The Singapore economy continued to strengthen and is estimated to have expanded by a robust 7.7% in the last quarter of 2005.  On the whole, 2005’s growth is expected to reach 6%.  Growth has become more broad-based – even the construction sector which had been in the doldrums appears to be on the mend.

 

The short-term economic outlook is positive for Singapore.  There are the usual downside risks like a bird flu pandemic or a major oil supply disruption.  However, barring such circumstances, we can expect the Singapore economy to benefit from the steady growth of our major economic partners.

 

Consensus forecasts show that the US economy is likely to grow at a similar rate as last year’s, despite some concerns over the twin deficits, higher interest rates and a slowing housing market.  Japan, the second largest economy in the world, is finally showing clear signs of recovery.  Not only has it ended years of deflation, both wages and corporate profits are on the rise.  Similarly, there is growing optimism about Germany – the largest economy in the EU – with a revival in investor and consumer confidence, and a decline in unemployment.  And of course there are China and India which are expected to turn in another year of spectacular economic performance, albeit moderated.  I will speak on these two countries in greater details later.  The outlook for the regional economies is also healthy.

 

In addition, the global electronics industry is projected to grow at a slightly faster pace this year on the back of sustained demand for new consumer electronics.  This augurs well for Singapore’s electronics industry.  The areas that Singapore has been developing such as biomedical sciences and new tourism products are also injecting new growth into the economy.

 

 

Looking further ahead, this century holds promise of an exciting time for Asia.  The combined population of Northeast Asia, Southeast Asia and India is over 3 billion, about half of the world’s population.  While their combined GDP is less than a quarter of the global economy, many economists expect Asia’s share in global GDP to rise over time to match that of its population.  Some enthusiasts claimed this as the dawn of a “new Asia”.

 

Notably, the rise of China and India are affecting global trade and investment flows fundamentally.  The world’s leading manufacturers of computers, electronics, telecommunications equipment, and power-generating equipment have extended their production networks to China.   Reflecting this trend, Shanghai and Shenzhen have become the world’s third and fourth busiest container ports respectively. 

 

As for India, it is estimated that 400 out of the Fortune 500 companies have set up their own offshoring centres in India or are outsourcing to Indian technology firms.  As a result, the Indian software and services exports are projected to have increased by 34% in FY2004 to reach US$17 billion.  This represents about 44% of the world’s total value of outsourcing, according to a survey conducted by India’s National Association of Software and Service Companies (NASSCOM).

 

Then there is ASEAN, which will become a key player in the global economic scene given greater political and social stability, and increased economic integration among the members.  ASEAN is now hastening the pace of integration of some sectors such as tourism and air transport.  Notably the member countries are studying the possibility of advancing the target date for the creation of the ASEAN Economic Community from 2020 to 2015. 

 

The global community has come to realise the strategic importance of ASEAN. This was evident in the inaugural East Asian Summit in Kuala Lumpur in December last year.  Other than the ASEAN members, it includes the 3 East Asian powerhouses – Japan, China and South Korea – as well as Australia, New Zealand and India.  All of them have pledged their commitment to closer economic cooperation with the ASEAN countries through bilateral pacts and/or three-way agreements. 

 

 

Singapore is well-placed to ride on the emergence of the “new Asia”.  We have core strengths that are not easy to replicate.  We have earned the trust of the global business community with our political stability, efficient systems and infrastructure, good protection of intellectual property, tripartite cooperation as well as reputation for quality.  Our people are cosmopolitan in their view of the world.  We speak English and at least one other Asian language, and are comfortable with American, European and Asian cultures.  In particular, our traditional linkages with China, India, ASEAN allow us to tap on the growth of the region. 

 

 

Before I elaborate on our policies on China and India, I would like to stress that the advanced economies such as the US, EU and Japan will remain as our key economic partners.  The US and EU of 25 each have a GDP of US$12-13 trillion while Japan’s is US$4.6 trillion.  Even though China is possibly already the fourth largest economy by now, its GDP still trails very much behind at approximately US$1.9 trillion.  The Indian and ASEAN economies are smaller, at about US$670 billion and US$800 billion respectively.  The advanced economies will therefore continue to be our major markets and source of inbound investments for some years to come.

