SPEECH BY MR LEE YI SHYAN MINISTER OF STATE FOR TRADE AND INDUSTRY AT THE LAUNCH OF THE INSTITUTE OF POLICY STUDIES-NANYANG TECHNOLOGICAL UNIVERSITY (IPS-NTU) COMPETITIVENESS RANKING AND SIMULATIONS OF 79 ASIAN ECONOMIES, FRIDAY 18 AUGUST 2006, 3.00 PM IPS CONFERENCE ROOM, 6TH FLOOR

Prof Tommy Koh, Chairman, IPS

Mr Arun Mahizhnan, Acting Director, IPS

Professors Chen Kang, Tan Khee Giap & Tan Kong Yam

Ladies and Gentlemen

A very good afternoon to all of you. I would like to thank IPS for inviting me to join you today at this seminar.

A Strong and Competitive Economy

The Singapore economy continues to do well, expanding by 9.4% in the first half of this year. For the whole year, we expect the economy to grow by between 6.5% and 7.5%.

The economic environment has, however, become more challenging over the last decade. We were hit by a number of shocks, like the Asian financial crisis, dot-com bust and SARS. Competition has also become more intense. We have therefore further restructured our economy to ensure that we remain competitive.

These economic restructuring efforts include reducing direct taxes, making wages more flexible to respond quickly to changes in business conditions, refining the educational system, increasing R&D spending, championing entrepreneurship, and helping Singaporeans to upgrade their skills. These measures have improved our competitive edge. But we cannot be complacent, or we risk falling behind. Economic restructuring must be a continuous process.

Understanding the Nature of Competition

The nature of competition is always evolving, through new business strategies, advances in science and technology and the emergence of new regions or sectors.

For example, the opening up of China started with the development of the Pearl River Delta Economic Zone. As a result, foreign investments and international trade with China are most concentrated in this region. As China shifts its emphasis to other regions, MNCs may similarly shift their distributed network of production. In India, the strong growth in its IT sector and the trend of business process outsourcing has led to increasing fragmentation of the international value chain. Besides attracting the lower-value call centers, India also receives higher-end services like the analysis of X-rays.

In Indonesia, with the devolution of power, many Indonesian provinces now want closer economic links with the rest of the world. EDB has been working with the Indonesian authorities to bring about a seamless flow of people, goods and materials between Singapore and Bintan and Batam. With the recent signing of the Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun, both countries will work further together to establish special economic zones (SEZs) in the Indonesian islands.The SEZs will lay the groundwork for the islands to become investor-friendly and cost-competitive manufacturing zones, and be recognized as world-class manufacturing icons.

Production value chains now spread beyond national boundaries into regional and global networks. New trading patterns and logistic channels often emerge beneath the surface of macro-statistics and historical data. Competition becomes far more complex than it used to be. To better understand international competitive landscape, we need good data for meaningful comparisons. We like to see analysis made from different perspectives. We need more forward indicators.

Coverage of the IPS-NTU Study

I understand the study covers the ASEAN-10 countries, 34 provinces in China, Hong Kong and Macau and 35 Indian States and Union Territories. It provides us with detailed information to benchmark ourselves against other economies in this region. This Asian-centric effort to study the competitiveness and investment climate in different Asian regions complements other studies such as the World Competitiveness Yearbook and Global Competitiveness Report which are conducted at a country level.

Large economies such as the US, China and India are too aggregated in size and too diverse in character to be treated and studied as one entity, where important regional variations may be overlooked. By assessing the competitiveness of regional economies, this IPS-NTU study attempts to address this problem. The study provides a greater insight on the competitiveness of regions for researchers, policy makers and potential investors and helps to highlight areas of concern that require further research.

It is in this context of pursuing research excellence, and providing unique perspective of regional economic analysis that we welcome and commend the IPS-NTU joint study on competitiveness. With such high quality research, we will be better able to understand the nature of regional competitiveness. We all look forward to learning the findings of this new study.

I wish you all a fruitful discussion. Thank you.