Innocents Abroad

Move over, state, and let Singapore's private firms take the lead

Extracted from AsiaWeek:

The only remaining virtue of Singapore's dilution of its equity stake this month from its flagship industrial park project in Suzhou is its Asian veneer. As a face-saving measure, Singapore will retain a small stake in the project that was once billed as its bold attempt to recreate the Singapore business experience in China. It did not work out. Instead it drained Singapore's resources, causing the republic huge embarrassment.

A large share of the blame must be borne by the Chinese, who went back on promises they had made to Singapore and allowed a cut-rate competitor to be built. But failure lay at Singapore's doorstep too, for its failure to grasp the mercantilist nature of China. This debacle reflects a deeper problem for Singapore: its model of state-driven capitalism. Few businesses would have taken the audacious gamble to invest in creating a Singapore-style township near Shanghai. But Singapore bureaucrats, invincible at home, believed they could replicate one overseas.

Unfortunately, Suzhou is not an isolated case. It is part of a growing list of Singapore's state-driven, high-profile overseas failures. These include Singapore Telecom's abortive forays in Hong Kong and Malaysia, Singapore Airlines' repeated attempts to acquire a stake in airlines in the region and, earlier, DBS Bank overpaying for some overseas assets.

To be sure, Singapore companies sometimes have been caught up in domestic political compulsions they cannot control. But savvy investors do not expect a handshake between ministers as a substitute for political strategy on the ground. Singapore's problem is expecting competent technocrats at home to operate as fire-in-the-belly entrepreneurs elsewhere in Asia without creating a political climate in Singapore that rewards free enterprise.

Since the early 1990s, Singapore's state-owned enterprises (known as government-linked companies, or GLCs) have made several attempts to expand overseas. They were relatively well-managed, had surplus cash, and the region, until 1997, was booming. But the results have not met the high expectations normally associated with Singapore. It's true that the partners sometimes changed the rules, or were reluctant to let a regional competitor take a strategic stake in the local economy. But the sheer variety of the industries involved, and the range of countries, shows that the GLCs found it difficult to operate beyond Singapore.