Sino-Singapore bid fails test
South China Morning Post June 30, 1999
ANALYSIS by FOO CHOY PENG and BARRY PORTER
IMPORTANT lessons have been learnt from the acrimony between Singapore and Beijing over Suzhou Industrial Park (SIP), their ill-fated US$20 billion joint venture.
Problems may have started from the time the project was conceived five years ago, but the hard learning came this week as Singapore ceded control of the Jiangsu province investment project which was intended as a symbol of Sino-Singapore economic relations.
After two years of futile complaining, the Singaporeans this week formally signed an agreement to wind down their interest in what had been envisaged as a 20-year partnership and a litmus test for future investment.
The first lesson to be drawn from Singapore's decision to swap its controlling stake is that central government-to-central government deals are meaningless in the mainland if they lack the unequivocal support of local authorities charged with implementing them.
As a Chinese saying goes: "Shan gao huang di yuan - The mountain is high and the emperor is far away."
Second, it is apparent that in the mainland being ethnically Chinese counts for little as a foreign investor.
President Jiang Zemin and Premier Zhu Rongji may have repeatedly given Singapore Senior Minister Lee Kuan Yew and Prime Minister Goh Chok Tong their personal assurances the project would be given special priority status.
But Beijing is a long way from Suzhou and was incapable of wielding influence over the park's day-to-day development.
Instead of pushing the prestigious 70 square kilometre SIP project, the Suzhou municipal government tested Singapore's patience by embarking on a rival cut-price industrial park of its own, called Suzhou New District.
"It was too much a top-to-top agreement. I would have spent at least one year cultivating the ground in Suzhou before I go in and build the project," said a Singaporean manager, who has spent about 10 years on the mainland negotiating business contracts for his foreign employer.
"China is a complicated place in which to do business and you really have to contend with the local authorities more than the central government," he said.
After initially being diplomatic and keeping quiet, Mr Lee went on CNN a fortnight ago to let the world know Singapore was "not happy".
It will now cede control of the project back to the mainland in 18 months having completed just its first eight square kilometres.
Singapore's government-backed consortium will reduce its shareholding from 65 per cent to 35 per cent in January 2001 and leave the mainland to its own devices - presumedly to develop the remaining land itself.
DBS Bank chief economist Friedich Wu said: "By divesting, the Singapore Government is effectively washing its hands of the project."
At a post-mortem this week in Singapore as to what went wrong, Suzhou mayor Chen Deming alluded to "cultural differences" between the two countries.
Mr Chen also cited "different understandings" over the contents of the original 1994 memorandum of understanding between Vice-Premier Li Lanqing and Singapore's senior minister.
To pull back from the project is a huge embarrassment all round.
SIP had been Mr Lee's pet project, a litmus test for future Singaporean investment in the mainland.
Mr Lee had envisaged building a clean, hi-tech modern industrial city within the mainland based on Singapore, which could serve as a role model for other cities across the country.
It would create 360,000 jobs and provide housing for 600,000 people when completed in 20 years.
"In some ways, ironically it was a clash of two business cultures: the Singapore side is not willing to compromise on the ideas of what made Singapore work, and the Chinese side viewing the ideas in a cavalier way," a foreign investor said.
In the early years of the mainland's economic opening to the outside world, Singapore tried selling itself as an investment springboard to the mainland, citing cultural and linguistic advantages for Western investors unfamiliar with the terrain.
In hindsight, Singaporeans who spoke the language did not necessarily understand the local lingo and business ethics - or the lack of them.
Observers said many Singaporeans trained in Western business ideas of transparency, accountability and efficiency did not know how to cope in an environment where such concepts were alien.
This was underlined by recent ground-breaking research by Wang Pien, deputy director of the National University of Singapore's International Business Institute, which showed Singaporeans' understanding of mainland culture, mentality and business practices was worse than Americans' or Europeans'.
"There appeared to be some discrepancies in how the Singaporean investors perceived themselves and how the Chinese perceived them," declared Mr Wang, after conducting a comprehensive survey of what Singaporean and mainland businessmen thought of one another.
"This proves that being able to speak the same language and having an ethnic affinity with the Chinese does not necessarily mean that Singaporean investors have an advantage over Western investors operating in China in the areas of communicating with and understanding their Chinese counterparts," Mr Wang said.
Mainland critics have described Singaporeans as inflexible in adjusting to the vastly different business environment in the mainland, while Singaporean critics felt the Suzhou authorities were not even-handed in their dealings, reneging on promises which attracted the island's government to invest in the city in the first place.
Singapore Trade and Industry Minister George Yeo last week declared any hope of replicating Singapore within the mainland a lost cause.
"To achieve clean government and social cohesion across races, between rich and poor, between the well-educated and less-educated, to do a 15 per cent wage cut across the board and not have Singaporeans rioting, demonstrating or going on strike, that's something uniquely Singaporean, and not easily replicated anywhere in the world," Mr Yeo said.
The SIP episode has also highlighted an arrogance detected by foreign investors among mainland business partners - that they know it all once they have learned the hardware skills.
"The Suzhou authorities built a whole row of flatted factories similar to those we have in Singapore, and thought they knew how to run it; but they do not realise the software involved in running the factories is just as important," a Singaporean familiar with the Suzhou industrial park said.
A Suzhou government official said it was inevitable for the two sides to have disagreements on how the park should be run but the important thing was to sit down and sort out the differences.
"Like any joint venture in China, the partners have to get used to each other's operating style," the Suzhou official said.
"Suzhou is different from Singapore, and so it is inevitable differences arise."
Suzhou mayor Mr Chen assured Singaporean investors during a visit to the republic this week: "After this consultation, the understanding between the two has been enhanced."
However, Singaporean investors have drawn lessons from the saga and are more worldly wise.
Credit Suisse First Boston chief economist Dong Tao said: "This is a setback. The project was way too ambitious.
"From now on, Singaporean investors will be more cautious and draw a lesson from their past experience."
Published in the South China Morning Post. June 30, 1999.