Singapore Government Press Release
Media Division, Ministry of Information and The Arts,
MITA Building, 140 Hill Street, 2^nd Storey, Singapore 179369
Tel: 837-9666

Let me first thank the Institute of International Economics for giving me this opportunity to address you.

Today, I would like to talk about the importance of strengthening APEC as a framework for resolving some of the problems that we will face in the Pacific. APEC is a relatively young institution. I remember attending the first Ministerial Meeting in Canberra in 1989 as the Berlin Wall was being torn down. APEC was born at the end of the Cold War and conceived to meet the challenges of post-Cold War problems. In 1991, we succeeded in negotiating an arrangement which enabled the 3 Chinas to be admitted as members. China was accommodating then because Deng Xiaoping had decided that two years after Tiananmen, it was time to re-launch his policy of reform and opening up. China-Taiwan relations at that time were also improving. President Lee Teng Hui had not yet embarked on his new policy of creating more international political space for Taiwan.

In 1993, in a remarkable act of statesmanship, President Clinton convened the first leaders’ meeting at Blake Island. By the admission of several European leaders, this encouraged the EU to conclude the Uruguay Round. A year after, in 1994, in an even greater act of statesmanship, Indonesian President Suharto persuaded APEC leaders to accept the Bogor Goals of free trade in the Pacific by 2010 for advanced economies and by 2020 for all others. This was an achievement to which Fred Bergsten and this Institute made a major contribution. Since then, APEC’s progress towards the Bogor Goals has been slow.

In October this year, APEC leaders will meet in Shanghai under China’s chairmanship. President George Bush and President Jiang Zemin will meet for the first time. Besides its symbolism, this meeting will set the stage for either greater cooperation or greater tension across the Pacific.

Unlike the North Atlantic Alliance, which was created in response to a common Soviet threat and bound together by history and culture, the countries of APEC are diverse. APEC includes high-income countries like Japan and low-income countries like Papua New Guinea, continental countries like the US and small countries like Singapore. Collectively, it makes up about 40% of the world’s population.

Looking at the trends, however, it is quite clear that the Pacific will be the main driver of the global economy in the coming decades. This is because of the continuing economic leadership of the US and the rapid economic growth of East Asia of which China is a major contributor. Already APEC makes up 59% of global GDP. In 10 to 20 years’ time, APEC’s share would be around two-thirds. In the last 10 years, the economies of APEC generated almost 70% of global growth, consistently outperforming the rest of the world.

The economic links across the four corners of the Pacific are strengthening year by year. The increase in intra-APEC trade and investment shows the deepening integration of the APEC economy. The integration is also cultural. The post-WWII Americanization of parts of Asia led to the Asianization of parts of America. Many Asians have migrated to North America and Australasia. Other indicators, like the pattern of tourism and foreign student enrolment, also point to growing Pacific integration.

All this is only possible because there is peace in the region and a political environment which facilitates economic and cultural integration. It has always been a key political objective of APEC to keep the two halves of the Pacific bound together. The key piece in this APEC architecture is the US-China relationship.

The big change in the Pacific is the rapid emergence of China as an economic power. China has always been the predominant power in East Asia and is likely to resume its historical position later in the 21^st century. China has two-thirds of the population of East Asia. It is a matter of time before its economy reaches a similar proportion.

The economic statistics are dramatic. In the last 20 years, China has grown at a compound annual growth rate of almost 10%. China’s foreign trade has grown even faster at a compound annual growth rate of 15% rising from US$117 billion in 1990 to US$474 billion last year. China has become Japan’s no. 2 trading partner, the US’ no. 4 trading partner and the EU’s no. 4 trading partner.

A recent report by AT Kearney found China to be the second most important destination for Foreign Direct Investment after the United States. Last year, approved investments jumped a whopping 50% in anticipation of China’s entry into the WTO. In 1990, China accounted for less than 20% of total foreign investments in developing Asia; and Southeast Asia about 60%. Today, the numbers are reversed.

One of the most visible manifestations of China’s development is the construction of a network of American-standard highways. It is now possible to drive all the way from Guangzhou in the south to Harbin in the northeast on these highways. China is going through a period of highway construction similar to that of the US in the 50’s and 60’s. Each new Chinese province that is linked to the global economy by highways, air links and the Internet brings additional tens of millions of people to the global marketplace.

Because of China’s population size and land area, its rapid development is changing, day by day, the larger picture of East Asian integration. It is almost as if another cycle of China’s dynastic history is being repeated, a resurgent China linking up all the border areas on its periphery. We can now talk realistically about taking a train or driving on good roads from Singapore to Pusan within the next 5 years. Truly, the Cold War is behind us and a new chapter of East Asian history has been opened. This is the backdrop to the ASEAN-plus-3 process which is gathering momentum.

