Hong Kong and Singapore Remarkable Success Stories of City States

Singapore & Hong Kong Area –Singapore:697 km 2 –Hong Kong:1,104 km 2 Population –Singapore:4.7 million –median age 40 –Hong Kong:7.1 million –median age 43

Singapore and Hong Kong Each is separated from the mainland by a narrow waterway Singapore’s relationship with Malaysia had been volatile –brief merge in –disputes about water delivery, islands, etc. Hong Kong benefits from mainland in China’s cheap labor and market

Singapore and Hong Kong Both are mostly ethnic Chinese societies –Singapore:77% –Hong Kong:95% Both had over 100 years of British rule –Singapore: –Hong Kong: Both had been occupied by Japan –

Singapore and Hong Kong Both are successful ‘newly industrialized e conomies’ Now they are regional hubs respectively. GDP composition: SectorSingaporeHong Kong agriculture0%0.1% Industry 28%8% services 72%91.9%

Hong Kong Gate port to ShenZhen industrial district. 51% of export to and 46% of import from mainland China. Industrial base in s was transformed into service and financial industry. Open and laissez-faire policy upgraded Hong Kong up to a regional hub : Most businesses in the region are basically made in Hong Kong

Peoples Republic of China and Hong Kong Hong Kong had been vital to the international economic links of the PRC. Hong Kong’s imports of food and water from the PRC were a vital source of foreign exchange revenue that ensured Hong Kong’s usefulness to the mainland. In turn, cheap food helped to restrain the cost of living in Hong Kong thus to keep wages low during the period of labor-intensive industrialization.

After WWII Hong Kong restructured its economy –large-scale relocation of capital, entrepreneurs, a nd assets from mainland China –trade embargo against mainland China after Ko rean War broke out actually benefited HK Hong Kong’s textile industry was founded in the 1950s before gradually diversifying in the 1960s to clothing, electronics, plastics and other labor-intensive goods for export.

Hong Kong’s Development government’s laissez-faire principle reactive, selective, & reluctant intervention –development of public housing –provide lower-middle-income families with access to home ownership –social expenditure & community development –development of human resources intervention only to maintain competitiveness

continued Industrialization was undertaken by local SMEs. No FDIs. Government did not engage in active industrial planning until 1970s with low taxes, lax employment laws, absence of government debt, and free trade.

More Interventionist since 1980s Hong Kong government became more in terventionist to cope with the political unce rtainty during the negotiations between PRC and UK And intervened in stock and currency ma rket –has linked HK$ to US$ since 1983 Manufacturing moved out to PRC in s.

Singapore Singapore had been enjoying entre-pot trade based on hinterland Malaysia. Malaysia intended to bypass Singapore after its separation in 1965, jeopardizing the entire Singaporean economy. Furthermore, retreat of the UK navy force in latter 1960s had put 30% of workforce into a sudden unemployment.

Import Substituting Industrialization? The cornered Singaporean government decided to launch her industrialization for survival. Industrial activities were needed to provide jobs, but import substituting industrialization was not feasible since her domestic market was so small. Must aim at world market.

continued As protection of domestic market was meaningless, FDI would not do any harm anyway. Inviting FDI was urgent and inevitable in order to provide Singaporean people with jobs. Problem is “Will they come?”

FDI Aiming at Export Base Multinational Corporations were not interested in tiny domestic market of the city state, but in potential of production- and-export base for the region. Needed : High quality of local workforce at reasonable wage rates, good infrastructure, alignment of business environment to global standard, and good living conditions.

Singaporean Policy Infrastructure building in addition to pre- existing excellent harbor. Manpower training, including college education, complied to scheduled FDIs. Each scheduled FDI project forecasts needed manpower, and manpower training and college education is operated to meet this demand.

continued Young students were sent abroad to study under state scholarships.

Economic Development Board A highly efficient Economic Development Board (EDB) was established to take charge of inducing FDIs. EDB is an one-stop institution which takes care of everything of FDIs. EDB contacted every foreign investor and provided her with customized support.

Metamorphosis of FDI Until early 1970’s, any FDI was welcomed in order to give jobs to local workers. In late 1970’s, the Singaporean government began to screen out ‘low wage FDIs’, shifting the nature of industry into high value added ones. As of 1980s, only clean high-tech FDIs were accepted, such as R&D centers.

Emergence of Local Entrepreneurs MNCs encouraged local employees with good performances to start their own businesses that produce related parts and components, extending technical and financial assistances. A group of Singaporean indigenous entrepreneurs was formed in this manner. But these firms were to meet the needs of not Singaporeans but MNCs.

Government-Linked Companies Singaporean government began to establish many firms, GLCs, which would address to needs of Singaporeans, which MNCs had not cared. GLCs employed entrepreneurs trained in either MNCs or foreign schools abroad. GLCs covered from taxicabs to semiconductors.

Capital MNCs brought their own capital. Foreign exchange gap did not matter, since MNCs brought in their own machinery-facility-materials and exported their outputs. Investment savings gap in GLC sectors was solved by the accumulated fund of social security from wages of employed workers.

Technology MNCs transferred some technology. Singapore invited foreign experts for training local manpower. Sending young students to the universities abroad. As a regional hub, Singapore hosted many R&D centers.

Strong Political Leadership Lee Kuan Yew : Prime Minister, Senior Minister, Mentor Minister High pay with exact penalty on corruption for government bureaucrats created ‘the cleanest’ government. Established and operated GLCs. Temasek

continued Government intervention –in labor market –in providing public housing –in improving educational facilities –in developing a social security system in order to attract foreign investment. Open fine city with many Fines and Regulations!