In this episode of Pacific Polarity, Donald Low elaborates on what makes the Singapore model click, as well as the lessons in governance that China and America can continue to learn from Singapore’s experience.
Richard Gray
Welcome to today's episode of Pacific Polarity. Today we're speaking with Donald Low. Donald Low is a senior lecturer and professor of practice at HKUST Institute for Public Policy.
He served as a Singaporean civil servant for 15 years, holding senior posts in the Ministry of Finance, the Public Service Division, and establishing the Center for Public Economics at the Civil Service College. Donald was associate dean for executive education and research at the Lee Kuan Yew School of Public Policy and director of the Institute for Emerging Market Studies. Donald is an associate partner at Centennial Asia Advisors, where he advises clients on economic and political affairs in the Asia Pacific. He's a prolific writer and the author of several books, including “Hard Choices: Challenging the Singaporean Consensus”, “PAP versus PAP: the party's struggle to adapt to a changing Singapore”, and most recently his anthology, “The Price of Zero: China's policy missteps during and after COVID”. Donald, a pleasure to be speaking with you.
Donald Low
Thank you very much for having me on your show.
Richard Gray
So as a starting point, many in the United States, where I am based, predicted that Lawrence Wong's PAP would lose voter share in the 2025 Singaporean general election. Why were they wrong?
Donald Low
Oh, I think a lot of the predictions were based on these straight-line linear predictions coming out of the 2020 general elections. And then the PAP had lost a bit of public support. Their popular vote share sank to the second lowest, I think, in independent Singapore history of just about 61%.
There was this sense among analysts that democratization or greater representation in parliament was an inevitable trend. And I think they were mistaken for a few reasons. The first is that I think Lawrence Wong brings a breath of fresh air. People generally like him. He's more relatable. He doesn't come across as overbearing, elite. So I think that what I call the Lawrence Wong effect certainly played a role. The fact that he's seen as a likable, more relatable prime minister.
The second reason I think most analysts were wrong was what was happening in the US, Trump's Liberation Day tariffs announced on April 2nd, Singapore's general elections were on May 3rd. I think Lawrence Wong quite skillfully argued, use the Liberation Day tariffs to signal to Singaporeans how uncertain, how even destabilizing this world was. And the party's manifesto was we're living now in a changing world, and we need a new resolve, a new team to deal with these new challenges that the Trump administration will bring to very trade dependent economies like Singapore. I think Singaporeans understand the fact that trade is critical to Singapore's success and survival. I think that general sense of uncertainty, of heightened anxiety, worked in the ruling party's favour.
I should add that even before election day was announced, polling day was announced, I had predicted that the opposition parties in Singapore would struggle to make any gains in these elections. And I was a minority voice, but I think events have proved me correct more so than other analysts.
Richard Gray
One of the areas that I previously had studied was Singapore's foreign policy in the Cold War. And one of the really interesting things about that was how quickly the Singaporean government was able to adapt to shifting external circumstances. As the United States was leaving Vietnam, Singapore shifted its policy, allowed the Soviets to have naval presence across the Malacca Strait, increased their relations with the Soviet in general, had warmer ties with China, and then continued that onwards as China developed. And I guess throughout this period, the through line was shifting dynamics of these relations with the Soviet Union, United States and China in these very volatile periods in a way that was quite unique compared to other states, which were much slower to see these dynamics as they were playing out more reactive than proactive. As a general note, what has made Singapore's government uniquely proactive and prescient to internal and external dimensions? Is this sustainable with existing institutions and bureaucratic capacity, or was it foremost dependent on the originating generation of Singapore's founding fathers?
Donald Low
It's a very big question, right, because it essentially asks me to analyze the foreign policy and foreign policy shifts over a 50-, 60-year period. But I think the short answer to a very big question is that foreign policy in Singapore has been conducted really on the basis of what's in Singapore's long-term interests, not just immediate or economic interests, but what's in Singapore's long-term interests.
