Representatives from government and private sector deliberated on the changing market dynamics and how Singapore should brace to retain its position as a global maritime hub
Q Andreas Sohmen-Pao, Chairman, BW Group and Singapore Maritime Foundation: The World Trade Organisation had conducted six trade rounds in its first seventeen years and it has failed to conclude a single round in the past 22 years. On the other hand there has been progress in bilateral and regional deals – EU Singapore, FTI Mercosur and ASEAN. Should we be concerned with the negative headlines or encouraged by the progress in the deals?
Chan Chun Sing, Minister for Trade and Industry, Singapore: I think we should be both. If we look at the longer term trends then we need to start from some other fundamentals. Where is the greater growth in terms of population and market demand? And that’s likely to be in Asia including China and India. Where are the resources likely to come from? It will be from Africa, Australia and South America. The final demand will be in Asia and supply will be from some of those places mentioned above. And more interestingly, where are the intermediate points where the global value chains are required to transroute? Where are the manufacturing hubs for tangible products? Where are the nodes that will provide the non-tangible services that need to accompany this?
To me answers to these questions will help to understand the global trade flows in the longer term perspective. This part I think is a positive sign and gives us a sense of optimism as many of the trade groups will have to come to this part of the world to fill the final demand. Having said that there will be some short-term turbulences because as you have mentioned there are trade issues to be sorted out between US and China, but more importantly I think the world is also seeing a change in the production chains. What previously was manufactured in China will no longer be so in future. Then the question is where will the hubs of manufacturing relocate? Will it be in South East Asia, East Asia, South West Asia and so forth? So we really need to connect those dots.
No country today would be able to produce everything by itself. So the need to trade or shift things around the world is inevitable. We need to distinguish between the trade flows which might be shifting over times v/s the overall trade bodies that will be determined by the first set of factors that I have mentioned.
My long term perspective is – the trade flows and trade bodies in this part of the world will continue to grow. In short to medium term – there will be shifts in global trade flows because of the shifts in global production chain. And for us it is not the net positive or the net negative which we should be careful about, especially for a small country like Singapore, we should position ourselves carefully in these changing production and trade flows.
Q Andreas Sohmen-Pao: How confident are you that this regional trade pact will be completed? How much do domestic elections effect the outcome?
Chan Chun Sing: I think there is no need for arguments on benefits of CPTPP or any bilateral or multilateral agreements. “If economics run the world, then the world would be a better place.” The theory of comparative advantage then is almost inevitable. But economics are often defeated by politics. Trade and globalisation is a net plus for everyone, but it doesn’t mean that it is a net plus for everyone in the country. There will be people who gain with more and some will gain with less. But what is inevitable and needs to come with globalisation and trade is that all of us need our domestic jurisdiction to make consequential adjustment. Many of us who don’t adjust do not progress and when a broad middle class is unable to progress then they ask the question – why do they need to support the global free trade system? They rebel against the global free trade system and will also fight against adoption of technology that caused them to be displaced from their previous jobs. For our countries to benefit from free trade, those consequential adjustment are important.
Q Andreas Sohmen-Pao: What do you see happening on the ground with regards to trade? The global trade intensity is declining. Some of the observations are: Since 1990’s to 2007 trade volumes have grown 2.1 times the GDP, but since 2011 they have only grown 1.1 times GDP. Cross border bank loans have declined to less than 60 per cent of GDP?
Samuel Tsien, Group CEO, OCBC Bank: It is a good observation that growth in trade with respect to GDP has come down, but there is still growth, it is not a negative growth. And secondly it is reasonable for services trade to grow faster than commodity trade. In the world where the middle market is gradually developing, the demand for services will increase. This doesn’t mean that services can only be expended by the domestic market, there are a lot of cross border services that are happening. In broader sense of cross border activities service trade has increased. Companies extending services that are not available in domestic market and exploring overseas markets is an important element of capital flow as well. Overall, I will not say that this is a worrying sign, but a natural development. It is however something to watch for in the event we start seeing trade go into negative growth. We are still experiencing 3-4% growth every year, but as a percentage of GDP it has come down. Provided the GDP of major economies are growing, I think this particular point could be explained and acceptable.
