Address by Senior Minister Lee Kuan Yew to the Asia Society Australasia Centre Annual Dinner on 20 November 2000 (9.00pm), Sydney: East Asia and the Pacific in C21

A view from Singapore

As a small country whose destiny is determined as much by the external events as by internal policies, Singapore has become acutely sensitive to future trends in the East Asia region. How we see the future determines our stance and our policies.

55 years after World War II is time enough to gauge the potential and capabilities of the various peoples and countries of East Asia. By the close of the 20th century, anti-colonialism and anti-communism had ceased to be the critical issues. And the financial crisis of 1997-2000 has shown how differently the various governments and the peoples have used these last 55 years. There is enough data for us to draw more than tentative conclusions as to their future performance.

There is a neat divide between Northeast and Southeast Asia. Japan, Korea, Vietnam are East Asians who adopted the Chinese script for centuries and with it Confucian philosophy: hardworking, thrifty, always saving for the education of the next generation and for a better tomorrow. The most outstanding people have been the Japanese; their recovery from the ashes of defeat has been spectacular with the help of American markets and patents. The Japanese are now going through a difficult period as they settle on a new model around which they will regroup in a national consensus and forge ahead.

Next, the transformation of the big cities along the China coast, like Shanghai, Guangzhou, Dalian, Tianjin, Xiamen, and Beijing itself, when extrapolated for another 50 years, will mean a giant of an economy. Per capita, China's GNP may still be about one quarter to one third that of the US, but its total GNP and technological competence will make it a heavyweight.

By 2040, China and Japan's combined GDP will exceed that of the United States. These developments will shift the economic centre of gravity of the world from the Atlantic to the Pacific. Already, American trade with East Asia exceeds that with Western Europe. By 2050 the living standards of nearly 1.75 billion people in Northeast Asia will reach levels approximately that of present day Japanese. The high growth rates of East Asian countries in the last four decades were not fortuitous. They spring from the intense cultures of peoples keen to acquire new knowledge and master new technology. 600 million in Southeast Asia will achieve about half the per capita GDP of Northeast Asia.

China will be a formidable player in the region. No combination of other East Asian economies - Japan, South Korea, Taiwan and ASEAN will be able to balance China. The Russian Federation will not be a major player for at least another 20 years. Therefore the role of America as the balancer is crucial if we are to have elbow room for ourselves. There was a time, at the height of the Asian economic miracles, around 1990, when Indonesia believed that it could carve out an area of influence for itself, when the US forces left Subic Bay. Hence in 1990 when we gave the US access to our bases and allowed them to maintain a logistics support unit in Singapore there were protests. But when in the mid-1990s China built facilities on the islands in the Spratlys and the Paracels, especially after fishermen's huts were built on Mischief Reef, it was not only the Philippines who realised that the dismantling of bases at Subic Bay did not add to security and stability. Attitudes towards the American access to Singapore bases underwent a silent change.

This need for the US as a balancer is clear to Korea, Japan, Australia, New Zealand, the Philippines, Singapore and Indonesia. Malaysia has taken a contrary view. Vietnam, Laos, Cambodia, Thailand and Burma, on mainland Asia, as distinct from archipelagic Southeast Asia, take different views.

To meet the economic challenge of China's attractiveness to foreign investments, the ASEAN countries will have to combine their markets in an ASEAN Free Trade Area. It will be tough to compete against a homogenous China that is likely to grow at 7-9% per annum. Hence the pressures on ASEAN countries to combine their markets. Without this, the ASEAN countries will be left out by international investors.

The way Northeast and Southeast Asia have responded to the financial crisis reflects the differences in their cultures and political systems. Before the crisis, Southeast Asia was more open and outward-oriented. Northeast Asia, Korea, Taiwan and Japan, were seen as xenophobic to foreign investors, with many non-tariff barriers to trade. Korea has shown determination to implement the structural reforms agreed with the IMF. Thailand and Indonesia have yet to complete their structural reforms to their banking and corporate sectors. Because of Northeast Asia's aggressive liberalisation and deregulation, this differentiation between Southeast and Northeast Asia is now gone. As a result, foreign direct investment and portfolio inflows into Northeast Asia have risen strongly, and those to Southeast Asia have slowed.

The country worst hit by the financial crisis has been Indonesia, for the present mired in not just economic but political and social turmoil as well. They will take some years to heal the ethnic, religious, provincial and other divides that have been ripped open. Until Indonesia's leaders restore order in Indonesia, investor confidence will be weak.

The Australian media has been most focussed on East Timor and its problems with the militias in West Timor. Singapore concentrates more on the situation in Jakarta, Aceh, Irian Jaya, Maluku and East Timor. Despite regional autonomy, lasting solutions to Indonesia's current difficulties must come from Jakarta.

The prickliness that bedevil Australia-Indonesia relations is not unlike what Singapore faced when President Habibie was in charge. The then Indonesian President's angst was against Singapore. Now Indonesian politicians have directed this at Australia. More recently, this angst has turned also against the United States. This mood is the result of the deep disappointment in the Indonesian elite that followed the euphoria of the post-Soeharto political transition and when President Wahid was elected. The major countries in the CGI (Consultative Group on Indonesia), together with the IMF, the World Bank and Asian Development Bank, have kept up a flow of funds to keep Indonesia going. But until Indonesian leaders themselves restore confidence both domestically and internationally, these can only be palliatives.

