Mind the Gap

The weaponising of Hong Kong’s free-port status

PUBLISHED : Sunday, 11 December, 2016, 4:23pm
UPDATED : Monday, 16 January, 2017, 10:26am

I believe in coincidences. It’s just that I’ve never seen one before. Seizure of Singapore’s security vehicles and the Independent Commission Against Corruption’s investigation into the DBS office in Hong Kong seem strangely well timed for maximum effect.

It’s bad for business as Hong Kong’s historical role as a free port has become weaponised for political motives. Then, HKMA’s tepid response to arrests at DBS was a statement saying: “We will follow up with the relevant bank.” The ICAC’s investigation has embarrassed the HKMA by forcing it to play catch up even though it is supposed to be the lead regulator for banks in Hong Kong.

The geopolitical relationships between China and the rest of the members of the Association of Southeast Asian Nations is undergoing stress as result of a power alignment demanded by an economically powerful and dominant China. Singapore has been caught off balance. It must retune its delicate political and economic formula among Taiwan, the United States, and China.

Beijing’s strategic ploy was well conceived. Sprung on Singapore just before a controversial US president-elect takes office and who does not possess a well-formed foreign or trade policy beyond “Making America Great”, Singapore became a victim of a momentary US leadership and policy vacuum in Southeast Asia.

Lee Kuan Yew would have decisively anticipated this kind of disintermediation through his heightened perception and sense of geopolitical chess and realpolitik of the superpowers. Based on his relationship with China’s past leaders, he would have read China better than the current Singapore leadership, which has been largely reactive.

However, like any successful organisation, the strategies (and more importantly the people who execute them) that made you successful may not be the same ones that keep you successful.

Historically, the Cold War relationship between Singapore and the US has been a necessary predicate for Singapore’s economic development. Establishment of Singapore’s oil refinery business and as a financial centre can be owed to US government support through successive administrations.

No one knows what president-elect Trump’s foreign and trade policies will mean for Asia. Whether a transaction- or deal-like approach to government policy will actually work is besides the point. An “America First” rallying cry will mean that business imperatives, populist priorities and reality show politics will be comingled. Singapore’s leaders need to discern, navigate and exploit their way not only out of this volatile swamp, but redefine their relationship with China and the US.

Singaporean executives and business people living in China are worried that they will become the next victim. In 2015, Singapore was one of China’s largest foreign investors with investments amounting to US$5.8 billion in more than 700 projects. And Singapore is China’s largest investment destination in Asia.

But, the Singapore economy is slowing. The services sector, which makes up two-thirds of the economy, shrunk for the third consecutive quarter on a quarter-on-quarter basis.

Singapore’s leaders have to come to grips with a President Trump who owes no one, carries no ideological baggage and comes from no school of political or foreign policy thought. Great if you are a property developer. Hazardous and unpredictable for a president who needs to develop positive policies beyond tweeting.

Peter Guy is a financial writer and former international banker