Suzhou Industrial Park

Asad-Ul Iqbal Latif. Between Rising Powers: China, Singapore and India. Institute of Southeast Asian Studies, 2007.

The Asian values debate, cut off abruptly by the Asian crisis, revealed the international limits of the discursive framework for the evolution of Sino-Singapore ties, but it did not have a bearing on those relations themselves. By contrast, the hobbled fortunes of the Suzhou International Park (SIP), an ambitious attempt to build a Chinese township with Singapore characteristics, tested the limits of Singapore’s engagement of China. The SIP, which began as a 65-35 joint venture between Singapore and China, encountered problems that ceased only when the two stakes were reversed. The Asian crisis played a role in the park’s problems by exacerbating its competition for investment with a neighbouring industrial park, but the causes of the conflict in Suzhou went deeper: to a seemingly intrinsic incompatibility between the Singapore and Chinese ways of doing business in spite of ethnic affinity and empathy with each other’s political systems.

The SIP’s origins were economic. They lay in an attempt to supplement Singapore’s economy with earnings made abroad. Singapore’s regionalization strategy, which was formulated in the mid-1980s, encouraged overseas investment by Singapore companies and joint ventures to “combine the competitive strengths of Singapore and its partners to attract international investors”. The strategy led to official initiatives to establish growth triangles and overseas industrial parks. Thus, the SIJORI growth triangle became a partnership between Singapore, Johore in Malaysia, and Riau in Indonesia that “links the infrastructure, capital, and expertise of Singapore with the natural and labour resources of Johore and Riau”. Industrial parks in India and Vietnam, too, became a part of Singapore’s efforts to develop an external wing for its economy to overcome the scarcity of its land and human resources, tiny domestic market, and its loss in comparative advantage as a result of rising costs. “Neighboring emerging economies serve as extensions or frontiers toward which Singapore transfers management know-how and administrative skills such as clean and efficient government (software).” Replicating its successful development experience served Singapore’s aspirations to be a gateway for multinational corporations wishing to invest in the region.

Suzhou embodied the possibilities of engagement with China. Approached in 1992 by Suzhou Mayor Zhang Xinsheng to invest some of Singapore’s reserves in turning that grand but dilapidated city into a “miniature Singapore”, Lee Kuan Yew, who was Senior Minister then, was sceptical at first. But an intervention by Deng Pufang, Deng Xiaoping’s son, through his father’s office gave the project all-important political credibility. In May 1993, when Lee met Vice-Premier Zhu Rongji in Shanghai, the Singapore leader explained his proposal, which was for “a government-to-government technical assistance agreement to transfer our knowledge and experience (what we called “software”) in attracting investments and building industrial estates, complete with housing and commercial centres, to an unbuilt site of about 100 square kilometres in Suzhou”. Backed by a consortium of Singapore and foreign companies in a joint venture with the Suzhou authorities, the project was seen as taking more than two decades to complete. “I explained that my proposal was in response to many delegations that had come from China to study us in a piecemeal manner but would never understand how our system worked.”

In that sense, SIP’s genesis was Deng’s 1978 visit to Singapore, where he had admired the city-state’s ability to combine growth and order. That admiration was made explicit during his tour of southern China in 1992, when he exhorted Chinese to learn from Singapore as a model of development. Soon after his endorsement, more than 400 Chinese officials visited the Republic. “We chose Suzhou because the Central Government in Beijing had planned to develop Shanghai as China’s main international centre and drive development up the Yangtze river valley. Also Suzhou had well-educated high quality workers who would be fast learners.” In February 1994, Lee signed the Suzhou Agreement with Vice-Premier Li Lanqing in Beijing, witnessed by Singapore Prime Minister Goh Chok Tong and Chinese Premier Li Peng.

In keeping with the general direction of Singapore’s regionalization strategy, the move into Suzhou had ethnic overtones. Singapore encouraged enterprises formed by ethnic Malays to look for investment opportunities in Malaysia and Indonesia, while Indian Singaporean companies were asked to look towards India. It would be going too far to claim that the emphasis on ethnicity was emblematic of the link that the propagation of Asian values sought to make between cultural values and economic success. After all, Western markets were the locus of substantial Singaporean interests as the source of investments and the destination of exports. However, ethnicity did play a role in Singapore’s regionalization as Asia boomed. There was nothing surprising, therefore, when the Singapore authorities cited culture as one reason for identifying China as a target of their regionalization strategy.

