Singapore Government Media Release
Media Division, Ministry of Information and The Arts,
140 Hill Street #02-02 MITA Building, Singapore 179369.
Tel: 837 9666

Since Deng Xiaoping announced the new open-door policy in 1978, the economy of China has changed dramatically. Foreign trade, then about 12%, has trebled to 36% of China's GDP, and is still growing. When China decided to join the WTO and reached agreement with the United States in November 1999, China signalled to the world that it was taking a major step to plug its economy into the global grid - although this system is at present still dominated by America, Western Europe and Japan. This dominance is because even before the end of WWII, the Americans and their main ally, the British, had prepared the blueprints for the IMF, the World Bank and GATT.

Before WWII, international trade was most free within the boundaries of each of the empires, the American, British, various European, and Japanese. There were trade barriers between these imperial blocs. The Americans were determined to dissolve these empires after WWII. The General Agreement on Trade & Tariffs (GATT) was designed to facilitate cross-border trade in goods and services without the unifying control of an imperial centre. It succeeded brilliantly, compared to the opposing system of economic autarchy led by the Soviet Union. But no one foresaw that technological advances in communications and transportation would lead to the growth and proliferation of multinational corporations that are able to expand the production and sale of goods followed by services, across national boundaries, and market them to all parts of the world.

Technology has been the driving force of globalisation. It enabled producers to maximise profits by moving capital, and management expertise to countries where raw materials or labour and infrastructure gave them comparative advantage. This made for unprecedented economic growth and prosperity worldwide, while the Soviet Union languished. Fortunately, China had decided to break away from the Soviet mould in 1978, pursuing Deng’s open door policy.

Globalisation, especially after the developments in the IT sector, has led to developed countries needing more of talent. They have relaxed immigration rules and increased the mobility of talent in the developing world. The number of immigrants into the US from 1971-97 was about 19 million, nearly 3 times the number in the preceding period. Human talent is at present the most scarce and valuable resource for creating wealth in the knowledge economy. The US is considering an increase in their limit for foreign professionals from 115,000 to 200,000 a year. Germany has announced it wants to attract 20,000 IT professionals from outside the European Union. The British are changing their laws to make it easy for their companies to recruit IT experts from Asia. Even for Japan, its Obuchi Commission has recommended that the ethnocentric and homogenous Japanese should encourage foreigners to live and work in Japan, and that foreign students who have graduated from Japanese schools and colleges be given the right to stay and work. South Korea wants to attract 200,000 workers in high-tech industries by offering "gold cards" to foreign engineers and computer programmers, allowing them to stay 10 years in the country.

Taiwan built its computer industry through such a returned brains flow. They came back to Taiwan to use the large reservoir of engineers and technicians who could make computer chips and peripherals at a fraction of costs in the US. It will not be practical to prevent young talent from leaving China. Many will find ways to leave, and those who stay at home will not have the exposure and the contacts for new businesses. The longer they work in the US or EU the deeper their knowledge and the wider their networks, vital support for new industries.

A negative result of globalisation is the widening of the inequality between the highly educated and the less educated, between urban and rural incomes, and between coastal and inland provinces. The highly educated can move between countries seeking the high rewards in the developed countries, especially in sectors like IT and the internet. The less educated are not mobile and cannot get into the developed countries where wages are higher. This is unavoidable in a world driven by market forces. In 1998, China’s coastal regions absorbed 84% of FDI and produced 90% of its 1999 exports. This year the Chinese government has focused economic development on the inland regions by giving special tax concessions and spending 70% of its infrastructure development budget for the year 2000 in these provinces.

Globalisation has also made China more vulnerable to volatile capital flows. This can be minimised by China restructuring and strengthening its financial system before opening up its capital accounts.

However at present, China lags behind most East Asian economies in the penetration rate of internet hosts, telephone lines and personal computers. (Annex A - Table 1)

The digital revolution can raise China’s long-term growth rate by one to three percentage points per annum. Therefore China should rapidly expand the use of computers and the internet. China’s government has been developing the information infrastructure and broadening and deepening its capital markets. Already there are several high-tech and internet parks in Beijing, Shanghai, Guangdong, Shenzhen and Tianjin.

However to maximise the value of digital technology the government has to deregulate the telecoms market. China has undertaken to liberalise this sector on joining the WTO, allow up to 50% foreign ownership within two years after that, and lift all restrictions on telecoms service providers within 6 years of WTO membership.

China’s stock market capitalisation at the end of 1999 was only 33% of GDP, one of the lowest in the world, lagging behind the ASEAN countries and India. (Annex A - Chart 1)

Most of the companies listed in the Shanghai and Shenzhen stock exchanges in February 2000 are state-owned enterprises. The China Securities Regulatory Commission gave priority in listing to state-owned enterprises. This has made it difficult for new start-ups.

It is important to remember that it is not officials of government or state-owned corporations but private individuals who will spawn the high-tech start-ups. They need to be facilitated by regulators who come from the generation that grew up with the new technology, regulators who are knowledgeable about what is happening in Silicon Valley and beyond. Government officials in their 50s do not have that understanding of the potentials of this digital revolution.

In Singapore, political leaders are men in their 50s and 40s, but they are not as digital savvy as those who are in their creative and productive years, the 20s and 30s. Dotcom start-ups are by and large formed by people in their twenties. To help create a conducive environment and facilitate the growth of internet start-ups in dotcom companies, Singapore has chosen regulators who have themselves grown up in the internet era, people in their 30s. They have a better grasp of the potential of this technology and are closer to the thinking of the generation younger than themselves, in their 20s. They can regulate with a lighter hand and allow creative talent to flower.

China has the people who know how to make full use of globalisation and the new economy. It has been educating able graduate students in economics, management and computers. Its most valuable assets are the many thousands of its brightest and best in their 20s and 30s who have studied and worked abroad, especially in America. Many are now in lower or middle rank positions in China or still overseas. In 20-30 years, they will rise to the top layers of government and business, fully conversant with the latest developments in the contemporary world. They will bring China abreast of the US, Japan and EU in government and business practices.

China has made a strategic decision that has profound economic and geo-political implications for itself and the world. Chinese enterprises will learn from, work with and compete against the advanced nations. Global competition will increase the efficiency and productivity of domestic enterprise. But there will be creative destruction of out-dated industrial plants which will lead to unemployment and its social consequences. The result, however, will be a China that is one of the most important players in the global exchange of goods, services, capital, talent and ideas in the 21^st century.

There are several imponderables. The most important of these is the question of Taiwan. A 50-year old legacy of the Chinese Civil War, it does not lend itself to simple solutions. The recent change in Taiwan’s political leadership requires all sides - the mainland, Taiwan and the US - to guard against the increased danger of a miscalculation. It is too early to judge the final direction of the new Taiwanese leadership. The stakes are high, and one misstep could negate the assumptions for continuing growth and development.

The mainland has time on its side. Each year, it will grow many times bigger than Taiwan. In 20 to 30 years, there will be a different balance in Sino-American relations. The US, EU and countries in East Asia, all support "One China". As long as the goal of eventual re-unification is not at risk, the mainland can afford to be patient in its dealings with Taiwan.