Transcription
In 1978, just as Deng Xiaoping rose to power, China had just come out of a messy and violent Cultural Revolution. Its economy was weak and its national morale was low. He was determined to set China back on track. And thus, he began on a series of trips to study countries that were achieving economic success. One of those countries was Singapore. Inspired by how fast a small economy like ours could take off, Deng Xiaoping reached out to Dr. Goh Keng Swee, Singapore's chief economic architect, to be an advisor to China on his journey of economic reform.
Our guest today was the chief assistant to Dr. Goh Keng Swee, and he was there in the room where those conversations happened. Since then, he has spent decades analyzing China and advising our government at the highest level as chief economist of the Singapore government. Currently, he is the Emeritus Professor of Economics at NTU and remains an advisor to many of the world's leading companies. If you want an inside look into the early relationship between Singapore and China and the small but pivotal role that Singapore played, this is the conversation for you. I hope you find my conversation with my guest, Professor Tan Kong Yam, as useful as I did.
"Professor Tan, thank you so much for coming on."
"Thank you."
"I want you to take me back to the first few days when you went with Dr. Goh to China for the first time."
"So when Deng started the reform, he wanted to get someone experienced in developing country in the market economy as well as industrialization. So he invited Dr. Goh because that is someone who actually have all this experience, and they took the trip very seriously. You know, they put our whole delegation in the Thai villa. There's a villa next to the one that Nixon and Kissinger stayed. They gave us that villa. The delegation stayed at the Thai villa next to the one that Kissinger and Nixon stayed. So it was a very significant event for them. And Deng gave us a lot of face in that sense. When we arrived in the great hall where Deng met us, Deng asked Dr. Goh, 'How are you now?' Dr. Goh said, 'Oh, I'm 67.' Then Deng asked, 'What are you doing now?' Dr. Goh said, 'Oh, I just retired.' Deng laughed. 'No,' he said, 'I'm 81. I just started work.' So everybody was laughing at that point. And I think it was a very significant thing. I noticed a lot of the senior government officials, you know, like Vice Premier Gu Mu, Foreign Minister Wu Xueqian, and all these were very respectful. In front of them, they were taking notes like primary school children taking notes. So this gave me a very serious observation because the reform was so traumatic and so much changes. Deng's charisma and his seniority were able to carry it through, otherwise there will be a lot of resistance overall. And so their key point was they want to learn from the Singapore experience: how to attract foreign investment, how to have different parts of different rules and regulations. And don't forget one thing, because the whole country was under central planning, Deng's idea was to carve out a separate zone that is developing in a different regulation. And so our advice was how to carve that out, develop a separate part of the Chinese territory in a market economy, let it grow, expand, and then show that the experiment can actually be successful. And that's the most important thing. Later, I discovered that a lot of revolutionaries who were with Mao and Deng in the early period, they were very against it because you were against their early ideology of having a revolution and building socialism, and now you are encouraging capitalists from Hong Kong to come and exploit the workers. So a lot of them cried and a lot of them were very resistant to this policy. But to the credit of Deng, he was able to carry it through overall. So later we met in Zhongnanhai, we met Wu Xueqian, we met Gu Mu. Those people were very keen on reform, and they were the ones that were interested to absorb some of the lessons. It was much later that I discovered that some of the key people like Chen Yun, Li Xiannian, Wang Zhen, Peng Zhen refused to see us because they saw us as bringing capitalism to China. So there was a very serious tension, and it was to the credit of Deng that he was able to push against some of this resistance. And gradually, as the fruits of success came, more factories came into Shenzhen, people got jobs. Even though the pay is not so high, they started to have income, they send remittances to their poor villages. And that's where more and more people were convinced that this can work.
The other point that I observed was this. The Chinese were poor, but they have a lot of nationalistic self-confidence and cultural civilizational confidence. For example, their Red Flag car is an official car. The quality is not good in 1985. So Dr. Goh was the official guest of Deng Xiaoping. So he got a Red Flag. I'm an assistant carrying his bag. I got a Mercedes. So later we exchanged notes. Dr. Goh asked me, 'Hey, how was your car?' I said, 'Mine not so bad. Quite comfortable.' Then he told me his car is a bit warm. But this shows the cultural confidence. They insisted that the guest of honor is given the official car, even though their technology was quite weak at that point. And then, of course, I noticed when we were in Zhongnanhai, the ceiling, when we met the ceiling, the carving was very beautiful, and it certainly reminded me of the carving in the Forbidden City. It was an extension of the Forbidden City. You know, the high and I found that the curtain was very thick and very heavy, symbolizing the intrigue in the Chinese political side during that period. We have very limited information, and so I was doing some research, background research for Dr. Goh. I was able to find a book. It's a Japanese book translated into English. And to my surprise, the Japanese went through all the newspaper clippings of all the various officials in China and compiled into a list of people who has worked who and who. And that is the most comprehensive information on China at that point when no information on who is in what position was available. Dr. Goh was very pleased because that was a book that allowed us to identify some key individuals, and most of us were there for the first time. Some of the senior people who went along were not so fluent in Chinese. So I played some role because I was fluent in Chinese. I was able to sit closer to Deng to take notes independently because Deng's accent was very strong. It's not easy to decipher what he said.
