Singapore Government Press Release

Media Relations Division, Ministry of Information, Communications and the Arts,

MICA Building, 140 Hill Street, 2nd Storey, Singapore 179369

Tel: 6837-9666

Keynote Speech by Minister Mentor Lee Kuan Yew at the

Official Opening of the Lee Kuan Yew School of Public Policy on

Monday, 4 Apr 05 at Shangri-la Hotel

“Managing Globalization: Lessons from China and India”

Introduction

Renaissance spreads in Asia

An enormous transformation is underway in Asia. Across the region, countries are reforming their methods of governance and the way they decide public policies. They want to catch up and prosper with the rest of the developed world.

The original four Asian Tigers – Hong Kong, Taiwan, South Korea and Singapore - followed Japan. They led the pack followed by Malaysia, Thailand and Indonesia. The Japanese called this the ‘flying geese’ pattern of economic development, with each new follower gaining technology from the leader and passing it on eventually to the next group of followers. But this formation of countries is not large enough to move the world.

China and India will shake the world. Together, they are home to 40 percent of the world’s population. Both are among the world’s fastest-growing economies: China, 8-10 percent; India, 6-7 percent. China is the factory of the world; India the outsourcing service centre first in call centres and now moving to more sophisticated business process operations and clinical research activities of global corporations.

The Chinese and Indians are learning not just from Japan and the Asian NIEs, but from the advanced countries. They are selectively adopting and adapting different models and principles of governance to propel them into the front ranks. In some industries, they have already leapfrogged the rest of Asia. The outcome will be a major rebalancing of the world.

Origins of the Lee Kuan Yew School of Public Policy

The Lee Kuan Yew School of Public Policy started in 1992 as a small Public Policy Programme in the National University of Singapore. Its aim was to study the different systems of governance in our immediate region and to offer public officials from the region a rigorous training on the best practices to implement sound public policies.

With China’s and India’s rise, the new School will expand its research and teaching to include these two largest countries in the world. They provide a rich field of research and may yield clues on why some are more successful in catching up with the advanced economies. Is it a matter of importing particular systems and policies? Or are there deeper factors that have not been studied?

Evolution of my views on China and India

I have taken a deep interest in both China and India ever since I started my political life in 1950. Like all democratic socialists of the 1950s, I have tried to analyse and forecast which giant would make the grade. I had hoped it would be democratic India, not communist China.

By the 1980s I had become more realistic and accepted the differences between the two. It is simplistic to believe that democracy and free markets are the formula that must lead to progress and wealth. However, I am convinced the contrary axiom is true that central planning and state-owned or nationalised enterprises lead to inefficiency and poor returns, whether the government is authoritarian or democratic. Moreover, even if China and India were both democratic, or authoritarian or communist, their performance would be different. I now believe that, besides the standard economic yardsticks for productivity and competitiveness, there are intangible factors like culture, religion and other ethnic characteristics and national ethos that affect the outcome.

At the start after World War II, China was behind India. China’s infrastructure and population were devastated by the Japanese occupation from 1937-45. Then a civil war followed. After the Communist victory in 1949, China adopted the system of governance and economic policies of the Soviet Union.

At independence in August 1947, India had ample sterling balances, a good system of governance and many top-class institutions. It had functioning institutions for a democracy, the rule of law, a neutral highly-trained civil service, defence force and proficiency in the English language.

The situation deteriorated over time. India adopted central planning with results nearly as damaging as those of China. India’s political leaders are determined to reform but the Indian bureaucracy has been slower and resistant to change. Regional jostling and corruption do not help. Furthermore, populist democracy makes Indian policies less consistent, with regular changes in ruling parties. For example, Hangzhou and Bangalore are comparable cities. Hangzhou’s new airport opened in 2000; Bangalore’s has been on the drawing board for years and only given the go ahead by the state government in December 2004.

China, the economically more backward country in 1950, caught up with India and has now surpassed India in several sectors. How did communist China catch up, and why did democratic India lose its lead?

Comparison of the Chinese and Indian public sector

Did China pull ahead because it had better systems of governance and methods of determining public policies?

Tax system. Ten years ago, China had a complicated tax system. There were provincial and municipal sales taxes, provincial border taxes, excise duties and levies. By imposing a single Value Added Tax on manufactured goods, China has made tax collection efficient and effective.

India has made several unsuccessful attempts to introduce a national VAT, the last on 1 April 2005, when 20 states switched to VAT but eight are still holding out.

Corruption bedevils both, but bureaucratic red tape has lowered India’s efficiency and effectiveness more than China’s. It takes 88 days to secure all the permits needed to start a business in India, compared to 46 in China. Insolvency procedures take 11 years, as against 2.6 in China. In spite of the disasters of the Great Leap Forward in 1958 and the Cultural Revolution, 1966-76, China pulled itself up after its open door policy from 1978.

