The significance of Lee Hsien Loong’s visit to China

As China’s economy continues to slow, economic growth is expected to remain low in the medium term. The effects of this deceleration will impact several countries in the Indo-Pacific region, including Singapore. The importance of the Chinese economy within the global economy has increased significantly in the last three decades, and it has been a crucial driver of trade integration in much of Asia. This capability as a driving force for trade integration is because of China’s insertion in global value chains (GVCs), which are defined as such when different stages of the production process takes place across multiple countries. As Chinese economic growth decelerates, several countries will be exposed to a decrease in demand. For Singapore, in 2022, there were significant bilateral exports of GVC goods to China, roughly about 75% of Singapore’s aggregate goods to China. At the same time, only 29% of Singapore’s aggregate bilateral exports to China contain value added that originates in Singapore. This means that the remainder of the aggregate exports is content that is created in other countries. That is imported into Singapore and either re-exported or is used as intermediaries in the production of Singaporean exports. This makes global spillovers in the context of complex GVCs.

In November, former Singaporean Prime Minister Lee Hsien Loong paid a six-day visit to China. Lee, now a senior minister made more than ten trips as Prime Minister in the past two decades from 2004. During his visit this time, Lee was met and hosted by the secretary of the Communist Party of China Shanghai Municipal Committee, in Shanghai.

Senior minister Lee Hsien Loong met and was hosted to lunch by secretary of the Communist Party of China Shanghai Municipal Committee Chen Jining in Shanghai on November 28, 2024. Affirming the strong relations between Singapore and Shanghai, Lee and Cheng shared notes on recent developments in Shanghai and the broader Yangtze River Delta region, opportunities and challenges in the region, and ways to strengthen economic and financial cooperation between Singapore and Shanghai. They also welcomed efforts to strengthen cooperation between the two sides under the Singapore- Shanghai Comprehensive Cooperation Council, including in areas such as financial services cooperation, technology and innovation and the digital economy.

Singapore plays a crucial role in China’s Belt and Road Initiative (BRI), given its stature as a key financial and logistics hub, The city-State’s business-friendly environment, robust infrastructure and strategic location, make it an extremely attractive partner for China’s ambitious project. In fact, the two sides are collaborating on several infrastructure projects, including the New International Land-Sea Trade Corridor, which connects Western China to Southeast Asia and beyond. Also, Singapore is a major financial hub, and China seeks to leverage this to facilitate cross-border financing and investments. Singapore and China have even established a green finance task force to promote sustainable financing practises. Singapore is also working with China to develop third-party markets, particularly in Southeast Asia, through joint collaborations and investments. In China’s BRI, Singapore’s expertise in legal and professional services are being utilised for supporting BRI projects, including dispute resolution and arbitration. In the face of increasing doubts over BRI projects across the world, China would do well leveraging Singapore. For Singapore, it is essential to ensure Chinese deceleration does not hit it beyond a certain threshold, which is why the search for new partnerships within the bilateral relationship, exploring new verticals for economic cooperation becomes pertinent for Singapore. Lee’s visit was to commemorate the 30th anniversary of the Suzhou Industrial Park-a project that he had helped to steer at the beginning.

A highly networked trading hub connecting the East and the West, Singapore strives to keep opportunities open on all sides and to that end it has to often balance its relations with both the United States and China, and avoids taking sides between the two major powers. Given that President Donald Trump is now president-elect and has spoken at least twice, if not more about slapping 60% tariffs of Chinese goods, amidst the fact that Chinese economic growth rates are continuing to tumble, it becomes pertinent for Singapore to ensure that the shifting GVCs do not spell absolute disaster for it. Singapore is vying for stability amidst US-China tensions. For China, leveraging a powerful and financial hub like Singapore is critical to stay afloat amidst the economic chaos it faces domestically and across the world as a series of tariffs are slapped on its products in different advanced countries ranging from the US to the European Union and beyond, for malicious trade practices.

Sinagpore’s credentials as a well-established international financial centre will help China with access to global capital markets, along with financial expertise. Additionally, Singapore is one of the largest offshore Renminbi centres, facilitating China’s efforts to internationalise its currency. Singapore has a plethora of free trade agreements with various countries, including the Association of Southeast Asian Nations and the EU, all of which can benefit Chinese businesses. The city-State is also a gateway for Chinese investments into Southeast Asia, the Indian Ocean and beyond. Singapore’s world-class ports and logistics infrastructure provide efficient connectivity for Chinese trade and investment flows and Singaporean financial institutions can help provide services for Chinese infrastructure development projects both domestically as well as internationally.

Given the fact that China’s population is now ageing and there is a shrinking labour force, the fact that Singapore attracts top talents from the world, can provide China with access to a skilled workforce and expertise in areas like financial technology and innovation. Also, Singapore’s strategic location at the southern tip of the Malay Peninsula makes it an ideal hub for trade and investment flows between China and the regions beyond Northeast Asia. By leveraging Singapore's economic strengths, China can enhance its own economic growth, trade, and investment opportunities, while also promoting its Belt and Road Initiative (BRI) and internationalising its currency. As things get increasingly difficult for the Chinese economy, more meetings between Singapore and China can be expected in the near future.

This article us authored by Sriparna Pathak, associate professor, Chinese Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.