We are living through one of the most consequential periods in history today. There are new powers, new rules, and new risks emerging as we speak. And most of the important structural changes that will affect the world in the coming century is happening right here in our neighborhood, Asia. In collaboration with the S. Rajaratnam School of International Studies, we brought together the region's leading experts on strategic affairs to help you understand the structural forces at play. Together, we will extract lessons from the past, analyze the present clearly so that we can make better decisions for the future. We hope this will help you see what this means for Singapore in the coming multipolar world.
And another observation that is quite important was Lao Changgang. You know, Lao Changgang is the special economic zone office in Beijing, a director there. You know, the Chinese were poorly paid and very poor. They don't have foreign exchange at that point. So Lao Changgang was smoking local, you know, poor quality cigarettes. So as I got to know him, I bought foreign cigarettes. At that time, it's called 555, high-quality foreign cigarettes that need US dollars. So I passed to him. He was so grateful. Because the first time he smoked expensive foreign cigarettes. And he was able to tell me some of the detailed information of the policymaker. And so that helped us to understand and give better advice overall. You don't forget at that point, you know, everybody was wearing blue and green, and they read newspapers in the road where there is chaos. Nobody has money to buy their independent newspaper. It was a very different China.
"What was the assessment of Dr. Goh then when he looked at this country, this nation that was just beginning its reconstruction journey?"
"I think Dr. Goh studied history very well. The fact that he accepted this thing so early on when China was very weak was an indication that he understood the long historical path and decline over that period. And he must have thought long and hard that once Deng decided to drop the 'iron rice bowl,' central planning, and Mao's ideology, the potential for the Chinese people, their hardworking civilization, emphasis on education, will give it a very strong possibility of being able to master science, technology, industrial upgrading. And the potential is there. So, so I think he judged correctly. The country has enormous potential to utilize its labor and its emphasis on education and eventually build up the infrastructure. The key thing is to open up to attract investment, technology, education, and be able to get the people to work hard and upgrade. And he sensed that the ingredients for all the necessary dynamic economic growth exists. He was willing to accept the job. At that time, they were very poor. We didn't ask for any payment except the local hospitality. But he saw it as a challenge and also to see how a country that had gone down for 100 years and now restructures its incentive system, its economic policy, and has the potential for high growth. And nobody, including Dr. Goh and Deng himself, expected that the takeoff was so fast and such a high speed for such a long period of time."
"You know, when we think about Chinese political leaders today, a lot of them think of technocrats, people who are like really smart people with engineering, economics background. And there is this kind of assumption that this is like a scholarly class that was there from the start. But China was coming out from a period of revolution where a lot of the political leaders back then were from a different kind of build. Can you speak a little bit more about some of the leaders that you encountered in Shanghai and Guangzhou? What were they like, and what was the policy agenda or the way they carried themselves as officials?"
"After we met Deng in Beijing, Deng sent us to Shanghai. Shanghai, as you are aware, was the industrial center at that point. In a way, communism crushed the industrialist spirit. Some of them left, but some of them stayed on. And the one that I remember very vividly was Rong Yiren. Rong Yiren was a major, well-known capitalist, very successful industrialist before the revolution took over China. He hosted, he was rehabilitated by Deng. So he hosted a dinner for us. And around the table, there were all these, you know, bushy-bearded, very powerful kind of older industrialists that were the great businessmen in Shanghai before the revolution took over. And they were the big guys when Li Ka-shing was a nobody. When the dessert came, it was half-rotten banana. They all scrambled to get the half-rotten banana. I was shocked. It shows that Mao's revolution, the discrimination against major industrialists, has broken their spirit, and they became no longer as forceful individuals. Deng, to his credit, was able to rehabilitate some of these people, and eventually some of them, not they themselves, but their children and grandchildren became the key people that eventually drive China's development today. They themselves missed out. And I have a good sense because when I recall back on the trip in Shanghai, you know, because I look like a local, and then I speak the regular Mandarin. After Rong Yiren hosted the dinner, I was able to run away on my own, going around the whole Shanghai old city. It was a very drab city, you know, some of the people and houses are so poor, you can look into the place and see people, old people sleeping on the bed. But one thing that was very, very significant to me was this. I met some unemployed laborers. They were working on a road at night. The most important