State Collaboration and Development Strategies in China (Routledgecurzon Studies in the Growth Economies of Asia, 44)

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State Collaboration and Development Strategies in China

The Suzhou Industrial Park Project, a collaborative venture between the governments of China and Singapore, began in 1992 in order for both countries to mutually benefit from foreign direct investment. In an era of rapid economic globalization, in which national governments were competing rather than collaborating, this project was highly unusual. This book focuses on the various relationships between the two governments throughout the course of the venture as well as examining why certain strategies were adopted, how they were implemented and their outcomes. Pereira carefully outlines the aim of the two governments: to develop an industrial estate within China comparable to those in Singapore which, in turn, would encourage industrial transnational corporations to locate there and bring economic development to both countries. The effectiveness of this strategy is evaluated from the perspective of the clients (transnational corporations) as well as the China and Singapore governments, and also takes into account external factors such as the impact of regional shocks and local competitors. In this way both the successes and the failures of inter-governmental collaboration are explored. Derived from extensive fieldwork in Suzhou and Singapore, State Collaboration and Development Strategies in China forms the first full length, long-term study of the project. By scrutinizing national economic development strategies, particularly those that rely on foreign direct investment, this book will appeal to a wide audience including economic sociologists, policy makers and development consultants as well as students of business and Asian studies. Alexius A. Pereira is an Assistant Professor at the Department of Sociology, National University of Singapore.

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State Collaboration and Development Strategies in China The case of the China–Singapore Suzhou Industrial Park (1992–2002) Alexius A. Pereira

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State Collaboration and Development Strategies in China The case of the China–Singapore Suzhou Industrial Park (1992–2002)

Alexius A. Pereira

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First published 2003 by RoutledgeCurzon 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by RoutledgeCurzon 29 West 35th Street, New York, NY 10001 This edition published in the Taylor & Francis e-Library, 2004. RoutledgeCurzon is an imprint of the Taylor & Francis Group © 2003 Alexius A. Pereira All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Pereira, Alexius A. State collaboration and development strategies in China: the case of the China–Singapore Suzhou Industrial Park (1992–2002)/ Alexius A. Pereira. p. cm. – (RoutledgeCurzon studies in the growth economies of Asia; 44) 1. Industrial districts – China – Case studies. 2. Industrial districts – Singapore – Case studies. 3. China – Foreign economic relations – Singapore. 4. Singapore – Foreign economic relations – China. 5. China – Economic conditions – 1976–2000. I. Title. II. Series. HD928.P465 2003 338.951′136 – dc21 2003001065 ISBN 0-203-29977-9 Master e-book ISBN

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ISBN 0-203-33991-6 (Adobe eReader Format) ISBN 0–415–30277–3 (hbk)

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Contents

List of tables Acknowledgements

ix xi

Competition and collaboration

1

Introduction 1 National economic development strategies 4 Collaboration 15 Chapter summary 20

Convergence

21

The Singapore experience 21 The China experience 31 A meeting of minds 37 Site selection 42 Mutual benefit 49

Construction Formal organizations 51 Infrastructural advantages 59 Institutional advantages 63 Governmental support 72 Marketing strategy 75 Launch 82

51

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Complementary collaboration

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Background 83 Competitive advantages 86 Supplementary advantages 98 Evaluating the zone 104 Synergy 112

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Crisis

115

External shocks 115 Internal shocks 120 Damage control 129 The divide 133 Decreased competitiveness 139

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Disengagement

141

Irreconcilable differences 141 Repercussions 147 The new management 152 Separate ways 155 Evaluating development 159 Sunset and sunrise 166

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Conclusions

167

The collaborative project 167 National economic development strategies 171 References Index

175 185

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Tables

1.1 2.1 3.1 4.1

Number of companies and fixed investment commitments in the Suzhou Industrial Park (1994–9) Sources of foreign direct investment in China (1979–95) The shareholders of the Suzhou Industrial Park Companies included in the research, based on size of factory, number of employees and fixed capital investment

2 33 52

86

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Acknowledgements

I would like to acknowledge the contributions of the many individuals and institutions that have assisted in the completion of this book. I would like to thank Leslie Sklair and Patrick McGovern, who have provided guidance and support while part of the research was still a Ph.D. thesis undertaken at the Sociology Department, London School of Economics and Political Science. I would also like to thank my colleagues in the LSE’s graduate programme, as well as all the other staff who assisted the research in one way or another. Also, while in the UK, the research has benefited from inputs by Jeffrey Henderson and Roger Strange, for which I am grateful. From the Singapore segment of the research, I would also like to thank Ong Jin Hui, Tong Chee Kiong, Chan Kwok Bun, Lian Kwen Fee and Tan Ern Ser, for their support and belief in me. Thanks must also be extended to the Department of Sociology, National University of Singapore, as well as the Dean’s Office, Faculty of Arts and Social Sciences (National University of Singapore), for all the institutional support since 1997. My stay in London was made possible by an Overseas Graduate Scholarship awarded by the National University of Singapore. The book is also indebted to many friends and colleagues around the world who have so kindly shared their ideas and time. I would particularly like to acknowledge the contributions of John Logan, Leo Douw, David Ip and Guo Qiang. I would like to thank the many respondents for so generously contributing their time and effort in participating in the research, both in Suzhou and elsewhere around the world. I would also like to stress that any errors in the information or analysis rest entirely on my shoulders, and not on any of the respondents. Finally, I would like to extend warmest thanks and love to my family, Melanie,

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Acknowledgements

Ambrose and Ainsley, as well as to Annie and Andrew, who have provided tremendous support and understanding throughout this time. This book is dedicated to them.

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1

Competition and collaboration

Introduction On 26 February 1994, China’s Vice Premier Li Lanqing and Singapore’s Senior Minister Lee Kuan Yew signed an agreement for the two governments to jointly develop a Special Economic Zone in the city of Suzhou. The China–Singapore Suzhou Industrial Park, as the zone came to be known, was described by the two governments ‘. . . as a new model of economic and technological cooperation’ (China Daily 28 February 1994). According to Singapore’s Deputy Prime Minister Lee Hsien Loong, who wrote: The [Suzhou Industrial Park] project was mooted because the Chinese government was studying models of rapid economic growth while maintaining good social order. Singapore agreed to jointly participate with China in the challenging task of creating a modern industrial township in Suzhou. The significance of SIP was not just to be another industrial park in China, but to be the vehicle for transferring the software of economic development and management for testing out, adapting and applying Singaporean methods of economic management in China. (Singapore Software Project Office 2001: i) The economic cooperation took the form of a commercial joint venture, where both governments hoped to mutually benefit from attracting foreign direct investment (FDI) to the zone. The technological cooperation would take the form of a ‘software transfer’ programme, where the Singapore government would impart its experience in industrial development and administration to the China government. The collaborating governments believed that a Special Economic Zone in China that had Singaporean characteristics would

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be attractive to industrial transnational corporations. With the location of operations by industrial transnational corporations in this zone, the China government could benefit from ‘development effects’, such as employment generation and technology transfer, while the Singapore government could financially benefit from sales or leases of the industrial units, with the profits eventually supplementing Singapore’s economy in the long term. The Suzhou Industrial Park therefore was an inter-governmental collaborative strategy that was designed to bring economic development to both China and Singapore. It began in 1992, when leaders from both governments initiated exploratory discussions. After the collaboration was formalized, it was agreed that the Singapore government would be the majority shareholder and the prime mover in the project. The first industrial tenants at the zone in 1994 were 15 industrial transnational corporations, which committed over US$15 million in foreign direct investments (Singapore Straits Times 15 September 1994). In the next seven years, the zone grew rapidly (see Table 1.1). By 2001, there were over 130 tenants that had located within the estate committing over US$13 billion in investments (Singapore Straits Times 29 May 2002). Despite this high level of FDI, the zone reported heavy financial losses, particularly after 1997. On 1 January 2001, the Singapore government officially disengaged from the collaborative project, effectively terminating the inter-governmental collaboration. The case of the Suzhou Industrial Park as a collaborative project between 1994 and Table 1.1 Number of companies and fixed investment commitments in the Suzhou Industrial Park (1994–9) Year

Number of companies

Fixed investment commitments (cumulative)* (US$ billions)

Investment growth rate (%)

1994 1995 1996 1997 1998 1999 2000

14 56 69 82 92 132 155

0.87 1.88 2 3 4.3 6.4 7

– 50 6 30 32 30 8

Source: Compiled by author from information provided by CSSD. Note * Includes further/additional investments by existing tenants.

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2002 offers important insights into the sociology of national economic development strategies. In an era of rapid economic globalization, FDI has increasingly become more central to the development strategies of many governments. It had the potential to bring about local ‘development effects’, through capital injections, technology transfers, employment creation and linkages with local businesses (Sklair 1993). However, there has been a corresponding increase in the inter-state competition for FDI, which has been viewed as a ‘race to the bottom’ for the participating governments (Thomas 2000). In this sense, the collaboration between the China and Singapore governments to jointly attract FDI was unique, as it was probably the first time that two national governments collaborated rather than competed to attract FDI as part of their respective national economic development strategies. The Suzhou Industrial Park has generated a huge amount of interest around the world. For instance, popular business magazines such as Fortune, Forbes, Asiaweek, Economist and The Far Eastern Economic Review have covered the progress of the zone periodically. In addition, there have been many academic studies of the zone from a variety of perspectives, including international relations (Lee, L. T. 2001), business studies (Wong and Goldblum 2000), and geography (Yeung 1998, Perry and Yeoh 2000). This book will, however, provide a sociological analysis of the Suzhou Industrial Park as a collaborative project from within the perspectives of national economic development strategies. The focus will be on the relationship between the two governments between 1992, when the project was conceived, and 2002, a year after the handover of the project to the Chinese partner. It argues that the relationship was not just influenced by the dynamics between the main collaborating partners, but was also affected by external factors, such as the existence of other competitors and the impact of external events. The book will begin by analysing why and how the China and Singapore governments, as part of their respective national economic development strategies, opted to collaborate rather than compete to attract FDI. It will then detail how the collaborative project was conceived and eventually implemented from 1992 onwards. This is followed by an analysis of the zone’s operations between 1994 and 2002, with the aim of explaining the successes and failures of the collaborative project as a national economic development strategy for both governments. This book therefore hopes to contribute new insights to the current debates on the sociology of national economic development strategies.

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National economic development strategies Governments that have broad-ranging and long-term national economic development strategies can be categorized as ‘interventionist’ states. They are motivated to intervene in their own economies in order to achieve economic growth and development, mainly because of ‘market failure(s)’ (Wade 1990). ‘Market failure’ refers to the lack of efficiency or the inability of the ‘free market’ to allocate the resources necessary to expand the quality and quantity of economic activity in society. State interventions have taken many forms; however, one commonly adopted form has been the prioritization of industrialization as a key strategy within the national economic development strategies among many interventionist governments (see Gereffi 1990, Henderson 1997, Kieley 1998). Industrialization refers to ‘the mechanization and the rational organization of productive activity, not just in manufacturing but in any or all the sectors of the economy’ (Child 1994: 17). In other words: Industrialization is a process by which not only the manufacturing sector comes to account for a large share of GDP and employment, but also the industrial structure is transformed to include the production of goods and services requiring higher technological capabilities, more sophisticated worker skills and greater managerial competence. (Chudnovsky 1996: 269) From a sociological perspective, industrialization does not simply happen by itself; it needs to be initiated by economic agents. In the literature, a distinction is made between ‘early’ and ‘late industrialization’. Early industrialization is initiated by private industrial entrepreneurs or enterprises (Kieley 1998). Late industrialization, on the other hand, is also driven by private enterprises but only with the overt assistance of the state (Gerschenkron 1962). Some studies have argued that there is ‘late’ late industrialization, where the state itself initiates the process (see Haggard 1990, Hirschman 1995). However, for purposes of conceptual clarity, this book will use the concept of ‘interventionist industrialization’ to describe state-initiated industrialization. Recent studies of ‘interventionist industrialization’ include the strategies of several Latin American and Asian governments. In the 1960s and 1970s, the governments of Brazil, Chile and Argentina adopted what became known as the dependistas model of state-led