And I think foreign policymakers in Singapore—because Singapore is a very small state, relations with much of our neighboring countries, relations with regional countries, but also relations with the rest of the world are critical to Singapore's continued survival and success. So foreign policy makers have generally been very pragmatic, have taken a very hard-nosed view of what Singapore’s interests are, might be going into the future, and there's a sense that there are no permanent enemies and also no permanent friends, only permanent interests. It largely has been guided by that philosophy, although Singapore is also a keen advocate of the maintenance of international law, of respecting national sovereignty, precisely because it is a small country that's very conscious, very sensitive to any changes in the environment that might undermine Singapore's sovereignty or independence.
On your second part of the question, on whether existing institutions are sufficient to cope, I think Singapore is helped by the fact that this is a very capable state, a very capable government and very centralized, obviously. It's only one layer of government.
Foreign policy is very much in Singapore an elite enterprise, it's just set by… so there are less, I wouldn't say there aren't any, but there are, I would guess, fewer domestic constraints and domestic politics doesn't impinge as much, doesn't compromise the independence or the autonomy of technocrats making foreign policy. So that allows them a freer hand to pursue policies that are pragmatic, that are in Singapore's long-term interests and which serve Singapore's standing in the world well.
Jersey Lee
So you mentioned Singapore's centralized system. Recently, China's current system has frequently been described as modeled after Singapore's, particularly after Deng Xiaoping opened up China, and sought to find a one-party state with a strong developmental focus and which has a strong role for the state. And of course, Singapore had participated directly in China's opening up process, in particular investing heavily in manufacturing in and around Suzhou. So to what extent do you think the two systems are comparable? And as Singapore successfully transitioned to the fourth generation of leadership, do you see any political insights for China in dealing with its own inevitable leadership transition?
Donald Low
I've asked that a lot, whether the Singapore model offers any lessons or insights for the Chinese. I think certainly during the first 20, 30, maybe even 40 years of reform and opening, China viewed the Singapore success as very useful for its own market reforms, market opening efforts, particularly in the form of attracting foreign investments, leveraging industrial parks, developing industrial parks to drive industrialization and economic development. So Singapore was useful in that regard.
But I think the Chinese always understood that Singapore's context is incredibly different. I mean, Singapore is a city-state. The population today is the size of a medium-sized or even small Chinese cities, only six million people. So even though China is not a federal system, and so you can say that China's system of government is quite centralized, in practice, though, local governments do most of the heavy lifting in terms of public service delivery. And the central government really just focuses on defense and on foreign policy and setting national directions. Even reform and opening, which was very much driven by the central government, the actual execution of it was really led and implemented by local governments. Local governments were encouraged to experiment, to figure out what works in their context. And the role of central government was really just to say, those things that work, let's replicate them in the rest of the country. Those things that didn't work, let's stop doing those. I very much look up to the work of Professor Ang Yuen Yuen, now at Johns Hopkins University, and she calls this process, this system of governance, one of “directed improvisation”, where the central government sets broad directions, provides broad guidance, but the experimentation, the actual execution, what she calls improvisation, was very much done by local governments, not just provincial governments, but city governments, even townships and villages.
I think in that context, once you understand that the Chinese government is much more layered, much more complex than Singapore’s—Singapore's can be a very highly centralized state, with only one layer of government, because of its size, because of the fact that it is a city state. Obviously China cannot do that, it simply doesn't have the geography, doesn't allow for that.
The other things that China has learned from Singapore, obviously, is in how do you maintain social stability? Its approach to race relations, for instance, respecting cultural differences, respecting ethnic differences, and allowing everybody to have a say, to have a voice, to have a seat on the table. This consensus-building approach to social relations, I think the Chinese leadership certainly found interesting and useful during the early period of reform and opening.
I think in more recent years, Chinese interest in Singapore has waned, partly because the Chinese feel that they have arrived, they are now legitimately, both an economic as well as a military superpower. They feel that there's less they need to learn from Singapore, rightly or wrongly. My view is that there are certain things that are instructive, useful; for instance, how would you liberalize your financial industry, how would you lift capital controls in the management of your RMB, I think those are things useful things; these technocratic details of how Singapore did it are still useful for the Chinese government to take some reference from.