incident I observed in Shanghai was a boy. I walked around and I saw a boy studying English under the street light. You know, the houses were crammed, poor lighting. And I was impressed because I went to talk to him. He was studying English. That to me was very significant because this shows that there is an underlying urge to improve, in emphasizing education, in absorbing Western technology and language. I remember at that point, I reflected back as an economist, how do you create dynamic growth? Firstly, you need top leaders who are determined to push the nation forward, and that was effectively what I saw when we met Deng in Beijing. Then you need the ingredients for dynamic economic growth: hardworking people who build infrastructure, like those unemployed laborers building the road at night. And then we need people who emphasize education, absorbing foreign technology, learning English as a major ingredient in a dynamic economic growth. So at that point, it certainly struck me as an economist, I felt that some of the necessary ingredients are there. It's just like trying to make a cake. You've got flour, you've got eggs, you've got sugar. You just needed to build it up properly. And most important thing was incentive. Mao destroyed incentive because he had an 'iron rice bowl.' You know, during that period, I think a lot of early foreign visitors laughed because when they go to China, they go to the shop, and ask the girl to bring down the souvenir or other things. The salesgirl will say 'Mei you' (don't have), they don't want to bother to do all this because they got the 'iron rice bowl.' There was a joke that early Westerners who went to China, the only two words in Chinese that they learned was 'Mei you.' Deng changed a system. He effectively incentivized people to work hard. And that was, in some way, a turning point. And I think we from Singapore gave him some confidence because, as you might be aware, Deng visited Singapore before he started the reform in 1978. In November, Deng's reform 'San Zhong Quan Hui' publication came out three months before that. He visited Singapore, and he was brought around by the then minister. And Deng went to visit Jurong Island. He asked, 'What is your Singapore's total oil refinery capacity?' When he heard it, he was shocked. It was three times larger than China. Then he asked to visit some of the ordinary people's houses. They brought him to a three-room HDB flat. He was surprised that the place is quite big compared to then Chinese senior government officials' places. And then he went to the kitchen. He was curious. He saw a refrigerator. He said, 'Can I open it?' He said, 'Okay, open.' Oh, they found vegetables, they found meat, they found Coca-Cola, and they found fruits. He was surprised. So before he left, he met Lee Kuan Yew and Goh Keng Swee in the cabinet room and asked, 'How did you manage to achieve this?' Lee Kuan Yew said, 'It's very simple. We don't have the iron rice bowl. You work more, you get more. You work less, you get less. You don't work, that's your problem.' That was an inspiration to him. Years later, when I was teaching some students in China, they told me that that trip had such a major impact on Deng Xiaoping that he redrafted the 'San Zhong Quan Hui' document that promulgated Deng's reform in November 1978. He redrafted a few sections of it after the trip to Singapore. And that document, November 1978, laid the foundations for China's subsequent reform. So in that sense, Singapore's experience was relevant and impactful."
"As a young Singaporean, you don't really appreciate how some of these path dependencies played out. And yeah, like for me, just listening to you recount that iconic visit in 1978, I think it just inspires a lot of confidence that, you know, even as a small country, we can make big differences. What kind of advice did he give to the Chinese leaders? He saw the huge potential. He saw that there were the ingredients, as you've put it. But tactically, you know, what did he suggest to them that a big country could do that a small country could never endeavor?"
"After the first trip, we submitted an internal report. Subsequently, there were advice and discussions, including notes to Gu Mu and everything. I think the key thing is this: the fact that Singapore, with a group of relatively less educated migrants, was able to develop the place, industrialized, and gradually upgrade. And some of these were ethnic Chinese migrants from, you know, poor provinces, gave them some confidence and inspiration. I remember Gu Mu visited Singapore later. He was the main person in charge of the special economic zones. Dr. Goh and I went with him. He went around. Geylang was a very poor constituency earlier. So in some way, I suspect it came to his mind that these poor Chinese migrants, they can make it. China, with a lot more resources, bigger market, and more well-educated people or intellectuals who can become potentially more educated, should be able to do quite well, as long as their incentive system is right. So they gradually discovered that the Maoist ideology, rigid communism, rigid central planning without flexibility for the market or private sector, was like a strong rope that tied the hands and legs of this potential basketball player. And once they released that rope, the basketball players started to play and improve. But nobody expected that he turned out to be Yao Ming."
"Talk to me a little bit more about the special economic zones, the formation and development of it. They were seen as very crucial in the opening of China's market reforms. What role did we play in it?"
