• The Convergence

The US-China Conflict: Singapore's Dilemma

By Quek Ee Pin, Editor


Introduction


As Singapore celebrates the 30th anniversary of its bilateral relationship with China this year, it is perhaps timely to reflect on how this diplomatic relationship will unfold in the future.


Singapore has been well-known for its foreign policy, which seeks to maintain friendly and diplomatic ties with all countries around the world. Such relations extend to the two largest economies in the world, the United States (U.S.) and China, both of whom are amongst Singapore’s largest trading partners. [1]


However, China’s rise as a global economic heavyweight has been seen as a potential threat to the U.S., which holds the current position as the world’s leading superpower in both political and economic realms. The strained relationship between both superpowers will indirectly affect Singapore, raising the possibility of new challenges arising from Singapore’s foreign relations with China due to this U.S.-China conflict.


Whilst a cordial relationship with both countries has seemed relatively easy to achieve in the past, this feat will only become more difficult in current times. Much of Singapore’s existing relationship with either country will come under greater scrutiny, as a result of factors such as the former’s purchase of U.S. military equipment or its foreign investments in China.


Such concerns have already been raised by Singapore’s leadership, who are well aware of the impacts potentially brought about by the conflict. As Prime Minister Lee Hsien Loong recently highlighted in an essay published in Foreign Affairs magazine, countries in Southeast Asia like Singapore “must avoid being caught in the middle or forced into invidious choices”. [2]


The U.S.-China conflict then raises some pertinent questions for Singapore: how will the country be affected by it? Will the continuing tensions between both superpowers open up new opportunities for Singapore, or compel it to make the aforementioned “invidious choices”?


As such, an analysis of the potential outcomes could perhaps help Singapore navigate the tremulous times in which it is situated in today.


How Singapore can benefit from the U.S.-China conflict


A potential area in which Singapore can benefit from is the supposed economic decoupling between China and the U.S.. The growing trade tensions between the two countries have led to a shift of manufacturing processes out of China, as American companies respond to their government’s ‘tit-for-tat’ policies and diversify their manufacturing sources away from the chinese region. [3]


Southeast Asian countries, such as Vietnam and Malaysia, have benefited from this shift of low-cost manufacturing out of China. [4] Singapore, with its focus on value-added manufacturing, could potentially benefit from an increased demand and investment from the U.S..


Aside from manufacturing, Singapore could also stand to gain from companies relocating out of Hong Kong. With the passing of Hong Kong’s national security law, companies have become wary of the city losing its autonomy from China. [5] Hong Kong has also been transformed into another geopolitical battleground for the two superpowers, with the U.S. recently revoking the special legal and economic status that Hong Kong enjoys as an autonomous region separate from China. [6]


The revoking of Hong Kong’s special status has led to Singapore being seen as a potential alternative for relocation. [7] Similarly, the trade conflict has led to Chinese companies seeking to relocate elsewhere, with Singapore being deemed as a neutral and open alternative to conduct business without interference from sanctions. Examples include technology firms like Tencent and ByteDance. [8]


Such developments help to reinforce Singapore’s reputation as an attractive destination for multinational companies seeking to hedge themselves against the conflict, bringing potential employment opportunities and greater investment into Singapore’s economy.


Potential threats and consequences


However, while the aforementioned opportunities may benefit Singapore, the net impact of the conflict is likely to be more harmful than advantageous. Numerous economies, including Singapore’s, have felt the economic impact of the trade-war prior to the COVID-19 pandemic. [9]


With a decrease in trade flows between the world’s biggest economies, Singapore’s trade-reliant economy would be severely affected, regardless of the amount of investment and number of companies Singapore attracts from this conflict.


Moreover, it is noteworthy to consider the potential risks arising from such opportunities. One would be the conflict of interest with the U.S. when Chinese firms relocate to Singapore, with the risk of the U.S. imposing sanctions or tariffs on Chinese products or services regardless of their country of manufacture. Though Singapore has strong relations with the U.S. at present, this bilateral relationship may take a backseat while U.S. national security interests take precedence during the trade war.


