Singaporeans not as wealthy as GDP figures suggest

... the average growth of Singapore's gross domestic product and GDP per capita has outperformed Hong Kong's over the last 45 years. Its GDP was only half that of Hong Kong more than 20 years ago. Today the Lion City's GDP is slightly ahead and GDP per capita is 25 per cent higher than in Hong Kong.

Letters to the editor,
SCMP, February 2

OK, let's play games with GDP numbers as these are what Singapore bureaucrats love to play and as the numbers are not quite what they seem.

We shall start by conceding the headline figures. Yes, as of the latest statistical releases, GDP at prevailing rates of exchange runs at an annual rate of about US$52,000 per person of the total population in Singapore and US$37,000 in Hong Kong, which puts Singapore about 40 per cent ahead, not just 25 per cent.

The point about GDP, however, is that it is meant to be a measure of wealth. It does not mean much to you unless it represents wealth that finds its way into your hands, that is, unless it takes the form of a component of GDP called personal consumption expenditure.

I now refer you to the first chart. In Singapore, personal consumption expenditure has steadily fallen over the years as a percentage of GDP and, at 35 per cent, is now barely half of what it is in Hong Kong. This is an oddity characteristic of a startup economy, not of a wealthy town like Singapore.

But it means that, on the basis of our money-in-your-hands measure, Hong Kong at US$24,000 per capita still outranks Singapore at US$21,000.

The second chart gives you a clue as to why the two economies are so different on this measure. Industrial investment in Singapore, always predominantly foreign, has become even more so in recent years, accounting for an average of about 80 per cent of total investment over the past 10 years. I do not have the equivalent figures for Hong Kong but, at a rough guess, the foreign-local ratio would be the reverse.

This foreign investment in Singapore has in turn produced a huge trade surplus in both goods and services. Over recent years, it has run at about 30 per cent of GDP. And most of this money goes right back out again to pay foreigners for all the confidence they have shown in Singapore by investing in it so heavily.

In short, Singapore's high GDP numbers are mostly an anomaly created by very generous industrial concessions to foreigners. They do not really reflect domestic wealth.

In another way, however, these GDP measures of Hong Kong and Singapore do not mean much as a yardstick of the comparative efficiency of either system. The fact is both are parasite economies feeding off much larger neighbours, the mainland in Hong Kong's case and Indonesia and Malaysia in Singapore's. They are both wealthy because they perform services that their neighbours cannot or, for reasons of policy, will not perform.

All that their relative state of wealth really tells you is one has fewer scruples than the other about how low it is willing to go. On this measure, I definitely rate Singapore as the more successful.