"I think Deng was a smart person. He realized that the whole of China was under central planning, and he couldn't change the structure. So he needed to carve out small areas that could do experiments. So he identified these four areas: Shenzhen, basically attracting Hong Kong capital; Zhuhai, attracting Macau capital; Xiamen, attracting Taiwan capital; Shantou area, attracting overseas Chinese students who are in Thailand, Malaysia, and Singapore. That, I think, was the right strategy because when we were in China, we discovered that the roads were bad, the regulations were weak, the infrastructure was poor, electricity supply was unreliable, there were no joint venture regulations. No US, European, Japanese, or Korean companies wanted to invest. So if you look at the FDI inflow into China from 1979 up to almost 1990, '91, '92, the bulk of investment were very low, and they were all from overseas Chinese. Overseas Chinese were less sensitive to political risk, less worried about well regulations and everything. And a lot of them were running small businesses, labor-intensive factories. So they relocated to China. And that first maybe 8 to 10 years allowed China to gain capital, to gain FDI, to have factory jobs, and all this started to have some impact on the economy. And then later they entered the WTO, and that's where the Western, you know, US, Europe, Japan capital and money started to come in. So the overseas Chinese played a very, very important role in the early days in giving it the initial push. This is like China, China is a car that has a flat battery. It cannot move. The overseas Chinese gave it the first push, then the thing started rolling, it started to move. And that came later. So Deng was smart in identifying this first push. And that's the reason why, if you look carefully, he drew a circle in Shenzhen initially, quite small. Then he gained more confidence, more capital coming, he expanded the Shenzhen Special Economic Zone into bigger and bigger. And then as the Special Economic Zone prospered, developed, initially, you go to China during these early days, the officials in Shanghai looked down on all this. But over time, as Shenzhen started to develop, more investment came in, they became more prosperous, the Shanghai officials had to eat humble pie and go down to Shenzhen to learn from them. And that's where it spread to become Pudong. After Shenzhen Special Economic Zone was successful, they opened up 14 coastal cities, and then the whole coastal region became like a special economic zone. And then eventually the growth spread inland, central and western China. And that's how the Chinese economy took off in the last 40 years."
"I would like to talk a little bit about Fujian, which is a relatively important part in China's political history, and Singapore's role through Dr. Goh was quite crucial in helping Fujian develop. Help me understand a bit behind the scenes what actually happened."
"Taiwan and China issues were very tense during that period. And you remember, even in the early period, when Lee Kuan Yew went to visit the US, there was a lot of tension between Taiwan and Fujian. And Fujian was on the front line because Fujian was across the Taiwan Strait. And nobody wanted to invest in Fujian because the political risk was too high. So there was a young man, mid-40s, who was the mayor of Fujian. He had a lot of problems getting investment and improving his position in the party because a mayor's job in China is to develop the city, and that means he has to attract investment, create jobs, generate tax revenue. When Dr. Goh visited Fujian, he came all the way. This young man was very humble. He came all the way to the hotel to brief Dr. Goh. And eventually, Dr. Goh and some officials in Singapore were able to identify Lim Meng Tong, Mak Tai Sum, who were willing to invest in Fujian. Why? Because it was their hometown. Even though the risk was very high, these people were willing to invest in Fujian. And Fujian started to have some investment, and eventually the mayor got some credit for the development. So years later, in 2012, Xi Jinping was Vice President and on his way to become the senior leader. He visited Singapore. He had a long discussion with Lee Kuan Yew on development strategy. And he was supposed to leave for South Africa on an official visit the next morning, but he insisted late at night to visit and pay respect to Lim Meng Tong. Lim Meng Tong was the guy who helped to lead the investment in Fujian. But a lot of the officials discouraged him from doing that because it was the middle of the night. Next morning, he had to go to South Africa on a long trip. And Lim Meng Tong was very frail. He couldn't recognize people at that age. He was very, very weak and senile. He couldn't recognize people. But Xi Jinping insisted to pay him respect to thank him. So I think he is a bit of a traditional person who remembers old friends in that regard."
"Just given your understanding of the small role that we play in China's economic history, how does one try to understand his view of the world?"
"I think to understand China today, especially Xi Jinping, you need to look at the background of the Politburo Standing Committee at the moment. The top seven of them in the Politburo Committee, the most important people in China today who run the country. The seven of them, you notice five of them were born in the 1950s, and their formative period was the Cultural Revolution. And internally, he tells people that he suffered a lot during the Cultural Revolution, but he was proud of the fact that he survived. And one of the things that he felt very proud of was he told people that 'I'm able to carry a weight of 50 kilos and walk for 10 months in terms of distance and never need to shift it to another shoulder.' A kind of ability to withstand hardship. And this explains some of the policy. You notice Chinese policy delays gratification. They focus on production. They focus on building up industrial capacity. They do not want to spend too much resources on high consumption. They are always worried about problems, prepare for contingencies, emphasize food security, energy security, oil storage, uncertainty. A little bit like the early generation of leaders in Singapore, like Lee Kuan Yew and Goh Keng Swee. So this, in a way, is a generation that has certain experience, and it is reflected in some of the existing policy. And this explains also why the consumption-focused policy was there, but not as strong as a production-focused policy on expanding EVs, semiconductors, and others, rather than, you know, they explicitly rejected giving vouchers to the people to stimulate the economy. Let me venture to predict the future. The present Politburo Standing Committee people, including Xi Jinping, were born in the 50s. In another 10 to 15 years, the new leaders will be people who were born in the 60s and 70s. Those who were born in the 60s and 70s, as they gradually take over, their formative period is not the harsh Cultural Revolution period, but a gradual period where China started to grow, to become a stronger economy. And their worldview, I would predict, will be different. The harsher authoritarianism in the next 10 to 15 years will become a softer authoritarianism. It will be still authoritarianism, but the Chinese leaders will become softer in terms of social policy, in terms of support for consumption, people's welfare. They will be softer, and they will be more confident on external relations because they will grow up in a period when China was stronger rather than weak. And remember the 'century of humiliation' too much. They will be less paranoid about external threats. There will be more relaxed and more confidence about China's relative power. And I think there will be policies that focus more on consumer welfare, subsidy, and support for consumption, rather than pure driving resources towards production. Let's see whether I turn out to be correct or not."