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industrialization (see Evans 1979, Hirschman 1995, Cardoso 2001). Around the same time, in Asia, there emerged the ‘developmental state’ model of state-led industrialization (see Johnson 1982, WooCumings 1999). While there were significant differences in the two models, what was common was that the governments intervened in the economy by encouraging private (and state-owned) enterprises to focus their economic activities on targeted industrial sectors. This implied that private enterprises were somehow unable to initiate industrialization independently without state intervention in society: The private sector may not initiate industrialization because it is shortsighted or operates with imperfect information. Or it may simply be undercapitalised and hence unable to take short-term losses due to the underdevelopment and inefficiency of capital markets. Or future profits may not compensate for current losses (in the absence of incremental productivity and quality improvements), or investing in manufacturing may be less profitable than, say, speculating in land or importing foreign products. (Amsden 1992: 59) The interventionist government’s main objective, therefore, was to encourage private enterprises to initiate industrialization. This was achieved through a series of selective (and highly favourable) state financial subsidies to targeted enterprises. These subsidies were used as capital to purchase or loan technology from other more advanced enterprises in developed countries. This form of state-led industrialization differed from the socialist model of industrialization, where the state itself was the industrial producer (by nature of owning all productive capacity in society) (see Block 1994). It was also significantly different from ‘free market’ models of industrialization, where private enterprises would follow market signals into various industrial sectors. State-led industrialization was also slightly different from ‘late industrialization’ (Gerschenkron 1962). In ‘late industrialization’, the government acted as the bank which provided attractive financial loans to private enterprises. However, in ‘interventionist industrialization’, the state approached the enterprises with the financing, rather than the other way around. In this sense, interventionist governments need to have control over key resources within their respective economies. Yet, the intervention did not always bring about long-term economic growth and development. Based on studies of the developmental state model, it was suggested that effective interventionist governments

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required four factors. First, a ‘developmental elite’ must necessarily come to power and take control over the arms of the state. In Japan, the elite came to power through the electoral process (see Johnson 1982), whereas in South Korea, the ‘elite’ came to power through a military coup (see Amsden 1989, Kim 1997). In Taiwan, the ‘elite’ came about when only particular individuals came to power within the ruling political party (the KMT) (see Wade 1990). More importantly, this elite must collectively prioritize economic growth above all other social and political agendas (Johnson 1982). The reasons behind this motivation might range from economic nationalism to self-preservation of governmental leaders (see Castells 1992, Woo-Cumings 1999). Second, an effective developmental state must be able to identify specific economic niches within the global economy that it could capture (see Yu 1997, Chang 1999). While most states aspire towards the efficient management of the economy, effective developmental states must have the foresight and vision to identify how national resources can be shaped to become competitive globally (Chang 1999: 193–4). In this sense, the interventionist governments would often be supported by a ‘techno-bureaucratic elite’, usually comprising of senior bureaucrats from national economic agencies in the country (see Duvall and Freeman 1983). In Japan, bureaucrats from the Ministry of International Trade and Industry (MITI), specialists in the fields of law, economics and business, advised the government on strategic economic policies (see Johnson 1982, Okimoto 1989). The Economic Planning Board (EPB) in South Korea (Amsden 1989, Kim 1997), and the Industrial Planning Bureau (IPB) in Taiwan (see Wade 1990), served a similar function. Interestingly, the sociological literature suggested that the bureaucracy was willing to actively support the developmental states of Asia because of socio-cultural reasons (Johnson 1982). On the other hand, in Latin America, the techno-bureaucrats’ motivation to collaborate with the government was due to self-preservation and personal economic gain (Evans 1979, 1995). Third, interventionist states must become ‘embedded’ with targeted private and semi-private enterprises (Evans 1995). There were economic, political and social forms of embedding. Governments could use liberal financial subsidies or co-investment strategies to become economically embedded with targeted enterprises (Wade 1990, Evans 1995, Woo-Cumings 1999). It could utilize political control and sanctions to direct the operations of these firms. Government leaders could take advantage of having close inter-personal relationships with senior management of the enterprises to become socially embedded (Johnson 1982, Schneider and Maxfield 1997). At the same time,

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effective interventionist states need to remain autonomous and insulated from certain interest groups that hoped to capture rents (Evans 1995: 12). This was one key difference between the Latin American and Asian interventionist governments; the former was able to achieve embeddedness but unable to resist capture, while the latter managed to achieve ‘embedded autonomy’. Therefore, in the literature, it was argued that the Latin American industrial transformation project only had short-term benefits, as it could not be ultimately sustained over a long period of time due to inefficient rent-seeking (Cardoso 2001). On the other hand, Asian interventionist governments (developmental states) managed to encourage industrialization and, also, the industrial restructuring, which laid the foundation for a relatively longer period of growth and development (Woo-Cumings 1999). To recapitulate, industrialization was a favoured strategy of interventionist governments, as it was most able to generate developmental effects, particularly for densely populated urban areas. The aim was to encourage private and semi-private enterprises to initiate industrialization. This would, in turn, benefit the local area through the employment generation, technology transfer, income redistribution and the expansion of economic activities through linkages with supplementary services (see Sklair 1993, Chang 1999). It was important to note that the state intervention would need to be mutually beneficial to the government as well as to the collaborating private enterprises. These enterprises would need to be financially profitable in order to maintain the ‘developmental effects’ over the long term. The interventionist government would also benefit from effective industrialization. With economic growth and development in society, the ruling government’s domestic political legitimacy would be reinforced. Although there have been many studies that were critical of such interventionist or dirigiste strategies (see, for example, Lal 1997), the success of several such governments – including the so-called ‘developmental states’ of Asia – has led some to propose that national economic development strategies could be emulated. In 1993, the World Bank published its own analysis of the industrial experience of Japan, South Korea and Taiwan, calling the phenomenon the ‘East Asian Miracle’ (World Bank 1993). However, critics of this view have argued that emulation was not only unrealistic but fundamentally problematic as well. First, it was argued that many less developed countries could not emulate the developmental states of Asia or even the experience in Latin America because their economic, political and social structures were too different. Second, even if the governments of some less developed countries wanted to emulate

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the state-led industrialization process, they would fail because the country might lack having the type of enterprises that could initiate industrialization. Last, all the developmental states of Asia and the Latin American interventionist governments were able to source for financial aid, usually from the US government (Pempel 1999). They were, further, in a position to utilize this financial aid for the industrialization process. Less developed countries, on the other hand, either did not have access to such financial aid, or had to utilize the aid for other social development projects. As such, they would not be able to emulate the national economic development strategies of successful interventionist states. However, as an alternative strategy, governments could utilize foreign direct investment (FDI)-oriented development to initiate industrialization. This strategy became highly popular with governments of less developed countries, especially after the Second World War. Although FDI-oriented development strategies might appear to be significantly different from interventionist strategies, they actually have much in common. Foreign direct investment Certain enterprises utilize foreign direct investments (FDI) as a strategy to expand their business activities in other countries with the aim of improving their profitability. However, FDI is distinct from foreign ‘portfolio investment’. FDI would involve having control over an overseas project, whereas portfolio investment would not. Portfolio investments are also characterized by their short-term nature, whereas FDI is usually long-term (see Stallings 1990, Wade 1998, Okposin 1999). Examples of FDI could take many forms, including foreign– domestic joint ventures, mergers and acquisitions, original equipment manufacturing (OEM) arrangements and the physical location of industrial transnational corporations within the country (Lall 1996, Chang 1998). On the other hand, portfolio investment usually would involve speculating in overseas stock and financial markets, as well as foreign properties. From a development perspective, FDI could be important to certain governments because it could be used to initiate industrialization. This could be done in two ways: first, FDI could be utilized to assist the industrialization of domestic enterprises. FDI could bring capital injections, technology and managerial transfer to uncompetitive domestic enterprises, as well as offering the domestic enterprises access to global markets (Dunning 1997, 1998). With injections of foreign capital, the local enterprise might become more efficient and seek to expand

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which, in turn, might lead to ‘developmental effects’ in the local economy. These might include employment creation, and linkages to local businesses (Sklair 1994: 168–9). For governments, FDI could, further, bring about economic growth through income earned from taxation and domestic capital formation (see Stallings 1990, Lall 1996). In return, the foreign investor would hope to take advantage of lower cost structures and access to the domestic market. The second way in which FDI could initiate industrialization would be if the foreign investor, particularly if it were an industrial transnational corporation, would establish ‘greenfield’ operations in the country. This would involve setting up a new factory. Greenfield operations would create new jobs for the local area. Additional spill-over effects – such as economic growth through the income spent by employees, linkages with local businesses and the training of employees – could also contribute to the expansion of economic activity, potentially laying the foundation of economic growth and development (see Sklair 1995, Chang 1998). Furthermore, the local government could benefit by earning tax revenues from the presence of the foreign-owned factory. However, industrial transnational corporations would be very selective about where they would locate their ‘foreign operations’. These enterprises generally base their locational decisions on their business strategy, costs, and risks, which are ultimately geared towards maximizing profitability (Hayter 1997, Legewie 1999). Viewed from analyses of FDI from a business perspective, there are a multitude of motivations and strategies for industrial transnational corporations to achieve profitability in other countries (see Buckley and Casson 1976, Caves 1996, Dicken 1998). Some TNCs would seek to gain access to the best combination of factors of production, whereas others would hope to gain access to particular markets (see Dunning 1997, 1998). Factors of production refer to any component or process that is required to manufacture a product. Thus, industrial transnational corporations drive the so-called ‘global manufacturing system’ by intentionally dispersing their production across the world (Gereffi 1992: 86). The logic for this dispersion has been explained as follows: The global firm and conglomerate is a design for survival under the competitive conditions of the new era. Its ability to scan the globe for investment possibilities makes possible a rational assignment of resources and ruthless pursuit of the exact combination of local policies, labour conditions, transport considerations, and so forth for any commodity or part. (Ross and Trachte 1990: 66)

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Therefore, industrial transnational corporations intentionally transcend their national borders for the purposes of sourcing and utilizing factors of production. It is important to note that there are primary and secondary factors of production. Primary factors would be those that were directly used in the production process. These include land, labour, raw materials and capital. Secondary factors would be defined as those that supplement the production and process. This would include semi-finished (intermediate) products and services – such as fiscal incentives, financial inducements, tariffs, availability of infrastructure and political stability – that supplement the industrial production processes (Dobson 1997: 7). For industrial transnational corporations, finding the optimal combination of quality and the price of factors of production is critical to their global business strategy as they strive to maximize profitability. First, factor quality is important because poor factors only lead to poor products, which ultimately would also affect profitability. Factors may vary in terms of quality in many ways; for example, to industrial transnational corporations, the ‘quality’ of labour can be influenced by the education, training and even health of the workers (see Hayter 1997). Second, price differentials for primary and secondary factors of production exist because every location has different endowments (Henderson 1989: 9). There are many reasons for this differential, including historical, geopolitical and economic reasons. To illustrate this point, it is useful to examine one important secondary factor of production: state credibility (Schneider and Maxfield 1997: 14). This refers to the level of credibility and trust investors have in a particular government; as such, it is implied that the degree of state credibility varies from country to country. This degree of credibility is usually determined by how well a country is governed. Industrial transnational corporations would not locate operations in countries where there was poor governance or political instability, as these aspects could negatively affect their production. Furthermore, industrial transnational corporations have viewed certain governments of developing ‘Third World’ nations as having low credibility. These governments would make promises on policies such as tax concessions, cost agreements, arrangements and so on, only for the government to start re-negotiations once the investors had committed (Evans 1995: 35). Other examples of poor state credibility would include unpredictable changes in laws and policies, unstable government, insecurity of property rights, unreliable judiciary and the existence of corruption among officials (World Bank 1997: 35). On the other hand, countries where the government has high credibility as an efficient administrator

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are viewed as low risk locations for long-term investments. Governments could improve their own credibility through demonstrating effective governance and institutional controls, eventually earning the trust of industrial transnational corporations (see Schneider and Maxfield 1997). However, it would, equally, be possible to lose state credibility by having unpredictable changes in laws and policies, unstable governments, insecure property rights, unreliable judiciary and corruption in the country (World Bank 1997: 35). It is important to note that the quality and price of factors are not fixed even within a particular area, but can change over time. The quality of factors, such as labour, could actually be ‘improved’ by education, training and state development. The price of factors might also change as a result of greater competition, as seen in the entrance of new suppliers of factors. In this sense, the global manufacturing system was itself dynamic and responsive to changes. Some governments have sought to take advantage of the globally oriented business strategies of industrial transnational corporations to develop their countries. They hoped to encourage the location of industrial transnational corporations through offering to exchange the access to local factors of production for developmental effects. This might lead some of them to intervene in their economies, with the aim of making local factors (or indeed markets) more competitive and thus attractive to such industrial transnational corporations. As mentioned earlier, governments could invest heavily in education, health and housing programmes in a bid to improve the quality of human capital (labour) specifically for foreign investors; examples of this include Singapore (see Perry, Kong and Yeoh 1997) and Ireland (see O’Hearn 1998). Other governments might attempt to lower labour wages to attract investors (see Sklair 1993, 1994). Other governments have created specially designated zones – commonly known as ‘Export Processing Zones’ or ‘Free Trade Zones’ – which offer policies and incentives that were significantly different from the rest of the country as a strategy to encourage offshore production within self-contained industrial estates (see Sklair 1993, 1994, Chen 1995). An industrial estate has been defined as follows: A geographical area that contains businesses of an industrial nature . . . the essential element is that the estates are administered or managed by a single authority that has defined jurisdiction with respect to tenant companies. The authority makes provision for continuing management, enforcing restrictions on tenants and [planning] with respect to lot sizes, access and utilities. (United Nations Environment Programme 1997)

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However, when viewed from within the perspective of the global industrial production system, governments (and other agencies) have created a variety of industrial estates as a strategy to attract FDI. Examples of this include ‘Free Trade Zones’, ‘Export Processing Zones’ and ‘Special Economic Zones’, among many others (Chen 1995, Chudnovsky 1996). Generally, these zones have special incentives to attract foreign investment, in which imported materials undergo some form of processing in order to be re-exported again (International Labour Organization 1998). Some of these zones have clearly demarcated boundaries, which have different policies and regulations from the rest of the country. For example, the government might only allow FDI into these self-contained areas, while it would still be restricted from the rest of the country in order to protect domestic enterprises. However, the tax breaks within such zones would normally be highly favourable to transnational corporations, as a strategy to encourage their location. The developmental logic of these zones, therefore, would be to primarily generate employment and earn tax revenues from re-exports; secondary objectives would be to achieve the transfer of managerial expertise and technology. Since the 1950s, various governments have experimented with a wide variety of such zones, ranging from self-contained areas such as Shannon’s Industrial Zone in Ireland, ‘maquila’ estates in Juarez, Mexico and, more pertinently, China’s ‘Special Economic Zones’ in Shenzhen, Zhuhai, Shantou, Xiamen and Hainan. More recently, some governments have created estates or zones for specific industrial activities, including ‘high technology’ estates, or ‘science parks’ (International Labour Organization 1998). Again, with these newer zones, these governments are actually attempting to improve their competitiveness, for instance in research and innovation as opposed to basic manufacturing, as a strategy to attract foreign investors. By 1997, the International Labour Organization calculated that there were 850 zones all over the world (International Labour Organization 1998). It was further hinting that the number of such zones would increase in the short term, as more governments, both national as well as provincial, around the world have turned to incorporating FDI into their national economic development strategies. At the same time, there are other governments that have generally permitted FDI without the utilization of such zones; for example, FDI is permitted throughout the whole of the UK. Thus, this trend would only serve to intensify the competition for the suppliers of factors of production within the global industrial production system.

