth package of
commitments under the ASEAN Framework Agreement on Services. What this
means is that we can expect the reduction of services barriers, such as foreign
equity limits in the ASEAN countries.
• On investment, the ASEAN Comprehensive Investment Agreement entered into
force in March last year. This agreement has established stronger, pro-business
rules, with enhanced investment protection for both ASEAN-owned investments and
also foreign-owned investments based in ASEAN2.
Singapore's multilateral agreements
However, to enable businesses to access major markets more easily, Singapore has also
broadened our engagement with Asia Pacific beyond ASEAN. By doing so, we aim to reduce
trading costs. To this end, Singapore actively participates in negotiations of several
multilateral trade agreements. One example of such a multilateral trade agreement is the
Regional Comprehensive Economic Partnership, or RCEP, which is a partnership between
ASEAN and six other countries, namely Australia, New Zealand, China, Japan, India and
South Korea.
Regional Comprehensive Economic Partnership (RCEP) and Renminbi (RMB)
Internationalisation
This agreement builds upon the existing ASEAN+1 free trade agreements (FTAs) FTAs by
bringing together ASEAN's existing FTAs with its key partners into a single comprehensive
agreement. RCEP will be one of the biggest FTAs in the world, covering 3 billion people and
accounting for one-third of the world's GDP.
RCEP is a significant agreement for ASEAN. It is an ambitious attempt to deepen regional
economic integration and to link ASEAN's various trading partners, many of whom do not
have existing trade agreements with one another.
One key partner for ASEAN in RCEP is China. China will continue to play an increasingly
important role in trade with ASEAN, and this will grow even further with its participation in
RCEP. In 2012, ASEAN-China trade volumes reached a record high of US$400 billion, and
by 2015, ASEAN is expected to be China's top trading partner. As a result, in the next few
years, we can expect a greater acceptance and use of the Renminbi (RMB) as a trade
settlement currency, especially in ASEAN.
What does this mean for us? China has already signed bilateral currency swap
arrangements with key ASEAN countries, such as Singapore, Malaysia and Indonesia.
Corporates, investors and financial institutions need to be prepared if they are to capitalise
on the opportunities brought on by the increasing internationalisation of the RMB.
In February this year, Singapore became the first country outside Greater China to have a
Renminbi clearing bank when the Singapore branch of the Industrial and Commercial Bank
of China (ICBC) was designated as such. This was followed by MAS and the People's Bank
of China signing an enhanced bilateral currency swap agreement in April.
The appointment of a Renminbi clearing bank in Singapore brings new functionality to the
Singapore financial system. The build-up of Renminbi liquidity in Singapore will encourage
financial institutions in Singapore to develop and offer a wider range of Renminbi products
and services. This will help meet the financing, investment, and risk management needs of
the market. It will also strengthen the role of Singapore as a leading global financial centre
that serves Asia and beyond.
Trans-Pacific Partnership (TPP)
Besides the RCEP, Singapore is also actively engaged in the Trans-Pacific Partnership, or
the TPP. The TPP negotiations currently involve 11 countries: Australia, Brunei, Canada,
Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. It
aims to bring comprehensive duty-free market access as well as reduced restrictions on
services, investment and government procurement. It also seeks to enhance regional
connectivity by reducing behind-the-border non-tariff trade barriers and promoting
consistency in regulation across all the member countries. Singapore views the TPP, along
with the RCEP, as complementary tracks that will lead towards increased regional
integration, and eventually, to a Free Trade Agreement of the Asia Pacific.
The recent decision by Japan to join the TPP will further reinforce the TPP as a platform for
broader economic integration across the Pacific. With Japan's inclusion, the TPP's
membership has now expanded to 12 countries. This represents nearly 40 per cent of the
global economy and one-third of world trade.
As you all know, joining the TPP is a key element of the three-arrow strategy embodied in
Abenomics. The prognosis for Japan has improved considerably compared to six months
ago. After stagnating for much of last year, the Japanese economy rebounded strongly in the
first quarter of this year, with GDP growth of 3.5 per cent on a pick-up in consumer spending.
Growth forecast for the whole of this year has been progressively raised, with room for
further upward revision. Sentiments have improved strongly since the announcements of
aggressive monetary and fiscal policy measures to revive the Japanese economy. The sharp
depreciation of the Yen has also helped to boost expectations for GDP growth and corporate
profits. One example of this is Toyota Motor. It has reported consolidated operating profit of
1.3 trillion yen for the 2012 business year, about 3.7 times that of the previous year. Toyota's
worldwide car sales have also increased by some 20 per cent to 8.9 million units.
As a result of the economic policies being implemented by the government of Prime Minister
Shinzo Abe, we may increasingly see some spillover effects on ASEAN and other Asian
economies. ASEAN, however, is unlikely to be too negatively affected and may instead
benefit from a weaker yen given its role as a "downstream producer" for Japan. For example,
countries that serve as a production hub for Japanese companies are likely to benefit from
Japan's increased export competitiveness. Overall, stronger Japanese growth is expected to
stimulate its imports from ASEAN.
In contrast, economies with a high degree of export similarity to Japan, such as Korea, and
to some extent Taiwan, could face greater competition in the short run due to the negative
substitution effect favouring relatively cheaper Japanese goods.
We may also see increased capital inflows into the region, as Japanese institutions are
increasingly hard-pressed to secure adequate returns at home. As long-term interest rates
decline further in Japan due to the Bank of Japan's new asset purchase programme, we can
expect more "search for yield" activities. As interest rates are already very low in the region
and asset price inflation is becoming a concern in many economies, ASEAN policy makers
need to remain vigilant against a build-up of domestic financial and asset market excesses.
EU-Singapore FTA (EUSFTA)
Finally, as we seek to maintain an open economy and to stay relevant, Singapore will work
on deepening our engagement beyond the Asia Pacific, for example, with the EU.
Negotiations on the EU-Singapore FTA were recently concluded. This is the first FTA which
the EU has concluded with an ASEAN country. The EU-Singapore FTA can serve as a
pathfinder FTA for EU's on-going bilateral FTA negotiations with other ASEAN countries,
such as Malaysia and Vietnam, and it signals the EU's interest to engage with the region.
When implemented, the EU-Singapore FTA will enhance Singapore's attractiveness as a
gateway for EU companies seeking to tap the opportunities in our region.
Conclusion
So ladies and gentlemen, to summarise, Singapore is pursuing a strategy of broader and
deeper economic integration with major economies through multilateral agreements, such as
the RCEP, TPP and EU-Singapore FTA. In addition, we are enhancing our role as a trusted
and modern financial hub by expanding into new services, such as offshore Renminbi
trading. These initiatives will help investors and companies based in Singapore to "open
doors" and "unlock value".
Let me once again express my appreciation to Deutsche Bank for holding the annual
Deutsche Bank Access Asia Conference in Singapore and bringing together thought leaders,
investors and policy makers together to find ways to tap the opportunities that are being
created by Asia's economic growth. I wish you all a very fruitful conference. Thank you.