SPEECH BY SINGAPORE DEPUTY PRIME MINISTER AND MINISTER FOR FINANCE LEE HSIEN LOONG AT THE ASIA 2000 FORUM, WELLINGTON, NEW ZEALAND ON 25 NOVEMBER 2003

SERIOUSLY ASIA

Prime Minister Helen Clark

Ladies and Gentlemen

INTRODUCTION

I am delighted to be in New Zealand again, and to join you tonight at the Asia 2000 Forum.

The last six years have been tumultuous ones for Asia. For two decades until 1997, East Asia enjoyed remarkable growth. Economies opened up, investments flowed in, exports grew, and prosperity was everywhere. Then the Asian Financial Crisis struck. One country after another succumbed as investors stampeded out, stock markets and currencies crashed, and economies nearly collapsed. A minor problem in Thailand rapidly developed into a panic that spread beyond East Asia to other emerging markets - Russia and Latin America - and for a while seemed to pose a real threat to the world economy.

The Asian crisis also precipitated far-reaching political changes. Thailand acquired a new constitution and a new government. In Indonesia, the Suharto regime collapsed, to be replaced by a totally different, more open and less predictable political system. In South Korea, a new government under President Kim Dae-jung embarked on economic reforms which set the country on a recovery path.

Had the Asian crisis not struck, and growth in East Asia continued unabated, I probably would not need to be here tonight to argue the case for New Zealand to take Asia seriously. Or had the crisis plunged East Asia into a decade of lost growth, as happened in Latin America after its debt crisis in the early 1980s, you probably would not have wanted to be here tonight. But the reality in Asia, six years after the Asian crisis, is an outlook that is both more complex and more promising. Asia offers many business and investment opportunities, despite the geopolitical and security uncertainties.

SALIENT DEVELOPMENTS IN ASIA SINCE 1997

What are the salient features of Asia, post crisis? Let me highlight four - the recovery of the Asian economies, the continuing rise of China, the emergence of India, and the changes in Indonesia.

Economic Recovery

The first important fact about Asia is that most of the crisis-hit economies have recovered. The dire early predictions of a permanent meltdown have turned out to be unfounded. The growth is not just in Northeast Asia - China and South Korea - but also Southeast Asia, which was hardest hit by the crisis. Confidence has returned, economies are growing again, and stock markets have rallied strongly, as capital has flowed back into the region. The countries have made progress on the structural weaknesses that contributed to the crisis. Their finances are now much sounder - with balance of payments in surplus, and foreign reserves accumulating.

Thailand is doing particularly well. Malaysia and Indonesia have both maintained respectable growth rates. Vietnam escaped the Asian crisis and is now opening up and taking off. Singapore has had a difficult time. It weathered the initial storm well, but then got hit hard first by the global electronics downturn and then by SARS. Now at last Singapore's economy is picking up again.

Like the rest of the world, Asia is dependent on the US economy, and anxiously cheering on the US recovery. But Asian economies are also increasingly generating their own consumption demand. Prosperity is creating growing middle classes, eager to enjoy the good life. Like middle classes everywhere, they want consumer products, lifestyle items, tourist travel, and many high quality services. This is one reason intra-Asian trade is growing rapidly. Much of this trend is driven by the rise of China, and more recently of India.

China

In East Asia as a whole, the most dramatic change since 1997 has been the continued rapid rise of China. Not only has China sustained phenomenal rates of growth, but it has been modernising its economy and transforming the outlook of its people. It is a different China, connected up with the internet and mobile phones, aware of what is happening internationally, and determined to get ahead and take its rightful place in the world. Shanghai and Beijing are as vibrant and cosmopolitan as any Western metropolis. The Chinese are brimming with confidence, especially after winning the bid to host the 2008 Olympics and sending its first man into space. China is competing aggressively for investments by MNCs, and capturing a larger share of FDI flows. Investors are attracted by the low costs of factor inputs, a workforce that is adaptable and eager to learn, and access to the huge Chinese market.

It is easy and tempting to see China's rise as an economic threat, but it would also be wrong to do so. A rising China is a new engine of growth for the world economy. Asian countries will benefit greatly, provided they adapt fast enough to service and benefit from China's growth, and shift quickly out of activities where China enjoys a comparative advantage. Indeed, rising trade with China was one reason why many of the crisis-hit Asian economies recovered as quickly as they did.

China's exports are growing rapidly, but so are its imports. China is a voracious importer of intermediate and consumption goods from the rest of the world. Trade between China plus Hong Kong and the rest of the world more than tripled over a decade (from 1990 to 2002). China plus Hong Kong is already the largest destination for Taiwan, Korea and Singapore's exports, and the second largest destination for Japan's exports.

India

But China is not the only emerging economic giant in Asia. India too is opening up, though it is starting later than China. For decades India closed itself off from the world economy, pursued import-substitution policies, and operated a highly regulated and licence-based system. But in the last few years India has started to change. There is a political consensus in favour of liberalisation, and the business environment is becoming more favourable. More sectors of the Indian economy are being opened up, including ports, airports, telecommunications and financial services.

India has experienced periods of liberalisation and promise before, only to see them followed by political complications and reversion to the status quo. But this time the momentum has built up, and economic liberalization and market reforms seem to be taking root.

India produces some two million graduates each year. Many are skilled IT professionals and engineers. They speak English, are well qualified and hardworking, and cost a fraction of equivalent workers in developed countries. So financial institutions, accounting firms and hospitals in developed countries are outsourcing business processes and call centres to India. Cities like Bangalore and Mumbai are attracting hi-tech companies. For example, Microsoft is setting up a major R&D centre in Bangalore. And Infosys Technologies, India's largest IT company, is a truly globalised company, earning nearly all (98%) of its revenues from foreign businesses.

On the trade front, India has entered into negotiations with Singapore for a bilateral Comprehensive Economic Co-operation Agreement (CECA) which will incorporate an FTA component. Just two years ago, it would have been difficult to imagine any such negotiations with India.

Indonesia

Southeast Asia has also stabilized since 1997, both economically and politically. Indonesia, which experienced the most drastic changes following the financial crisis, is crucial to the stability of the region. Since Suharto's fall, complex questions have emerged, including the role of Islam in politics, and the relationship between Jakarta and the provinces. These sensitive issues had been suppressed and kept under strict restraint by the Suharto government