The Chinese reciprocated the cultural argument, drawing on their experience of attracting foreign investment during the 1980s, when foreign partners from Hong Kong, Taiwan and Macau accounted for more than 70 per cent of all joint ventures registered on the mainland. The “overseas Chinese” utilized ancestral, kinship and hometown ties to establish guanxi networks typically closed to investors from America, Europe and Japan. “What ethnic Chinese from Hong Kong, Macau and Taiwan did was to demonstrate to a sceptical world that ‘guanxi’ through the same language and culture can make up for a lack in the rule of law, and transparency in rules and regulations,” Lee declared at a world Chinese entrepreneurs’ conference in Hong Kong in 1993. “This ‘guanxi’ capability will be of value for the next 20 years at least, until China develops a system based on the rule of law, with sufficient transparency and certainty to satisfy foreign investors.” Lee concluded that it would be a mistake for Singapore entrepreneurs not to participate in “one of the greatest transformations of our age, the industrialization and modernization of the countries of East Asia, and not least of China. And we would be foolish not to use the ethnic Chinese network to increase our reach and our grasp of these opportunities”. Although Singapore was situated outside Greater China, it was accorded an honorary role in the extended Chinese family where business ties expressed the bonds of cultural affinity. The SIP was built not only on economic foundations but on this sense of cultural affinity.

While the Suzhou park affirmed cultural affinity—which Beijing shared with Sinic territories on its periphery—it went beyond culture and boasted a feature that those territories’ interactions with China did not possess. The SIP was a joint venture between two sovereign governments, not merely between companies bonding through guanxi. An act of political collaboration as much as an economic and cultural initiative, the park was visualized as the prototype for a capitalist-authoritarian China. What Singapore brought to the table was a system, described aptly as an administrative state by Chan Heng Chee, in which politicians, bureaucrats, technocrats and businessmen worked together to achieve national ends defined by the executive. In this system, the presence of government-linked companies gave the state itself a powerful role and stake in economic outcomes. Singapore, which Raffles had visualized as the Manchester of the East, was a “miracle of post-colonial discipline and development”, organized, methodical and seamlessly predictable from top to bottom. The science-fiction writer William Gibson is unnerved by his experience of confronting Singapore. “If IBM had ever bothered to actually possess a physical country, that country might have had a lot in common with Singapore,” he exclaims. However, he acknowledges the value of the premium the state placed on infrastructure, both physical and social. “Ordinarily, confronted with a strange city, I’m inclined to look for the parts that have broken down and fallen apart, revealing the underlying social mechanisms; how the place is really wired beneath the lay of the land as presented by the Chamber of Commerce,” he writes. “This won’t do in Singapore, because nothing is falling apart. Everything that’s fallen apart has already been replaced with something new.” The software to be transferred to China was embedded in this almost total organization of society. Transferring that system was quite another thing.

A Partial Success

The SIP, which was given the same status as China’s Special Economic Zones and the Shanghai Pudong development zone, was one of the most successful zones for attracting foreign investment between 1994 and early 1997. However, from the last quarter of 1997 until mid-1999, the zone became uncompetitive and lost money. The Asian economic crisis hit the park by affecting existing tenants, including multinational corporations, which were not expanding operations; and by reducing the number of potential new tenants. However, the primary problem was the “aggressive marketing strategy” adopted by a rival industrial zone, the Suzhou New District (SND), which had begun three years before the SIP. The Suzhou Municipal Authority had offered the SND to Singapore as a site for the inter-governmental project with China, but the Republic had turned down the offer because the SND did not provide sufficient space and because it wanted the SIP to be independent of ties with local governing bodies. The SND avenged itself by copying the SIP’s practices while undercutting it in land and infrastructure costs. The SND “simply looked over the fence, understood what made the Suzhou Industrial Park successful and replicated it”. “Things came to a head in mid-1997 when the vice-mayor of Suzhou, who ran SND, told a meeting of German investors in Hamburg that President Jiang did not support SIP, that they were welcome to SND and did not need Singapore,” Lee writes. He raised the problem with Jiang in December 1997. The Chinese leader assured him that the SIP remained his top priority and that problems at the local level would be resolved.