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Although FDI has brought benefits to local communities, the sociological literature has also highlighted that it could have negative effects, including the exploitation of local labour, the stunting of domestic enterprises, and the degradation of the local environment (Sklair 1993, 1994). As such, FDI by itself would not be a guarantee for long-term economic growth or development; instead, these would only be achieved if FDI was effectively utilized by the host governments. Yet, since the end of the Second World War, there has been an increasing number of national governments that incorporated FDI as part of their oriented national development strategies (Oman 2000: 2). This has led to a situation where there has been increasing competition for FDI. In addition, there could be intra-governmental competition for investments, where sub-national, regional and local governments and authorities might compete against one another to ensure that the investments specifically come to their regions (see Thomas 2000). Competition for FDI has become so critical for certain governments that they might go beyond simply offering access to local factors of production or their domestic market. Indeed, some might even offer financial grants to targeted industrial transnational corporations as a direct incentive to encourage them to locate within the country, as opposed to locating in another country (see Sklair 1994). Global industrial production system The globally oriented strategies of industrial transnational corporations have been described as a ‘global manufacturing system’ (Gereffi 1990), and ‘global production networks’ (Henderson et al. 2002). Both concepts have proved useful, as they have explained the locational strategies of industrial transnational corporations across the world. However, this study proposes another concept, the ‘global industrial production system’, which draws its basic ideas from the two earlier concepts, but is distinct as it is centred specifically on the global demand and supply of factors of production. More specifically, the system emanates from the interaction between industrial transnational corporations that generate the demand for factors of production, and states (and local economic agents) that control access to factors of production. The system is driven by competition. This occurs at several levels: first, there is competition among industrial transnational corporations sourcing for, and utilizing, the best factors of production. At the same time, there would be competition between governments, which compete to supply these factors of production. Some states or governments would be motivated to participate in the

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system because they hope to initiate industrialization, which would be seen as a key strategy to encourage or maintain economic growth and development in the country. From a sociological perspective, the global industrial production system is a complex social system because of the multitude of relationships between different states and industrial transnational corporations. The relationships might be based on economic, political, historical and social imperatives. Furthermore, the relationships might be affected by the imperfect availability of information within the system. As such, for both the governments as well as the industrial transnational corporations, transactions might carry a certain degree of risk and uncertainty. In this sense, therefore, the ability to trust a particular economic agent would prove important. This is how and why a credible state might have a competitive advantage over a less credible state. The global industrial production system is also one important contributor to the process of economic globalization. Economic globalization refers to the increasing volume and intensity of cross-border economic transactions (Dicken 1998). In this regard, not only have industrial transnational corporations been increasing the volume of their FDI, there have been more national governments turning to FDI-oriented national economic development strategies. As such, one very important aspect of the global industrial production system and the process of economic globalization is competition. Not only are industrial transnational corporations engaged in intense competition for global market share, they might compete against each other for factors of production as well. At the same time, governments might also compete against one another for FDI. Indeed, the competition to supply factors of production might not be just between national governments, but might well occur between regional or city governments within a particular country. Competition has always been viewed as a double-edged sword. On the one hand, competition encourages improvements and efficiency. On the other hand, it could easily lead to wastages, as economic agents waste resources trying to out-manoeuvre each other rather than investing these resources in productive activities. Last, in any competitive system, there will always be winners and losers. Therefore, viewed from the perspective of the sociology of national economic development strategies, governments could ‘win’ from participating in the global industrial production system; industrialization could be achieved, and economic growth and development encouraged. However, at the same time, governments could ‘lose’ out within the system, especially if they are

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unable to attract the necessary capital to restructure their economies. As a result, these ‘losers’ might become caught in a cycle of underdevelopment.

Collaboration To recapitulate the discussion so far, as an alternative to state-led (indigenous) interventionist industrialization, some governments have adopted FDI-oriented industrialization, relying on industrial transnational corporations to initiate industrialization. This necessarily meant that these governments were ‘participating’ or competing within the global industrial production system to attract FDI by exchanging access to the factors of production they control. The ultimate objective of the participation in the global industrial production system would be to initiate industrialization and hopefully bring about economic growth and development in the long term. As suggested at the beginning of the chapter, the case of the Suzhou Industrial Park was an anomaly as a national economic development strategy because it was a case where two national governments were collaborating rather than competing against each other within the global industrial production system to attract FDI. Therefore in order to analyse the case, it was essential to understand the nature of collaborations. Economic agents would only enter into collaboration when they hope to remedy a resource deficiency or to take advantage of an opportunity they cannot realize on their own (Child 1994, Child and Faulkner 1998). However, as a formal and legal venture, collaboration (or cooperation) could be defined as ‘coordination effected through mutual forbearance’. (Buckley 1996: 474). In this definition, forbearance would be exercised as the parties agree to refrain from cheating (ibid.). In this sense, the ‘best’ collaborations are when the partners would be able to achieve synergy by investing complementary factors. Collaborators would also necessarily have to jointly invest equity in the venture, and make clear how dividends from the venture would be distributed in the future. Partners might have different objectives for collaborating; however, it is important that the collaboration should be mutually beneficial. Business or commercial collaborations might take many forms, including formal joint venture, a loose strategic alliance, minority holdings, licensing, franchising, subcontracting and management contracts (Buckley 1996: 473).

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Joint ventures In the business literature, there are three primary motives for the establishment of a formal (equity) joint venture (Buckley 1996). First, there is the existence of net benefits from internalizing a market in one or more intermediate goods or services between the joint venture and the parties’ other operations. Second, there is an element of economic indivisibility that results in benefits from avoiding splitting up the joint venture into one or more separately owned facilities. Finally, there is the existence of disadvantages to merger (see Buckley 1996: 478). For the case of the Suzhou Industrial Park, these motives are somewhat present, but not in their entirety because of the peculiarity of the venture itself. The China–Singapore government collaboration was designed to take advantage of the strengths of each partner. It was also necessary to enter into collaboration because the governments perceived that it would not be effective or efficient for either partner to embark upon the venture individually. It differed from the usual model of joint ventures as the collaboration was between two national governments rather than two typical business enterprises. As such, there was no option for merger, or becoming one entity developing the zone. It could also be further argued that the governments opted for a formal equity joint venture so that assets and dividends could be clearly defined, so as to avoid potential disputes or conflicts in future. Although collaborations are basically business ventures, where economic rationality ought to prevail, they also are social in nature, as they involve the interaction between two separate economic agents. As such, the social relationship between collaborative partners is as important as their business relationship. Familiarity with the other partner, in terms of understanding the management culture, and the operational outlook, could greatly reduce transaction costs. This, in turn, would reduce resources, time and effort, which otherwise would have to be incurred when learning to work together. Furthermore, having trust with a familiar partner, could potentially increase confidence and lower transaction costs, whereas dealings with an unfamiliar partner can incur high monitoring, governance or risks costs (Williamson 1986: 114–15). Yet, despite familiarity and trust, collaborations could possibly fail. As with all business ventures, the outcome is not only determined by the strategies adopted by the partners but is, in reality, also dependent on the external environment. This would include the strategies of competing economic agents, as well as impact of external or unforeseen events.

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While the inter-governmental collaborative venture between the China and the Singapore governments might appear, on the surface, to be a straightforward ‘international joint venture’, it is important to note that the partners are not typical economic agents. First, both partners are national governments rather than enterprises. While governments could have business or entrepreneurial motivations, it is important to remember that they have political motivations as well. Since they are national governments, it could be argued that under certain circumstances, politics might be more imperative than economics. On the other hand, typical businesses have no political motivations; they only have economic imperatives to address. Furthermore, one partner was the national government of the country where the joint venture was legally registered. Second, the collaboration was not entirely about achieving economic objectives. For the China government, the collaboration was a vehicle to experiment with a system that hopefully might provide an alternative to the ‘free market capitalist’ system. For the Singapore government, it was hoping to improve bilateral government-to-government diplomatic ties with Beijing. Therefore, once again, the Suzhou Industrial Park collaborative project was not only about business or economics, but politics was important as well. Last, the collaboration was a ‘Sino-foreign’ joint venture which was physically located in China. This distinction is actually important because China, even by the 1990s, was still considered a developing rather than developed economy. As such, it was believed that the operational environment would still present complex and unfamiliar conditions for foreign investors (Pearson 1992, Child 1994). Not only did foreign investors have to face a unique Chinese business system, they had to cope with the remnants of the socialist/communist economic system, which had been in existence since 1946 (Pearson 1992). To recapitulate, a Sino-foreign joint venture, especially one involving the China government, makes this case different from other Sino-foreign joint ventures, which might involve Chinese-owned enterprises in Hong Kong or Taiwan (which do not have a socialist experience). However, rather than automatically assuming that a joint venture with the China government would be a liability, most analyses have shown that having a local partner could assist the foreign investor in obtaining information, mitigating operational risks and providing country-specific knowledge (Luo 1998). In other words, the local partner could contribute to the collaboration by being able to deal with local issues, obstacles and problems, while the foreign partner

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concentrated on other business-related issues. Thus, the fact that the local partner – the China government – was the highest political power in the country was significant. There have been many studies that have analysed Sino-foreign joint ventures that featured key Chinese state-owned enterprises (see Nolan and Wang 1999); yet, there are hardly any which directly involve some of the top ranking members of China’s government. As such, it was difficult to find a theoretical precedence in which to situate the collaboration. Cultural affinity As a Sino-foreign joint venture, there existed the possibility that crosscultural differences could possibly lead to conflicts, which would negatively affect the outcome of the collaboration (Child 1994, Weldon and Jehn 1996). For the purposes of this book, a crosscultural joint venture refers to a business entity which is formed by partners from different ‘cultural backgrounds’. Already, joint ventures are, by themselves, interesting organizations to analyse, mainly because they necessarily involve the collaboration of two or more separate business entities, whose different management techniques, corporate cultures and operational systems might lead to operational conflicts. Such conflicts might be compounded when the partners come from different cultures, which in this case might be national, ethnic or even racial cultures. Culture in this case can be defined as a set of cultural practices and values. Thus, in a cross-cultural joint venture, cultural difference is often viewed as an obstacle for efficient business performance (Douw 1999). Cultural miscommunication and misunderstandings within a joint venture would not only lead to interpersonal conflicts but could also directly hinder operational efficiency. On the other hand, cultural affinity – also called cultural proximity (Wu 1997: 780) – could aid joint ventures by reducing transaction costs and improving informational flows between two different organizations, as well as providing a cultural resource base on which to solve problems (Child 1994). During the 1980s, in the first decade after China’s economic reforms, it was found that there were more ‘international’ joint ventures formed in China than in any other nation (Beamish 1993). On closer inspection, the most common foreign partners were enterprises that emanated from Hong Kong, Taiwan and even Macau, accounting for over 70 per cent of all joint ventures registered (Huang 1998). The reasons offered for this trend included having a linguistic and cultural affinity, as well as having familiarity with traditional