"Yeah. As we look to the future, I think it might be interesting to revisit a moment in history. In 1989, the Tiananmen incident happened, and that was a moment of reckoning, I think, for a lot of people in the Chinese political elites, but even at the grassroots level, Chinese citizens. One of the big questions that was being grappled then was what is the best system going forward? Similar to what you've pointed out, the soft authoritarianism versus hard authoritarianism in the coming years, what should that new system be? In the past, it was a question of capitalism versus communism. That was one of the central debates. In '89, what were the kind of conclusions they took away after that moment of soul-searching in '89?"
"Yeah, I think that was a critical turning point. 1989 was a very significant shock to the system because Deng's reform was moving along, but there were inflation, there were all kinds of unhappiness. And so this anger, unhappiness, particularly inflation and some of the increasing instances of corruption, created anger among the population. And of course, the student movement was a combination of that. So eventually, we all know that Deng stood for a harsher policy measure, as opposed to Zhao Ziyang, who preferred a more conciliatory position to the students. So Deng prevailed because he controlled the military, and that's why there was a suppression. Then reform went backwards. Zhao Ziyang told me the reformists like him were very dejected because the world thought that China has closed the window again. Foreign investment pulled out. There was a lot of thinking that maybe China will go backward. And for '89 to '91, that was the case. The Chinese policy became less reformist. Interestingly, Singapore was one of the few countries that continued to engage China and never isolated China during that critical period. When the West condemned China, a lot of investment pulled out. And then in 1991, two years after Tiananmen, when China was still being condemned, Deng sent his favorite doctor, his daughter, Deng Nan, to Singapore. The idea was to learn from Singapore how the CPF institution was able to create a pool of savings to help Singaporeans to buy public housing. So I told her this story, which is a genuine story mentioned by Lee Kuan Yew. One day, Lee Kuan Yew was driving in a car along a street. He saw people burning tires, throwing stones, and everything, because the unemployment rate was 25%, there were a lot of angry people. Then he suddenly saw someone on the fourth floor of the apartment rushing down to take up his battered old motorcycle and bring it up. He suddenly had an inspiration. He said, 'This guy owns a small property, a small battered old motorcycle. He was afraid of riot.' Because a riot might destroy his property. Then he said, 'Suppose I give every Singaporean a small HDB flat. That means everybody has a property. Everybody is worried about riot.' Because the riot will destroy his property. If everybody is afraid of riot, there will be no riot, and there will be stability. And then foreign investment will come, wages will go up, and then I use the wages to force them to do some saving and use the money to build the HDB flats, and everybody has a stake in the stability of the system.' And that's how Dr. Goh Keng Swee and Lee Kuan Yew came up with this idea of CPF savings channel to HDB to build the apartments and then sell it to them. So I told this story to Deng Nan, Deng's daughter, and I said, 'You go back and tell your father. No point quarreling about capitalism or socialism. The reason why Singapore is stable and able to develop was that we converted everybody from a proletariat to an asset-owning class, and all of them have a stake in the stability of the country. There is no point quarreling about socialism, capitalism, all kinds of ideology. The most important thing is to try to develop the country and ensure that every individual and household has an asset, which is a small apartment.' Hey, she took down the notes. I don't know how much that might have affected. But in 1992, Deng went down south. Eventually, his slogan was, 'Don't talk about capitalism and socialism. Develop the economy.' And that was the turning point after the Tiananmen incident. And China eventually moved on beyond the 1989 tragedy, and the development became unstoppable. Whether our Singapore experience of Lee Kuan Yew and HDB made any difference, I don't know because I don't know what she told her father. But at the end of the day, that saved China because had the 1992 Tiananmen revert China's reform, it would have gone backward. Because in 1992, Deng gave the reform a further push. The momentum of reform was unstoppable. And even after he died in 1997, the train had left the station. And that's why we have China today."
"Before we even get to China today, in 1991, you were in a room with Lee Kuan Yew. He made this famous prediction that China was going to be a pure competitor to the US. And at that point, China's GDP was only $384 billion, which was about 6.2% of the US GDP of close to $6 trillion plus dollars. As a percentage, China's economy was still very small. You know, when Lee Kuan Yew was making that statement, was it obvious to someone like you who was there at the start, or do you feel like that was a bit of a stretch?"
