Hong Kong and Singapore

Remarkable Success Stories of City States

Singapore & Hong Kong

• Area– Singapore: 697 km2

– Hong Kong: 1,104 km2

• 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 1963-1965– 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 soci-eties– Singapore: 77%– Hong Kong: 95%

• Both had over 100 years of British rule– Singapore: 1819 - 1959– Hong Kong: 1841 - 1997

• Both had been occupied by Japan– 1942 - 1945

Singapore and Hong Kong

• Both are successful ‘newly industrial-ized economies’

• Now they are regional hubs respec-tively.

• GDP composition: Sector Singapore Hong Kong agriculture 0% 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 1960-70s was trans-

formed 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 interna-tional 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-in-tensive industrialization.

After WWII

• Hong Kong restructured its economy– large-scale relocation of capital, en-

trepreneurs, and assets from mainland China– trade embargo against mainland China after

Korean 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, ab-sence of government debt, and free trade.

More Interventionist since 1980s

• Hong Kong government became more interventionist to cope with the political uncertainty during the negotiations between PRC and UK

• And intervened in stock and currency market– has linked HK$ to US$ since 1983

• Manufacturing moved out to PRC in 1980-1990s.

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 Industrializa-tion?

• The cornered Singaporean govern-ment decided to launch her industri-alization 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 in-evitable in order to provide Singa-porean people with jobs.

• Problem is “Will they come?”

FDI Aiming at Export Base

• Multinational Corporations were not in-terested in tiny domestic market of the city state, but in potential of produc-tion-and-export base for the region.

• Needed : High quality of local work-force 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 op-erated to meet this demand.

continued

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

Economic Development Board

• A highly efficient Economic Devel-opment 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 wel-comed in order to give jobs to local workers.

• In late 1970’s, the Singaporean gov-ernment began to screen out ‘low wage FDIs’, shifting the nature of in-dustry 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 en-trepreneurs was formed in this manner.

• But these firms were to meet the needs of not Singaporeans but MNCs.

Government-Linked Compa-nies

• Singaporean government began to establish many firms, GLCs, which would address to needs of Singa-poreans, which MNCs had not cared.

• GLCs employed entrepreneurs trained in either MNCs or foreign schools abroad.

• GLCs covered from taxicabs to semi-conductors.

Capital

• MNCs brought their own capital.• Foreign exchange gap did not matter,

since MNCs brought in their own ma-chinery-facility-materials and ex-ported their outputs.

• Investment savings gap in GLC sec-tors 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 uni-

versities 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 cor-ruption 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 systemin order to attract foreign investment.

• Open fine city with many Fines and Regulations!