Treasury Select Committee Visit - Singapore

Singapore - the best place in the world to do business! That's according to the World Bank's 'Doing Business' Report.

I am on a Treasury Select Committee visit to Singapore and China and I see our job as 1. Promoting British business; 2. Understanding how financial services are regulated and what Britain can learn from them; 3. Working out whether Singapore is a 'threat' or an 'opportunity' for British financial services; 4. Understanding China's policy toward opening up her economy.

When we arrived we could immediately see why Singapore has such a high business rating. A huge, modern airport, no queuing for passport control or luggage. In fact they target no more than a 12 minute wait........Heathrow could learn something from Changi. And if there was one consistent message right through our visit, it was that efficiency, ease of doing business and openness to trade is key to Singapore's success.

We had a briefing from the High Commissioner, and then formal meetings with Standard Chartered, the Financial Scrutiny Committee of Singapore's Parliament, the British Chamber of Commerce, the Monetary Authority of Singapore (MAS) plus Temasek and GIC, the two fund managers who between them manage Singapore's enormous reserves.

Standard Chartered almost immediately allayed any concerns about regulatory arbitrage opportunities between the City and Singapore - their capital and liquidity requirements remain well above Basel III so even with retail ring fencing in the UK, it's hard to see why any bank would want to move to Singapore. It was also clear from MAS that they are cautious about the size of banks compared to Singapore's GDP...... In fact foreign banks (with the exception of US banks) are only permitted a maximum of 25 outlets (including branches and even ATMs) in Singapore. I was left with the impression that the hints given by bankers who appear in front of the TSC that they might leave London are pretty unfounded at least where Singapore is concerned.....

At the Chamber of Commerce we had a fascinating presentation on China vs Europe and the US. It brought home to us what a vast potential market China offers. With average per capita income of $4,000 per year, the Chinese spend only one third of it, versus the US with $47,000 and spending 65% of it! In the US there are 700 cars per 1,000 of population; in China only 10.

There was a highly unforgiving perspective given to us on the Eurozone. The good news is that Britain is not tarred with the Eurozone brush, and there is consistent and vociferous support for our austerity measures - keep going, they urge! However, Germany is considered to have seriously failed in its duty to shore up the Euro. The argument goes like this.....Germany and China are the two 'problem' economies in terms of global imbalances. (global imbalances meaning the huge trade surpluses of Asia and Germany vs the huge trade deficits of the US and the rest of Europe).

China's policy response to the imbalance has been to permit a slow appreciation of the Renminbi over the last decade (with a notable and unhelpful halt during the financial crisis). This has made Chinese exports gradually more expensive and imports relatively cheaper, therefore encouraging a slow rebalancing of trade.

Germany, on the other hand, has been locked into a relatively suppressed currency (the Euro) versus where the Deutsch Mark might have been. This has boosted their exports outside the EU at the same time as the Single Market has given them unfettered access to the whole of the EU. So Germany took the good times, but her response to the bad times is to force austerity on her neighbours rather than take the real financial hit herself. I don't recall any of those we met believing the Euro can continue without Germany's underwriting it.

GIC and Temasek have undisclosed funds under management, believed to total up to Sing$ 400 billion between them. GIC has a big office in London and bases their infrastructure investment team there. As Britain gets our massive infrastructure programme underway, I hope we will be working hard to attract external funding to relieve the burden on the taxpayer.

Our meetings with Standard Chartered, with Parliament and with MAS were a great advertisement for Statist intervention! All gave the strong impression of Singapore as a huge corporation, where private and public sector decide together on a strategy and then make it happen. The example of shipping finance was given, where decisions were taken to develop an expertise, so while Standard Charter and others recruited the experts, fast track visas were provided and infrastructure to promote shipping was put in place. The tiny local population (5 million, of whom one third are immigrants) means that domestic consumption is tiny relative to international trading volumes. Singapore is a true barometer for the world economy - shipping freight, oil transportation and financial services all mean that Singapore is the first to take the hit in a downturn, and the first to recover afterwards.

My reservation about Singapore's governance is the degree of consensus in their thinking. The MAS is staffed with seriously intelligent people, but they are accountable to the Minister for Finance and then he is accountable to the parliamentary scrutiny committee. It's a far cry from our hearings in Britain where the Treasury Committee directly holds the Governor and the FSA to account, openly challenging their analysis. In Singapore, it's not clear who or how challenge is made. Even their Parliament is almost all one party and there is no effective Opposition. It's fine whilst they continue to get things right, but 'group think' is one of the biggest dangers in any endeavour. On the other hand, it's not Singapore that just suffered a massive financial crisis...

So the answer to the questions: 1. There is huge goodwill towards Britain (apparently even spurred on by our visit) and business opportunities will only get better as the EU free trade agreement is finalised, hopefully this year. 2. Financial Services in Singapore are on an even tighter rein than in the UK.....worth remembering when UK banks complain about regulatory change. 3. In financial services, I saw no evidence that Singapore threatens London's position. However, partnership with the Asian and European time zones is a fantastic opportunity as Asia's economies become ever larger and more globally important.

Next stop Shanghai. We've barely had any sleep yet due to time differences and no rest at all due to nonstop meetings! Still, utterly fascinating and can't wait to get to China. The last time I went was 20 years ago backpacking with my Mum and sister and all I remember was cockroaches everywhere! I'm told it's changed........

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