 

More importantly, we recognise that it is our extensive links with the advanced economies that have enabled us to become the hub for the flow of goods, services and people that we are today.  There are more than 7,000 multinational corporations or MNCs in Singapore, of which 4,000 have headquarter activities to service the Asia-Pacific region.  Some even serve the global market out of Singapore.  

 

To ensure that we continue to play the role of a hub, in particular between the advanced economies and emerging Asia, it is important that we forge strong links with not only the latter but the former as well.  We have therefore pursued free trade agreements with the US, Japan, Australia, New Zealand and the European Free Trade Association.  We are also proposing a new generation European Union-Singapore Partnership to establish stronger rules and harmonise standards for the facilitation of trade and investment.

 

 

Let me now speak on our engagement with China. 

 

Singapore’s economic linkages with China have strengthened significantly in a short span of time.  Our trade with China has grown by almost 30% per annum since 1999.  In 1999, it was our 8th largest trading partner with a share of 4.3%.  By 2005, it has since climbed steadily in terms of importance to the 4th position with a share of 9.4%.  It is now by far the most important destination for our foreign investment which totalled US$48 billion as at end 2004.

 

To enhance bilateral relations, the Joint Council for Bilateral Cooperation (JCBC), co-chaired by our Deputy Prime Minister Wong Kan Seng and China’s Vice-Premier Wu Yi, was set up.  At its second meeting in September 2005, a joint website was launched to facilitate business linkages.  The website provides Chinese companies exploring business opportunities here with information on Singapore.  Singapore companies looking at doing business in China can also find out more on China from the website. 

 

We also worked with the provincial or municipal governments to set up the Zhejiang and Suzhou business centres in Singapore.  These centres facilitate two-way trade and investment.  In particular, it helps Chinese enterprises to venture out and use Singapore as a base for listing or operations expansion.

 

Singapore is becoming an important base for Chinese companies who are looking at venturing out or internationalising.  We have managed to attract more than 1,600 Chinese companies to be based here.  The number of Chinese listed companies on the Singapore Exchange (SGX) has also grown by several folds from 19 in 2002 to 89 in 2005.  

 

 

Turning to India, Singapore has been a partner in the development of India’s economy since it opened up in the early 1990s.  Singapore companies have invested significantly in various sectors such as telecommunications, ports, logistics, healthcare, finance, industrial parks and township development.   

 

But our links with India actually go all the way back to the colonial days.  Our legal and administrative systems share similarities born of a common heritage.  It is therefore not surprising that Singapore is considered as a natural destination when Indian companies look eastwards.  Over 1,600 Indian companies are now based in Singapore including nearly all of the top 20 IT companies.  And these numbers are set to grow. 

 

The recently concluded India-Singapore Comprehensive Economic Cooperation Agreement, or CECA, has provided Singapore-based companies with investment protections as well as competitive advantages in certain sectors as they venture into India.  Various parties have expressed interest to see how they could use Singapore as a launchpad for their investments into India.  We welcome American investors to use Singapore as a springboard into India.  The recent launch of the Singapore-Indian Partnership Foundation will also strengthen the cultural and social links between the two countries, apart from the economic ties.

 

We are building up our links not only with India but the whole South Asian region.  Singapore is in active negotiations with Pakistan for a FTA.  We established the Institute of South Asian Studies – a think-tank to analyse political and economic developments in South Asia region.  We aim to make Singapore a centre of business expertise on India and the wider South Asian region.

 

To sum up, we believe Singapore is well-positioned to capture the opportunities arising from a booming Asia.  We are already a hub for trade, logistics and IT, and a centre for business and financial services in the Southeast Asian region.  Global companies using Singapore as a regional HQ can tap on our network of FTAs and links with the region to coordinate and integrate their operations in Asia or even Asia-Pacific.