Another possible problem would be Singapore’s increasing reliance on China for foreign investment as a result of the relocation of Chinese companies to the city-state. This could endanger Singapore economically as China may exert economic pressure to align Singapore with China during this trade war. Such pressures can be seen from the cases of Sri Lanka and Cambodia, where China has been able to gain control of strategic facilities and sign defence agreements with the two states due to its strong economic influence in these countries. [10] [11]


Thus, there is a need for Singapore to protect itself from such risks and prevent being arm-wrestled by the Chinese state. Given that Singapore has experienced similar pressures by China in the past, this necessity is all the more pertinent.


Singapore’s heightened tensions with China over the South China Sea disputes serves as a case in point: When Singapore supported the outcome of the Philippine arbitration case which ruled in favour of the latter against China in 2016, [12] China retaliated by seizing Singapore’s military vehicles stationed in Hong Kong. [13] China also began conducting more influence operations through Singaporean business associations and cultural organisations, with the aims of promoting a stronger Chinese identity amongst the local ethnic Chinese population and shaping Singapore’s policies indirectly. [14]


Hedging amidst a conflict


With these risks in mind, how can Singapore continue to tread water in this U.S.-China conflict and remain as an objective third party?


Firstly, Singapore can protect itself by rebalancing its relationship with both countries. While Singapore enjoys strong economic relations with the U.S. and China, it has traditionally been economically aligned with China and militarily disposed towards the United States. This is seen from Singapore’s position as China’s largest foreign investor and its purchases of U.S. military equipment, such as the F-35 stealth fighter. [15] [16]


Singapore can learn to restore this balance in the next decade, by promoting more economic investment in the U.S. from its sovereign wealth funds, while settling defence agreements or purchase of military equipment from China. This will prevent Singapore from being too reliant on either superpower for its economy or military needs.


Secondly, Singapore can pursue a “third-way” strategy, similar to the non-aligned stance adopted by some countries during the Cold War. This entails establishing stronger relationships with independent blocs outside of the two superpowers, which Singapore is well-poised to do using ASEAN as a platform.


These blocs include countries/regions such as the European Union, as well as major Asian economies like Japan and South Korea. Such partnerships can help to ensure that Singapore has diverse options for foreign investment and trade flows amidst the unfavourable global economic environment resulting from the U.S.-China tensions.


Lastly, a push towards institutionalisation and internationalisation can help protect Singapore from any potential backlash arising from the conflict. This includes enacting legal reforms in the country to be better aligned with global standards, allowing Singapore to play a key role as an international arbitration hub for various business-related or international disputes.


Singapore should also seek to bolster its position as a global hub for trade, finance and transport, through greater investment in these sectors and attracting key industry players from various countries to establish their regional headquarters in the city-state. These efforts will help Singapore to reinforce its position as a global city, where the rule of law is respected and unbiased. It will also help to cement Singapore’s stance as a neutral party in terms of economic concessions.


Conclusion


Though the past 30 years of Singapore’s relations with China have been relatively smooth sailing, we may see the city-state facing greater obstacles in maintaining conflict-free foreign relations with China in the next few decades. China’s rise as an economic superpower against a declining American hegemony will likely take Singapore’s future relationship with both countries on a different path going forward.


In the near term, it is unlikely that both superpowers will take a conciliatory approach towards their relationship with each other. Regardless of whether Donald Trump or Joe Biden wins the upcoming U.S. presidential election, America will likely continue in adopting a firm towards China.


Similarly, with President Xi likely to remain in power for the foreseeable future, China is unlikely to divert away from its “wolf-warrior”-type diplomacy, where Chinese envoys are increasingly assertive about Chinese interests and motivations across the globe. [17] Relations between the U.S. and China are expected to take a turn for the worse rather than see improvements, at least in the short-term.


Singapore must understand that such geopolitical tensions are outside of its control and hence hedge itself against potential worse case scenarios. Singapore’s neutral stance in its foreign diplomacy with both superpowers should be adapted to cater to the changing external climate. This includes rebalancing certain aspects of the relationship with the U.S. and China and diversifying its partnerships with other strong economic powers and organisations around the world. Most importantly, Singapore must remain nimble so as to be able to adapt to any potential conflicts triggered by the two superpowers, which could pressure the country into making difficult and undesirable choices.