Jersey Lee
So your most recent book, “The Price of Zero: China's Policy Missteps during and after COVID”, collects many of your essays throughout the COVID years, where you consistently argue that China and Hong Kong's zero COVID policies weren't sustainable, starting from as early as February 2020. Now, I lived in Shanghai through much of that period, the COVID period, and I had also written a bit along similar themes, albeit two years later, in March 2022, when Hong Kong's zero COVID policy had clearly failed and Shanghai’s was under heavy strain. I argued that, since China's hospital systems were not prepared to deal with COVID, treat COVID patients, China should still crush the Shanghai Omicron wave, which was ongoing then, but retrain medical staff and change society's mentality immediately thereafter, to prepare for the inevitable end of zero COVID. And I think we agree at the time that it was kind of inevitable that zero COVID had to end one way or another.
Obviously, the potential for a more planned, more prepared way of ending zero COVID didn't happen. What ended up happening in mainland China was just total chaos at the end of 2022, in terms of policy, in terms of getting medical treatment, etc. So why did China stick to zero COVID even after Hong Kong's attempt had clearly failed, and what do you think was the end goal that was in mind? And also, to what extent do you think we'd still be talking about China's current economic and social challenges, in terms of debt, in terms of less consumption, etc., had they ended zero COVID in a more planned manner?
Donald Low
Critical questions, and I try to address some of those in my anthology of essays. I think what China had to do, especially during and after the Shanghai lockdown, was really to think very deliberately about how to develop the capacity to implement a “live with COVID” policy. That meant not just increasing vaccinations, but also increasing hospital capacity to cope with the expected flood of infections, and also increasing ICU capacity and intensive care units. China didn't do that for several months after the Shanghai lockdown. They still insisted that perseverance with zero COVID is victory. And that prevented local governments, prevented hospitals, prevented the various healthcare systems in China to do what was necessary to transition from zero COVID to a live with COVID strategy.
I think this is very instructive of the way Chinese policymaking has become, that it is not very good at doing two things at the same time. Even as you enforce Zero Covid, you must develop the capacity for what comes next. You must prepare and plan, and prepare the population, and educate the population that zero COVID will eventually come to an end, and we need to get used to the idea that COVID is not going anywhere, that this is going to be with us for the rest of our lives, and we have to live with that reality, we have to live with the reality of COVID becoming endemic; they didn't do that right, and so policy, as you rightly pointed out, swung from harsh suppression zero COVID, to sudden relaxation, and suddenly all the harsh controls, the lockdowns, the daily testing, that entire infrastructure, the entire apparatus that had been built up in two years of zero COVID just went away overnight, and the Chinese people were essentially left to fend for themselves.
I think it is so important for the Chinese authorities to learn from that mistake, that it is one thing to communicate to the public about perseverance is victory, but you have to prepare for, you have to think in terms of scenarios: what if the rest of the world has moved on, what if Covid becomes endemic, what do we do, what is plan B? They didn't have a plan B, and so when plan A clearly was no longer sustainable by the end of 2022, there was no plan. People were just left to fend for themselves. The healthcare system, I think, came under incredible strain. I'm sure in some places it was no longer functioning.
I think what the Chinese authorities should really learn from the episode is to bring back that pragmatic experimental mindset to policy making, that of the first 40 years of reform and opening, what we were talking about, this directed improvisation, allowing local authorities, local governments to pilot, trial, work on different approaches to dealing, even if there's this general central guidance, that this is where the country is headed towards. So in other words, developing the capacity for anticipating, for adapting, developing the capacity for making policy changes in a smooth, prepared, even gradual and incremental way, instead of resorting to these sudden, unexpected and very disruptive policy U-turns.
