Friends and Colleagues,
Distinguished Guests,
Ladies and Gentlemen:

Good afternoon.

Introduction

1. First, let me thank Morgan Stanley for inviting me to this Asia-Pacific Summit. It’s gratifying to know that this is the 5^th time that they have held this event here. My congratulations too for their excellent 3-day program that has drawn in 1,500 participants.

2. Second, thank you all for your presence here too – to our overseas visitors to Singapore, a very special welcome.

3. Let me share with you a brief perspective of Asia and Singapore’s position in a growing Asia.

Asia on the move

4. Many of us have watched the rise of Asia with amazement and some trepidation. The biggest driver for growth was the two and a half billion population in China and India who joined the global economy over the last 2 decades. Asia’s ¹ growth was partially interrupted by the Asian Financial Crisis in the late 90s and the end of the dot.com bubble at the turn of the century.

5. However, the secular trend remains strong. The Asean and East Asian economies have gotten over the worst of the financial crisis. They are fast growing their links with their two regional giants. Led by China, and India, Asia continues to be a continent on the move.

6. True, the huge influx of more than a billion unskilled labour has helped to keep prices low for consumer countries like the USA. And the livelihoods of their middle and lower income groups were however affected by lower wages or job losses, as businesses adjust to the new value chain. The lower and middle income groups in Asean and Singapore were also not spared.

7. On the flip side, in China alone, almost 400 million people were lifted out from poverty over the last 2 decades¹. The scale and speed of development has never been seen before in the history of mankind. This is equivalent to uplifting one European Union from poverty to middle class prosperity within 20 years. In so doing, China has delivered on Deng Xiaoping’s goal of [翻两翻] or twice doubling her per capita income to US$800 by the year 2000². This very aspirational goal was set in the early 80s when her per capita income was at the same level as that of Haiti. Deng’s confidence was not misplaced. China attained a per capita income of US$930 in the year 2000³.

8. Asia is not a static picture. Her story continues to unfold. The Asia of today is already far different from the Asia of 10 years ago.

9. Where the large majority used to live in abject poverty, there is now new wealth in a broad and growing middle class. Wages are rising too, especially for skilled labour and management. At senior levels, Indian companies are already beginning to pay US-standard salaries, or even better in some cases. Where we once saw Indian graduates streaming to the US for jobs during the 1990s, we now see a reverse brain drain, with US techies being wooed to India over the last 5 years.

10. The upshot is that the region is fast becoming a market for the world too. It is no longer just a low cost base.

11. Consider this. On a purchasing power parity (PPP) basis, China, India and Asean now represent about a quarter of the world’s economy⁴.

12. Personal consumption in India makes up a staggering 61% of GDP⁵– second only to the US which is at 70%⁶. Over in China, personal consumption is a fast growing 39% of GDP⁷. The 2 billion young Asians below 30 years old will continue to be a driver of domestic demand over the next 2 decades.

13. Exports out from Asia are no longer the main driver for growth⁸. For instance, trade surplus for Asia has added less than 1% per year of growth on average since 2000. Instead, intra-Asia flows for trade and investments have grown considerably. Last year, in 2005, intra-Asian container traffic constituted a quarter of global container traffic⁹. In the same period, 21% of the exports from Asean, Taiwan and Korea went to China. Over in India, 18% of her imports came from Asean, greater China and Korea. China’s exports are increasingly directed towards non-USA markets.

14. As you can see, the story of Asia today has become one of regional integration as well as domestic demand. From being a low cost exporter of goods and services, China and India are now large and growing consumer markets.

15. At the same time, emerging Asia is a growing source of FDI as well¹⁰. Most of us are not surprised that China was globally the third largest recipient of FDI last year (behind UK and the US). However, China became the third largest Asian source of FDI globally too (behind Japan and Hong Kong). Similarly, Indian companies formed the third largest group of overseas investors in the UK last year (behind the US and Japan). Thus, emerging Asia today has become both a source as well as a destination for investments.

Singapore in a growing Asia

16. Located in the heart of Asia, Singapore is an active participant in a growing Asia in 4 ways:

• As a springboard for companies;
• As a services hub;
• As a financial gateway; and
• As a friendly base for investors.

17. As a springboard, Singapore serves 3 groups of companies looking at Asian opportunities. First, Singapore-based corporations have played a role in supplying goods and services to the region. These range from lawyers and architects, to companies like Hyflux providing specialized services and products to China, India and the Middle East.

18. Second, Singapore is host to 7,000 multinationals¹¹. Many of them use Singapore as their regional headquarters to reach out to Asia. Singapore is after all within an easy 6-7 hour direct flight to most major cities in Asia.

19. Third, which is an interesting development, over the last decade, Indian and Chinese companies have been using Singapore as their base to make inroads to other parts of Asia. There are now about 2,000 Indian companies as well as 2,000 Chinese companies in Singapore¹². Some use Singapore as their regional HQ for Asean. Others use Singapore as their service recovery back-up centre for supporting their global clients. Interestingly, one Chinese company uses Singapore as their base to reach into India and the Middle East. They explained that it was not only convenient in terms of the air connectivity. To them, Singapore was also an excellent base to build a multi-racial, multi-lingual team for them to better access the region.

