Goh Chok Tong: Riding the Asian tide
Speech Mr Goh Chok Tong, Senior Minister and Chairman of the Monetary Authority of Singapore, at
the Nomura Singapore Seminar, Tokyo, 8 November 2005.
* * *
Dr Junichi Ujiie, President of Nomura Securities
Ladies and Gentlemen
1. Nowadays, it is popular to focus on the awesome transformation of China and its implications when
discussing Asia. But doing so risks missing the dramatic changes in another key player - India. My
theme is simple: the renaissance of China and India is changing Asia. Other countries in Asia, and in
fact the world, will have to remake themselves to seize the opportunities generated by their rise.
2. I expect China and India to power Asia's growth over the next few decades. China's GDP today is
one-seventh that of the US. But Goldman Sachs has predicted that China could overtake the US to
become the world's largest economy by 2041. Goldman Sachs has also predicted that India's
economy, currently about one-seventh of Japan's, could be larger than Japan's by 2032. Never before
in history have we witnessed the simultaneous rise of two gigantic countries, which together make up
more than one third of mankind.
3. China and India are altering global patterns of trade, investment, production and travel. Because of
their sheer size, the earth shakes as the Chinese dragon and the Indian elephant move.
4. What do we do in the face of these developments? How do we adjust to the new realities and seize
the opportunities therein? These are the key questions before us.
5. This fourth Nomura Singapore Seminar is therefore timely. This morning, I hope to contribute to a
deeper understanding of the geopolitical forces at work and highlight some of the economic
opportunities available as the global landscape is being reshaped.
An ascendant dragon
6. First, China.
7. I first went to China in 1971, when I was working for Neptune Orient Lines. We were exploring the
possibility of chartering ships to China. China then was in the grip of the Cultural Revolution.
Everybody wore drab blue or grey Mao jackets and cloth shoes. Men and women looked alike but for
the length of their hair. Chairman Mao's portraits were everywhere. The air was filled with
revolutionary songs praising him and the glory of communism - from morning till night, at the airport,
on trains, in the hotel lobby and even in the toilets! There was no escape! There was no private
enterprise either.
8. My next visit was in 1975. Deng Xiaoping and the Gang of Four were locked in a fierce ideological
struggle. Deng was branded a 'capitalist roader'. While on a field trip, I asked a worker where he had
learned his technical skills. He pointed to the pocket of his Mao jacket and said, "The Little Red Book".
Admission to university depended not on academic performance but how 'red' a person's political
thinking was. So too the job a person was assigned.
9. Over the years, I have returned to China many times and witnessed its remarkable transformation
first-hand. How China has changed! Revolutionary songs in public have given way to pop songs in
karaoke lounges. Mao jackets have been discarded in favour of Gucci, Armani and other luxury
brands. I am told that many Chinese go to Hong Kong to buy branded goods, while many Hong
Kongers cross over to Shenzhen to buy cheap imitations. China is today the third biggest luxury goods
market worldwide.
10. The physical transformation of China is remarkable enough but the mindset change is even more
impressive. When Deng Xiaoping pronounced that the colour of the cat is not important so long as it
catches mice, pragmatism supplanted ideological purity. Today, there are more capitalists in China
than in Japan. According to a recent Xinhua article (13th October 2005) entitled " China's Rich Get
Gloriously Richer", the total wealth of China's 400 richest people grew by 40 percent in 2004 and
amounted to 7 percent of GDP. The Chinese have made a strategic choice to pursue what they call
'socialism with Chinese characteristics'. But to me, it is capitalism with Chinese characteristics. China
has also embraced globalisation and with its admission to the World Trade Organisation in 2001,
China will have to play by international trade rules. There is no turning back. As China grows, it has a
vested interest to strengthen the international system that has enabled its success.
11. I believe China should be able to sustain 8 percent annual growth over the next 20 years. China is
drawing in investments, capital, technology, foreign management expertise and talent. It is investing
heavily in education and human capital. Much of its growth is also internally generated and
increasingly consumer-led.