Comparison of the Chinese and Indian private sector

On the other hand, India’s private sector is superior to China’s. Indian companies, although not on par with the best American or Japanese companies because of India’s semi-closed market, nevertheless has several near world-class companies, like Tata Consultancy Services, Infosys and Wipro. Indian multinationals are now acquiring western companies in their home markets. Moreover Indian companies follow international rules of corporate governance and offer higher return-on-equity as against Chinese companies. And India has transparent and functioning capital markets.

China has not yet created great companies, despite being the third-largest spender in the world on R & D. Also Chinese corporate fraud is on a much larger scale.

Singapore – More economic interaction with China than with India

Singapore has more exposure to China’s governance and public policies than India’s. For 10 years Singapore trained nearly 1,000 officials from Suzhou to plan, manage and develop an integrated township called the Suzhou Industrial Park. We trained them in various disciplines with the emphasis on the planning and management of an integrated city with industry, services, commerce, private and public housing, public utilities, schools, hospitals, parks, golf courses and recreational areas, sited all to be in 70 sq km. There were many difficult problems in the early years because of our different mindsets, although we share similar, but not identical, language and culture. However despite the travail, after 10 years the results are startling.

They have not only learned about the specific areas in which we instructed them, but they have observed how we have cleaned up Singapore and its waterways, greened it, planned, built and managed our public housing and town planning.

In 1994 Suzhou was dilapidated, canals stagnant and fetid, shorn of its charm as the “Venice of China”. Now they have flushed the canals and greened up their banks. Boutique restaurants, hotels, shopping malls and all the attractiveness of a well-lived modern city that preserved their old buildings, spruced up and refurbished. They studied what we have done in Singapore. What we took 40 years to do they were able to adopt, adapt and implement in 10 years.

Over a thousand Chinese officials, selected by different centres, the Communist Party’s Central Organisation Department, the Central Party School and the China Association of Mayors, have been studying Singapore’s system, its economic and social development, public administration, anti-corruption practices, financial management, human resource development, social security and taxation system, urban planning, management and social development. Several of them have taken Master’s degrees at NUS and NTU in Public Management, Public Policy and Business Administration and Managerial Economics.

They have selectively incorporated and bud-grafted specific policies they find useful. In several Chinese cities where Singapore’s Housing and Development Board has done public housing projects, they have been able to replicate these townships with improved designs for the flats to suit their different climatic conditions. The speed at which they have learned has no parallel anywhere else.

In India, Singapore's EDB and a JTC-led consortium invested in the International Technology Park of Bangalore (ITBP). It is a self-contained oasis, with independent power supply. The Park has become an icon showcasing India's accommodation of MNCs. The Indians have duplicated such "oases" in other cities, including the Hi-tech Park in Hyderabad and Tidel Park in Chennai. But the rate of replication appears slower than in China. Could it be bureaucratic inertia? Or are Indian private enterprises and consumers slower than the Chinese in the diffusion of technology and innovation, from one player to the next and one industry to another? Why are mobile phone penetration rates in China higher than in India? This School should study this phenomenon.

China and India: studying and learning from each other

Thickening ties

The Chinese and Indians realise they have much to learn from one another. China and India are going to assiduously study each other’s experiences, and try to acquire the strong points of the other. They will spur each other to excel.

What both must avoid is to be placed in opposing camps one with the US and the other against.

What can China and India learn from each other?

The Chinese are learning English with great enthusiasm. They may catch up with India, even though they may never have that layer at the top, like the Indians do, who are steeped in the English language and its literature. But the Chinese will have enough English to network easily with businessmen and scholars in America and Europe. In technical and technological skills, China is following India’s lead and has started to supply software engineers to multinational corporations like Cisco.

India has grown quite rapidly over the last decade with far lower investment rates than China. China must learn to be as efficient as India in utilising its resources.

The Chinese are keen to develop a services sector like India’s. For example, they have contracted an Indian company to train 1,000 Chinese software project managers from Shenzhen in etiquette, communications and negotiations skills. Huawei, a leading Chinese technology company invested in Bangalore to tap its software skills. The Chinese want to attain international standards for the software outsourcing industry and learn how to deal with US and European clients as India is doing.

India wants to be as successful as China in attracting foreign and domestic investments in manufacturing. India must emulate the effective way in which China has built up its extensive communications and transportation infrastructure, power plants and water resources and implements policies that lead to huge FDIs in manufacturing, high job creation and high growth. India’s spectacular growth has been in IT services which do not generate high job creation. But it has now drawn up a massive highway construction programme that is more than half completed.