Unfortunately though, I don't think the Chinese authorities have really learned that lesson. A couple of the essays in “The Price of Zero” talked about policy U-turns. Why have they become so sudden policy U-turns, why have they seemed to have become quite apparent, quite salient in Chinese policymaking in recent years? And I think it is precisely because the Chinese state has become more centralized, less willing to allow local governments to experiment at that. And so by the time the central government realizes that it has to change course, because existing policy, the current policy was unsustainable, it comes as a surprise to everyone.
The latest example of that, of course, is for the last two years, until recently, the Chinese authorities say there is no overcapacity: accusations of overcapacity in China are just “Western countries having sour grapes”, there is no overcapacity. And then suddenly now, because of these price wars in China, suddenly the official line is stop these price wars, don't worsen the problem of overcapacity, clearly acknowledging that there was overcapacity all along. So again, this reflects that they haven't really developed the capacity to think about what do we do next, if our initial plan or your initial policy doesn't work or doesn't produce the desired results. And that, I think, is another thing that they could learn from Singapore, which is constant adaptation, constant monitoring of the environment, less ideology in the policies, and more and more this sensitivity to changes in the environment and making changes before they become absolutely necessary.
Richard Gray
You currently live, work, and teach in Hong Kong, a city which is part of a broader strategy of integrating the Greater Bay Area. And on one end, this makes a lot of sense because in Hong Kong you have the finance, in Shenzhen, you have the hardware software, in Guangzhou and Foshan, you have the manufacturing capacity. And so in your view, how successful has this integration been? And what are the existing growing pains? As someone who had traveled between mainland and Hong Kong recently, going through customs at the train station twice is a bit of a headache. And I assume there are more significant hurdles in terms of economic integration. And then looking at Singapore, how do you think the Singapore-Johor special economic zone could synergize the regional economies? Of course, in Singapore, you have the finance, you have the high-end manufacturing, and then in Malaysia, you have the investment and data centers. How do you see those synergies playing out in comparison to the Greater Bay Area project?
Donald Low
Yeah, that's a great question. I think the economics of greater integration, those are indisputable. Clearly, there are synergies from integrating, in the case of The Greater Bay Area, Hong Kong, a high-tech, advanced economy with very sophisticated financial and business services. And the rest of the Greater Bay Area, the mainland part of it, mainland cities being focused on manufacturing as well as, as you said, software. So I think the case for integration is beyond doubt, beyond dispute. And that’s clearly, what economists call agglomeration effects, when you are more connected, more integrated, when in a bigger economy, the whole is greater than the sum of its parts.
I think from the Hong Kong perspective, the main benefit is that Hong Kong residents now have access to cheaper, more affordable services, not just public services like healthcare, retirement, housing, but also just day-to-day services. But within those overall benefits of integration, of greater connectivity, there are also costs. And who bears the cost in Hong Kong? One big group of losers would be would be service providers. Maybe if you're a consumer, you have the opportunity now to get better quality or same quality at lower prices, services just across the border, just 20 minutes away, 30 minutes away; but if you're a service provider if you run F&B, a restaurant in Hong Kong, you're a hairdresser in Hong Kong, you're going to face incredible deflationary effects, or if you are simply a property owner, rents have come down quite a lot, and property prices have come down quite a lot.
So I think there are obviously advantages, I think on the whole obviously the economic advantages outweigh the costs borne by the fee service providers or property owners; the problem though is there isn't—in other words, even though the net benefits are positive, the benefits outweigh the costs, the benefits of integration outweigh the cost of integration, there is no mechanism to compensate the losers. In Hong Kong for instance, in the last two years we've seen record numbers of closures of restaurants cafes, F&B businesses, and it's very instructive whether this same process of deflation for the higher cost economy would occur in the context of Johor, Singapore. Already lots of Singaporeans go to Johor to shop for their essentials, to buy petrol because petrol is much cheaper in Malaysia than it is in Singapore, but not to the same numbers as Hong Kong, principally because connectivity is not as convenient in Singapore. Singaporeans have put up with hour-long, two-hour-long jams if you're driving across the border. And what the SEZ does, the Johor-Singapore Special Economic Zone does, besides physical connectivity, which will of course ease convenience of travel for people who make these trips regularly, it is, of course, to allow for freer flow of investments and freer flow of people across the border. Again, as with the example, as with Hong Kong's experience in the Greater Bay Area, the overall benefits will be bigger, will be more significant than the cost, but there will be costs, there will be losers. And I expect those losers will be those people who are service providers and who rely on will rely on local consumption, and that local consumption will inevitably diminish as a result of cheaper alternatives, just half an hour away.
