Economic and geopolitical factors threaten Singapore
Singapore, with an average GDP growth of 9 percent between 1960 and 1984, was once considered a "tiger economy" in Asia. According to the 2015 article "How Singapore achieved a higher per capita GDP than the US" by John Ross, a senior fellow with Chongyang Institute for Financial Studies at Renmin University of China in 2013, Singapore's GDP per capita was 104 percent of that of the US, calculated at current exchange rates. If measured by purchasing power parity, its GDP per capita that year was 148 percent that of the US. With important access to sea routes, one quarter of all global trade and energy resources reportedly go through Singapore. But now, this Asian nation is facing severe challenges.
According to the Monetary Authority of Singapore (MAS), Singapore's central bank, in the third quarter of 2016, the country's GDP growth unexpectedly shrank an annualized 4.1 percent from the previous three months, the country's sharpest quarterly contraction in four years. The MAS also reported that growth in Singapore is not expected to pick up significantly in 2017.
Problems in the manufacturing and services sectors are the main reasons for the decline in the economy. Singapore's manufacturing industry accounts for a fifth of the country's overall economic volume. In recent years, the Singaporean government has been taking measures to cool the real estate market and contain the inflow of the overseas workforce, which has impaired certain key sectors' profits, causing the manufacturing sector to struggle to stay afloat.
In addition, the services sector represents about two thirds of the country's economic output, but weak domestic demand and lower consumption from a fall in international tourist numbers have led to sluggish wholesale and retail business. The country's private banking has also encountered a difficult situation following tightened regulatory measures that have put pressure on the finance industry.
Confronting economic contraction, the MAS plans to stick to "its neutral currency policy for an extended period of time and maintain a policy of zero-percent appreciation" in the Singapore dollar's exchange rate. General analysis tends to believe that the economic difficulty Singapore is facing does not stem from the central bank's monetary policy, but from the risks brought on by the global economy.
Being an export-oriented open economy, Singapore's economy is boosted by exports to a large degree, as the country's volume of trade has far exceeded that of its GDP. Trade contraction across the globe and price decline in commodities have largely impacted Singapore's government-owned petroleum and gas industries, and rendered the country's economy sluggish in 2016.
John Ross attributed Singapore's high level of per capita GDP to the "massive accumulation first of capital and then of labor, with productivity growth playing a tiny, almost non-existent, role." Ross also cites Vu Minh Khuong, an associate professor at the National University of Singapore, noting that "59 percent of Singapore's economic growth came from capital investment, 34 percent from growth of labor inputs, and only 8 percent from total factor productivity increases."
In our opinion, Singapore's development model should not be considered as a benchmark for China. We believe there are three main problems in the Singaporean economy. First, its increased aging population has become a burden for further development. Second, the country has a high Gini coefficient, an index that tracks income inequality which can affect domestic consumption. Third, the Singapore-style state-owned economy has taken too many social resources and often invests indiscriminately.
In fact, the Singaporean-style economy should not be considered a successful economic model, and it is only thanks to the fact that Singapore seized the rare opportunity to ride the wave of global economic boom that the government's current dominance has been reinforced. Such an economic model not only served political goals, but also enabled the country to attract capital inflow from international markets.
Furthermore, Singapore's inappropriate choice on geopolitical strategy has set the stage for its continued economic decline. Besides pushing for the Trans-Pacific Partnership that excludes China, Singapore has also invited the US to "return to Asia Pacific" to lead the security landscape in the Western Pacific and South China Sea. Singapore's Prime Minister Lee Hsien Loong has continued the national development strategy and diplomatic strategy previously designed by Singapore's founding father Lee Kuan Yew, but it should be noted that the current situation Lee Hsien Loong faces is quite different from that of the past, as the global economy has continued to remain weak and the US faces increasing difficulty in leading the world economy. Lee Hsien Loong's strategy of constantly ostracizing China suggests a lack of sophistication in the game of international politics.
In the past two years, China's economic slowdown has placed pressure on Singapore, since the country values China as one of its major trading partners. If China undertakes further economic adjustments in the future, Singapore's economy is likely to experience further difficulties. It's a pity that the so-called four "Asian tiger economies" that included Hong Kong, Taiwan, South Korea and Singapore are all experiencing economic woes. For Singapore, facing economic and geopolitical pressures, the risk of an economic breakdown is likely.