There were hopes that things would change in 1998. The new mayor of Suzhou declared that the SIP was “the priority of all priorities”, Premier Zhu Rongji gave the park his personal backing, a Jiangsu party secretary apologized publicly for the park’s fortunes, and it was exempted from a new national tax on foreign investments in January 1999. But these gestures did not change fundamentals on the ground, where Suzhou did not stop promoting the SND in competition with the SIP. The park was in dire straits by the end of 1998. Then Deputy Prime Minister Lee Hsien Loong told Parliament in 1999 that statutory boards and government-linked companies had invested US$147 million in the SIP project till then. In June 1999, it was announced that Singapore would cut its stake in the project to 35 per cent and hand over the park’s management on 1 January 2001. This took place, and after seven years of financial operational losses, the SIP, now under the stewardship of the Chinese partner, announced a profit of US$7.6 million earned in 2001. At its 10th anniversary celebrations, Lee declared that Singapore “is honoured to have played a small role in China’s growth and transformation”, but his memoirs, published earlier, reveal his disappointment over what turned out to be “a chastening experience”, “a partial success” although not “a total failure”. He put the Suzhou episode in grand historical context. “After two centuries of decline that began with the Qing dynasty, China’s leaders face the formidable task of installing modern management systems and changing the mindsets and habits of officials steeped in the traditions of the imperial mandarinate.”

The high expectations aroused by the confluence of economics, culture and politics gave a spectacular dimension to Singapore’s decision to cede control of the project. What had gone wrong? It is undeniable that the Suzhou municipal authorities had played a crucial role. They were angered when Singapore declined their offer of the SND early on, and they were rankled by the fact that Singapore marketed the SIP as being not a typical Chinese estate, thus implicating the SND. They viewed as arrogance the fact that the Republic insisted on dealing directly with Beijing. Since tax revenues collected from foreign businesses in the SIP were remitted directly to Beijing, by-passing the Suzhou Municipal Authority, it had no financial incentive in wanting to see the park succeed. While the SIP did contribute to Suzhou’s economy, it did not benefit the Authority directly. Instead, it was a competitor to the SND, which was the Authority’s own responsibility. Thus, Suzhou officials moved away from the “core objective”, recognized in Beijing, of effecting the transfer from Singapore of software on how to create a total pro-business environment capable of attracting high-quality foreign investment; the officials had a parochial interest in the hardware of roads and infrastructure, which “brought direct and immediate benefits to Suzhou and credit to its officials”. Moreover, there was an important difference between Singaporeans, who “take for granted the sanctity of contracts”, and the Suzhou authorities, to whom a signed agreement could be “altered or reinterpreted with changing circumstances”. The challenge from the municipal officials would have been expected, but what explained Beijing’s refusal or inability to bring its authority to bear on them? One argument that has been advanced is that the Chinese, being minority shareholders, felt little sense of ownership. In any case, it was a “win-win situation” for Beijing: its primary objective of getting Singapore’s software transferred to Suzhou was successful and, as for foreign direct investment, it really did not matter much to Beijing if investment went to the SND instead of the SIP. A more charitable view is that Beijing did not exercise total control over provinces and cities, especially in an open season of competition among regions for foreign investment. Each territorial entity did what it deemed necessary to thrive in an era of economic decentralization ushered in by reforms.

The tricky reality of decentralization in post-communist China touches on causes of the Suzhou problem that lay partially in Singapore. Accustomed to a centralized polity, officials of the city-state perhaps did not realize sufficiently the proverbial lay of a land where “the mountain is high and the emperor is far away”. Captivated by its own model of “state-driven capitalism”, Singapore did what few businessmen would have done: take the “audacious gamble” of replicating itself in “mercantilist” China. Singapore’s bureaucrats, “invincible at home, believed they could replicate one overseas”. Competent technocrats though they were in Singapore, they could not be expected to operate as successful entrepreneurs abroad without a political climate at home that rewarded free enterprise. While such arguments have a point, they tend to be made only when Singapore bureaucrats fail abroad, not when they succeed. Moreover, failure in China was not limited to risk-averse technocrats from safe and boring state-capitalist Singapore: Business warriors from liberal democracies, too, had fallen off the cunning ramparts of the Great Wall of business. That said, what really was at stake in Suzhou was the viability of grafting Singapore’s software, embedded in its political history, onto a China with high mountains and an emperor far away. This was not possible. Although in the decade from its start in 1994, the SIP sent 88 batches of personnel, totalling about 1,360 people, to Singapore for training in urban planning and management, economic development and management, and public management, Suzhou illustrated the limits of cultural affinity in international relations.