Caution needed in exploring new project with China

WHEN Deputy Prime Minister Teo Chee Hean revealed recently that Singapore has agreed to explore a third government-level project with China in its western region, he took pains to say Chinese Vice-Premier Zhang Gaoli had proposed the idea during his visit to Singapore last October.

Mr Teo's remarks, made during his visit to China at the end of last month, can be taken to suggest that Singapore was not the one which broached the idea and that it had handled the proposal with care by deliberating on it since last October, before making it public.

China's proposal for a third project can also be taken as an affirmation of the good progress of two existing projects. Also noteworthy is that the current leadership continues to find Singapore of strategic value to the world's second-largest economy.

But Singapore needs to exercise caution before taking this project on board.

First, Singapore's two government-to-government projects with China are known for their rocky starts. There is a chance the third project could face the same fate.

The Suzhou Industrial Park (SIP), which broke ground in 1994, got off to a sluggish start, largely due to competition from a rival business park backed by the Suzhou government.

The turnaround came only after Singapore cut its stake from 65 per cent to 35 per cent and its share of the park from 70 sq km to 8 sq km.

The Tianjin Eco-city began work in 2008. It is envisaged as a model for China in promoting sustainable living. It has run into obstacles too, due to competition from neighbouring developmental zones, property cooling measures and delays in infrastructure construction.

Given the increased interest among Singaporeans in the use of public funds, the stakes - politically and economically - are even higher for Singapore should the third project flounder or, worse, end up incurring losses for years.

The SIP, for instance, started making profit only in 2001, after cumulative losses of US$77 million (S$96 million) in the preceding seven years, which triggered criticisms then that taxpayers' money had been wasted on the project.

In addition, a third government-to-government venture would mark a policy reversal for Singapore, which in recent years has adopted a private sector-led, government-backed model towards joint projects amid murmurings that it was diverting much-needed resources to China.

The Sino-Singapore Guangzhou Knowledge City in the southern metropolis, Singapore-Sichuan Hi-Tech Innovation Park in south-western Chengdu city and Sino-Singapore Jilin Food Zone in the north-eastern province use this model.

In Guangzhou for example, Singbridge, a wholly owned subsidiary of Singapore investment firm Temasek Holdings, runs a 50-50 joint venture firm with the Guangzhou Development District Administrative Committee.

Singapore has, for the first time, also taken a smaller stake from the outset in the Jilin Food Zone. Singbridge holds a 40 per cent stake through a subsidiary in a joint venture company.

The aim is to give the Chinese more incentive to make it work and also to minimise Singapore's risks of failure in a project aimed at lending the Republic's expertise in raising China's dismal food safety standards.

Singapore will thus need to be sure of sufficient benefits to justify a U-turn for another government-level project.

To be sure, there is no lack of potential benefits - both short-term and long-term.

East Asian Institute assistant director Lye Liang Fook believes political mileage is a key factor in Singapore's calculations as Mr Zhang's proposal likely arises from Chinese President Xi Jinping's call for both sides to take bilateral relations to a "new high".

When he met Prime Minister Lee Hsien Loong in Beijing last August, Mr Xi said both sides "need to further deepen political trust, enhance pragmatic cooperation and raise our bilateral relationship to a higher level, given the new historical starting point".

"Singapore may feel it is a good time to respond to Xi's call and to be part of his ambitious reform agenda, which would enhance our relevance to China," added Mr Lye.

China is also more resolved to develop its western region, as seen by Mr Xi's vision to revive the ancient Silk Road trade route that would see greater and easier flow of goods from Chongqing to Europe via Xinjiang or to South Asian states via Kunming.

Henan Normal University analyst Sun Jingfeng believes Mr Xi has injected new life into economic development with his anti-corruption campaign. "Singapore's third project, which will draw lessons from the first two projects, will enjoy a better environment and faster growth," he added.

Observers say a new project could also help Singapore leaders deepen long-term ties with up-and-coming Chinese leaders - something Singapore cannot take for granted as many countries are also wooing China.

A new project would also be politically significant as both sides mark 25 years of diplomatic ties next year.

But it is hard to say for now if the pros outweigh the cons for Singapore.

Officials are conducting an exploratory study and scouting for suitable sites and will report their findings at the next meeting of the Joint Council for Bilateral Cooperation in China later this year.

Possible sites are in south-western Chongqing municipality; Chengdu, capital of south-western Sichuan province; and Xi'an, capital of northern Shaanxi province.

Mr Teo going public with the proposal may suggest Singapore has done the preliminary calculations and is likely to proceed. If so, one way to minimise adverse impact is to take a smaller ownership stake than the Chinese side.

But Singaporeans must hope that the Singapore Government will be prudent in assessing the project and not overstretch itself.

This article was first published on August 15, 2014.
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