The article is based on a report by Beijing-based private strategic think tank Anbound. [email protected]
Singapore, with an average GDP growth of 9 percent between 1960 and 1984, was once considered a "tiger economy" in Asia. According to the 2015 article "How Singapore achieved a higher per capita GDP than the US" by John Ross, a senior fellow with Chongyang Institute for Financial Studies at Renmin University of China in 2013, Singapore's GDP per capita was 104 percent of that of the US, calculated at current exchange rates. If measured by purchasing power parity, its GDP per capita that year was 148 percent that of the US. With important access to sea routes, one quarter of all global trade and energy resources reportedly go through Singapore. But now, this Asian nation is facing severe challenges.
According to the Monetary Authority of Singapore (MAS), Singapore's central bank, in the third quarter of 2016, the country's GDP growth unexpectedly shrank an annualized 4.1 percent from the previous three months, the country's sharpest quarterly contraction in four years. The MAS also reported that growth in Singapore is not expected to pick up significantly in 2017.
Problems in the manufacturing and services sectors are the main reasons for the decline in the economy. Singapore's manufacturing industry accounts for a fifth of the country's overall economic volume. In recent years, the Singaporean government has been taking measures to cool the real estate market and contain the inflow of the overseas workforce, which has impaired certain key sectors' profits, causing the manufacturing sector to struggle to stay afloat.
In addition, the services sector represents about two thirds of the country's economic output, but weak domestic demand and lower consumption from a fall in international tourist numbers have led to sluggish wholesale and retail business. The country's private banking has also encountered a difficult situation following tightened regulatory measures that have put pressure on the finance industry.
Confronting economic contraction, the MAS plans to stick to "its neutral currency policy for an extended period of time and maintain a policy of zero-percent appreciation" in the Singapore dollar's exchange rate. General analysis tends to believe that the economic difficulty Singapore is facing does not stem from the central bank's monetary policy, but from the risks brought on by the global economy.
Being an export-oriented open economy, Singapore's economy is boosted by exports to a large degree, as the country's volume of trade has far exceeded that of its GDP. Trade contraction across the globe and price decline in commodities have largely impacted Singapore's government-owned petroleum and gas industries, and rendered the country's economy sluggish in 2016.
John Ross attributed Singapore's high level of per capita GDP to the "massive accumulation first of capital and then of labor, with productivity growth playing a tiny, almost non-existent, role." Ross also cites Vu Minh Khuong, an associate professor at the National University of Singapore, noting that "59 percent of Singapore's economic growth came from capital investment, 34 percent from growth of labor inputs, and only 8 percent from total factor productivity increases."
In our opinion, Singapore's development model should not be considered as a benchmark for China. We believe there are three main problems in the Singaporean economy. First, its increased aging population has become a burden for further development. Second, the country has a high Gini coefficient, an index that tracks income inequality which can affect domestic consumption. Third, the Singapore-style state-owned economy has taken too many social resources and often invests indiscriminately.
In fact, the Singaporean-style economy should not be considered a successful economic model, and it is only thanks to the fact that Singapore seized the rare opportunity to ride the wave of global economic boom that the government's current dominance has been reinforced. Such an economic model not only served political goals, but also enabled the country to attract capital inflow from international markets.
Furthermore, Singapore's inappropriate choice on geopolitical strategy has set the stage for its continued economic decline. Besides pushing for the Trans-Pacific Partnership that excludes China, Singapore has also invited the US to "return to Asia Pacific" to lead the security landscape in the Western Pacific and South China Sea. Singapore's Prime Minister Lee Hsien Loong has continued the national development strategy and diplomatic strategy previously designed by Singapore's founding father Lee Kuan Yew, but it should be noted that the current situation Lee Hsien Loong faces is quite different from that of the past, as the global economy has continued to remain weak and the US faces increasing difficulty in leading the world economy. Lee Hsien Loong's strategy of constantly ostracizing China suggests a lack of sophistication in the game of international politics.
In the past two years, China's economic slowdown has placed pressure on Singapore, since the country values China as one of its major trading partners. If China undertakes further economic adjustments in the future, Singapore's economy is likely to experience further difficulties. It's a pity that the so-called four "Asian tiger economies" that included Hong Kong, Taiwan, South Korea and Singapore are all experiencing economic woes. For Singapore, facing economic and geopolitical pressures, the risk of an economic breakdown is likely.
The article is based on a report by Beijing-based private strategic think tank Anbound. [email protected]