Teo Siong Seng, Managing Director, Pacific International Lines:
We believe in container shipping we only saw a boom in late 90’s, later on there was a down turn during the 2000 financial crisis and it picked up again in 2010. Last time the growth was achieved in Asia, Europe and transpacific. I remember when I attended the box club they said that for every one percent GDP growth in North America it is 10-11 per cent volume growth. In Europe one per cent growth in GDP is eight times the volume growth. But in certain economies like Southeast Asia, Africa and Latin America, the GDP growth doesn’t result in multiple volume growth. I think the economy structure is different here so the GDP growth will not be tens of times of volume growth as we have seen before.
The consumption pattern is changing and is moving to Latin America, Africa and South Asia where GDP growth is positive. It will change the size of ships being deployed. You need to be watchful as to where cargo is growing and deploy logistics assets accordingly.
Q Andreas Sohmen-Pao: Do you see more intra-regional trade as opposed to the normal?
Teo Siong Seng: The most promising market is currently in ASEAN that has 650 million population, half of which are less than 20 years old. Cargo is moving from Nigeria to neighbouring countries which has never happened before. The African countries are exporting – I see rubber being exported from Nigeria to Asia. There is lot of regional trade growing intra-ASEAN, intra-Latin America and intra-Africa.
Q Andreas Sohmen-Pao: Do you see technology changes by automation, fast fashion and e-commerce affecting trade, demand and supply patterns?
Edit Yeung, Partner, 500 Startups: In terms of investment we are focused at consumer Internet and technology. For any Chinese investor to invest in Silicon Valley now the scenario is different. During the Obama years about 90 per cent of investment proposals would get approved, but during the Trump years as much as 60 per cent get approved. Many of the Chinese Bank Venture Capital funding have been informed that they will not be welcome to invest in Silicon Valley. In terms of M&A, in the last 24 months Alibaba’s bid to acquire Money Gram and Broadcom’s bid to acquire Qualcomm have been blocked. As we invest in Internet so there are no physical assets to deprive us per say, Chinese investors will have a very hard time in investment or acquisition of anything related to ecommerce payments, which is mainly what Alibaba intends to focus on. They are not focusing on what’s happening in Southeast Asia. Just to start with Alibaba acquiring LAZADA – lot of these Internet giants are first thinking about payment as infrastructure for commerce. So we will see more Chinese investments going into payment related infrastructure.
Q Andreas Sohmen-Pao: There seems to be increased centralisation in policy making and how is that affecting logistics and shipping in Singapore?
Chan Chun Sing: If we look at the Chinese economy over the past decades, we have always seen some forward-backward movement in terms of policies and that reflects in having tension in Chinese macro economy. On one hand I think it’s quite clear to the Chinese leadership that they will like the private enterprises to drive the productivity and growth in their economy. They will be increasingly integrated with global economic system. The greater they rely on the private sector to drive growth the greater they will need to integrate with the global economy. On the other hand the Chinese political system is such that they would also like to find a way to manage the social issues that come with it. The longer term trend will always be that the Chinese economy will be more integrated with the world’s economy.
Q Andreas Sohmen-Pao: From a lending perspective there has been a clear shift towards state-owned enterprises, so what’s the impact on the private sector?
Samuel Tien, Group CEO, OCBC Bank: The Chinese government has also desired to make funding available to the local private enterprises and to SMEs. During the previous cycle the focus was to direct the growth in economic activity in the local market. And this is what happened in 2008 and 2009 when four trillion RMB was pumped into the market, banks were instructed to grant loans to all sectors and primary sectors were clearly defined. It was well orchestrated and the privately-owned and small enterprises benefited.
In the recent cycle, the private enterprises and SMEs will not be able to garner as much funding as they got in the previous cycle. In a way the centralised economy is not functioning as effectively as before. The majority of the state banks are trying to make independent decisions on credits whether to fund or not. On the other hand there is pressure from the central government to lend more money. The bank management is responsible for lending and also for bad debts, if they happen. This has triggered more corporate governance than earlier.