Richard Gray
Staying on this question of economic development, in our current moment, it seems like the biggest, or at least some of the biggest strains are fragmentation and instability. In terms of fragmentation, in part through the Trump administration, but also more long-term trends, we have greater restrictions on trade, shrinking supply chains, and for corporates, some level of risk aversion for future foreign direct investment. And then in terms of instability, the global outlook is much more tumultuous today than it had been, say, a decade ago with considerable risks of escalated trade wars, kinetic conflict, and pandemics. Accounting for these two factors of fragmentation and instability, which are in dialogue and symbiotic with each other and compounding in their impact, what might future patterns and pathways be for economic growth? And to what extent can governments proactively plan for these contingencies? And what are their tools that they can use to ensure a semblance of stability in the face of such turbulence?
Donald Low
That is a very profound question. I think the main effect of what you call fragmentation of supply chains, for instance, on developing countries is that it makes it harder for them to develop. It makes it harder for them to industrialize. One of the great advantages of trade occurring along global supply chains, these extended, very connected and complex supply chains, one of the advantages of that for developing countries is that it provided them a stepping stone. You could just start with producing a part of a complex product, maybe produce a component, and then you can get into the game of industrialization of export driven development, and of developing your own industrial capabilities, you start with say producing a component, over time you diversify, you move up the value added ladder and before long you might be contributing a much greater share of the value added of that complex product. And that's essentially what China did from the 1980s onwards. It participated and very much came to become the dominant contributor to these global supply chains.
And what we see now, of course, with these unwinding of this global supply chain, is that it makes it harder I think for developing countries, a country like Bangladesh or Cambodia or Sri Lanka, that wants to grow through manufacturing, wants to develop through industrialization, to participate, because with supply chains now fragmenting and this efforts by developed countries to bring back some of that manufacturing, I think that closes or reduces opportunities for emerging economies that are just starting out, or have started out but are trying to look for ways to upgrade their capabilities, to move up the value chain. So I think it's made this strategy of export-led development who's made this strategy of participating in global supply chains as a means to upgrade your capabilities and as a means of developing your economy, it's made that strategy, which was very successful for the last 50 years, until recently, it's made that strategy less sustainable. I'm not sure what will replace it, or if anything will replace it.
I don't think, for developing countries, the way to go about development now is focus on services, on AI, simply because they don't have the skilled workers to do those things. If they try to pursue a services-led model, for them services would mean low-end services, cleaning, housekeeping, construction, even tourism. Most tourism jobs are not particularly high tech or high productivity. So I think an unfortunate, not just an unfortunate, but a tragic consequence of these fragmentation, the policies that promote fragmentation is that it's going to close off, as you say, development paths for many of these newly emerging economies.
Jersey Lee
So a question that kind of brings your answer to the two previous questions together a bit. You mentioned in the context of cities integration, that sometimes the costs and benefits are not shared equally, and there should be some mechanism to do that. Now, this is brought up a lot in the context of trade, particularly in the US domestic context, that the benefits of trade and the costs are in different groups, some groups gain and other groups lose, and perhaps the net benefit is positive. But a lot of people are losing and there is no real way for the, for example, the US government to compensate the people who are on the losing end. So obviously there's a lot of criticism of US statecraft. I'm just wondering whether, especially from a Singapore, but perhaps from a more broadly Asian governance model perspective, whether there's anything America can learn about how to better manage this kind of transition, better manage these costs and benefits, and sharing them such that everyone in society can at least be happy with this?