Bibliography:

[1] Singapore. Singapore’s International Trade. Department of Statistics Singapore. Last Updated September 11, 2020. (https://www.singstat.gov.sg/modules/infographics/singapore-international-trade)


[2] Lee, Hsien Loong. The Endangered Asian Century. Foreign Affairs 99, no. 4 (July/August 2020)

(https://www.foreignaffairs.com/articles/asia/2020-06-04/lee-hsien-loong-endangered-asian-century)


[3] Kharpal, Arjun. “Apple, Microsoft, Google look to move production away from China. That’s not going to be easy.” CNBC, March 4, 2020.

(https://www.cnbc.com/2020/03/05/coronavirus-apple-microsoft-google-look-to-move-production-away-from-china.html)


[4] Jibiki, Koya. “Southeast Asia vies for foreign manufacturers leaving China.”

Nikkei Asia, July 4, 2020. (https://asia.nikkei.com/Economy/Southeast-Asia-vies-for-foreign-manufacturers-leaving-China)


[5] Gunia, Amy, “The U.S. Might Revoke Hong Kong's 'Special Status.' Here's What That Means for Business in the Global Financial Hub.” Time, May 29, 2020.

(https://time.com/5842158/hong-kong-autonomy-trade-business-china-us/)


[6] Bloomberg, “What Hong Kong losing its 'special status' would mean.” The Straits Times, July 3, 2020.

(https://www.straitstimes.com/asia/east-asia/what-hong-kong-losing-its-special-status-would-mean-0)


[7] He, Laura, “Hong Kong has only one real rival for businesses thinking about leaving.” CNN Business, June 10, 2020.

(https://edition.cnn.com/2020/06/10/investing/singapore-hong-kong-american-companies-intl-hnk/index.html)


[8] Harper, Justin, “Singapore becomes hub for Chinese tech amid US tensions.” BBC News, September 16, 2020. (https://www.bbc.com/news/business-54172703)


[9] Bermingham, Finbarr, “Singapore economy tipped for recession as US-China trade war slams imports, exports, manufacturing.” South China Morning Post, August 13, 2019.

(https://www.scmp.com/economy/global-economy/article/3022526/singapore-economy-tipped-recession-us-china-trade-war-slams)


[10] Abi-Habib, Maria, “How China Got Sri Lanka to Cough Up a Port.” The New York Times, June 25, 2018. (https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html)


[11] Bong, Chansambath, “Cambodia’s Disastrous Dependence on China: A History Lesson.” The Diplomat, December 4, 2019.

(https://thediplomat.com/2019/12/cambodias-disastrous-dependence-on-china-a-history-lesson/)


[12] Today Online, “Singapore urges respect for court ruling on South China Sea.” Today Online, July 12, 2016.

(https://www.todayonline.com/singapore/singapore-south-china-sea-ruling-reaction)


[13] Loo. Bernard F.W., “Making sense of the Terrex incident.” Today Online, December 6, 2016. (https://www.todayonline.com/commentary/making-sense-terrex-incident)


[14] Sim, Royston, “Report flags how China conducts influence operations in Singapore.” The Straits Times, July 18, 2019.

(https://www.straitstimes.com/singapore/report-flags-how-china-conducts-influence-operations-in-spore)


[15] Singapore. China - Market Profile. Enterprise Singapore. Last Updated December 2, 2019. (https://www.enterprisesg.gov.sg/overseas-markets/asia-pacific/china/market-profile#:~:text=In%202017%2C%20Singapore's%20largest%20trading,S%246.6%20billion)%20in%20China)


[16] Yeo, Mike. “How the F-35 could be a game-changer for Singapore.” Defense News, February 10, 2020. (https://www.defensenews.com/digital-show-dailies/singapore-airshow/2020/02/11/how-the-f-35-could-be-a-game-changer-for-singapore/)


[17] Zhu, Zhiqun. “Interpreting China’s ‘Wolf-Warrior Diplomacy’.” The Diplomat, May 15, 2020. (https://thediplomat.com/2020/05/interpreting-chinas-wolf-warrior-diplomacy/)



Ee Pin is an Editor for The Convergence majoring in Economics. He feels that politics should not be polarising, rather it should seek to include everyone in society. By taking an informed and nuanced stance in his articles, he hopes to inform readers on subject matters, allowing for more balanced and constructive debates. Some of his hobbies include photography or watching sports such as Football and Formula 1. He is usually seen drinking his coffee in the morning while randomly browsing through the latest videos on his YouTube feed.



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