"1995, 30 years ago, the Pakistan Prime Minister then, Nawaz Sharif, invited Lee Kuan Yew to advise Pakistan on some development strategy. So I was one of the small, among the small group of people who went with him. He gave a public speech, and not surprisingly, there were a lot of questions about China's reform. But later, in a private, maybe five-person discussion, Lee Kuan Yew made an internal, you know, close prediction. He said, 'One day, China will be a serious competitor to the US, and the US-China dynamics, which were very cordial, will become more conflictual and more, greater tension.' We were all surprised. Don't forget, this is 1995, when China was making shoe textiles and cotton underwear. They couldn't even make silk underwear at that point, you know. And there is this guy predicting, and the relationship was very cordial. And there's this man predicting that two countries would be in serious tension. So we asked him why. He gave two reasons. He said, firstly, China is a big country with a lot of talent. When the revolution came and over time, a lot of the talent did not leave. You know, the capable, historically capable people in North China, Central China, did not migrate to the US or Southeast Asia. So this talent and capable person, he predicted, will eventually absorb Western technology, improve their engineering skills, borrow technical knowledge. And this group of smart people is big in China in volume. And over time, they will become more capable. The next generation will do master's, PhDs in engineering, technical subjects, sometimes overseas, sometimes domestically. And eventually, this group of capable people, after absorbing foreign knowledge and technology, would be able to produce better and better high-end products, not just shoes and textiles. They will move like Japan to cars and others, and eventually go to very high-end technical expertise and scientific project progress. And that would start to threaten the US. It's like climbing a ladder. They have more capable, many more capable people who can climb up the ladder. And as they climb further and further up the ladder, they will start to hit on the US and European talent, and they will compete with them. And at that point, the US will get worried. So in his own way, he predicted that somebody like an Elon Musk or a Bill Gates will appear in China. Second reason he gave was this: he said, market. Why is the US such a major competitive force? Because it's a continental economy. That's why the US was able to nurture Ford, Chrysler, General Motors. He said, China is poor, but eventually the income will gradually rise. There will be more domestic demand. The market will become bigger and bigger. So like a big, big pond, it will start to nurture big fish. And he predicted that the domestic market in China will become bigger and bigger as income increases. And because it's a big continental economy and big market, naturally, there will be internal competition. You know, you have Ford, Chrysler, GM, they will compete against each other. He said there will be big companies in China domestically that will compete ferociously against each other in new products. And this Darwinian process of competition will result in tiger eating tiger, and some of the tigers will come very ferocious tigers who eat up the others and strengthen themselves. And eventually, they will come out to the international market. And this ferocious tiger, after surviving the Darwinian competition within the domestic Chinese economy, will be very ferocious, and they will start taking over markets globally. In summary, he was talking about BYD, by giving these two examples and projecting into the future. Actually, he foresaw the tension 30 years later. It was a remarkable insight into this. Even though he is no longer around today, what he predicted is happening."
"So I now that I recall what he has done is quite an impressive assessment. It shows his deep insight and ability to predict based on certain assessment of the trend."
"If you want the show notes from today's episode, just head over to yke.com/rsis and you have full and free access to it. I spoke to Professor Kishore Mahbubani, and one of the things that he consistently shares is that the founding generation of leaders were extremely great statesmen. They were able to understand geopolitics at a very fundamental level. What do you think in that generation of Singaporean leaders, be it Dr. Goh, be it Mr. Lee, what did they understand about China that was fundamentally different, where the Western world did not understand?"
"I think they got a deeper understanding of history. If you look back at Chinese history, one of the most, one of the things that they feared most was chaos. 'Luan,' because it's a big country, and there have been periods of chaos, instability. And so Chinese leaders have internalized this understanding of their history and discovered that the most important thing is peace and stability, rather than falling into a state of chaos and inability to develop. So, so they focus. You notice their priority is stability and development. They are not so interested in all this ideology of liberalism, individualism, and others. Their focus is to make sure that the country is stable and they have resources to develop the place. And history has taught them that stability under an authoritarian system is actually preferable to chaotic checks and balances, individualism, or liberalism as a form of political and economic organization. So there is this consensus, and I think Mr. Lee and Dr. Goh understood that history and their mindset. I think this feel that an authoritarian, unifying Communist Party that focuses on development, rather than a multi-party democratic checking system or liberalism, China could better develop the economy through a more centralized authoritarian party, as long as the party doesn't strangle some of the private sector dynamism, as well as focusing on allowing individuals to flourish. So their system is that everybody should recognize that the party and the central government is supreme. Private sector can develop and flourish with big incentives, but nobody should think themselves bigger than the party and the emperor and take over the emperor."
"And that was the lessons that Jack Ma learned. This is the lesson that all the business people have learned. I have a lot of students who are businessmen and who did very well. And I think that is a clear understanding that you do your development, you contribute to jobs, you contribute to foreign exchange, you contribute to exports, but you should never think that you can take over the leadership of the country or the party. So at the moment, you can see that people, the country flourishes because of the early generation of very poor people. You know, I have 1,500 students who are senior government officials at different levels, and they are the ones that are running the country, doing all the planning. But I have another 5,000 former EMBA, you know, the private sector students. And quite a few of them are multi-millionaires in Shenzhen. But they told me they are usually in their 40s, early 50s. They told me when they were little kids, they walked to school. Some of them had only one meal a day. One of them told me he took off his shoes when he walked to school and then put it on only when he arrived at the school so that the shoes can last longer."