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Chinese business practices (see Lever-Tracy, Ip and Tracy 1996, Huang 1998, Luo 1998). Furthermore, these ‘overseas Chinese’ business persons, as they are often called, have also been known to utilize ancestral, kinship and even hometown ties as the basis of the joint venture with mainland Chinese firms (Pearson 1992, Beamish 1993, Bolt 2000). At the same time, foreign investors from America, Europe and Japan have been described as facing ‘cultural obstacles’, especially when collaborating with Chinese firms, mainly because of differences in their managerial cultures (Wu 1997). For example, one common ‘obstacle’ was the notion of guanxi (Guthrie 1999). However, within this context, the Singapore government believed that it shared cultural affinity with the China government. The reason was that the senior leaders of the Singapore government were of ethnic Chinese descent. Furthermore, people of ethnic Chinese descent accounted for almost 65 per cent of the overall population in Singapore. In addition, the Singapore government’s cultural policy meant that many ethnic Chinese Singaporeans were proficient with the Chinese language, as well as familiar with Chinese culture. The Singapore government also claimed to understand the so-called peculiarities of the Chinese business system. Based on the perception of cultural affinity, the China government thus assumed that the Singapore government would be a potentially appropriate partner in a business venture. As such, the inter-governmental collaboration in the Suzhou Industrial Park was not only built on economic foundations, but also based on a presumed cultural affinity. From an economic perspective, the joint venture drew upon the complementary strengths of the partners, and was mutually beneficial. The Singapore government was to invest its expertise in industrial infrastructure and administration development. The China government was to invest its political support. These complementary inputs were supposed to create uniquely competitive advantages for the Suzhou Industrial Park, which would hopefully attract FDI by encouraging industrial transnational corporations to locate within the zone. For the China government, it hoped that local development would take place, based on the employment created, technology and managerial skills transferred, as well as tax revenues collected from the investing industrial transnational corporations. For the Singapore government, it hoped that sales or leases of the zone’s industrial units would become profitable, and eventually supplement Singapore’s domestic economy. At the same time, the collaborative project was based upon a presumed cultural affinity. This gave both partners a sense of assurance, confidence and trust in

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the collaboration. Industrial transnational corporations were also interested in the Suzhou Industrial Park, as it promised to deliver the optimal balance of low-cost primary factors of production and high-quality secondary factors of production. In addition, industrial transnational corporations were also hoping to establish operations in one of the largest and fastest growing markets in the world. With the resources of the collaborating governments, as well as the zone’s uniquely competitive advantages, it appeared, on paper at least, that the Suzhou Industrial Park just could not fail. Indeed, with the high volumes of FDI attracted by the zone in its first few years of operation, the collaboration was hailed as a successful national economic development strategy. However, the zone subsequently lost its economic competitiveness, placing a great strain on the inter-governmental collaboration. This book explains, from a sociological perspective, how and why this happened, and hopes to contribute to the debates on national economic development strategies.

Chapter summary The next chapter examines the background to the collaborative project, with the discussion focused on demonstrating how the FDIoriented development strategies of the Singapore and China governments converged at the beginning of the 1990s. Chapter 3 is devoted to explaining the details of the collaboration. It begins with how and why the city of Suzhou was selected as the location for the venture, followed by an exposition on the inputs made by each partner. Chapter 4 examines how and why the collaboration was initially effective, leading to the zone enjoying unique competitive advantages in China. Chapter 5 is devoted to analysing how the inter-governmental collaborative relationship was tested with the zone’s loss of competitiveness, brought about by the Asian Financial Crisis and the increased competition for FDI within China after 1997. Despite some corrective measures, the collaboration fell apart when the Singapore government opted to disengage, as described in Chapter 6. The final chapter attempts to situate the case and contribute new insights into the nature of collaborative national economic development strategies.

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Convergence

This chapter outlines how and why the FDI-oriented national economic development strategies of the China and Singapore governments converged at the beginning of the 1990s with the Suzhou Industrial Park collaborative project. The chapter is organized chronologically, beginning in 1965 with a discussion of the Singapore government’s national economic development strategies. The next section focuses on the evolution of the China government’s FDIoriented strategies, which began after the economic reforms of 1979. The discussion in these sections is not intended to outline every aspect and detail about the respective government’s national economic development strategies. Instead, it will only extract salient issues from the processes that have direct bearing on the thrust of this book’s argument. The chapter then proceeds to describe how the leaders of the two governments initiated the inter-governmental collaboration at the beginning of the 1990s. The chapter ends with details on the site selection process for the collaborative project.

The Singapore experience Industrial transformation The Singapore government was an archetypal ‘interventionist’ state, particularly adhering to the ‘developmental state’ model (Castells 1988, 1992, Huff 1994, Perry, Kong and Yeoh 1997). Upon gaining national independence in 1965, the Singapore government, informed by a pro-developmental elite which placed economic development as the topmost priority, immediately set about implementing an FDIoriented national economic development strategy (Mirza 1986, Pereira 2000). This elite included Singapore’s first Prime Minister, Lee Kuan Yew, and Deputy Prime Minister Goh Keng Swee, who were

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senior members of the ruling People’s Action Party. This FDI-oriented strategy was viewed as the most ‘pragmatic’ means to achieve industrial transformation in Singapore (Schein 1996: 1–2). Industrial transformation, in turn, was chosen by the government as the solution to Singapore’s economic problems. In the 1960s, Singapore lacked natural resources, was over-reliant on entrepôt trade and the British colonial administration, and had a largely unskilled but rapidly growing population (Rodan 1989, Peebles and Wilson 1996). In 1957, only 57 per cent of the population was employed, of which only 21.6 per cent were women. By 1970, the situation had not improved: 56.5 per cent of the population was employed, of which 29.5 per cent were women (Singapore Department of Statistics 1957 and 1970). Singapore also lacked local industrial entrepreneurs, thus making domestically induced industrialization very difficult (Huff 1994). Thus, the Singapore government – advised by the Singapore Economic Development Board – hoped to encourage industrial transnational corporations to set up manufacturing operations on the island. They believed that the presence of industrial transnational corporations in Singapore could potentially bring ‘developmental effects’, particularly employment creation and technology transfer. In other words, the Singapore government intentionally sought to participate in the global industrial production system. However, the Singapore government realized that it was not going to be easy to encourage industrial transnational corporations to locate operations in Singapore. As suggested in the previous chapter, industrial transnational corporations have a complex set of criteria when it comes to locational decisions. They do not only take primary factors of production into consideration, secondary factors of production are sometimes more important. Furthermore, market access is another important issue. As a location, Singapore, in the 1960s, had some competitive advantages within the global industrial production system; for example, the island had a deep harbour, long entrepôt history and strategic geographic position in the Southeast Asian region (Lim et al. 1988: 1–4). In addition, Singapore’s labour was also competitive when compared to labour in developed countries because of its relatively low levels of education and training in the 1960s. On the other hand, Singapore had many other ‘disadvantages’ as an industrial production site. First, the country lacked industrial infrastructure and the government was relatively inexperienced as an industrial administrator (Rodan 1997). Second, the uncertainty over Singapore’s political and social stability was worrying to foreign investors, especially as there were frequent incidences of ethnic conflict on the island (see Hill and

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Lian 1995). Furthermore, there were fears of communist insurgencies and labour unrest (Deyo 1981). Third, in the 1960s, industrial transnational corporations were unfamiliar with the key members of the Singapore government. Although it had claimed to be a pro-export oriented government, foreign investors could not be sure of whether to trust these statements or not. As previously suggested, the record of so-called ‘Third World’ or ‘developing’ countries had not been very encouraging, as many had been accused of inefficiency, corruption and nepotism (Evans 1995: 35). Thus, the Singapore government hoped to attract FDI by enhancing Singapore’s existing competitive factors of production, and by developing its secondary factors of production. The Singapore government invested heavily in developing human resources in Singapore through its public housing, mass education and public health programmes (Perry, Kong and Yeoh 1997: 56–79). These programmes were funded through developmental aid provided by the United Nations Development Programme and loans from the World Bank, as well as from a national provident fund scheme (Lim et al. 1988). Although investments in improving the ‘quality’ of labour would be attractive to the potential investor, these were long- rather than short-term objectives. In the short term, the Singapore government controlled labour costs in order to compete with other countries. To achieve this, the Singapore government had to discipline the powerful labour unions through legal and coercive means (see Deyo 1989, Chew and Chew 1995, Rodan 1997). For example, the police was often utilized to disperse strikes after 1965. This was soon followed by a constitutional amendment that made strikes and work stoppages illegal in Singapore in 1967 (Chew and Chew 1995: 32). By 1973, there was almost total absence of strikes and work stoppages. The Singapore government further ‘coopted’ or ‘corporatized’ the labour movement, forming the National Trade Union Congress – a state-led umbrella body for unions in the country – for the purposes of ‘pacifying’ labour groups (see Deyo 1989). According to the Singapore government, these measures were designed to create a ‘pro-business environment’ which would encourage the location of industrial transnational corporations (Mirza 1986). To further enhance Singapore’s competitiveness, the state focused on providing and improving secondary factors of production in Singapore. In terms of industrial policy, the government formulated attractive economic, tax and fiscal incentives to encourage industrial transnational corporations – especially those in the electronics and related sectors – to invest in Singapore (Mirza 1986: 88–90). In addition, the Singapore government directed the Jurong Town Corporation

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(a statutory board that served as an industrial property developer) to prepare ready-built industrial estates, with fully functional transportation and communication links, power, water and sewerage facilities (Huff 1994: 330). The objective was to relieve the potential investors of the need and costs of building their own factories, increasing their returns from capital investments. Thus, it was clear that the Singapore government’s provision of competitive primary and secondary factors of production was intentionally designed to improve Singapore’s position within the global industrial production system, with the hope of encouraging the location of industrial transnational corporations. However, many other governments, which were the Singapore government’s direct competitors (such as Malta, Ireland, Hong Kong and Taiwan), offered similar economic incentives to attract FDI (Schein 1996). Furthermore, many of them could offer access to much larger local markets (Yeung 1998: 125). Thus, to further enhance the island’s competitiveness, the Singapore government sought to improve its ‘social’ relations with industrial transnational corporations. More specifically, it sought to improve its credibility as an effective government by developing trust. Towards this end, the Singapore government, together with the Singapore Economic Development Board, intentionally demonstrated ‘honesty, competency and commitment’ when negotiating with potential investors (Schein 1996: 125). Fully aware of the ‘reputation’ of Third World countries, the Singapore government officials and state bureaucrats stressed that corruption would not be tolerated in Singapore. Some transnational corporations, in the late 1960s, cautiously made small initial investments, waiting to see if the Singapore government would keep its promises (Mirza 1986: 34). However, the strategy appeared to be effective, as a former chairman of DuPont, a large transnational corporation, was quoted as saying about why he trusted the Singapore government after several meetings: What they [Singapore government] said, they stuck to. We had a lot of experience in other countries where something would be discussed and agreed upon one day, and then the next day or in a week we would get a call back saying ‘Well, we didn’t quite understand’, and/or ‘We can’t do that now’. In other countries things would constantly come unglued, whereas in Singapore, once they said something, they stuck to it. Or, if they have to renegotiate, the logic was always very clear and very plausible. (Edgar Woolard, Chairman of DuPont, quoted in Schein 1996: 124)

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By the mid-1970s, the Singapore government’s credibility was improving, as it kept all of its promises to industrial transnational corporations, such as maintaining a ‘pro-business’ environment, developing human resources and providing quality infrastructure. In this sense, the Singapore government was unlike other so-called Third World governments in that it ‘invested in a reputation for trustworthiness by forgoing short-term gains’ (Buckley 1996: 474). Furthermore, Singapore government leaders and state bureaucrats were gaining a reputation for also being honest. In a survey of senior executives of the earliest transnational corporations that located in Singapore, it was found that these executives perceived the officers of the Economic Development Board to be ‘honest bureaucrats, often inflexible but better than being fickle’ (Schein 1996: 125). These measures were viewed positively by transnational corporations, leading to many expanding their operations in Singapore after their initial investment. The Singapore government’s credibility was further enhanced when it demonstrated efficiency and competence in the fields of bureaucratic administration, management, and execution of policies (see Lim et al. 1988, Huff 1994, Perry, Kong and Yeoh 1997). For example, the Singapore Economic Development Board was described as follows: In 1973, Texas Instruments simply got browned off with red tape in Taiwan and revamped its investment plans to centre on Singapore – the company was in operation only 50 days after the investment decision was made. (Huff 1994: 325) This was one of the reasons why the Singapore government’s bureaucratic efficiency had been described as coming closest to Weber’s ideal-type bureaucracy (Evans 1995: 37). The Singapore government’s FDI-oriented national economic development strategy could be described as being effective. By the early 1970s, many transnational corporations responded positively to the strategy by locating large multi-plant factories on the island. FDI grew annually at a rate of over ten per cent, from S$82 million in 1966 to S$1,336 million in 1984 (Chia 1989: 32). By the 1980s, foreign investors came to dominate the Singaporean economy; for example, in terms of direct investments, 84 per cent were ‘foreign’ while only 16 per cent were ‘local’ commitments (Lim et al. 1988: 255). By 1981, foreign firms accounted for 70 per cent of the gross output in the manufacturing sector, over 50 per cent of employment, and 82 per cent of direct exports in the country (Bello and Rosenfeld 1990: 293).

