Singapore needs the United States and China to work out their differences to ensure prosperity, its prime minister said on Tuesday.
The city-state of five million people is one of the most open economies in the world. It is heavily reliant on trade and its position as a financial centre driven by Asia’s rapidly growing economies.
“First of all it depends on the U.S.-China relationship,” Lee Hsien Loong said in an interview about the risks facing his nation. “If that turns sour, a lot of things can go wrong.”
The world’s two largest economies are at odds over issues from trade and currency levels to human rights. The U.S. mid-term elections on Tuesday have seen the subject of China relations leap from think tanks to mainstream political debate.
Singapore, with one of the highest per capita incomes in Asia, has interlinked trade and financial relations with both powers, and feels the tensions keenly.
“The key, of course, is America-Chinese relations and that’s very difficult because on the ground in America the mood is quite sour,” the 58-year-old prime minister said.
“And not just among the unions and the Democratic (Party) left wing, but even the corporates, the businessmen.”
Lee said he worried that short-term thinking could lead to bad decisions.
“Nobody is speaking up to say ‘please manage this with a long-term perspective’,” he said.
The prime minister, dressed informally in open shirt and wind-breaker jacket, said he had a basic optimism about the eventual health and development of both the U.S. and the Chinese economies, even though in both cases many years of transformation would be needed.
Beijing required fundamental structural change to drive more domestic demand and investment.
“I believe the Chinese understand this and I believe they are going to do something about it,” said Lee, a frequent visitor to China. “It’s not going to happen overnight but over 10 years I see change.”
The United States needed to transcend the difficulties of domestic partisan politics to take tough decisions on fiscal policy.
“If you look at it on a five-year time frame, you can’t help being worried but if you look at it in a 20-year time frame you say of all the economies in the world, the Americans are the ones most capable of re-inventing themselves,” Lee said.
Less reactive approach
He said Singapore could define itself as one of the world’s most attractive global financial centres with a less reactive approach to currently emotional issues like regulation.
“We want to maintain a system where there are adequate safeguards, but at the same time the basic principle is free market and caveat emptor,” he said, drawing a contrast with the swift legislative responses to the financial crisis in countries like the United States and Britain.
“We are trying to be stable. I don’t say that we are consciously less volatile than others but I think it is good for us if we can maintain a stable long-term perspective and rise above the immediate pressures of the crisis at the moment.”
One significant worry, however, for the city state was asset class bubbles, particularly in real estate and he vowed to keep a close eye on the situation and continue to take action if necessary.
“Our property market has been taking off, which is causing some consternation,” he said. “We have had a series of measures to squelch the property market but liquidity is awash, sloshing around the whole region.
“We are watching carefully. The last set of measures were announced at the end of August, they seem to have dampened sentiment some, but we will have to watch and see.”
Lee, whose father is the founder of Singapore and current Minister Mentor 87-year-old Lee Kuan Yew, said a key goal for the next elections, due by 2012, was to identify the next generation of leaders for the island and to see its political system continue to evolve.
“It’s a very important theme, a very important concern, in this election, that we bring in new candidates and new potential office-holders so that there will be a theme for Singapore to take the next step forward,” Lee said.
“I am 58, and Singapore should not have a prime minister who is 70 years old or more than 70 years old,” he said, adding: “You have to be in sync with the new generation of people. You may be in touch but you are not of that generation.”