"These are the people that built China."
"Yeah. And they are still around today in their 40s and 50s. This is the reason why I think China is still quite production-oriented. These are the people who drive China. In 20 years' time, as this generation passes away from the scene, some of these students of mine pass from the scene, their children or younger people might create a China that is, as I said, softer in authoritarianism, a bit more relaxed, a bit more focused on consumption and private welfare. And a softer China might emerge. The Communist Party will still be there. The policy would be less harsh, and the China will be softer and probably less insecure. From your sharing just now, the common thread seems to be that China wants to go its own way. That the way it sees itself vis-à-vis the West is that you can absorb technology. You can learn. You can even leverage access to Western capital to build up your technology, your own economy, but you will choose to go your own way and embark on your own cultural civilizational renaissance. And the Singaporean leaders understood that at a very core level, that you have to learn how to manage rather than change China. The follow-up question I had was more of policy. How did that translate? How did that insight translate in the way the Singapore government during your time or even now manages its relationship with China?"
"I would say that globally, Modi is in some way following the same way that we have a great civilization in India. We will carve out our own path. And that is a message that China's development has gradually sent to some of the Global South. I think in dealing with China, because the Singapore leaders have this some special insight, partly because they studied Chinese history, they got a closer network with the Chinese leaders. So, so we have some advantage in terms of understanding their mindset, especially in the early days where they needed us to understand the West. So, so that is the way things have worked out. But further down the road, we should have no illusion about the new dynamics. I have 1,500 students who study under me in the mayor program. But you can see the dynamic changes. In the early days, Singapore was a model. They came and studied how the airport is managed, how the industrial estate is managed. But now, their airport is bigger, their technology is stronger. And once in a while, my students will tell me, you know, 'Teacher, you, we learned a lot from Singapore, but now I'm a mayor of a city, a third-tier city. I'm running 5.5 million people.' He's hinting that his city is bigger than the whole of Singapore. So, so I have become a lot more humble when I deal with the Chinese officials. And I think ASEAN and Singapore eventually are learning that. But we have a certain unique insight that are probably still very useful. In fact, there is something that I noticed over the last few years. There's a danger that China becomes overly confident. They become a bit cocky. Because they are so successful. 'Hey, our EVs are taking over the whole world.' You know, some of my students are multi-millionaires. They have tech companies that are very big in Shenzhen. They are, you know, and then some of them are pharmaceutical companies that are very strong globally. There is a danger that China overshoots, becomes too confident, too cocky, and it might alienate a lot of other Asian countries and eventually create some tensions, which I think they need to be careful about. There's a danger of overshooting. So in some way, Singapore could play a role by advising them to be more moderate so that they do not overestimate themselves. You don't forget that the US is still very strong militarily, the military is very strong, the US dollar is still very strong, their technology is still very high-end. And in terms of major innovation, despite what Trump has done, the US is still able to capture a large part of the global talent. And I think there is a danger that China overshoots because of their recent success. So you can begin to see that sometimes their companies are not as sufficiently focused on the interests of the ASEAN countries. For example, a lot of the textile government overexpansion and export has created a lot of disruptions in Indonesia, you know, causing factories to close down and unemployment. And that is something that I think the government should probably pay some attention to, to make sure that their dumping does not actually create hardship for some of the poorer people within ASEAN. So these are some of the things that they might need to be more conscious of."
"Yeah. There's this idea which is like evolution, right? Where to a certain extent, the way you escape evolution within China is to go out into the global markets, especially Southeast Asia, for example, where you have a bigger or greater consumer preference for value and lower cost. One of the unintended effects is that you create a lot of local negative externalities. And a lot of them lose their jobs, like what you've pointed out. In navigating that reality, where does Singapore fit in? Do we face the same challenges or the same threats that some of our Southeast Asian neighbors do, even though we're quite different in our economic development stage?"
"Having negative effects on some of the local textile garment factories overall, at the moment, China and US, China and ASEAN is still relatively more complementary. I remember in the early days when China was industrializing in the '90s, 2000s, there was very, very serious pressure on ASEAN because ASEAN was starting to develop shoes, garment factories in Indonesia, in Malaysia, consumer electronics and others in Thailand. And then China came up with all these labor-intensive exports. They are very competitive and cost-effective and took over some of the market share in the US. So that was a period where you would visit Indonesia, visit Malaysia, visit Thailand, there's a fear of China because everybody is climbing up the ladder. Industrialization. US, Japan are on top. Is in the early middle level, you know, you make shoes, garments, consumer electronics, and all this. And China is moving up very rapidly in the same type of product. So when you climb up the ladder, ASEAN, each individual country is not so big. So they take over some of the things that Japan, Korea didn't want to do. But China is such a big panda bear that it came into climbing the ladder. It squeezed out the others. And for a while, the ASEAN countries, I look at Indonesian data, they actually de-industrialized. They didn't do as much on the..."
light manufactured they move into coffee palm oil and commodity. So, fortunately, now China increasingly is going to middle and upper level. So ASEAN and China now is much more complimentary, even. So there's some competitiveness. Uh, you know, Chinese factory relocate here. They, they increasingly see ASEAN as a major market. And this is the reason why there is something that is very significant.