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However, from a developmental perspective, the strategy had a significant social impact, especially in terms of employment generation. By 1973, Singapore moved from a situation of labour surplus to one of labour scarcity (Huff 1994: 326). The unemployment rate fell to below four per cent by 1974 (Rodan 1997: 153). With the rising number of jobs, women’s participation in the labour force increased from 29.5 per cent in 1970 to 44.3 per cent in 1980. By the early 1980s, labour was so scarce that the government eased restrictions on foreign workers. During that time, employment in manufacturing rose from 74,000 in 1965 to 433,000 in 1992, with ‘industrial activities’ increasing from 5 per cent in 1965 to over 25 per cent in 1990 (Huff 1995: 741). Thus, it could be argued that industrialization was one of several important reasons behind Singapore’s overall economic growth, with Gross Domestic Product growing at an average of 9 per cent annually between 1960 and 1990 (Wong and Ng 1997: 121). In addition, the per capita Gross Domestic Product increased from US$500 (S$1,330) in 1965 to US$15,000 (S$22,587) in 1990 (ibid.). More importantly, the Singapore government re-invested some of the earnings from the economic growth in a mass housing, education and healthcare system which, in turn, improved the overall quality of life for Singaporeans (see Perry, Kong and Yeoh 1997). Also, the Singapore government managed to maintain a relatively equitable level of income distribution (Rodan 1997). This reinforced the Singapore government’s political legitimacy, as it swept through most of the general elections without losing any seats to opposition parties (Huff 1994). Industrial transnational corporations also appeared to benefit from the Singapore government’s FDI-strategies, as Singapore became an important node within the global industrial production system. From 1974 to 1984, the average rate of return of US investment in Singapore averaged 35.4 per cent, compared to 16.9 per cent for investment in Hong Kong, 18.4 per cent for Taiwan and 15.2 per cent in Korea (Lim et al. 1988: 262). Furthermore, several industrial transnational corporations expanded the size and scope of their operations after a few years in Singapore (Lim et al. 1988: 235). The Singapore government’s strategy was successful because Singapore had relatively competitive primary factors of production, such as labour, and secondary factors of production, including high-quality industrial infrastructure and administration. At the same time, the Singapore government’s reputation for trustworthiness was increasing. As such, within the global industrial production system – where there were other competing suppliers of factors of production that were untrustworthy – the trust that the Singapore government had was, in fact, an asset. However, it

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was equally important to note that during the period between 1965 and 1980, Singapore – as a location – faced fewer direct competitors from within the Southeast Asian region in the global industrial production system. The governments of Malaysia, Thailand, Indonesia and China were intentionally excluding most forms of foreign investment, since their national economic development strategies at the time were focused on developing domestic enterprises through import substitution industrialization (Jomo 1997). Industrial restructuring From 1980 onwards, the world economy experienced rapid economic globalization (Dicken 1998, Held et al. 1999, Sklair 2001). This was because transnational corporations were increasing the level of FDI, and many national governments were ‘liberalizing’ their economies to receive this FDI (Oman 2000). In the Asia Pacific region, the decade saw several governments – including the governments of Malaysia, Indonesia, Thailand and China – ‘opening’ their economies, both to increase foreign trade as well as to adopt FDI-oriented strategies to stimulate economic growth (Tongzon 1998). Although most of these governments were interested in encouraging portfolio investments, some were hoping to attract the location of industrial transnational corporations by offering access to their primary factors of production and their highly lucrative domestic markets (Jomo 1997, Booth 1999). During the 1980s, Singapore, as a location within the global industrial production system, was losing its competitiveness (Chiu, Ho and Lui 1997). Labour costs, which were once Singapore’s most competitive factor, were rising as a result of the growing labour shortage as well as high incidences of labour turnover (Okposin 1999: 12). The Singapore government refused to increase foreign labour in Singapore to ease this strain as it was concerned about the potential social problems this might bring (Lim et al. 1988). Some enterprises that were involved in labour-intensive operations soon reported diminished profitability (Chiu, Ho and Lui 1997). In addition, Singapore was facing land shortages, in turn contributing to rising rent and land costs for industrial transnational corporations. As a remedy, the Singapore government introduced a new national economic development strategy in 1980, known as the ‘Second Industrial Revolution’. The intent was to encourage industrial transnational corporations to switch from labour-intensive manufacturing towards more capital-intensive operations (Huff 1994). The plan was to simultaneously offer tax

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incentives to participating enterprises, while also upgrading education and training programmes in the labour force. However, in the short term, only a few industrial transnational corporations chose to ‘upgrade’ their operations. Instead, many others opted to relocate to another area, region or country where the factor costs were lower (Krause 1987, Bello and Rosenfeld 1990, Rodan 1997). For example, in 1989, labour costs on Batam Island, Indonesia were, on average, only 25 per cent of those in Singapore (Kumar and Lee 1991: 7). As the Second Industrial Revolution did not bring about immediate results, the Singapore government introduced another new national economic development strategy in 1990, known as the ‘Strategic Economic Plan’ (Wong and Ng 1997: 92). A central component of the Plan was the ‘Regionalization’ strategy, where the Singapore government was hoping to take advantage of new economic opportunities within the Asia Pacific region: The strategic intent of the regionalization programme is to build an external economy that is closely linked to and which enhances the domestic economy by participating in the growth of Asia. This programme seeks to form a network of strategic zones in key markets with emphasis on building good linkages between our regional projects and domestic clusters. (Singapore Economic Development Board 1995: 8) Although the regionalization strategy had several different thrusts – including the regional headquarters programme, the regional investment programme and the regionalization of Singaporean enterprises programme (see Wong and Ng 1997, Yeung 1998, Perry and Yeoh 2000) – the most relevant to this book was the regional industrial parks programme. In this programme, the Singapore government sought to move the country out of direct competition for lowcost manufacturing operations within the global industrial production system. Essentially, the Singapore government hoped to change Singapore’s role altogether, from that of a supplier of low-cost primary factors of production to become a supplier of high-quality secondary factors of production in the region. The logic was fairly simple: the emerging Asia Pacific region – which referred to the countries participating in the global industrial production system after 1980 – had very low-cost primary factors of production. However, industrial transnational corporations had complained that the region had very poor-quality secondary factors of production, particularly in its industrial infrastructure and administration, because of its relative

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underdevelopment. The Singapore government hoped that it could successfully supply this niche by developing and managing highquality self-contained industrial estates in selected cities within the Asia Pacific region. Profits could be generated from selling or leasing industrial units to industrial transnational corporations, and from charging them a service fee for managing the properties. In this regard, it was adopting the role of an industrial property developer. The Singapore government, as advised by the Singapore Economic Development Board, was confident that the regional industrial parks programme could be financially profitable. Although investment in infrastructural projects tended to be high, the Singapore government believed that it could profitably utilize some of the country’s accumulated financial reserves, which were estimated at around US$200 billion in the early 1990s (Perry and Yeoh 2000: 200). It was also confident that the host governments would be supportive of the regional industrial parks programme. The Singapore government not only had relatively good diplomatic ties with the various regional governments (see Leifer 1998, 2000), but also because these estates could potentially bring about ‘developmental effects’ such as employment generation and technology transfer in the local areas. The Singapore government was also confident that its high level of credibility as an efficient industrial developer and administrator in the eyes of industrial transnational corporations – established from the earlier period of industrial transformation in Singapore (1965–80) – would generate a demand for such regional industrial parks. The regional industrial parks programme began with a pilot project, situated in Batam (see Kumar and Lee 1991). In 1989, the outgoing Prime Minister Lee Kuan Yew and his successor Goh Chok Tong signed agreements with Indonesian leaders such as the then President Suharto and the then Minister of Research and Technology B. J. Habibie to develop an industrial estate on Batam Island, an Indonesian duty-free Export Processing Zone. Batam’s attractiveness was that it was only a one-hour journey by boat from Singapore. Also, in 1990, labour and land costs were a quarter of those in Singapore (Kumar and Lee 1991: 7–8). The Batam Industrial Park, or ‘Batamindo’ as it was named, was established as a formal joint venture between a Singaporean and an Indonesian consortium. The Singaporean consortium – consisting of two Singapore governmentlinked companies (Singapore Technologies Industrial Corporation and Jurong Environmental Engineering) – took a 40 per cent stake in the venture, while the Indonesian consortium – consisting of the Salim Group – held the rest (Perry, Kong and Yeoh 1997: 175). More

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importantly, the marketing, development and the management of the property of the park were assigned to the Singaporean partner (Grundy-Warr, Peachey and Perry 1999: 310). Almost immediately, 15 transnational corporations – assured by the quality of industrial infrastructure and administration – relocated some of their lower value-added operations from Singapore to the Batamindo estate (Kumar and Lee 1991: 2). By 1995, there were 77 companies operating in the Batamindo Industrial Park (Singapore Economic Development Board 1995: 23). Initial responses from investors – both transnational corporations and Singaporean companies – were positive, especially as the projected cost savings, particularly from labour costs, were realized (Kumar and Lee 1991: 17). The Indonesian government also benefited from the estate, as it created employment and brought in foreign currency through employment and tax revenues. In 1988, just over 10,000 persons were employed in Batam; by 1996, 125,000 were employed, and the foreign exchange revenue earned per employee jumped from US$620 in 1988 to US$27,000 in 1996 (Grundy-Warr, Peachey and Perry 1999: 313). Although it was difficult to calculate whether the park was profitable for the Singapore government, most indications were that Batamindo was generating an income through the sale of industrial units and the sub-lease of factories as well as from management charges (ibid.). Buoyed by the relative success of the Batam Industrial Park, the Singapore government was confident that similar industrial estates in the region would be both in demand and potentially profitable. By 1992, the Singapore Economic Development Board formally announced that it would recommend the Singapore government to consider establishing similar industrial parks in countries such as Vietnam, Indonesia, India, Thailand and China (see Wong and Ng 1997). The Singapore government was confident that such industrial estates would be more competitive than other industrial estates in the region, mainly because of their high-quality secondary factors of production (industrial infrastructure and administration). The Singapore government’s ultimate objective was that the programme would serve as a platform to generate financial profits that could supplement Singapore’s economy in the long run. The regional industrial parks programme also had secondary objectives, such as improving diplomatic relations with the neighbouring governments. It forecasted that mutually beneficial economic relationships between regional governments would lay the foundation for long-term regional geopolitical stability (Leifer 1998: 21–2).

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The China experience Economic reforms In 1979, the China government introduced a series of economic reforms, essentially aimed at revitalizing the country’s centrally planned socialist economic system (Shirk 1993). Before the reforms, the Chinese economy faced several structural problems that hindered economic growth, including inefficient production from state-owned enterprises, low levels of capital and expertise, small international market and trading networks, backward technology and poor management systems (see Pomfret 1991, Naughton 1995, Hsing 1998). In 1978, due to pressure from certain local and regional leaders, the then Premier Deng Xiaoping and a small cohort of like-minded Chinese leaders believed that the best means of achieving development was to embark upon a ‘modernization’ drive. This drive was aimed at opening limited segments of China’s economy to global capital; reforming the many state-owned enterprises; the encouragement of private enterprises in China; and finally, the lifting of price controls in favour of ‘freer’ market mechanisms (Selden 1992, Perkins 1988). While the modernization drive had important implications for nearly every sphere of China’s economy and society – including reforming the massive industrial and agricultural sectors as well as the social welfare and legal systems – of particular relevance to this book’s central argument was the China government’s decision to adopt FDIoriented national economic development strategies. By 1979, several senior leaders within the China government accepted that FDI could potentially have ‘developmental effects’, both for the economy and for society as well. For the economy, FDI could act as the capital that Chinese enterprises urgently required for them to become efficient and competitive. Also, the process of FDI could facilitate technological and managerial skills transfer. In addition, FDI could potentially benefit society through employment generation and foreign currency earnings through income (Sklair 1995). However, these leaders were also acutely aware that FDI could open the country to global capitalism and all of its negative effects (Shirk 1993). While there were internal pressures to look outwards, there was also strong pressure from external economic agents that were keen for the China government to open its economic borders. Industrial transnational corporations were attracted by China’s abundant and cheap primary factors of production. Also, many of them saw China as a potentially huge market (see Naughton 1995).