At the fourth ASEAN-plus-3 Leaders’ Meeting in Singapore last November, China’s Premier Zhou Rongji raised eyebrows when he proposed a Free Trade Area (FTA) between China and ASEAN in the long term. Such an FTA is not easy to bring about because, in many sectors, China is competing head-on with Southeast Asia for investments and markets. Nevertheless, it was an important political gesture which is creating new dynamics in the relationship between China and Southeast Asia. We have already settled on the route which the railway line from Singapore to Kunming in Southern China will eventually take. In addition to the railway link, Premier Zhu suggested that there should also be a highway link from Kunming via Myanmar, Laos and Thailand to Singapore. China would fund some stretches of the highway in Laos.

China is also co-operating with countries in Southeast Asia on the development of the Greater Mekong River Basin. The Mekong is one of the world’s great rivers. In its lower reaches, it passes through many countries in Southeast Asia. In the 19^th Century, French explorers tried to sail up the Mekong into China but was thwarted by waterfalls and cataracts in Cambodia and Laos. Now, all the countries are working together to develop the Mekong Basin for hydro-electricity, transportation, irrigation and agriculture like a multi-national Tennessee Valley Authority. During the Cold War, the Mekong River was an important dividing line between the two sides. It has now become an important symbol of co-operation.

In every East Asian country, China will loom larger on its balance sheet. Thus we find, in parallel with the growing use of English in the region, the growing use of Mandarin as well. In Southeast Asia, political leaders of ethnic Chinese or partial ethnic Chinese descent are no longer embarrassed by their ancestry.

Against this shifting East Asian landscape, how should the United States position itself in Asia for the future? Because of three major wars - the Pacific War, the Korean War and the Vietnam War - the United States has become an organic part of East Asia in a way which Europe can never be. Over 100,000 United States servicemen are helping to maintain the peace in East Asia. It is easy to forget this when one reads headlines about the tragedy of the Ehime Maru or occasional incidents involving GIs in Okinawa.

During the Cold War, it was American companies and their investments which brought economic development to many countries in non-Communist Asia. US universities have trained hundreds of thousands of East Asians, many of whom have gone back to help in the economic development of their own countries. Today, there are more than 50,000 students from mainland China studying in the United States. Chinese students make up more than 10% of the foreign students in the US. Without the contribution of American-trained Chinese who have gone back, China’s economic development today would not have been as rapid.

It is interesting to observe how, when East Asians interact, the terms they use and the concepts that they take for granted, are often American in origin. Many Asians may not admit this out of a sense of national pride but the reality is that the American dream has become the Asian dream. In China, the leaders may criticise the United States but they send their children to study there. Ordinary Chinese look at the United States as a land of opportunity which is why so many risk their lives to come to its shores.

Because the United States is an exceptional country, a generous superpower, it has a unique ability to shape the development of East Asia. The way the new Bush Administration manages its relationship with China will be very important. On the one hand, the United States must engage China strategically as both a competitor and a partner. It has to be both. It cannot be either one or the other. In any case, the Chinese themselves expect it to be both. And on the other hand, the United States should also give equal emphasis to the rest of East Asia. Both approaches must be in balance.

On North Korea, China has played a helpful role. Without active Chinese encouragement, the present thaw in the relationship between North and South would not have happened. President Kim Jong Il’s public acknowledgement of the success of Deng Xiaoping’s policy of reform and opening up means that North Korea will also try to follow this path into the future. It is in everyone’s interest for the process of reunification to take place over an extended period of time.

The Taiwan problem is more tricky and potentially explosive. Seeing that Chen Shui-bian is in a weak position, Beijing has decided to soften its stance until it is clearer about the attitude of the Bush Administration. If the Bush Administration supports Taiwan too strongly, particularly by the sale of sophisticated weapons systems, China will harden its position and the political temperature across the Straits will rise quickly. The rest of Asia awaits with some anxiety the Taiwan policy of the new Administration because it is the one issue which can go badly wrong in the region and derail its continuing development.

The National and Theater Missile Defence issue is also a complicating factor. A strategic dialogue between the US and China is necessary to minimise miscommunication and misinterpretation of each other’s actions and intentions. The Chinese cannot deny the right of the United States to protect itself against nuclear attack especially by rogue countries and terrorist organisations. In the same way, the US cannot stop China from pressing on with weapons research and the upgrading of its nuclear forces. But it is important that both sides make the effort to ensure that inevitable strategic competition does not inevitably lead to instability.

While managing its strategic relationship with China, the United States should also give due attention to the rest of Asia. The strategic partnership between the United States and Japan is a key pillar in the architecture of peace in the Pacific. It is crucial that this policy not be weakened by neglect or distracted by incidents or accidents. At the same time, we must expect a new generation of younger Japanese politicians to take a somewhat different view of the United States-Japan relationship. It is therefore important that the United States should send consistent signals that the United States and Japan are strategic partners in a way which China will never be.