If you look at Chinese deployment of their capital in the past, they generate a lot of US dollar. They put in US Treasury bills and bonds. Now they are moving into investing in fixed asset in ASEAN. Uh, instead of buying US Treasury bills and bonds, they invest in ports in Indonesia. They, they build highways in Malaysia. They put into infrastructure in Thailand. And so they spread out their risk. And their hope is that they help ASEAN to improve their infrastructure. You got better roads in Indonesia, better ports in Indonesia. Then some of the factory relocate here and over time Indonesia will develop. There will be more middle class, lower, upper middle class coming up and they can become a market. And they hope that as US, Europe get protectionist, they, the ASEAN market, uh, which is 700, 6, 700 million, will become a potential source of demand. Their export will be able to be sustained. And then their capital in some way will be less susceptible to potential tension with the US. And so they see this whole zone as integrated in some way. And ASEAN will provide an important locomotive effect for China. And China will also provide a way where their industry can help ASEAN to develop. And so this is a period where I think they will increasingly see ASEAN as a complimentary zone of development. [snorts] And of course, different ASEAN countries take different positions, but the overall lightly complemented mentality is likely to increasingly improve. Overall.
So, so I foresee a a situation where where the negative side of the ASEAN China relationship would continue to be there, but the dynamic is toward greater complementarity and the co-development in some way. As long as the Chinese government make sure that some of their, you see, the Chinese private sector are different from the government. Sometimes they do all kinds of funny things that could undermine.
So as long as the Chinese government is able to kind of regulate or all.
Yeah, if they go too far, I think the Chinese government will probably come in because it has foreign policy consequences.
There's so much to talk about, but I want to wrap out this last question first for this conversation. The last question I have for you is that if you look at China and Southeast Asia, there seems to be, as you've pointed out, a convergence or push towards greater complementarity and integration. Where does Singapore fit in in this new model? In the past, we have primarily engaged China at an economic level through being a capital allocator as a foreign direct investor. Will that role change? How will that role evolve as we go forward?
I was chief economist before. We have gone through quite some metamorphosis and transformed itself, and Singapore is quite a flexible place. I would foresee in the next 10, 15 years, as long as US China tension doesn't explode. That is an important precondition. As long as US China tension remain contained and doesn't explode into a serious conflict, then we are in good business. And that's the reason why I focus so much of my attention on the recent visit of Trump to Beijing. The recent Trump C summit is an indication that they actually will continue to compete, but they will make sure that it doesn't explode out of bounds. One way of saying is that, you know, the the two big countries will always compete, but as long as they compete without being explosive like a kettle, the water in the kettle, as long as the kettle doesn't explode, the two relationship will always be having tensions, competition, but they do not go out of bounds.
Now, then I think ASEAN is in good business and Singapore is in good business because Singapore has carved out a niche as a regional hub for ASEAN. You see a lot of logistics go through here. Airport, SE port transport, financing of capital or one B one road project, clean energy development. And because we, and even the the legal dispute, we we are trusted center. And of course, the, you know, financial logistic and project financing. And Singapore plays this important role. Through this role, we help Indonesia to create jobs. We help Malaysia to improve its infrastructure. We help Thailand to develop. They are our hinterland. No. If our hinterland is prosperous, Indonesians young people get jobs. They are not likely to become radicalized. If Thailand and Malaysia are more stable, they will become better neighbors. And we play this role, it helps us. It helped them. And I think, as I said, the most important thing is US China tension doesn't create a point where ASEAN is forced to make a hard choice and it become very conflictual.
As long as that overall arching framework has competition but doesn't explode into uncontrollable situation, then I think we will be able to under this broader less conflictual geopolitical environment cover a niche that help our neighbor, our neighbor help us, and then link with China here. And then a lot of US investment also come. And that will allow us to play a very important role that is mutually beneficial. And we can continue to prosper because we have built up such reputation in finance, in uh, logistic, in uh, clean energy financing, in project financing, in confidence, in legal dispute and others. And and in some way, that would be a role that Singapore continue to play, but at a high level. And China, US and ASEAN will see Singapore playing this role as very constructive.
Yeah.
And if all these three groups, China, US, the rest of ASEAN see see Singapore playing a constructive role, our economic geopolitical survival is well assured.
With that, Profan, thank you so much for coming on.
Thank you so much for your excellent questions. Thank you for listening to today's episode. If you are watching this on YouTube, please consider subscribing and turning on notifications for whenever new episodes are out. [music] If you're on Spotify or Apple, it would help us greatly if you could leave a five-star review on those platforms. Once again, thank you for tuning in to the FR.