Donald Low
Yeah, that's a great question. We talk so much about what China can learn from Singapore, but actually there are lots of things that the US could learn from Singapore as well. And not just Singapore, other small, open, trade-dependent economies that have seen waves and waves of disruptions. Countries like Denmark, which is very open, very competitive. But unlike the US, it has a very strong welfare state. So social policy scholars often talk about the welfare state as a domestic compensation mechanism to secure popular support, public support for the disruptions that globalization brings, whether it's technology disruptions or trade disruptions.
When manufacturing jobs move from the US to developing countries, particularly China, U.S. consumers gain in terms of access to cheaper goods, but the U.S. workers who were producing those things, whether it's textiles and garments or now electric vehicles or vehicles or electronic goods, they would suffer, and there was no domestic compensation mechanism, and if you think of the welfare state, as the ones who benefit from globalization, big companies that now can have access to cheaper labor and bigger markets elsewhere, that have no problems benefiting, we don't have to help those who benefit from free trade benefit even more, we don't have to lower taxes further for them, they are already benefiting and profiting hugely from outsourcing, from moving manufacturing jobs to cheaper locations. Who are the ones that need support, who are the ones that need some degree of protection? And when I say protection, I don't mean let's not engage in free trade with emerging economies; when I say protection, I mean protect their livelihoods, protect their way of life. And the things that countries like Denmark, Sweden, Norway, and Singapore have done would be to put a special accent, put a special emphasis on workforce development, help them upskill, reskill, provide them grants to move to new industries which are still growing. In the case of the US, as well as in the case of these small open economies, as manufacturing decline, services, especially high-end services, first financial services, then later on more recently technology services that grew in importance, that became a larger part of the economy, the role of the state would be to help workers make that adjustment right, to help workers move away from the sunset industries to the sunrise industries, and I think that's clearly been missing in the United States; not only has the welfare state—when I say the welfare state, I mean unemployment benefits, unemployment insurance, retirement pensions—not only has the welfare state in the US been undermined by years of neglect and by tax cuts, but there hasn't been really an emphasis, an accent on helping workers upgrade, on helping workers reskill. And here I think the US could take a leaf from not just Singapore, but from some of these Northern European countries, Germany and Denmark and Sweden, what they call labor force activation policies to reskill, retrain, upgrade industrial workers, so that they are better prepared to cope with the disruptions caused by globalization, and as well as caused by technology disruptions.
Jersey Lee
You're generally quite pessimistic about China's future outlook, arguing that it will never overtake America economically…
Donald Low
That was before Trump. That was before Liberation Day. Those predictions were made at the end of 2024. And you'll recall that at the end of… both in 2023 and especially in 2024, everybody had predicted the US would have to go through a deep recession to bring down inflation rates, right? Remember that? And it didn't happen. In 2023, U.S. surprised on the upside. 2024 as well, U.S. surprised on the upside. Growth was 2.5%, close to 3%. China, on the other hand, surprised on the downside. Coming out of the end of zero COVID in early 2023, everybody expected the Chinese economy to rebound strongly, but instead it was mired in excess capacity. It had a sharp and prolonged property downturn. It was grappling with deflation. Only now are the Chinese authorities saying we should boost domestic consumption to support the economic recovery. So the Chinese have essentially had a lost half decade from starting with 2022 to about 2025. I think this year would also be a tough year for them. It's going to be a lost half decade.
Fundamentally, I think the best news for the Chinese economy, at least in relative terms, although not in absolute, has been Trump. With Trump's self-destructive policies, China's share of global GDP might look to rise again right; when I said, or when some of us said in 2023 or 2022 that China may have peaked, what we meant, at least economically, was that as a share of global GDP, China's share might have peaked. And that prediction or that analysis was certainly true in 2023, 2024. China found it very difficult to surpass 18% of global GDP.