12. China is forcing the pace of change throughout Asia. This is for the better. The Chinese dragon will
usher in a new prosperous Asian Century. For example, as China grows, so will its appetite for
imports. Credit Suisse First Boston expects China to become the second largest consumer market by
2014. That is less than 10 years away. The Chinese middle class is expected to reach 45 percent of
the population by 2020, around 580 million or more than 4 times the current Japanese population.
13. However, China's growth will not be an upward-sloping straight line. The country faces very real
challenges. In 2003 when I visited China, Premier Wen Jiabao explained to me the magnitude of
problems facing China's development through the concept of 'division and multiplication'. China's
wealth of resources became very small when divided by 1.3 billion people, while a small problem
became huge when multiplied by 1.3 billion. Premier Wen also highlighted the divide between the
coastal and inland regions and stressed that China's priority was on economic and social
development.
14. China will also have to cope with the impact of development on the environment. Take for example
the use of chopsticks. China uses 45 billion pairs of disposable chopsticks per year, which requires 25
million full-grown trees to make (International Herald Tribune, 27th October 2005). This means
massive deforestation and an adverse impact on the environment. Another problem is the widening
income gap. Bear in mind that there are 26 million Chinese still living in abject poverty, earning less
than US$80 annually. China will also face the trickier problem of managing the demand for political
change and greater political participation as it becomes a middle income country. For the first time,
China recently published a White Paper on 'Building of Political Democracy in China'.
15. China's leaders know that they will retain the mandate of heaven only if they deliver the economic
goods and a better standard of living. Having tasted the fruits of market-oriented policies, the Chinese
people will want more. To grow, China needs a stable external environment. This is why China's
have been careful to assure the world that it will pursue a 'path of peaceful development'
(leaders ). They are well aware that China's rapid growth is creating enormous pressures on
the international system and that they need to craft a development and foreign policy strategy that will
ensure the peace and stability needed for its growth.
The trundling Indian elephant
16. Let me now turn to India, which is also shaking off old mindsets and taking pragmatic steps toward
reform and liberalisation.
17. I first visited India as Prime Minister in 1994. Indian leaders and businessmen wanted to convince
me of India's technical expertise, management skills and huge market. They wanted Singapore
investments. The late Narasimha Rao, who was then Prime Minister, had just begun to reform India's
economy, working closely with his then Finance Minister, Manmohan Singh. I encouraged them. I told
the Indian leaders and businessmen that protectionism was the wrong development strategy: 900
million people should not produce for only 900 million people. They would be better off producing for
the whole world.
18. Many observers had doubted whether India could shake off decades of central planning. Indeed,
in its reform path, India had often taken two steps forward and one step back, sometimes in a zigzag.
But I knew that India, like a big elephant with constant change of mahouts, would take time to turn
around.
19. Since then, India's economic reforms have been creating a buzz. The mindset change of
politicians and business leaders in this new India is palpable.
20. Today, India is attracting attention from foreign media and investors. Japan has traditionally not
shown much interest in India. But this may change. I am told that Japanese companies have started to
explore the new India. Recently, when Nomura Securities launched its India Stock fund in Singapore,
US$1billion was raised in a week. I urge Japanese companies to quicken the pace of this exploration.
21. India is changing, albeit not as quickly as China. There are many serious challenges. Like China,
income disparity is a major problem. Reforms will be uneven and politically complex. The Indian
system, with its decentralisation of power, makes change more difficult. Navigating the bureaucracy
and its regulations requires connections, skill and lots of patience. However, while the pace may
fluctuate, reforms are irreversible. Whichever party is in power will have to deliver the economic
goods. This, together with the desire not to be left behind by China, will ensure that India stays on the
path of reform.
22. India has many strengths, not least of which is its deep source of human capital, including a large
pool of well-educated English-speaking professionals and workers. India has a young population,
much younger than Japan's and China's. 55 percent of Indians are under 25 years old and 40 percent
under 15.