On the economic front, the emphasis given by the Bush Administration to the Free Trade Areas of the Americas should be matched by other initiatives across the Pacific. It should not send the message that the United States considers Asia to be somehow of lower priority now that China is likely to join the WTO.

The United States-Singapore Free Trade Agreement being negotiated sends a strong signal to countries in the Western Pacific that the United States intends to remain a dominant player in Asia for a long time to come. Singapore hopes that the United States-Singapore FTA will be gradually enlarged to include other countries in Southeast Asia.

Together with the United States-Chile FTA, the United States-Singapore FTA should also help to set the stage for a P5 FTA, P5 referring to the US, Chile, Australia, New Zealand and Singapore. This idea has been discussed for many years now. It needs a political push from the new Administration. The P5 FTA should eventually include South Korea as well. South Korea, squeezed in between China and Japan, has always sought more space for itself in larger regional arrangements. At the last ASEAN-plus-3 Leaders’ Meeting, President Kim Dae Jung proposed that the ASEAN-plus-3 Leaders’ Meeting be converted into an annual meeting of the leaders of East Asia. In his mind, such an East Asian institution will give Korea more room for manoeuvre. However, no country can give Korea more room for manoeuvre than the United States. A firm US policy towards North Korea gives the South more flexibility.

Let me take this opportunity to make a strong pitch on behalf of Southeast Asia. With the end of the Cold War, Southeast Asia has become less important in the strategic calculation of the United States. In the minds of many Southeast Asian leaders, the way the United States and the IMF responded to the Asian financial crisis confirmed this view. It will be a great mistake for the United States to allow this view to take hold.

The strategic importance of Southeast Asia should never be under-estimated. Occupying the peninsulas and islands between the Pacific and Indian Oceans, Southeast Asia lies astride very important sea lanes. Indeed, the Singapore Straits today is the busiest shipping lane in the world. During the Cold War, Singapore was a major listening and observation post for all the big powers. Because of the way maps usually exaggerate distances further away from the equator, many Americans do not realise that the distance from one end of Indonesia to the other is the distance from San Francisco to the Bermudas.

Southeast Asia is both a bridge and a buffer between the two great civilisational areas of China and India. Neither China nor India has ever invaded or occupied Southeast because it serves as a useful buffer without impeding trade. It is in the interest of all the major powers to have a Southeast Asia that is peaceful, economically dynamic, open to trade and friendly with everybody.

From Japan’s perspective, Southeast Asia should be developed as an alternative manufacturing base to China. The cultures of Southeast Asia are relatively outward-oriented. With a combined population of 500 million people, Southeast Asia can compete effectively with China in several manufacturing sectors provided the national economies are integrated and barriers to trade and investment are reduced. Japan has done the most to help integrate the economies of Southeast Asia. With the upward revaluation of the Japanese yen after the 1985 Plaza Accord, from 250 yen to a dollar to 130 yen to a dollar, massive Japanese investments flowed into Southeast Asia and created a boom which lasted till the last financial crisis. However, Japan by itself cannot counterbalance the growing influence of China. It needs the support of the United States. During the Asian financial crisis, the lack of United States support prevented Japan from rescuing Thailand and other Southeast Asian countries when the crisis was still incipient.

Indonesia is not getting the attention it deserves in Washington. The last United States Administration wanted to see political discontinuity in Indonesia at least in 1997 and early 1998. Now we have got that. But events in Indonesia can go horribly wrong. Political Islam can become much stronger in the archipelago. Indonesia may break up if the present leaders in Jakarta are not able to reconcile their differences. An Indonesia in disarray will affect the whole of Southeast Asia adversely and become a strategic problem for the United States and Japan.

More than 10 years ago, when it became clear that the Philippines Government preferred the United States Navy and Air Force to leave Subic and Clark, Singapore offered its naval and air facilities to help anchor the US military presence in Southeast Asia. Our neighbours expressed unhappiness at that time but has since come around. Later this month, Singapore’s new naval base at Changi will enable US aircraft carrriers to berth alongside. The continued presence of the US 7^th Fleet in Southeast Asian waters will have a calming effect on political developments in the region.

With the end of the Cultural Revolution in China and the war in Indo-China, a new generation of Asians is accustomed to peace in the Pacific. Businessmen, academics, tourists and students travel back and forth between Asia and North America as if this is the natural order of things. Hundreds of millions of poor Asians now see prospects of a better life for themselves by joining the global marketplace. Yes, there will be all kinds of trade disputes. But better trade disputes than disputes which require the deployment of missiles and submarines. If we do not mismanage the politics, there is every hope that we can maintain this peace in the Pacific for at least another one or two generations.

The peaceful integration of China into a rule-based global political and economic system is a necessary condition. At the heart of it is the United States-China relationship. But that relationship can only be successfully managed within a wider Pacific framework which is why the coming APEC Leaders’ Meeting in Shanghai in October this year is so important. We must keep America in the Asian dream or the dream will become a nightmare.