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Therefore, when the China government made the decision to attract foreign investment, it wanted to ensure that any economic, political and social changes were incremental and remained under its control (see Selden 1992, Breslin 1996). Rather than opening the whole country to global capital, it initially only allowed foreign investment – particularly industrial capital – in the designated ‘Special Economic Zones’ of Shenzhen, Zhuhai and Shantou in Guangdong, which were geographically close to either Hong Kong, the New Territories and Macao, and Xiamen in Fujian province, which was across the straits from Taiwan. The primary purpose of these zones was to attract capital, modern technology and managerial techniques from foreign enterprises, especially from those from Hong Kong and Taiwan (Park 1997: 4). These zones were similar in organization to the ‘Export Processing Zones’ and ‘Free Trade Zones’ that were developed by various governments around the world since the 1950s. These were self-contained areas where the economic policy could be different from the rest of the country (Chen 1995: 597). Such purpose-built industrial areas were geared to the offshore sourcing needs of transnational corporations. Imports were duty-free on condition that the products assembled or manufactured were re-exported. To transnational corporations, one benefit of producing in an Export Processing Zone was to take advantage of low-cost primary factors of production while not being subjected to other taxes. For the host country, the advantage lay in the jobs created and foreign currency earned through wages (see Sklair 1993: 6). Another benefit, in theory at least, was that Export Processing Zones provided opportunities for a country to integrate into the international division of labour without subjecting the entire economy to trade liberalization (see Chen 1995). Despite the evidence from such zones that transnational corporations usually benefited more than the host country, many governments still persisted with the establishment of such zones (see Sklair 1993, 1994). For example, the concessions and incentives offered in these zones often allowed transnational capital to benefit from cheap local labour and low taxes. Also, EPZs carried some negative consequences, including incidences of excessive waste in infrastructure provision, fragmented production process, low domestic value added, limited job creation, gendered wage inequality, exploitation of the indigenous labour force, especially young female labour, harsh factory conditions, lack of technology transfer, vulnerability to footloose industries and a lack of forward and backward linkages (see Fröbel, Heinrichs and Kreye 1981, Chen 1995).

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In 1979, the China government legislated that ‘foreign’ industrial enterprises that wanted to operate in China had to form equity-joint ventures with Chinese enterprises (Huang 1998: 10). One reason behind this policy was to relieve the China government from financially supporting local enterprises (Leung 1986: 1–2). Also, regional authorities could earn revenues from taxation and the employment incomes of the ever-growing pool of labour in South China (see Leung 1986, Crane 1990). Secondary interests were also to foster closer relations with other countries, especially Hong Kong, Macao and Taiwan. The China government was hoping to court the large number of overseas Chinese industrial capitalists in these three regions. From the beginning of the twentieth century right until the 1980s, overseas Chinese continued to retain pervasive kinship and village ties in China, regardless of the international diplomatic environment or the overseas Chinese’s country of nationality (see Lever-Tracy, Ip and Tracy 1996: 6). Financial remittances made by overseas Chinese after the Second World War right through the period of the Cold War remained high (Bolt 2000: 41–3). Therefore, when Beijing made overtures to overseas Chinese business-persons to invest this capital in industrial production in China after 1979, the response was overwhelming. Investors from Hong Kong and Macao accounted for over 50 per cent of all FDI in China between 1979 and 1995, committing over US$42 billion in over 17,000 projects, followed by Taiwanese investors, who accounted for just over 10 per cent (Luo 1998: 12). This trend was significant, considering that investment from North America, Europe and Japan accounted for less than 25 per cent combined (Huang 1998). (See Table 2.1.) Table 2.1 Sources of foreign direct investment in China (1979–95) (cumulative) Rank Country/region

Number of projects

Contractual FDI (US$ millions)

Actual FDI (US$ millions)

1 2 3 4 5 6 7

17,713 4,847 2,946 3,474 1,279 1,975 457

42,111 5,849 7,592 7,471 8,666 2,998 3,577

20,500 3,162 3,108 3,083 1,851 1,043 914

Hong Kong/Macao Taiwan Japan United States Singapore South Korea United Kingdom

Source: Compiled from data in Luo (1998: 12) and Huang (1998).

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It was not that overseas Chinese capitalists were overtly nationalistic, nostalgic or sentimental when it came to investing in China. Rather, they were in the best position to take advantage of the opportunities because of their ‘advantages’: they understood Chinese business practices and guanxi, and could utilize their shared ethnicity if necessary (Roehrig 1994: 91). Although business in China could operate without these three factors, it was argued that ‘outsiders’ would face greater obstacles and costs because of the distinctiveness of the Chinese economy: The problems that non-Chinese investors face have frequently been noted: the language barrier, the incompatibility of Western and Japanese management styles with Chinese practices, the distinctive bureaucratic organization of the workplace, the difficulties of hiring and firing workers and of eliminating inefficient work practices, low labour productivity, poor quality control, differences in negotiating practices and the long time-frame needed for their completion and most of all the lack of an established legal framework. (Lever-Tracy, Ip and Tracy 1996: 67) As such, to the Chinese, foreigners who were of ethnic Chinese descent, including those from Hong Kong, Taiwan and elsewhere in the world, would be considered as ‘insiders’ because of a presumed familiarity with Chinese business practices. This, therefore, meant that overseas Chinese capitalists had an advantage in China. In addition, it was assumed that overseas Chinese would have good inter-personal relationships with local Chinese economic agents due to cultural affinity. Overseas Chinese claimed to understand many of the so-called peculiarities of the system, including the importance of seniority (also known as hierarchy), ‘face-saving and face-giving’, consensus, goodwill and guanxi (see Bolt 2000). Guanxi refers to social and obligatory ties between parties (Hamilton 1997: 270–4). These ties could be established through real or fictive kinship, a shared ancestral village, lineage, or even a shared surname (see Douw 1999, Guthrie 1999). If such ties could be established, guanxi is believed to enhance reciprocity, credibility and trust (xinyong) between partners in the business sphere (Tong and Yong 1998: 84). The third factor – the shared ethnicity – is probably the most controversial concept, as it is riddled with contradiction. On the one hand, there is a perception that the Chinese – like most ‘rational’ human beings – would do business with anyone else regardless of ethnicity, so long as there was a profit

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to be made. On the other hand, there is a perception that the Chinese not only prefer to do business with other ethnic Chinese, but also dislike doing business with non-Chinese. Although this study is not directly interested in proving whether these traditional notions are still pervasive in the contemporary Chinese business sphere, it accepts that these notions are still perceived to be important by economic agents with an interest in the Chinese economy. Thus, many studies argued that these were the main reasons why overseas Chinese capitalists penetrated China’s markets more quickly than any other economic agents in the period between 1979 and 1990. Some studies also found that foreign industrial investors faced specific obstacles when entering China’s economy. China’s industrial infrastructure and administration were relatively backward as a result of its ‘underdevelopment’, which was mainly caused by the country’s self-exclusion from the world economy before 1979 (see Leung 1986). Also, the economy had ‘communist’ remnants from China’s planned economic system, including the ‘family register’ labour system, the collectivization programme and the large but dysfunctional bureaucracy (Wong 1998: 76–7). There were potentially conflicting management practices; local managers were reportedly either unfamiliar with so-called ‘western’ or ‘international’ managerial techniques, or reluctant to adapt to them (see Weldon and Jehn 1996, Hannan 1998). The second reason was the problem of corruption, where highly opportunistic individuals were hoping to take advantage of their positions for personal profit and gain from foreign investors (Kwong 1998). In the 1990s, the central government in Beijing began a high profile campaign to stamp out corruption, particularly economic corruption (Bo 2000). Simultaneously, the leadership began a series of measures to ‘professionalize’ local administrators. However, even by the end of the 1990s, corruption – particularly at the local and provincial level – was reportedly still commonplace (ibid.). To some industrial transnational corporations, the cultural differences and the problems of governance were not significant problems. Several such enterprises had previously penetrated even more ‘problematic’ markets, such as those in Africa or Central America. Therefore, these enterprises did not hesitate to invest in China immediately after 1979, as China was not only a potentially huge market but also had extremely competitive primary factors of production. There were, however, many other more cautious industrial transnational corporations that delayed investing in China because of these uncertainties and risks. These issues only compounded the other ‘usual obstacles’ that any foreign investors faced – including linguistic, cultural, legal and

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political – when investing in a ‘developing’ country. Finally, another factor was the geopolitical status of the state itself. As a world superpower – especially one that had its own nuclear weapons programme – the China government’s stance on issues such as sovereignty of Tibet and Taiwan, and a host of other military and strategic hotspots, constantly left the country in a position where trade and economic embargoes were commonly threatened. Yet, despite all these factors, profit-seeking capitalists still hoped to take advantage of the country’s potential market and attractive costs structures. By the mid-1980s, several industrial transnational corporations with large economic, political and social resources were willing to enter the Chinese market regardless of these risks and uncertainties. Others entered into joint ventures as a strategy to familiarize themselves with the Chinese business environment (see Nolan and Wang 1999, Roehrig 1994). By the late 1980s, the China government was fairly satisfied with the SEZ programme (see Chu 1986). It had initiated some developmental effects, especially in the expansion of employment opportunities, increasing worker income, and most importantly increasing the state’s foreign currency earnings in the country (Duckett 1998, Luo 1998). Also, the central China government in Beijing could reduce its financial subsidies to the regions now that tax revenues from foreign investments generated a substantial income for the local authorities. However, there were some negative social effects of the Special Economic Zones programme. These included the increasing income disparity in urban centres, uncontrolled urban sprawl, environmental degradation and the growing black market (see Leung 1986, Park 1997, Wu 1999). However, the China government pushed ahead with the programme, effectively increasing the country’s participation in the global industrial production system. In 1984, an additional 14 cities or towns were designated ‘Open Coastal City’ or ‘Open Coastal Economic Area’. In 1985, the Lower Yangtze Delta, the Pearl River Delta and the Xiamen-Zhangzhou-Quanzhou Triangle were designated as Coastal Economic Development Zones. In 1985, Hainan Island was designated the fifth, and last, official Special Economic Zone. At the beginning of the 1990s, the China government further intensified the programme with a ‘myriad’ of new zones all across the country (Yang 1997). This indicated that FDI was becoming more important within the country’s development strategy, even though it was fully aware of the potential negative social consequences. By 1995, there were 422 such zones in total (Yang 1997: 30). In a parallel development, Beijing began to encourage other forms of foreign investment

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from 1986 onwards with the passage of the Wholly Foreign Owned Enterprise Law, which allowed wholly foreign owned companies to invest and operate these zones (Huang 1998: 10). At the same time, greater volumes of FDI were pouring into China, sparking what came to be known as ‘China fever’ (The Economist 1 March 1997). With the Chinese economy experiencing double-digit growth rates, and with the government apparently intent on further opening the domestic economy to global capital, China’s investment potential was listed at very high. This was despite its poor secondary factors of production. It was at this stage that there appeared to be a convergence of ideas among several key leaders in the China and Singapore governments, especially on how to mutually benefit from foreign direct investment.

A meeting of minds The China government – especially its former Premier Deng Xiaoping – was an admirer of the Singapore government’s national economic development strategies (see Bolt 2000). Deng was especially interested in how the Singapore government was able to achieve rapid economic growth and industrial transformation but maintain its dominance in the social and political sphere (Wong 1999: 51). China’s leadership also was keen to learn from Singapore’s FDIoriented strategy: Many top CCP leaders hope that China will follow Singapore’s route to prosperity in which one party dominates politics (with token representation for other parties) but facilitates private enterprise and foreign investment. The system maintains order but spawns wealth. (Clemens 1999: 7) Singapore’s version of ‘authoritarian capitalism’ was perceived by Chinese leaders to produce low levels of crime, corruption and environmental pollution despite large-scale industrialization while power remained in the ‘centre’. In 1990, China’s Prime Minister Li Peng said: ‘We should learn from and draw upon the host of invaluable experience that the Singaporean people have accumulated in their nation-building’ (Beijing Review 20 August 1990). He further praised Singapore for maintaining its ‘oriental cultural heritage’ (ibid.). In 1992, Deng said: ‘We can inspire ourselves using the Singaporean social model and then do better’ (quoted in Bolt 1996: 93). As such, the Singapore government’s policies for providing public housing,

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education and social welfare were also highly regarded in China (Lee, L. T. 2001). In the other direction, several Singapore governmental leaders had long viewed China with great interest. While some might have had a cultural interest in forging closer ties with China – as the majority of the governmental leaders were of ethnic Chinese descent – others had economic and political motivations. Thus, China, to some Singapore government leaders, was simultaneously a pot of gold as well as a military threat (see Leifer 2000). The Singapore government, therefore, believed that constructive engagement with China could be both economically beneficial and could reduce the likelihood of political confrontation (Shee 1998: 340). Before 1980, the China government had been perceived as a ‘communist’ threat by the Singapore government. During Singapore’s pre-independence era, the China government was even accused of supporting the Malayan Communist Party, which had been trying to destabilise British Malaya and Singapore (see Turnbull 1990, Lee, T. H. 1996). The Singapore government also culturally distanced itself from China, as it was aware that Singapore’s geographic neighbours – namely Malaysia and Indonesia – were strongly against the formation of a ‘Third China’ within a Malay region, especially since twothirds of Singapore’s population were ethnic Chinese (Lee, L. T. 2001: 416). However, the Singapore government did not encourage ethnic Chinese Singaporeans to discard their ethnic identity; instead, ‘cultural preservation’ was encouraged through the government’s ‘multiracial’ ethnic policy (Vasil 2000). In other words, the state believed that an individual could have a strong ‘traditional’ ethnic identity – for example being culturally Chinese (or Indian or Malay) – while at the same time identifying with the nation (as a Singaporean) (see Hill and Lian 1995). In the national education system, all schoolchildren were required to learn English and a second language; this other language was not of one’s free choice but pre-determined by one’s ethnicity. Therefore, for ethnic Chinese schoolchildren, it was mandatory to study Mandarin. The government also promoted an annual ‘Speak Mandarin Campaign’. Although the Singapore government might not have adopted these policies to intentionally build bridges with Beijing, they laid the foundation for future cooperation. With the China government’s economic reforms after 1979, trade and bilateral state activities with the Singapore government intensified. The Chinese government had sent many delegations to Singapore to ‘study’ various aspects of Singapore’s development including industrial transformation, economic growth, the public housing programme, social welfare system (especially the use of the Central Provident Fund) and public