Q Andreas Sohmen-Pao: How do you see Belt and Road with respect to Singapore?
Chan Chun Sing: If we look at internal to China, the norm of infrastructure spending, then we can say the belt and road is expected. The belt and road initiative beyond China’s border to me is again fully expected. Any growing economy will definitely try to secure its supply chains and access to markets. The execution of this project has to be based on market principles to make it a success.
Andreas Sohmen-Pao: Can we expect government will continue its proactive support to maritime sector?
Chan Chun Sing: Yes. How does a city state like us survive? Trade is our lifeline, so we need to be connected to the world just like the Internet. My hypothesis is that in the past we always had to connect by land, air and sea.
Going forward we will supplement these three dimensions of connectivity with talent, technology, data, finance. Our growth will never be constrained by our geographical size or location. If we can do this, in next 50 years, there is nothing stopping us from achieving much more than what we are doing now.
Chan Chun Sing, Minister for Trade and Industry, Singapore, shows the direction for Singapore to become the future maritime hub
Today, 70 per cent of the global maritime economy transits through the Singapore strait. But things can change very quickly tomorrow. We would be mistaken to think that our hub status is predestined. The question is – What will determine Singapore’s future as a maritime hub?
As the shipping industry redesigns its business models for the 21st century, Singapore must also rethink its maritime strategy. Our continued status as a global hub port and international maritime center will depend on how well we can navigate the challenges and opportunities that come to fore with these driving forces.
We have and will continue to establish linkages with key markets. The CPTPP and our ASEAN agreements and initiatives allow Singapore based businesses to plug into the growth of the region. For instance, once the EU-Singapore FTA comes into force, qualifying exports out of Singapore will benefit from a network of 25 trade agreements with 64 trading partners. Maritime businesses can look forward to privileged access to even more markets through upcoming FTAs like RCEP and MERCOSUR.
We understood the vagaries of global trade flows, so we reimagined what it means to be a maritime city of tomorrow – Not a localised port operator, but a global maritime platform that transcends our geography. Earlier this year we launched the SWRIC (Singapore War Risk Insurance Conditions) to provide war risk insurance cover for ships, including those not registered in Singapore. We are happy to welcome new P&I (Protection & Indemnity) clubs into Singapore – West of England, Steamships Mutual and Britannia.
Training initiatives like MPAs Maritime Cluster Fund and new education programmes like SMU’s Maritime Business Operations Track help to nurture a pipeline of Singapore maritime experts to support evolving industry needs. To grow alongside shipping lines and alliances, we will boost our port capacity and enhance efficiencies. The future Tuas terminal will have a capacity of up to 65 million teus. It will be equipped with higher level of automation – PSA is testing automated guided vehicles to transport containers between quayside and container yards 24X7.
Finally, we must defend the open rules-based global trading order. The multilateral trading system has underpinned global economic growth and development for the past few decades. It provides predictability and stability through a set of rules agreed by all 164 WTO members.
Data will be an essential element of the Singapore platform, which will be open and connected, as opposed to balkanized. This is so that all can participate in global connectivity. The ASEAN single window which is now live for Indonesia, Malaysia, Singapore, Thailand and Vietnam, allows traders to benefit from expedited cargo clearance and reduced paperwork. At the same time, Singapore’s networked trade platform brings together government certification and third-party commercial services onto a single platform.
As more and more companies and countries share platforms to enhance B to B and B to G operations, we will reap greater efficiencies in time and cost. The networked trade platform and Calista are such examples. Regardless, if the trade flow physically flows to or flows through Singapore, they can all benefit from the network efficiencies by trading on this Singapore platform.
To truly succeed as a maritime hub, we must see physical trade not in isolation, but as part of multifaceted connectivity that includes data, talent, technology and finance flows. Our selling point has to go beyond our geographical location and our reputation as a “catch-up-port.”