PM Lee Hsien Loong at the Q&A Session With the Chicago Council on Global Affairs (Apr 2010)

Keith Williams, President and CEO of Underwriter Laboratories (Moderator): Prime Minister Lee, thank you very much for those extraordinarily eloquent and comprehensive remarks. Thank you, too, for agreeing to have a few moments to take questions from the audience. For those of you who might like to ask a question, please raise your hand to do so and as you ask your question, as a courtesy to the Prime Minister, would you please identify yourself and your affiliation. So, with that, who would like to take the first question? Well, in that case, maybe, I will and it is always my prerogative, I suppose. China has, through this economic crisis, learnt and decided that it needs to increase its domestic consumption from 35 per cent to 50 per cent of GDP and they are investing significantly in social safety net investments of pension, healthcare, unemployment programmes, as a way they believe to encourage Chinese consumers to spend more money. Singapore has been through that transition with remarkable success since its inception as a country. So, how would you rate China’s likelihood of making that transition successfully and in some reasonable short period of time?

PM Lee Hsien Loong: I think they will get there, but I think it will take time. As I tried to explain just now, these are very fundamental changes. You can do a quick-fix, it can work for a while, you can distribute washing machines and colour TVs and computers, even cars, but then, what do you do? You cannot carry on doing that. To change the pattern of domestic demand or exports, you have to change your structure of the economy, the structure of your social safety net, the structure of your population and they have to move the population off the farms into the cities where they can be more productive, where you can provide them with the social amenities and where they can then earn and, therefore, be able to consume it.

It is happening. They are moving about one per cent of their population from rural to urban every year. One per cent may not sound a lot, but one per cent of 1.3 billion is 13 million people a year. So, every year, you have to build a city that size which I think is bigger than Chicago, probably bigger than Illinois and I would not likely order them to double the speed. I do not think it is easy to do. That is happening, but there are other things which they can do, which can happen in parallel. For example, if you examine the figures carefully, the increase in the Chinese savings rate over the last five, seven years did not come from the households. People say that the households save a lot. Well, they do save some, but the increase in the savings came from the retained profits of the state-owned enterprises, the companies which did well, profitable, they kept the money, they did not distribute the dividends. And if they distributed some of the dividends and the Government used it and invested in, whether education, healthcare or infrastructure, that will increase the demand. Those things can be done in a shorter period of time. So, there will be some adjustments which you ought to be able to see within, say, five years.

But I think that you must also remember one more factor which causes the Chinese to be saving money and not consuming every dollar they earn today and that is that they will grow old one day. They are still quite young. I think the average, the median age is 26 or 27, but they are ageing rapidly because of the one-child family and in one generation, you are going to have a big problem and they have not got social security. You might that is a good or a bad thing that they do not have social security, but, therefore, there have to provide for the day when these people will grow old and, meanwhile, the younger ones must save so that they will have that provision in 25, 30 years’ time and, therefore, you must accept that China will, for some time, be consuming less than it is producing and, therefore, for quite some time, they are producing trade surplus. They have not made this argument, but I think it is a valid one and legitimate to make, that, if I do not so this today, I will be in serious trouble tomorrow, as some other countries are finding out, too.

Mr Williams: Thank you. Well, the question here at the head table.

Stanley Roth, Boeing (VP of International Government Relations): Stanley Roth, Boeing (VP of International Government Relations). You are here at a time of considerable political flux in Southeast Asia. Obviously, Thailand is the most spectacular case, it tragically turned violent over the weekend. We have upcoming elections in the Philippines, like you said. Does it matter, does it make a difference in terms of governance? And then Prime Minister Najib has been here, what he called a successful trip to the US, but how do you see political stability in your neighbour in Malaysia?

PM Lee: It is always very delicate to talk about countries other your own, but it is a challenge. There was once an American scholar, I think his name was Bob Tilman, who wrote a book about countries and nations. He said what is a country, or what is a nation? A nation is a group of people with the same language, history, culture, sense of destiny who feel for one another and belong together and he said, by that standard, no country in Southeast Asia really, truly is a country, except, he said, Thailand, and even in Thailand with the exception of the south because southern Thailand is non-Thai, it is Malay, it is non-Buddhist, it is Muslim and they do not speak Thai, they speak a dialect of Malay. And that is the situation which Southeast Asian countries find ourselves in, including Singapore. So, Philippines has a problem of insurgency in the south. You would have read about the massacre by one clan of another. They ambushed the convoy going to the polls or going to nomination, killed 50 or 60 people and they were going to bury the whole lot, including the cars, and the process of justice has not completed running yet and it is yet to be seen what will happen, but that is the struggle which has been going on in the Philippines for a long time. John Pershing, Pershing, the general who became a great general in the First World War, was a young officer and earned his spurs running around the southern Philippines catching Muslim separatists kidnapping innocent civilians. That is 100 years ago and the problem is still there and I think the problem will be there for some time to come.