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administration (see Wong 1999). However, during the 1980s, the Singapore government was cautious not to send out the wrong signals to the governments of Indonesia and Malaysia. Instead, formal diplomatic relations with China were only established in October 1990, after Indonesia resumed official ties with Beijing in August 1990 (Lee, L. T. 2001: 416). It was noticeable that the first few official transactions between the Singapore and China governments were all in the economic sphere, involving several trade pacts and the formation of business association ties (Wong 1999). In the late 1980s, many Singaporean private enterprises wanted to invest in China to take advantage of its economic potential (see Tan 1992, Yeoh and Willis 1998, Yeung 2000). By 1990, several Singaporean companies – mostly small and medium sized enterprises owned by ethnic Chinese Singaporeans – had ventured into China (Yeoh and Willis 1998: 3). Like their counterparts from Hong Kong, Taiwan and Macau, these Singaporeans believed that they held an advantage in China because they were familiar with Chinese business practices, guanxi and shared ethnic ties (Yeoh and Willis 1998: 12). Already, throughout the 1970s and 1980s, there were several ethnic Chinese Singaporeans who had maintained kinship ties with their relatives in China. For some of them, these kinship ties served as the platform for business ventures, particularly in the southern China provinces of Fujian and Guangdong (ibid.). This perception of ‘cultural affinity’ was not only evident at the individual businessperson level, many leaders of the Singapore government also subscribed to it. For example, Singapore’s Senior Minister Lee Kuan Yew believed that ‘personal connections help overseas Chinese investors in China’: Networking is the natural thing to do . . . there is no need [for ethnic Chinese] to be apologetic about wanting to maximise benefits through each other’s contacts and access to opportunities. The Anglo-Saxons do it, the Jews do it, so do the Hindus and the Muslims. (Quoted in Far Eastern Economic Review 2 December 1993) In a similar vein, another senior leader of the Singapore government, George Yeo (Minister of Information and the Arts), reinforced Lee’s view: Many foreigners find the risks [of investing in China] unacceptable. Those who have knowledge of the culture and cultural

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On the other hand, there were several other leaders of the Singapore government who adopted a more ‘rational’ perspective for investing in China. According to Singapore’s Minister for Home Affairs, Wong Kan Seng: Singapore’s policy towards China is based only on the simple fact that China is a geopolitical reality. We must live with it and it is in our national interest to have good relations with China. It is also where the greatest economic opportunities lie. If we invest in China, it is because there is money to be made there. (Quoted in Bolt 1996: 85) It must be pointed out that in the early 1990s, one component of the Singapore government’s broader ‘regionalization’ strategy had distinctly ‘ethnic’ overtones. In the regionalization of Singaporean enterprises thrust, the Singapore government had encouraged Singaporean enterprises to take advantage of their existing cultural affinity within the region. It specifically encouraged enterprises which were formed by ethnic Malays to seek out investment opportunities in either Malaysia or Indonesia, while Indian Singaporean enterprises were encouraged to look towards India (Doran and Jose 1999: 9–10). Thus, it was no surprise that the Singapore government announced that China would be considered as a location for its ‘regionalization’ strategy, where the Singapore government not only offered financial assistance for interested firms to enter China but also announced that the regional industrial parks programme would be developed in selected cities in China (see Perry, Kong and Yeoh 1997). The news of the Singapore government’s intent was quickly picked up in China. According to Lee Kuan Yew, Singapore’s former Prime Minister and Senior Minister since 1990, several Chinese officials approached him and the Singapore government with proposals on how best to proceed with Singapore’s regional industrial parks in China as early as 1991 (Lee, K. Y. 2000: 172). At the same time, the Singapore government had given the Singapore Economic Development Board specific instructions to do detailed studies on the

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viability of Singaporean regional industrial parks in China, in addition to various other sites in Asia. As discussed in the previous chapter, economic agents would be motivated to collaborate if they perceived that they would achieve more by working together rather than separately. Thus, at the beginning of the 1990s, several key leaders within the China and Singapore governments believed that they would benefit more from collaborating rather than competing for foreign direct investment. In this sense, it could be argued that the FDI-oriented strategies of the two governments converged. Viewed from within the global industrial production system, the logic behind the inter-governmental collaboration was to add Singapore’s high-quality secondary factors of production to China’s abundant and low-cost primary factors of production. The aim was to combine China’s ‘Special Economic Zones’ programme with Singapore’s ‘regional industrial parks’ programme in a manner that would mutually benefit not just the two governments concerned, but also the industrial transnational corporations, which would be the main ‘market’ for such a project. According to Singapore’s Senior Minister Lee Kuan Yew: They [transnational corporations] believe that Singapore’s participation will ease their way into the unfamiliar surroundings in China, and will help them achieve conditions more like what they are familiar with in Singapore. (Quoted in Singapore Straits Times 29 September 1994) In addition, Singapore’s Prime Minister Goh Chok Tong even offered himself as the zone’s ‘chief salesman’ (Singapore Straits Times 12 September 1994). The China government welcomed the Singapore government’s interests in China, and signed a memorandum of understanding in 1991 to fully support a Singapore-developed industrial park in China. The China government had clearly recognized the benefits of collaboration: Westerners find it relatively easy to accept Singapore compared with China. And we find it easier to accept Singaporeans than Westerners. So Singapore stands right in the middle. (Li Juchuan SIPAC Official, quoted in Asia INC 1 March 1996) However, Lee made the Singapore government’s objectives about any industrial parks very clear:

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Convergence Let us be clear that when we help them (the Chinese), we are not doing it for charity. If it was of no advantage to us, we would not be doing it. (Lee Kuan Yew, quoted in Singapore Business Times 30 August 1995)

The ‘advantage’ was financial profit. Due to the relative success of attracting industrial transnational corporations to the Batam Industrial Park and Bintang Industrial Park in Indonesia, the Singapore government was confident that a Singaporean-developed zone in China would generate even greater demand. The China government would also benefit from such an estate. The local economy could benefit from the employment opportunities created and foreign currency earned through wages. The area would also benefit from urban development, as a new industrial estate would bring new public infrastructure (roads, water, sewerage and power), communications (roads and telecommunications) and other industrial facilities. Such a Singaporean-developed zone would not be a threat to the economic or political stability of the country as it could be incorporated within the China government’s own Special Economic Zones programme. Finally, from the China government’s perspective, by having such a park, it could ‘learn’ Singapore’s social and economic development strategies ‘first hand’. Thus, the project was intended to bring mutual benefit for all the collaborators, which were the Singapore government, the China government, and industrial transnational corporations. Therefore, at the beginning of the 1990s, the Singapore government had clearly resolved to develop Singaporean regional industrial parks in China. The only outstanding issues were concerning the location, configuration and the financing of the project.

Site selection The background to the Suzhou Industrial Park’s site selection process turned out to be very interesting. On the one hand, the strategy and logic adopted by Singaporean state officials and bureaucrats tasked to find a ‘suitable’ location for the project, clearly demonstrated the economic and geographic priorities involved. On the other hand, the process was also informed by key decisions, made by Singaporean Senior Minister Lee Kuan Yew, as the following sections will show. The first site selection process was undertaken by Singaporean state bureaucrats in 1992. The research managed to interview one

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such bureaucrat, who had personally been involved in the initial site selection, and who was then appointed as a senior project official stationed at the Suzhou Industrial Park in 1999. Another important informant was a senior manager employed by the CSSD in 1999; he was involved in one fact-finding mission in 1993. These informants were able to shed light on the logic and rationale behind the site selection process. In addition, the research spoke to several other state bureaucrats who were based in other cities, such as Shanghai, London and Singapore, who also contributed to the Singapore government’s site selection process. Based on these interviews, the Singapore government had given these bureaucrats a very clear ‘brief’ or set of objectives for the project: Our brief was to find the best place in China, which was not yet a Special Economic Zone, that multinationals would want to locate within. This logic was simple: by 1990, the best spots in China were already SEZs, for example in Shanghai, Guangdong, or Fujian. So we identified several potential places where we felt there were opportunities for agglomeration, which we knew would be very important to investors. Finally, we had to find a place where transportation links would be good. (SEDB Official, Singaporean citizen, male, aged 40–5, interview conducted in Suzhou, 1999) For firms, ‘agglomeration’ could be defined as being physically close to as many suppliers and customers as possible (Hayter 1997: 32). Agglomeration would not only reduce transportation and other costs, it had other benefits in terms of firms being able to network, share information and form informal associations. Thus, firms did not want to be geographically isolated, but clearly preferred to be in ‘dense’ locations. There were several such ‘dense’ areas in China, including Shanghai, which was not only China’s historic economic capital but, by the late 1980s, was becoming a ‘global economic superpower’ by itself (see Olds 1997, Yeung and Li 1999). The SEDB official who was interviewed acknowledged that locating either near or within Shanghai was very high on their list of possible locations: We could not ignore Shanghai. This was the hottest city in all of China. Shanghai has a population of over 13 million, an international airport and seaport, and the location of the first stock exchange market of the post-reform era. Shanghai is known as

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Convergence the ‘gateway into China’, it is a thriving financial and industrial zone, particularly with the emergence of Pudong.

According to this informant, several leaders of the Singapore government had suggested locating the project within the Shanghai’s Special Economic Zone, which was known as the Pudong New Area. It was reported that at the end of 1997, over a quarter of a million persons were employed in Pudong, and over 5,000 overseas-funded projects from 63 different countries with a total realized investment of US$25.69 billion from a pledged investment of US$34 billion were approved (Pudong New Area 1999: 34–5). Due to the Pudong New Area, Shanghai’s Gross Domestic Product grew tenfold from 1990 to 1997, with industrial activities accounting for over 50 per cent of the output. However, while Shanghai was an important consideration, it had several drawbacks when viewed from the Singapore government’s perspective. According to a senior manager of the CSSD: However, we had to report that Shanghai-Pudong was industrially ‘saturated’. This industrial saturation would only serve to eventually push costs upwards, through a combination of rising wages, land prices and service costs through competition. Also, if we located the project in Pudong, we probably would have to give up some autonomy to the Shanghai authorities. Basically, they have been historically very powerful in the overall political and economic hierarchy in China. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40, interview conducted in Suzhou, 1999) This view, which was corroborated by other Singaporean officials, demonstrated that the Singapore government was ‘wary’ of the existence of politically and economically powerful agents in China. Furthermore, Shanghai was also ‘ruled out’ for costs reasons, as it had one of highest property prices in China, along with Beijing and parts of Shenzhen in Guangdong province, according to the CSSD marketing manager. The Singaporean state bureaucrats interviewed in this research also reported that they studied possibilities in Jiangsu Province, which was in close proximity to Shanghai. By the 1990s, Jiangsu had grown to become one of the wealthiest provinces in China (Yang 1997: 32). As a province, only Guangdong, Fujian and Liaoning had higher average per capita GDP between 1979 and 1989 (Chen, Chang and Zhang 1995: 694). ‘Municipal cities’ such as Beijing, Tianjin and Shanghai

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were excluded from this economic survey. Jiangsu had an average Real Gross Domestic Product growth rate of over 12 per cent between 1978 and 1996. Jiangsu’s ‘level’ of human resource supply was also one of the highest in China, promising the availability of highly skilled persons. Its per capita net income of residents was 50 per cent higher than the Chinese average; also, Jiangsu had almost three times more medical graduates and college students (per 10,000 of population) than the Chinese average (Wei 2000: 153). Therefore, the Singaporean fact-finding team proposed Suzhou because it was, according to the SEDB officer, ‘prosperous but not industrial’. The city’s earlier wealth came from tourism and its silk production. Suzhou’s history goes back 2,500 years. Long known to Chinese as the ‘city of gardens’, because of its scenic canals, it was also known as the ‘Venice of the East’ after Marco Polo visited the town in the fifteenth century. The city’s historic gardens were designated as a United Nation’s UNESCO World Heritage Site. The town is criss-crossed by a network of rivers and canals linked with the many lakes and ponds. There are 175 bridges over these waterways within the 14 square kilometres area of the historic city. Suzhou also had good transportation and logistic links, located along the highly developed Nanjing–Shanghai railway line and the Nanjing–Shanghai motorway (Highway 312). In addition, only 15 kilometres away was the Changshu Port, which had direct links with Shanghai Port further down the Yangtze River. However, Suzhou was recommended because it was not saturated with foreign investment or heavy industrial activity. According to the SEDB official interviewed: We looked at sites in Shandong province, which was the next province to the north. They have several Economic Development Zones and there are many Japanese and Korean companies there. But if there were too many foreign players there, our advantage would be reduced. For those reasons, we immediately ruled out the southern provinces of Guangdong, Fujian and Hainan Island because of their concentration of investments from Hong Kong, Taiwan and Macau. Beijing would like more investments in the northernmost provinces of Liaoning and Hebei, but we projected that these areas would be considered too remote. Then there was, of course, Beijing and the next satellite town of Tianjin. But we ruled it out along with Shanghai because of its very high costs structures.