Challenges facing China and India

China and India have their specific advantages but also face similar challenging social, economic and political problems. China has to restructure its state-owned enterprises, fix its weak banking sector and ensure its economy continues to grow fast enough to absorb the still huge army of unemployed. India has poor infrastructure, high administrative and regulatory barriers to business, and large fiscal deficits, especially at the state level, that are a drag on investment and job creation.

In fifty years, China and the rest of Northeast Asia (Japan, Korea, Taiwan) will be at the high-end of the technology ladder, Southeast Asia mainly at the lower and middle-end of the value-added ladder where there will still be large opportunities for efficient competitors. On the other hand, India will have certain regions at the high-end of the technology ladder but it may have vast rural areas lagging behind, like the Russian hinterland during the Soviet era. To avoid this India has to build up its infrastructure of expressway across the sub-continent, faster and more railway connections, more airports, expand telecoms and open up its rural areas.

Why are the Chinese ahead

The Chinese are more homogeneous: 90% Han; one language and culture; one written script, with varying pronunciations. Having shared a common destiny over several millennia, they are more united as a people. And they can swiftly mobilise resources across the continent for their tasks.

China’s Deng Xiaoping started his open door policy in 1978. In the 28 years since China has more than tripled its per capita GDP, and the momentum of its reforms has transformed the lives of its people thus making its market reform policies irreversible.

India’s one billion people are of different ethnic groups with different languages, cultures and traditions. It recognises 18 main languages and 844 dialects and six main religions. India has to make continuous and great efforts to hold together different peoples who were brought together in the last two centuries into one polity by the British Raj that joined parts of the Mogul empire with the princely states in the Hindi-speaking north and the Tamil, Telegu and other linguistic/racial groups in the south.

India began liberalising in 1990, and then in fits and starts. However India’s system of democracy and rule of law gives it a long-term advantage over China, although in the early phases China has the advantage of faster implementation of its reforms. As China develops and becomes a largely urban society, its political system must evolve to accommodate a large, better educated middleclass that will be highly educated, better informed and connected with the outside world, one that expects higher quality of life in a clean environment, and wants to have its views heard by a government that is transparent and free from corruption.

China and India are to launch FTA negotiations that may be completed in a few years. I understand Premier Wen Jiabao will be visiting India soon, followed by President Hu Jintao shortly afterwards. Their closer economic will have a huge impact on the world. ASEAN and Singapore can only benefit from their closer economic links. Many Indians are in influential positions in Wall Street, in US MNCs, World Bank, IMF and research institutes and universities. This network will give India an extra edge. More Chinese are joining this American based international network but they do not yet have the same facility in the English language and culture. And because of Sino-US rivalry, there will be greater reserve when Americans interact with them.

For a modern economy to succeed, a whole population must be educated. The Chinese have developed their human capital more effectively through a nationalised education system. In 1999, 98% of Chinese children have completed 5 years of primary education as against 53% of Indian children. India did not have universal education and educational standards diverge much more sharply than in China. In some states like Kerala participation in primary schools is 90%. In some states it is less than 30%. Overall in 2001, India’s illiteracy rate was 42%, against China’s 14%.

India had many first-rate universities at independence. Except for a few top universities such as the Indian Institutes of Technology and Indian Institutes of Management that still rank with the best, it could not maintain the high standards of its many other universities. Political pressures made for quotas for admission based on caste or connections with MPs. China has repaired the damage the Cultural Revolution inflicted on their universities. Admission to Chinese universities is based on the entrance examination.

China has built much better physical infrastructure. China has 30,000 km of expressway, ten times as much as India, and six times as many mobile and fixed-line telephones per 1,000 persons. To catch up, India would have to invest massively in its roads, airports, seaports, telecommunications and power networks. The current Indian government has recognised this in its budget. It must implement the projects expeditiously.

The Chinese bureaucracy has been methodical in adopting best practices in their system of governance and public policies. They have studied and are replicating what Japan, Korea, Taiwan, Singapore and Hong Kong have done. China’s coastal cities are catching up fast. But China’s vast rural interior is lagging behind, exposing serious disparities in wealth and job opportunities. The central government is acutely aware of these dangers and have despatched some of the most energetic and successful mayors and provincial governors to these disadvantaged provinces to narrow the gap.

China’s response to these looming problems is proactive and multi-faceted. For example, to meet energy needs, China National Petroleum Corporation and China National Offshore Oil Corporation (CNOOC) have moved into Indonesian oil and gas fields. Chinese companies have even gone to Venezuela, Angola and Sudan.

India signed a recent agreement with Myanmar to import gas by pipeline via Bangladesh. The Indian government plans to consolidate their state-owned oil companies and act proactively like China’s CNOOC. The ASEAN-China Free Trade Agreement is an example of China’s pre-emptive moves. China moved faster than Japan by opening up its agricultural sector to ASEAN countries. India is also negotiating a Closer Economic Cooperation Agreement with ASEAN, but China has gotten there first.