Thailand has a very difficult situation. I think the challenge is not just who takes over the government, but really, to be able to bridge the division between the supporters of the Red Shirts, which is a rural population, agricultural, farming, poor, and the urban elite and aristocracy who uphold the monarchy and Thaksin represented the rural population and he pursued policies which, for the first time, were policy content-oriented. You may argue whether it is good content, but there was content, it was populist and he distributed medical care for token sums, he distributed loans to the villagers, he distributed projects, he called it OTOP -- One Tambon, One Project. Tambon is a village. So, every village had its little project where they could become a little bit better than yesterday. So, the rural population no longer accept the present dispensation and how do you reach a new dispensation which is viable, which brings in the whole population, including the Bangkok elite, which is used to a completely different way of doing things, even though the forms may have been elections and parliamentary government? And that is a transition which we wish the Thais success in.

Malaysia, you have heard Prime Minister Najib and I am sure he has put the point more directly and sensitively than I would be able to, but they are our closest neighbour, they are a multiracial and multi-religious society. Race and religion are major factors in this society, in the political system, in a very fundamental way which has evolved over 40-plus years since Singapore left Malaysia and particularly since 1969 when there were very serious race riots in Malaysia. And how do you go forward from there into a modern economy and a modern society with educated professionals, engineers, technicians, IT people, doctors, researchers and break through to the developed country level when you see people catching up with you from behind, as we see people catching up with us from behind, and rapidly water rising to fill a niche where you used to stand, in an environment where affirmative action, which they call a bumiputra policy, is deeply-entrenched and you want to change to meritocracy, well, even the choice of words to describe what you are trying to do is a very sensitive matter. So, these are challenges which Asian countries have. Singapore has our own challenges. We are busy enough trying to solve our own.

Mr Williams: Thank you.

Diane Swonk (Senior Managing Director and Chief Economist for Mesirow Financial Holdings): Hi, Diane Swonk (Senior Managing Director and Chief Economist for Mesirow Financial Holdings). One of the things you mentioned was Indonesia and Vietnam and I have been just stunned and amazed in what is going on in Indonesia and less confident but optimistic about Vietnam and I wonder if you could comment on those because the transformation seems to be phenomenal in a very short period of time?

PM Lee: I think Indonesia has gone through a real roller coaster ride over the last decade-and-a-half, since 1997, Asian crisis. Before 1997, there were riding high and there is a real euphoria, money was pouring in, they were growing six, seven per cent per year. Then the crisis came, their banks bust, there was a run on the currency, the government collapsed, Suharto resigned. He said, are you sure you want me to resign? If I resign, my deputy will take over. His deputy was Habibie and, in the end, he had no choice. He resigned and Habibie became President and was the first of, I think, three or four presidents in succession, in quick successions and now, they have President Yudhoyono and stability has returned and President Yudhoyono is in his second term, re-elected last year, won first round, without a run-off, which is good news for Indonesia and good news for the region because there is a lot of unnecessary politicking which was avoided.

Politically, it has stabilized, it is a different dispensation. The Parliament is rambunctious and does not necessarily comply with the President’s wishes. You are quite familiar with that sort of a situation. But to make that work in a different context in Indonesia is not so easy. So, to pass legislation which is difficult but necessary is a very complex process. So, the economy is doing well, it is growing, particularly because of natural resources, prices are good, coal, all kinds of resources, they are a very rich country. Additional transformations need to be done. They have tax rules which need to be improved, they have labour laws which are onerous. For example, if you are running a corporation, any 30 people can form one union. So, if you have 300 people, you could have ten unions and it sometimes happens and that is a hindrance to people investing into Indonesia. They need infrastructure. The President has made a major emphasis on encouraging infrastructure to come into Indonesia, but finally, people have to make their calculations and decide what country risks to accept. So, these are issues which they are tackling, as they are tackling the issue of corruption, which is a very vexed problem because it is entrenched and as the President has said publicly, it is a judicial mafia. When the Judiciary is in doubt, there are many, many difficulties in putting things right, but they are trying their best and we wish them success.

Vietnam, I think, is taking off. They are not quite at China’s position, but there is a lot of energy and drive in the people. They are bright, they are hardworking, they are learning English although they still call themselves a Francophone country, but really, they are all learning English and they welcome investments and when you concluded a trade agreement with Vietnam, before they joined the WTO, it made a very big difference because investments went in and jobs were created and that helped to transform the economy and give them confidence to go further and I think they will continue to grow. Their bureaucracy is a hindrance, corruption is a serious problem. There are different groups within the government which have not completely reconciled which way they want to go. In terms of economic policy, there are some which are more conservative than others, but overall, I think they are on the road and that is good for Asean.

Mr Williams: So, Mr Prime Minister, being mindful of the demands of your schedule and appreciative of the generosity you have had with us today of your time and your thoughts, we would like to wrap up the formal programme now with a small presentation of a memento of your visit to Chicago and of your stay.

PM Lee: Oh, thank you very much.

Mr Williams: Thank you very much.

PM Lee: Thank you.

Mr Williams: Thank you. It has been a great honour for us to have you here with us today. We hope that you have enjoyed and will enjoy your time in Chicago. You have a standing invitation from us to come back at any time and we will look forward to your next visit with us. Thank you very much for joining with us and for the audience, I would like to ask you to please remain in your seats while Prime Minister Lee leaves the room. Thank you very much.

PM Lee: Thank you.