 

 

To ensure that we provide the best environment for businesses to ride on Asia’s growth, we have been restructuring Singapore’s economy on several areas.

 

Specifically, we are creating an economy that offers attractive business costs and is flexible in responding to changing economic situations.  We have reduced our direct taxes, and raised indirect taxes.  To make the labour market more responsive to the business conditions, we have pushed for wages to be linked to performance instead of seniority.  We also constantly review our industrial land prices to check that they are internationally competitive.

 

Externally, our FTAs give businesses based here a platform for their expansion into overseas markets.  To promote a vibrant enterprise environment, the Government has been conscious in keeping regulatory burden on companies to a minimum, and increasing access to financing for startups and SMEs. 

 

To provide more business opportunities to the private sector, we also instituted a “Yellow Pages Rule” where public statutory boards will refrain from entering a business area where there are already private players.  In line with this, we have recently announced the restructuring of JTC to focus on strategic areas.  JTC will exit from the business of developing ready-built industrial facilities and divest its industrial property portfolio as well as two of its subsidiaries – Ascendas and JURONG International Holdings.

 

Meanwhile, we strive to equip Singaporeans with the skills and know-how to take advantage of new opportunities in a continuously changing environment.  We emphasise creativity, risk taking and a spirit of life-long learning in our education curriculum.  Not only that, we also welcome global talent to supplement our indigenous workforce.  Our openness to global talent will be a key competitive advantage for a Singapore that aspires to be a leading global city.

 

To sustain our economic growth, we need to build more engines of growth and a more diverse base of players in both the manufacturing and services sectors.  For manufacturing, we continue to strengthen our capabilities in electronics, chemicals, biomedical sciences, and engineering, as well as grow new activities from old ones.  We believe in building an integrated value chain of activities.  For example, today, Singapore is the only site worldwide for Motorola (US) to undertake the entire value chain of activities for 3G mobile phones, from R&D to distribution.  60% of the company's global output of 3G phones is made in Singapore. 

 

In addition, we are moving into new areas of growth such as nanotechnology, photonics, aerospace engineering, mobile communications, environment and water technology.  We have had quite a few successes over the past year.  These include the $55 million investment from Hamilton Sundstrand (US) to make high precision aircraft components and systems in Singapore; and the $167 million joint venture between Rolls Royce (UK) and a consortium of Singapore companies to pioneer the development of leading-edge stationary fuel cells in Singapore.

 

For services, we are pushing forward in established areas such as trading, logistics, info-communications technology, financial services, and tourism.  Specifically for tourism, we will be building two integrated resorts (IR), ending a four-decade old ban on casinos.  We are looking at other possible mega tourism projects, which may be of a similar scale as the IRs.

 

We are also promoting new, exportable services such as healthcare, education and interactive & digital media industries.  Notably, we have been successful in promoting our exportable healthcare and education sectors.  Apart from the traditional markets such as the neighbouring countries, our markets are in various parts of the worlds.

 

R&D is a national priority.  We need to go beyond efficiency to exploit R&D and knowledge to differentiate ourselves and sustain our competitiveness.  A new National Research Foundation (NRF) has been set up to coordinate the research of different agencies within the larger national framework.  It will develop policies and plans to implement national R&D strategies.  We are targeting national R&D spending of 3% of GDP by 2010, an increase from the current 2.25% of GDP.

 

The NRF will fund long-term research projects in some of the new areas we are developing.  For a start, the NRF has identified environmental & water technologies and interactive & digital media as two strategic areas.  These are multi-billion dollar global industries with great growth potential.  We have had some early successes in attracting a strong slate of digital media projects and events, and we have been at the forefront of environmental innovation.

 

 

In conclusion, the US is one of our most important economic partners over the different phases of our economic development.  American companies have actively participated in many sectors of our economy.  There will be many more opportunities arising from all our efforts to renew the Singapore economy in a changed environment.  Being located here, you will have many opportunities together with us in the new Asia in this century.  We look forward to greater participation and partnership from you in our economic growth.