Caveat

The Financial Times, 29 March 2005, wrote: “The lack of a robust capital market is likely to have a strong influence on the future shape and development of Chinese capitalism. Cheap manufacturing might be China's current competitive advantage but, in the long run, Beijing planners want the country to move more into lucrative high-technology sectors that provide better-paying jobs. China will need a dynamic private sector, run by entrepreneurs who have the drive to build innovative companies. Yet it is exactly these sorts of companies that are being squeezed out by an equity market that caters mostly to state-controlled groups. Private-sector companies can get bank financing, especially if they have good political connections. Yet the lack of an equity funding route is likely to curtail China's ability to develop a strong private sector. In this area, many argue that India is already ahead, as most of its biggest companies come from the private sector and have grown through raising capital on the equity and bond markets. China needs a robust stock market to stave off a looming pensions crisis. One of the by-products of the one-child policy introduced 25 years ago is that in a decade or so many more people will be retiring than entering the workforce.” This is China’s big negative, its rapidly aging population as a result of its severe one-child family policy. There is no precedent for a country to grow old before it has grown rich. India – average age, 26, compared to China’s 33 and still with much faster population growth – will enjoy a bigger demographic dividend, but it would have to educate its people better, or else the opportunity will turn into a burden.

What can the Lee Kuan School of Public Policy offer?

The School as a neutral venue

China and India will compete with one another and with the rest of the developed world. Their systems of governance and the way they arrive at and implement public policies will be major factors in their performance.

The Lee Kuan Yew School of Public Policy, based in Singapore, can offer China, India, the region and the world, a neutral venue for scholars and public officials to gather, discuss and understand why a society succeeds. In this neutral venue, scholars will be free to objectively compare and contrast the different systems that exist and assess what have made for better outcomes.

And they can also determine the extent to which non-measurable factors like culture, religion and language affect the final outcome.

Although Singapore has had broad interaction with both China than India in the last 20 years, our ties with India go back to the time Singapore was founded by the British Raj. Singapore was governed in 1819 from Calcutta. We also have strong links with the United States, Britain and Europe. The renaissance of China and India in economic, social and cultural fields will shift the world’s centre of gravity from the Atlantic to the Pacific and Indian Oceans.

Historically, these two great countries have influenced the economies, religions and cultures of Southeast Asia. Hence the name Indo-Chinese peninsula and its mix of Indian and Chinese culture. The region also has the largest number of Muslims in the world. The Islamic world is in turbulent flux. The outcome in the region will be influenced by developments in the Middle East, China and India. Southeast Asia is for the first time simultaneously influenced by the Christian West, Islam, China, and India.

Southeast Asian countries have inherited different systems of government from their colonial powers – Indonesia from the Dutch; Vietnam, Laos and Cambodia from the French; Malaysia, Singapore and Brunei from the British. Myanmar lost its British legacy when the Japanese army occupied the country. Thailand, never a colony, has evolved its own system. I believe the British instituted the best system benefiting Singapore, Malaysia and Brunei. There is no reason why Indonesia, Vietnam and the other countries cannot adopt the best practices of the successful nations. Indeed Singapore, Malaysia and Brunei have updated the system they inherited by incorporating better practices from other countries.

For over a decade, the Public Policy Programme has brought together senior officials from all over the region to study the best practices of governance and policymaking. The diverse student mix has helped the diffusion of ideas and practices. Officials have been able to compare notes and learn from one another. The professors have provided consulting services to governments in the region on how to improve their public policies and systems of governance. The School can provide a blend of theory and practice. One of the School’s professors is now acting as a WHO consultant to implement performance-based budgeting in government hospitals in Philippines. This idea was proposed by a group of Filipinos who had studied Singapore's healthcare financing system while attending the former Public Policy Programme. When the School’s focus includes China and India, there will be more such value-added outcomes. This School is the venue for scholars, officials and students from the world over, especially from China and India, to gather, research, and exchange ideas on how societies are best governed in a globalising world. All participants will benefit from a rigorous study of policies that have succeeded and those that failed.

Beyond China, India and Southeast Asia

To increase our understanding of the systems of governance that work and can improve the lives of people, we must compare European and US patterns of governance and public policy formulation with those of China, India and Southeast Asia.

Singapore’s own experiences with governance and public policies may illuminate some of the key factors that made for its successful development by borrowing and modifying policies and ideas from Europe and America.

All said and done, it is the creativity of leadership, its willingness to learn from experience elsewhere, to implement good ideas quickly and decisively through an efficient public service, and to convince the majority of people that tough reforms are worth taking, that decides a country’s development and progress. Whether China or India will prove to be the better model for other developing countries we will know by the middle of this century.

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