SPIEGEL Interview with Singapore PM Lee Hsien Loong 'Nobody Can Control China'

Singapore’s Prime Minister Lee Hsien Loong talked to SPIEGEL about the crisis in the Chinese stock markets, the comeback of the Tiger economies and terrorism in Southeast Asia.

Singapore's Prime Minister Lee Hsien Loong.

Singapore's Prime Minister Lee Hsien Loong.

SPIEGEL: Mr. Prime Minister, the Chinese stock markets are extremely volatitle at the moment; there are a lot of similarities to 1997, when the Asian financial crisis sent tremors around the world. Are we that far again?

Lee Hsien Loong: Well, I think it’s different. The fundamentals are not the same. Before 1997, many of the countries were running balance of payments deficits and money was coming in by the spades all over the region. People were just saying, invest in Asia, and a lot went into Southeast Asia. They just bought the index or whatever was in the markets, and all of this money was volatile. So, when the mood changed, when problems came up in some of the countries, starting with Thailand, the money stampeded out, just as it had stampeded in, and that caused a problem.

Today, I think there’s a certain ebullience, confidence which is building up in Asia, but not to the extent of what happened before 1997. The countries are running balance of payments surpluses, not deficits.

SPIEGEL: And have today's investors learned from those events?

Lee: I think the big difference in China is that they have capital controls and it is mainly a domestic stock market. It’s not foreign money in the Shanghai stock market. So, it’s not money which can leave and then suddenly drag down the whole system.

SPIEGEL: That sounds as if the Chinese Government has taken some measures to control any the situation?

Lee: I suppose the measures are helpful, but the fundamental problems, some of them are structural ones and you cannot solve them just by imposing a Tobin tax, raising it from 0.1 to 0.3 percent. That’s just adding some sand and grit into the wheels and slowing things down. You must have a market that is well-regulated, that is transparent, where the investors are well-informed and it’s not just 200,000 households a day saying there’s a chance to get rich and I want to get into it.

SPIEGEL: That’s what’s happening at the moment?

Lee: Which I think is happening.

SPIEGEL: So, how is it going to end?

Lee: Well, markets come up, markets go down, it’s happened before. The question is what the impact will be on the rest of the Chinese economy. I don’t think the Chinese financial system operates quite in the same way as that of the developed countries. Their banks don’t operate commercially and they don’t lend based on risk, and credit and returns, yet. Their companies don’t depend on the stock market for financing in a very big way, yet. Some of them go overseas to get financing. Many of the big companies are state-owned enterprises. So, I think it will end, as bubbles end, in manias, panics and crashes.

SPIEGEL: What will the impact be on your country and on other Southeast Asian countries?

Lee: If it is just the Chinese stock market, I think it’s manageable, though there may be some impact in terms of the mood on the other stock markets in the region. But if it’s the Chinese economy which goes down, of course, the impact on Asean would be big because China is now the biggest, or nearly the biggest, trading partner for many of the Asean countries. For Singapore, if you count Hong Kong and Taiwan, together with China, it’s our biggest export market.

SPIEGEL: Is China also the biggest threat to Singapore?

Singapore's Vital Statistics

Singapore's Vital Statistics

Lee: It’s a competitor. They are doing well, they are upgrading themselves. It’s quite clear that they won’t just be at the low end, but they’re also moving up. This means higher-technology activities, it means research and development, it means IT, knowledge-based activities. A lot of technology multinationals have started setting up R&D centres in China. So increasingly China is moving up, and we have to complement them. They are good, but I do not believe that they will be a giant suction for all the activities in the world. That’s not the way the world economy works. Look at America. It prospers, but there are many niches for the rest of the world.

SPIEGEL: How is Singapore going cope with this challenge?

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