20. With the rise of intra-Asian linkages, we also see Singapore grow as a services hub. In newer industries like the biomedical sector, Singapore serves as a centre of excellence to complement those in the West. For instance, patient response for oriental Asians to one new lung cancer drug is 4 times better than that for Caucasians. So it makes sense for pharmaceutical companies to tap on Singapore as one of their global bases for multi-ethnicity drug trials. There are already 42 top pharmaceutical companies in Singapore, up from a handful 10 years ago. At the same time, the number of international patients coming to Singapore has been growing at an average of 20% a year to reach 374,000 last year. The patient catchment has expanded beyond the traditional Asean base - patients now come from the Middle East, China, India, Mongolia and elsewhere in Asia. Some come from as far away as Russia.

21. Parallel to this is an increase in foreign student enrolment in the education services sector. They enroll in Singapore schools as well as in 60 private educational institutions. 16 world class institutions have set up campuses in Singapore. They include INSEAD of Europe, Waseda of Japan and the University of Chicago. Separately, Duke University is setting up a Graduate Medical School in partnership with the National University of Singapore. I was amazed to learn that Korean students are coming here for their secondary school studies. They want to pick up fluency in both English and Chinese. This makes sense. These developments will not only have spill-over effects in attracting new talents to Singapore, but will also create broader networks for our own Singapore students in an increasingly integrated Asia.

22. On the tourism front, major projects like the integrated resorts will add to the growing buzz. Tourist flows from new markets like the Middle East, India, China and Russia have not just added numbers, but have also provided diversity and robustness to the retail and hospitality sector in Singapore.

23. As a financial gateway to the region, Singapore continues to innovate and adapt. Far from closing up in the aftermath of the Asian Financial Crisis, the Singapore government decided to step up the pace of liberalization and transformation. This strategy is beginning to bear fruit. The total assets under management in Singapore increased two and a half times over the past 5 years from S$280 billion in 2000 to S$720 billion last year¹³. Similarly, private banking assets under management also grew at a healthy average of 20% per year over the last few years to reach US$200 billion currently.

24. Outside Japan, the Singapore Real Estate Investment Trusts or S-REITs market is the largest in Asia. There are now 13 REITs listed on the Singapore Exchange with a combined market capitalization of over S$18 billion (US$11.5 billion), up from zero four years ago. These are not confined to Singapore real estate assets. The first entirely off-shore REIT in Asia was listed here. More are in the pipeline – from China, Indonesia and India.

25. The Monetary Authority of Singapore continues to develop new ideas, to leverage on the integrity, brand and trust in the Singapore regulatory framework. Trust laws were updated. We saw the listing of the first Business Trust (Pacific Shipping Trust) in Singapore in May this year. In September, just 2 months ago, the government introduced an integrated set of incentives to support the growth of infrastructure financing through Singapore’s capital markets. This included the exemption of tax on interest income from qualifying project bonds and off-shore infrastructure projects. With these initiatives, both Singapore as well as regional and international corporations are better able to reach a global investor base for infrastructure funds and bonds through Singapore.

26. Finally, Singapore serves as a friendly and efficient base for investors interested in Asian opportunities. Apart from international investors, we now see West Asian investors in Singapore interested in East Asia as well as East Asian investors interested in the Middle East and India. Other than China, investments in most parts of Asia are still lower in % GDP terms compared to the pre-crisis years before the mid-90s.

27. As an example, for infrastructure alone, the Asian Development Bank estimates that US$3 trillion of investments are required in Asia over the next 10 years.

28. We ourselves at Temasek decided to invest directly in Asia about 4-5 years ago. We are based in Asia, and felt the strong currents of change. Asian economies continue on their long term growth paths. The middle class continues to grow in all parts of Asia. Outside of Japan, corporate Asia also began to demonstrate the ingredients of emerging champions. These present very interesting opportunities.

29. True, Asia is not all rosy. Terrorism and corruption remain huge challenges globally as well as in Asia. Bubbles may form. However, while we can expect bumps from time to time, the long term secular trends remain positive. This will provide an entire new generation of Asians many opportunities and much hope for their future.

Conclusion

30. Let me conclude with this – Asia continues to grow, powered by market reforms and liberalization as well as a growing middle class. Emerging Asia continues to be transformed. She is now both an investment destination and an investment source.

31. In the midst of all these changes, there are growing opportunities for Singapore to play a role as an integral part of Asia, as a host for investors and companies to sink roots in Asia, or as a springboard to broaden their reach into Asia.

32. While there are risks, Asia remains a continent on the move. I welcome you all to participate in and contribute to her continued development.

33. Thank you.

Footnotes:

¹  Source: World Bank
²  Source: Time Magazine
³  Source: World Bank
⁴  Sources: World Bank, IMF
⁵  Source: IMF
⁶  Source: US Department of Commerce
⁷  Source: IMF
⁸  Source: IMF, World Bank
⁹  Source: Global Insight (USA)
¹⁰ Source: PERC’s Asian Intelligence
¹¹ Source: EDB
¹² Source: EDB
¹³ Source: MAS