09 August 2023

The major stakes for the Lion City

“We are facing not just one storm, but several”, Singapore PM Lee Hsien Loong. An analysis by Guendalina Dainelli

In this period of uncertainty, geopolitical and economical tension around the world, some of the key issues that Singapore needs to navigate are the war in Ukraine, the growing divide between the US and China, and the global multilateral trading system under siege.

The significance of these matters was emphasized during the 45-minute speech delivered by Singapore Prime Minister Lee Hsien Loong in parliament, last April. He extensively touched upon foreign policy and geopolitics, highlighting the immense impact the external environment has on the city-state. "We are facing not just one storm, but several," he stated.

“First, the war in Ukraine. After more than a year, the war is deadlocked, with no good outcome in sight. […] The war continues to disrupt global energy, food and fertiliser supplies. We are all feeling it, in higher prices,” said PM Lee.

“The second big issue is US-China relations […] But the most dangerous flashpoint of all is Taiwan,” PM Lee said, adding that “Singapore rigorously upholds its “one China” policy and continues to support the peaceful development of cross-strait relations. China considers Taiwan as the most important issue, and the ‘one China’ principle to be the reddest of its red lines.”

“The third big issue is that the global multilateral trading system is under siege” he stated. “This has very serious implications, especially for small, open economies. For Singapore, a stable, well-functioning international trading system is vitally important. We cannot survive other than as an open economy. We rely on the free flow of trade and investments across the world, and a common set of rules that applies to all countries, no matter their size. This has helped us greatly to compete against bigger countries, attract investments from around the world, and to grow.”

The themes listed by the Prime Minister of Singapore represent the stakes at play for the country in the near future. Singapore has consistently opposed the violation of the sovereignty, of the political independence and of the territorial integrity of all countries. Potential impacts of the Russia-Ukraine conflict span across cybersecurity threats - with potential retaliation in cyber space - to supply chain disruptions, inflationary pressures, and rising electricity and petrol prices. “Unless we [...] stand up for the principles that are the very foundation for the independence and sovereignty of smaller nations, our own right to exist and prosper as a nation may similarly be called into question one day” claimed Minister for Foreign Affairs Dr Vivian Balakrishnan on 28 Feb 2022. And this is the reason why just a few days later, on 5 March 2022, Singapore unveiled the rare step of imposing unilateral sanctions against Russia (not based on United Nations resolution): the last time this happened was more than 40 years ago, when Vietnam invaded Cambodia and overthrew the communist Khmer Rouge.

The tensions between the US and China are equally sensitive for a country characterized by a clear ethnic Chinese majority and being the most important American ally in Southeast Asia. Singapore has been a hub for Chinese migration and capital since it was first declared a freeport by Sir Stamford Raffles in the 19th century. Approximately 76% of Singapore's population is ethnically Chinese, making it the only majority-Chinese country outside of China, Taiwan, and the cities of Hong Kong and Macau. Around 13% of the population has a Malay background, and 9% are of Indian heritage.

Chinese influx appears to be even increasing in 2022, a year proved to be extremely challenging for China. Political tensions between Beijing and Washington, Beijing's recent crackdown on tech billionaires, and three years of the "zero-COVID" strategy have led to an increased wave of wealthy Chinese individuals emigrating overseas, a phenomenon known as runxue, which is understood to mean running away from China. This trend has been further highlighted by the significant increase in the number of family offices in Singapore, with a sizable portion originating from China. Suffice it to say that, during the UBS Singapore Family Office Forum on 7 July 2023, Deputy Prime Minister and Coordinating Minister for Economic Policies, Heng Swee Keat, emphasized that "by the end of 2022, there were 1,100 Single Family Offices in Singapore, up from 700 in 2021."

At the same time, Singapore is the largest trading partner of the United States in Southeast Asia, and the 18th largest trading partner overall. The US-Singapore Free Trade Agreement, implemented in 2004, was the first FTA between the US and an Asian country. The country enjoys robust and longstanding defense, economic, and political relations with the US. While Southeast Asian countries are major buyers of Russian arms according to the SIPRI database, Singapore stands as an exception.

Since gaining independence in 1965, Singapore's leaders have been acutely aware of the vulnerabilities associated with its small size. To put things into perspective, PM Lee highlighted that China and India are each 250 times more populous than Singapore, the United States and Indonesia are over 40 times larger in population size, while Malaysia has a five times bigger population. The remarkable economic transformation of Singapore, progressing from a Third World country to a First World nation since gaining independence, has garnered widespread recognition as an "economic miracle". However, slowing economic growth, an ageing population, global competition, and widening geopolitical frictions have put the Singapore socio-economic system under strain and represents a significant challenge for a country with just less than 700 square kilometers of territory, one of the smallest nations globally.