23. India has carved a niche for itself as the world's back office and a global software centre. India is
also working hard to change its investment outlook. In 2004, Foreign Direct Investment (FDI) into India
was US$5.5 billion, less than 10 percent of China's US$61 billion. Under Prime Minister Manmohan
Singh, fiscal consolidation has shown progress. Customs duties have been slashed. Another
significant initiative is the development of Special Economic Zones, where superior infrastructure,
flexible investment laws and special incentives are designed to draw in foreign investments.
24. There is strong competition among Indian states and cities for investments and to outperform each
other. Recently, the Chief Minister of West Bengal called on me. West Bengal has been ruled by the
Indian communists for almost 30 years. The Chief Minister wanted to promote foreign investments into
West Bengal. His aim was to capture 25 percent of India's IT outsourcing market by 2010. He said that
the Indian communists had drawn lessons from the collapse of the former Soviet Union and China's
economic reforms. The choice was stark and simple: either perform or perish.
25. The recent bomb attacks in New Delhi have not affected India's growth trajectory. The Indian
Government has responded swiftly and with determination. I have full confidence that it will be on top
of the security situation. As India grows, the International Monetary Fund (IMF) expects that by 2010,
India's exports will more than double, while imports will nearly triple. The consumer market could then
be worth US$400 billion, making it one of the top five globally. To sustain an annual growth rate of 8
percent would require a huge injection of investments, both foreign and domestic, over the next
decade. It is this immense demand for infrastructure, education, healthcare and consumer goods that
will continue to draw foreign investors and businesses to India.
A reinvigorated ASEAN
26. Let me now move on to ASEAN.
27. Prospects for Southeast Asia have brightened considerably. Regional economies have remained
stable, despite the recent Bali bombings.
28. With China and India becoming big players in the international market, Southeast Asia has no
choice but to respond strategically. ASEAN is becoming increasingly integrated so that its market will
be at least half as big as China's and India's. ASEAN made a fundamental strategic choice to form the
ASEAN Economic Community (AEC) by 2020. It is also formulating an ASEAN Charter, a visionary
document that will chart its future direction.
29. In addition, ASEAN is positioning itself to ride on the growth of China and India. ASEAN's total
trade with China and India has grown significantly over the past decade, and in 2004 amounted to
US$80 billion and US$17 billion respectively.
30. ASEAN is working hard to ensure that its Free Trade Agreements (FTAs) with China and India are
completed and fully implemented by 2010 and 2011 respectively. Besides China and India, ASEAN is
also negotiating FTAs with other major economies like Japan, South Korea, Australia and New
Zealand.
Japan's role and response
31. In the past decades, Japan has led the growth of China, South Korea and many other countries in
the region in a 'flying geese' formation. Japan has been an important source of investments, capital
and technology, and a major export market for many Asian countries. After a decade of stagnation,
Japan is firmly back on the path of healthy sustained growth. Prime Minister Junichiro Koizumi's
leadership and overwhelming victory in the recent election give cause for hope that his reforms will be
sustained. As the second largest economy in the world, Japan will remain an important global player.
32. Japan, together with the US and China, form the strategic triangle that undergirds regional stability.
With India's rise, a new strategic triangle of US-China-India will, in time, be superimposed upon it.
Stable relations amongst the key players will be critical for regional peace and development.
33. Recent tensions in Sino-Japanese relations are of concern. Such strains are part of the deep
ambivalence with which Beijing and Tokyo view each other. Both China and Japan have their
respective positions on the history issue. China's attitude towards Japan is coloured by Japan's
reluctance to come to terms with its World War II history, while Japan's attitude towards China is
shaped by its anxiety over how China's rise will alter the regional balance and affect Japan's interests.
Domestic politics and rising nationalism in both countries are complicating factors.
34. Fortunately, both countries want to avoid a collision. There are strong incentives for China and
Japan to deepen ties. China needs investments, technology and know-how from Japan, while Japan
needs the markets and production base in China.
