“When Giants Stir: Asia’s prospects as US recovers and China recalibrates” - Keynote Speech by Mr Lim Hng Kiang, Minister for Trade and Industry, and Deputy Chairman, Monetary Authority of Singapore at OCBC Global Treasury Regional Forum 2014, Pan Pacific Hotel on 15 August 2014
Mr Samuel Tsien, Group Chief Executive Officer, OCBC Bank
Ladies and gentlemen
“When Giants Stir: Asia’s prospects as US recovers and China recalibrates”
1. Welcome to the OCBC Global Treasury Regional Forum.
2. The global economy is in a period of transition. The United States, as it steps out of the shadows of the recent global financial crisis, is reinventing itself to enhance its competitiveness in traditional sectors like manufacturing (aided by its significantly lower energy costs), and the US is looking for new opportunities for growth. China, whose longstanding double-digit growth has been in the spotlight, is now shifting towards quality growth, i.e. growth that is consumption-driven, more sustainable and inclusive.
3. As the US economy recovers, and China recalibrates, how will Asia respond? With both superpowers stepping up their engagement of this region, Asia is well placed to facilitate greater cooperation in order to advance all of our shared interests.
4. This strategy is not new. US and China have both been, and will continue to be important to us and the region. For Singapore, the US is our largest investor, and China our largest trading partner. The same may be said of many countries in this region. But as American companies innovate and create new products and services, and as China moves towards emphasizing domestic consumption over investment and exports, Asian economies are going to have to restructure ourselves in order to stay relevant on this new global stage.
5. Our relevance has not come by accident. Over the years, Asian countries have remained resilient, because our economies are open and connected. We are connected not just with the big powers, but increasingly with each other. As individual countries, we have each experienced the benefits of openness. But if we are to entrench US’ interest and engage China, we must do more via regional integration.
6. These principles of openness and integration may seem fairly obvious, but the reality is less so. Multilateral progress at the WTO will take time, and it is up to us to continue to resist the populist urge to be protectionist. Instead we need to look to deepening our economic inter-dependence regionally, in a manner relevant to today’s business environment. Building up strong and sustainable economies will require even stronger economic partnerships and political will, both within this region, and with our key trading partners worldwide.
Integration as Imperative: The Trans Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP)
7. Regional integration is an imperative if we want to see more jobs, higher real wages and better standards of living overall for our citizens. Integration will also benefit businesses, as trade liberalisation and regulatory coherence will reduce cost, improve productivity, and facilitate the participation in the global supply chain.
8. Jobs and growth are at the heart of the regional free trade agreements that are currently being negotiated. The Trans Pacific Partnership (TPP), which currently links 12 Parties1 from either side of the Pacific, will integrate 40 percent of the world’s GDP and one third of world trade. As a high-quality comprehensive agreement, the TPP will go beyond traditional trade issues such as tariff elimination, to address the challenges faced by modern businesses. Whether it regards trade in the digital age, where the free and instant flow of information across borders has become the lifeblood of businesses, or in making coherent the many regulatory frameworks that confronts any business belonging to the global supply network, the TPP is an opportunity to update the rules, reshape the economic architecture of this region, and reflect the global trading system of the 21st Century.
9. The Regional Comprehensive Economic Partnership (RCEP) will link ASEAN and its six FTA partners2. This is another significant initiative to transform the region into an integrated market comprising over 3 billion people and a third of the world’s GDP. Like the TPP, the RCEP will lower trade barriers, facilitate trade and deepen regional economic integration.
10. Both the RCEP and the TPP are pathways towards the goal of a Free Trade Area of the Asia-Pacific (FTAAP). Their architectures are deliberately open and inclusive by design, to welcome other like-minded Parties that share these ambitions of promoting open and free markets, and strengthening our economic links to the rest of the world.
11. As a participant of both the TPP and RCEP, Singapore’s position is both principled and pragmatic. We support a free and open multilateral trading system, and as a small state, see great value in economic frameworks that are predictable, stable and rules-based. Being part of these regional trade agreements allow Parties to influence and set the rules of engagement, and minimize the possibility of trade diversion once these agreements come into place. At the same time, participation must equate to meaningful contributions at the table, and translate to practical gains. Certainly, the TPP and RCEP hold many opportunities for all Parties involved. With our markets integrated, we will be more attractive and competitive. These gains are not without cost, but I remain confident that Parties will value the strategic importance of these agreements, and endure the short term pain of reform in exchange for long term benefits.
Benefits of Integration for the Financial Industry
12. The financial sector is a good example of how Singapore has benefitted from an open global trading system. Today, we have a thriving financial ecosystem of over 100 foreign banks here, offering an extensive suite of financial services, especially in wholesale and offshore banking. Singapore is the regional funding centre for Asian trade flows, the largest foreign exchange trading centre in Asia and a leading asset management hub. We have also become a trading hub for listed financial and commodity derivatives, and have a flourishing insurance marketplace with expertise in specialty insurance. We have achieved all these, while maintaining high prudential standards. These have translated into significant, real benefits for Singapore and Singaporeans. The financial sector contributes 12% of our GDP and hires more than 180,000 professionals.
13. The US-Singapore FTA, which came into force ten years ago, was an important milestone in this regard. It challenged us to contemplate how much and how fast we could liberalise the sector without jeopardising our financial stability objectives. It also increased diversity in the Singapore financial sector and helped introduce competition that has benefitted financial institutions and clients alike. Recent deals have also created new opportunities. Under the China-Singapore FTA financial services package in 2012, the Industrial and Commercial Bank of China (ICBC) became one of two Chinese banks to enjoy Qualifying Full Bank (QFB) privileges. Within the year, ICBC Singapore became a Renminbi (RMB) Clearing Bank, making it the first offshore RMB centre outside of North Asia. RMB liquidity and activities have since increased exponentially in Singapore. Our financial institutions are offering a good range of RMB products and services to meet the investment, financing and risk management needs of the market. The CSFTA, further catalysed a series of other cooperation initiatives. For instance, the Renminbi Qualified Foreign Institutional Investors (RQFII)[pronounced as R-Q-Fee]
programme was extended to Singapore to allow qualified Singapore-based institutional investors to invest into China’s securities markets. More recently, companies and residents in the Suzhou Industrial Park and the Tianjin Eco-City have been allowed to conduct cross border RMB transactions with financial institutions in Singapore.
14. There will be more to come. With the TPP and RCEP, the industry can also look forward to new market-opening opportunities in the region, which will at the same time not depart from preserving the right of financial regulators to take actions necessary in ensuring the stability and integrity of the financial markets. These commitments will also boost Singapore’s ability to provide a more competitive business environment that will be well-supported by robust regulation. We hope that the industry will continue to operate with confidence here, and flourish.
15. I have spoken at length of the need to step up our efforts to integrate the region. But more importantly, it is not just the setting of rules, but the sharing of our values that will help us to successfully manoeuvre through the various stages of Asia’s transition. In valuing open and free markets, and strengthening our ties, we will create more opportunities for trade and growth, and bring stability and greater resilience to this region. If we do this together, I am confident that when the giants stir, Asia will continue to prosper.
16. Thank you very much.
1 The current members of the TPP are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.
2 RCEP membership includes all of ASEAN and Australia, China, India, Republic of Korea, Japan and New Zealand.