That said, any fallout from problems in Indonesia is minor compared to the consequences of a clash of arms across the Taiwan Straits. That could change the course of developments in the whole of the Asia-Pacific. In Taiwan, with a new president whose party stands for independence, the danger has increased.

Another flash point, the Korean peninsula, now looks less likely to blow up. But reunification and peace are not at hand. It looks more like a protracted struggle. It is not in the interest of the North, nor of China, to have the North absorbed by the South. The North will use every leverage: missiles, nuclear proliferation and the danger of collapse, to extract concessions from the South and the US, giving the minimum as quid pro quo.

How East Asians see Australia

You may ask how do East Asians see Australia against this backdrop. The perception varies from country to country. The Japanese, Koreans and Chinese view Australia as a source of raw materials and a holiday destination. The Japanese and Koreans also consider Australia important to buttress the US in the South Pacific. The Chinese, not unnaturally, do not share this view .

There is no standard or common view of Australia amongst Southeast Asians. The perceptions of Malaysians have been coloured by emotions arising from poor "vibes" between the principal leaders of both sides. In Indonesia, the events in East Timor followed by the sharp rhetoric of its leaders have worked up anti-Australian sentiments. This was not the state of mind before the financial crisis. On the other hand the Thais and Filipinos are Australia's friends from the days of SEATO (Southeast Asia Treaty Organisation) and the Cold War. Singaporeans and Bruneians remember Australia from the dark days of the Japanese conquest and occupation of Malaya and Singapore in 1942. The Myanmars see Australia as an adjunct of the US democracy and human rights pressure on them to yield on Aung Sung Su Kyi. They are unlikely to give way. Lately the language of the Australian government on Myanmar has changed, although Australian media reporting has followed that of the US. Vietnam, Laos, Cambodia have not firmed up their attitudes.

There will be ups and downs in your dealings with ASEAN countries. I was not surprised that the AFTA-CER (Closer Economic Relations) talks were blocked by opposition from the Malaysians. Because the Indonesians were also generally unhappy, your friends did not press their views although they knew that AFTA-CER would bring benefits. We believe Australians have the patience and stamina to ride these ups and downs Singaporeans have had to do to cope with such mood swings. Their mood will pass as national interests prevail and decide policies. Over the last 50 years Australia has persevered in its engagement with Asia, a long record of strategic, political and now growing economic involvement with Asia: participation in World War II, SEATO and helping during the Communist insurgency in Malaysia and during Indonesia's Confrontation of Malaysia, FPDA, helping the establishment of the Colombo Plan, and its leading role in the Cambodian peace settlement. Australia has also actively engaged in multilateral diplomacy in the region through APEC, Asean Regional Forum (ARF) and Asean Post Ministerial Conferences (PMC).

Bilateral Relations

Although Australia-ASEAN relations are partially stalled, there is no reason why Australia should not build on bilateral relations and consolidate its position with the other countries that share its world view, especially on the role of the US as a balancer in both Northeast and Southeast Asia. Singapore and Australia have a similar strategic view of the future. And we do not have conflicts on economic issues. Instead, there are synergies in many areas in our commercial and trade links. Our relations will grow.

Trade Liberalisation

It is in our long term interest to press ahead with trade liberalisation. Australia launched APEC with the objective of trade liberalisation under WTO, originally concentrating on the countries of East Asia and the US. Now that it includes the Russian Federation, Chile and Peru, its focus has been diffused. It will be useful to have a sub-group within APEC of East Asians and Australasians, just like the sub-group on the eastern side of the Pacific of US, Canada and Mexico. In other words, ASEAN plus 3 in Northeast Asia, plus 2 in Australasia. Such a group can better advance the common interests of the western side of the Pacific in trade liberalisation and in resisting any resurgence of protectionism. Australia and New Zealand being in the group can bring the US around more by persuasion than argument.

The media

The Singapore government has been able to change its political emphasis and direction in foreign policy with changes in the international environment because our media keep our people informed on the realities of our changing environment.

The Australian government has no problem carrying its people towards closer relations with the United States in spite of US agricultural subsidies for their farmers and meat producers. But it often faces difficulties in getting people to welcome closer relations with East Asia. Perhaps Australians at large do not know the significance of these hard economic facts that more than 50% of your trade is with East Asia. Of your 10 top export markets, 7 are East Asian countries, and out of your 10 import sources, 6 are East Asian. Growth rates in East Asia will be higher than the US or the EU in the next few decades as they are in the catching-up phase. Perceptions of East Asians are of old stereotypes. Many Australians believe the progress of these countries is based on sweated labour, and do not realise that increasingly Koreans, Taiwanese and Chinese have become more like the industrialised and technologically competent Japanese. When Australians realise the meaning this has for their future, their government will be able to respond unencumbered by cultural and emotional baggage.

While there is much overlap in policies towards Asia of the Liberal and Labour parties, the sentiments and the rhetoric in which their respective policies are expressed make it appear that every time there is a change of government, there is a change of emphasis or nuance. This may lead to some loss of momentum in the build up of closer Australia-Asia relationships.

When most Australians realise the significance of present trends, and Australia's place in the scheme of things, their political parties will find that their policies towards Asia will tend to converge. Then it will be possible to forge a bi-partisan policy of getting Australia closer to Asia, which does not mean Asianising Australia or Asianising Australians. That will be a watershed event.