But I think if the U.S. continue with its current policies of slapping tariffs, of undermining science and research in the U.S., and worse, immigration, deporting immigrants, undocumented workers, which is so crucial to supporting labor force growth in the U.S., these three policies will—it's really like three hammer blows on the U.S. economy. And the IMF already predicts, already says that it has already revised downwards its forecast of U.S. growth, it is now lower than 2%. So that gives the Chinese a glimmer of hope that, at least in relative terms, the Chinese economy might catch up or might converge with the US economy.
So I'm less pessimistic now, although as a whole I'm still pessimistic. This is just China gaining share in relative terms. It is not because the Chinese economy is doing fantastically well, it is because the current leader, the US, is engaged in such self-destructive economic policies.
Richard Gray
So I guess as a follow on from this really quickly, if you were in like the Singaporean government right now and say you're working in a trade ministry capacity, what would be some of the ways you'd be negotiating with the Trump administration, with Bessent, with Greer? What would like be the tactics you use?
Would there be like rhetorical devices or strategic advantages that Singapore has to leverage in those negotiations?
Donald Low
I wouldn't bother negotiating with the Trump administration. I've since given up trying to attribute rationality or grand strategy, there isn’t. And also Singapore has said we will not retaliate. I think Singapore's emphasis is, how do we adapt to this new world, where even if the tariffs are reduced, even if we succeed in negotiating, in bringing out the tariffs to a lower rate, fundamentally, the Trump administration, I think, is determined to rewrite the rules of trade, at least with the US.
To be fair, it doesn't really care if the rest of the world wants to trade more with one another. And so that's what Singapore should do: rather than focus our efforts on regaining our share of trade, or let's bring back trade with the US to where it was before Liberation Day, the bulk of my efforts will be spent on developing deeper trade links, not just with ASEAN, which Singapore has always been doing, but with other regional economies. Don't forget that the US's share of global trade, the US' consumption of exports globally isn't that high, it's only under 20%; there's some estimates that say that, at the rate world trade is increasing anyway, you only take five years for the rest of the world to make up the increase in trade among other countries, within five years that will make up for the reduction of trade from the US arising from the tariffs. So I would look for alternatives rather than to chase after or try to reduce the tariffs on Singapore.
The second thing that Singapore could do is to—and I've written a bit about this—is to rely less on trade surpluses and more on domestic consumption to drive economic growth. Singapore has unusually large trade surplus. Singapore runs a trade deficit with the US, but with the world, with the rest of the world, Singapore runs a very large trade surplus. Our trade surplus is an astonishing 30% of GDP. It accounts for nearly a third of GDP growth a year. The US kicks a big fuss about China's trade surplus, but China's trade surplus is only 4%, 5% of GDP. Of course, Singapore is a much smaller economy, so 30% of Singapore's GDP is a drop in the ocean of world trade, whereas China's 5% of Chinese GDP is equivalent to 1% of global GDP. So whereas China's trade surplus obviously creates a lot more instability, disruptions to countries like the US, Singapore's very large trade surplus, 30% of its GDP, doesn't make as much of an impact.
But even so, it means that we are not utilizing, we are not leveraging enough on our domestic consumption as a source, as an engine of growth, as well as domestic investment. We could also ramp up domestic investment a little. So now obviously these shifts, if you want trade surplus to come down and domestic consumption to increase, at least as a share of GDP, these shifts take a long time. You can't do it over a couple of years. It takes a decade at least to bring about a noticeable shift without causing bouts of inflation, property bubbles, asset bubbles. So you have to do this carefully. And the way to do it, of course, is to strengthen social safety nets, provide more support for things like healthcare, public housing, so that Singaporeans don't have to save so much.
The reason Singapore has such a large Trade surplus, of course, economists will know your trade surplus is simply your excess of savings over investment. So Singapore has a very large trade surplus because it has a very high savings rate of nearly 50% of GDP. And the reason Singapore has saved so much, I think, is because of the general sense that Social Security is pretty much left to our own, it is pretty much a personal responsibility. For instance, in Singapore, we don't get taxpayer financed pensions, our retirement savings what we call our CPF, central provident fund savings, that's our only source of pensions, our primary source of retirement security. In other words, it is savings that sustain Singaporeans, people's own personal savings that sustain them in retirement primarily, rather than any transfers from the government.