35. The tensions in Sino-Japanese relations are understandable because there has never been a
period in history when China and Japan are simultaneously strong powers. Today, both countries find
that they must treat each other as equals. Naturally, the search for a new modus vivendi will be fraught
with anxiety. While not forgetting the past, both sides must find a way to close the history issue and
write a new chapter of cooperative relations. Working towards a mutually-beneficial future together is
the best way to prevent history from repeating itself.
36. Japan's relations with India are less problematic. Prime Minister Koizumi's visit to India in April
2005 signalled a desire to establish a new basis for relations. But there is an undercurrent of cultural
unease that needs to be transcended so as to realise the full potential of Japan-India cooperation.
37. ASEAN, as a group and individually, has much to offer Japan. ASEAN can be a strategic partner
for Japan to tap into the growing economies of China and India. ASEAN can also offer Japan a
competitive production base, supplies of natural resources including oil and gas, and additional
markets for Japanese products.
38. Japan is already the top investor in Indonesia. Under President Susilo Bambang Yudhoyono's
leadership, Indonesia has begun to develop its economy, attract investments and play an active
regional role. President Yudhoyono is also pressing ahead with difficult reforms to get the country
moving on the fast track.
39. Vietnam is a relatively new partner for Japan. So it should not surprise you to learn that Japan is
the third largest foreign investor there, while Singapore is second. Vietnam's bid to join the WTO has
catalysed FDI flows totalling US$2.6 billion in the first nine months of 2005, about double the amount
in the same period in 2004. Not surprisingly, Japanese companies are increasing their presence there.
Remaking Singapore
40. Singapore has been remaking itself to enhance our competitiveness and seize the opportunities in
the region.
41. Reinventing ourselves to stay relevant is in our DNA. In the 1960s and 70s, when it was
fashionable to be anti-MNC, Singapore welcomed MNCs. Over the past 40 years, we have grown in
partnership with MNCs in manufacturing. This strategy will continue. The manufacturing sector will
remain a key driver of our economy.
42. But we have started to build a second platform to drive an innovation- and knowledge-based
economy. New areas of focus include Research and Development, biomedical sciences and the
creative industry. We have also undertaken extensive measures aimed at strategically positioning
Singapore as a leading international financial centre.
43. Singapore is also prepared to break old moulds and be flexible and practical in a changing world.
For instance, we overturned our longstanding policy of disallowing casino gambling. To remake itself
into a city with buzz, Singapore is developing Integrated Resorts, with casinos, convention facilities
and world-class entertainment.
Japan-Singapore partnership for the future
44. I see great potential in closer collaboration between Singapore and Japan. The landmark
JapanSingapore Economic Agreement for a New Age Partnership (JSEPA) provides an excellent
framework. Japanese companies can use Singapore as a hub with radiating spokes to tap global
opportunities. From Singapore, companies can service a combined population of 3 billion. That is why
7,000 MNCs choose to hub in Singapore. Of these, 4,000 manage global and regional responsibilities.
Recognising this strategic value-add, many Japanese companies have further expanded their
operations in Singapore.
45. Japanese companies can also take advantage of Singapore as a hub for knowledge and market
intelligence. Over the years, we have developed a network of institutions that have a deep reservoir of
knowledge on China, India and Southeast Asia. Our businessmen are also familiar with these
countries. We are now building up links with the Middle East.
46. Japanese companies based in Singapore can enjoy not only benefits from the JSEPA, but also 10
other FTAs that Singapore has concluded with major economies like the US, South Korea and
Australia. I would like to highlight the Comprehensive Economic Cooperation Agreement (CECA)
between Singapore and India as it is the first comprehensive FTA that India has signed with any
country.
Conclusion
47. The rise of China and India will shift the global economic centre of gravity from West to East.
Remaking our economies cannot be an occasional exercise. Governments must respond boldly and
continuously to the imperatives of our changing times. Likewise for companies. This is the only way to
ride the rising Asian tide.
48. Thank you. I will be happy to take your questions.