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 societies • 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 industrialized economies’ • Now they are regional hubs respectively. • 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 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, 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, absence 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 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 wouldnot 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 waswelcomed 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!