So if government wanted to bolster domestic consumption as a way of rebalancing the economy, in that sense Singapore is very much like China; when China talks about rebalancing, that's what it means, reducing its reliance on investment and trade, and bolstering domestic consumption as an engine of growth, Singapore needs to do that as well.
Richard Gray
Final question: a common, continual point of debate is what the lessons are within the Singapore miracle. Some would attribute it to geography, timing, leadership, the English language, common law. In your view, what are the right lessons of the Singapore miracle and what are the wrong lessons?
Donald Low
That's another huge question. I think a lot of the analysis has placed an emphasis on role of leadership, especially by Lee Kuan Yew. But I think we should go further back in history, and then you see that geography played a role. The fact that Singapore was in the ideal geographic location between China and India, between Europe and East Asia. And that was why it was founded as a port city. Singapore is such a small piece of land. Why would the British bother establishing a colony, a city in this barren piece of land, right? And the reason was it's a superior geographic location. And of course, the fact that it had a deep water harbour made it suitable for... So I think economists don't make enough of these natural advantages that Singapore had.
And then I think the second big factor was that Singapore was very lucky. Again, whether economists or historians, we downplay the role of luck. I'll give you one example of the role of luck. When Singapore became independent in 1965, for a while we were part of Malaysia, before 1965, for a couple of years. The conventional wisdom around the world then, as far as development strategy went, was import substitution. You would try to substitute your imports that you were importing from developed countries to try to protect your domestic industry so that they can replace those imports. You become self-sufficient in industrial goods; so when Singapore was part of Malaysia, the conventional wisdom was indeed import substitution, and then when we were we separated from Malaysia in 1965, obviously import substitution was no longer possible, because we were such a small domestic market, so if Singapore wanted to industrialize, it was not true import substitution, it had to be true export orientation, in other words industrialization by exporting to the rest of the world. But we didn't have many domestic or any domestic industries to speak of, so Singapore said that we will industrialize through exports via multinational corporations, which at that time was seen as neo-colonial: why would you bring back these instruments of neo-colonial oppression? That was against the conventional wisdom; so that's the role of leadership, that we went against conventional wisdom.
But the role of luck was this: the 1960s and 1970 was the first wave of outsourcing, when Western multinationals and later on Japanese multinationals were looking for cheaper production venues. And at that time, in the late 60s, throughout the 70s, even right up to the early 80s, which other developing economy in the world welcomed multinationals? China was closed for business, it was in the middle of the Cultural Revolution. India was pursuing import substitution. Even the rest of the region, Malaysia, Thailand, Indonesia, they were still pursuing import substitution. So Singapore was very lucky in that sense. As Western multinationals were looking for a place where there was rule of law, where there was relative political stability, where the workforce was disciplined and relatively affordable, Singapore was one of those few places that welcomed them and was pursuing export oriented. So we industrialized on the backs of multinational corporations.
So it's a combination of sensible, pragmatic, forward-looking leadership, but also of luck, that this was a time when multinationals were looking for alternatives. Another example of luck I would say would be after the Cold War, when countries like Russia, the rest of Eastern Europe, the Eastern Bloc, all joined the global economy. And about the same time India also participated, joined the global economy, started liberalizing its economy in the early 1990s; China had done so already in the early 80s. Singapore seizes on those opportunities by really reaching out to these countries, especially China and India and saying, hey, we can help you with your efforts to industrialize, your efforts to modernize the economy, we have experience in industrial parks, we have experience with attracting foreign investments and really adapting and adjusting and seizing opportunities when they arise. I think that has been the secret of Singapore's economic success.
Richard Gray
All right, Donald, thanks so much for your time. We really appreciate it.
Donald Low
Thank you very much, Richard. Thank you very much, Jersey.
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