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This respondent also indicated that the Singapore government preferred to operate outside highly developed urban metropoles because it sought some degree of autonomy in implementing its plans. Not only were Beijing and Shanghai already very built-up, both cities already had strong local business, urban and industrial elites (see Pearson 1997). Suzhou, on the other hand was mainly a tourist destination. As explained by the SEDB official: At first, we thought that if we chose Suzhou, and were successful here, there would be the potential for participating in developing the tourism opportunities. Opportunities for Singaporean companies to come and help develop the tourism industry. In 1991 and 1992, the Singaporean fact-finding missions also covered many cities across China. Another potential location was the city of Wuxi, also within the Jiangsu Province. It was also located along the Nanjing–Shanghai Highway, and was the second largest city in the province. Wuxi was still relatively close to Shanghai, as it was less than two hours away by train. This city was, significantly, much larger than Suzhou, and already had much more industrial output, as it was a location for many Chinese state-owned industrial enterprises. It was awarded Economic Development Zone status in 1990, and had begun to market itself to foreign investors. Interestingly, Nanjing – the capital of Jiangsu Province – was never seriously considered. According to the informants, it was not only too far from Shanghai, it was also rather ‘industrially saturated’. However, despite the logic and rationale given for the zone’s location, this research found that Singapore’s Senior Minister Lee Kuan Yew also exerted some influence in the project’s eventual location. In the year 2000, Lee published the second volume of his memoirs. In one of the chapters, he describes in detail his involvement in the Suzhou Industrial Park’s eventual location. The publication would prove interesting, as it contained information that even senior officials of the CSSD or the Singapore Economic Development Board were not aware of. Lee wrote that in September 1992, he was on an official visit to China, which included a stopover in Suzhou. Accompanying him was the then Deputy Prime Minister Ong Teng Cheong, who was an architect by profession. Lee recounted that the then Suzhou Mayor Zhang Xinsheng proposed that the Singapore government select Suzhou as the site for the regional industrial parks project. Zhang further guaranteed that the Singapore government would receive ‘special treatment’ in Suzhou (Lee, K. Y. 2000: 172–3). Lee, in his own

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words, gave the proposal no further thought, until Zhang reported that Deng Pufang – Premier Deng Xiaoping’s son – would support such a project in Suzhou. Lee then asked Ong Teng Cheong to design not only an industrial estate in Suzhou, but also to ‘modernize’ Suzhou’s ancient monuments and canals. In this sense, Suzhou had emerged as a strong contender as the potential site for the Singapore government’s regional industrial parks project mainly because of Lee’s interventions. Even after his ‘retirement’ as Singapore’s Prime Minister, Lee was still the most powerful political figure within the Singapore government. It was thus fairly obvious that his opinion, not only on the site of the Singapore government’s regional industrial park but on any issue, would be taken seriously within Singapore. However, it is important to note that his rationale for situating the project in Suzhou was not on a whim or fancy. What really shifted the balance in favour of Suzhou was the support of Deng Xiaoping’s son and, by association, Deng himself. In this sense, Lee was keenly aware that any such project must have the strong backing of the central government in Beijing. Lee further wrote that in the following year, 1993, he approached China’s Vice Premier Zhu Rongji with a proposal for such a project: I explain my proposal for cooperation: a government-togovernment technical assistance agreement to transfer our knowledge and experience (what we called ‘software’) in attracting investments and building industrial estates, complete with housing and commercial centres, to an unbuilt site of about 100 square kilometres in Suzhou. (Lee, K. Y. 2000: 174) Therefore, Lee wanted the Singaporean-developed regional industrial park in Suzhou to be specifically geared towards having a Singaporean operating system. Also, Lee wanted the project to be undertaken at the ‘government-to-government’ level; more specifically, the project would directly involve the leaders from the uppermost levels of both governments. The data would seem to indicate that Lee did not unilaterally select Suzhou as the site for the Singapore government’s regional industrial park project; instead, his view was one of several views collected by the Singapore government concerning the location of the project. As suggested in the previous section, Suzhou itself was already a strong contender, based on its geographic and intrinsic advantages; however, bearing in mind Lee’s personal interest in the

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project as well as his political status within the Singapore government, it could be argued that Suzhou thus emerged as the unanimous choice. In 1994, after several months of ‘behind the scenes’ preparation, the two governments called for a press conference in Suzhou that made two important announcements: first, Suzhou would be the location for the ‘government-to-government’ collaboration to develop a Singapore–China regional industrial park cum Special Economic Zone. Second, a second Singaporean regional industrial park would be developed in the nearby city of Wuxi, without the top level ‘government-to-government’ collaboration (Singapore Straits Times 15 September 1994). After Suzhou city had been selected as the inter-governmental collaborative project, there was one other task for the Singaporean fact-finding missions: to find a site within Suzhou to house the zone. Suzhou was not a physically large city; its city centre and commercial district – which also encompassed nearly 80 per cent of its historically significant heritage sites – was no larger than five square kilometres. To the west of Suzhou city, the Suzhou New District (SND) was already in operation. This area, which came under the jurisdiction of the Suzhou Municipal Authority, was originally intended as a ‘relief’ industrial site. The Suzhou Municipal Authority, keen to preserve the city’s historic sites, developed the SND as an intentional strategy to move out all the small industrial enterprises, which were causing congestion and pollution in the Suzhou city centre. The Authority also applied for, and was awarded, the status of an Economic Development Zone in 1990. By 1992, the SND was already ten square kilometres in size. This research found that the Suzhou Municipal Authority had offered the SND to the Singaporean fact-finding missions as a potential site for the inter-governmental project. However, the offer was rejected: We proposed that the Suzhou Industrial Park project should be built from a clean slate. The SND area was already built up, and if we were to develop either within or beside it, there would come a time when we would run out of space, clash with them, or face other restrictions in terms of space. We noticed that the north and east of Suzhou city centre was mainly farmland – and not very productive ones at that – so we decided on the eastern ‘wing’ of Suzhou. The south of Suzhou city was actually another important historic area, the Wu kingdom, so it would not be feasible to develop there. Anyway, the east of Suzhou was probably the most

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perfect place, as it was physically closer to Shanghai. That would mean that freight that was coming from Shanghai’s ports would not need to cut through the old city centre. (CSSD Marketing Manager, Singaporean citizen, aged 35–40)

Mutual benefit The national economic development strategies of the Singapore and China governments ultimately converged with the agreement that Suzhou would be the site of the Singapore–China ‘regional industrial park’ cum ‘Special Economic Zone’. The project would take the form of a ‘government-to-government’ collaboration. Viewed from within the perspectives of this book, although both governments might have been competitors for FDI in the recent past, the project represented a form of inter-governmental collaboration to attract FDI within the global industrial production system. As suggested earlier, partners would only agree to enter a collaborative venture when the projected returns are (significantly) more than the returns from separate ventures. The goals or the objectives for the collaborating partners need not be exactly the same; they just need to be mutually beneficial. Thus, while the China government was hoping that the collaborative project would further development in a particular city in China, the Singapore government hoped that the project would generate a financial profit that would eventually supplement Singapore’s domestic economy. Finally, it was also clear that the collaboration was underscored with a perception from both partners that there was a sense of ‘cultural affinity’. Therefore, even though there were strong business and economically rational reasons to enter into this collaboration, the perceived sense of a shared ethnicity and cultural practices among both governments cemented their decision to collaborate.

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Construction

The Suzhou Industrial Park was designed to attract foreign direct investment (FDI). However, as there was already strong competition for FDI within China, the China and Singapore governments had to collaborate closely to enhance the competitiveness of the Suzhou Industrial Park. This chapter will describe the measures implemented, which include the zone’s formal organizations and structures, the zone’s ‘hardware’ and ‘software transfer programme’.

Formal organizations The two most important formal institutions and organizations within the Suzhou Industrial Park collaborative project were the China– Singapore Suzhou Development (CSSD) Company and the Suzhou Industrial Park Administrative Committee (SIPAC). The former was the zone’s main infrastructure developer and marketing agency, while the latter served as the estate’s local government. CSSD The China–Singapore Suzhou Development (CSSD) Company was officially registered as a foreign–Sino joint equity venture, where a Singaporean consortium owned 65 per cent of the company’s shares, and a Chinese consortium held the remainder. The Singaporean consortium – known as the Singapore Suzhou Township Development (SSTD) – was made up of 24 shareholder companies, which included publicly listed companies in Singapore, and companies from the United States, Japan, Korea and the Netherlands. The Chinese consortium – known as the China Suzhou Industrial Park Company (CSIPC) – was formed from 12 shareholder companies, including representatives from Suzhou city, Jiangsu Province and

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Table 3.1 The shareholders of the Suzhou Industrial Park SSTD: foreign shareholders of CSSD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

CSIPC: Chinese shareholders of CSSD

1 Jiangsu International Trust and CDL-Suzhou Investment Investment Corp. Centerpoint Properties Ltd 2 SIP Economic Development EDB Investments Co. Ltd GE Capital Services 3 China National Cereals, Oils and Hong Lim Investments Foodstuffs Import and Export Hua Ye Holdings Corp. Huaten Investment and 4 China Ocean Shipping (Group) Development Co. JTC International Pte Ltd 5 China Huaneng Group Keppel Corporations Ltd 6 China Agriculture Bank Finance Keppel Land Co. Ltd KMP China Investments Liang Court Suzhou Investment 7 China National Chemicals Import and Export Corp. Lum Chang (Suzhou) 8 China National Technical Import Investment and Export Corp. Mi-Mi Investment Singapore 9 China Energy Conservation NTUC Cooperatives Suzhou Corp. Investments Pte Ltd 10 China Central Television RMA Land Development 11 Bank of China Trust and Rodamco China B.V. Consultancy Co. Samsung Corporation 12 China Great Wall Industry Corp. Sembawang Resources Ltd Shing Kwan Investment SLF International STIC Investment Sum Cheong (China) Wing Tai Holdings

Source: CSSD (1999: 5).

nine state-owned enterprises that reported directly to the Central Government (see Table 3.1). In 1994, it was reported that each of the shareholders had invested US$2.25 million, raising about US$80 million in capital (Singapore Business Times 27 January 1996). In addition, the CSSD had secured a loan of US$100 million from international banks (China Business Information Network 7 December 1995) and around US$30 million from various other financial institutions in China. The CSSD reported that it would use these funds for infrastructural development, operations and marketing costs (China Business Information Network 9 April 1996). The CSSD had two main offices; the main headquarters was in Suzhou – by the banks of Jinji Lake, which was

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within the Suzhou Industrial Park boundary – and the subsidiary office in Singapore. Although the Singaporean consortium was essentially a commercial entity, it was directed by the Singapore government. According to the Singapore Economic Development Board officer interviewed in the research, the consortium was formed when the Singapore government and the Singapore Economic Development Board approached all of the companies, assuring them that the Singapore government would be ‘personally’ directing the project. Also, between 1994 and 2001, it intentionally appointed senior members of the Singapore government or state bureaucrats as the CSSD’s Chief Executive Officers. For example, the CSSD’s first Chairman was Lim Chee Onn, who was not only the Chairman of Keppel (a Singapore government-linked corporation), he was also a member of parliament. Between 1994 and 1996, CSSD’s Chief Executive Officer was Singapore’s Parliamentary Secretary Chan Soo Sen. He was replaced in 1996 by David Lim, who was both a member of parliament and the CEO of the Port Authority of Singapore. In 1998, Lim Neo Chian, Chairman of the Jurong Town Corporation, another Singapore government-linked corporation, assumed the position of CEO of CSSD. By appointing senior members of the Singapore government or senior state bureaucrats, the Singapore government wanted to overtly demonstrate to potential investors that the Suzhou Industrial Park was a ‘national’ project. Furthermore, this strategy ensured that a member of the Singapore government was physically present in the zone between 1994 and 1999. At the Suzhou office in 1999, the CSSD employed 40 staff, of which 15 were Singaporean nationals. The remainder were Chinese nationals. The CSSD consisted of several departments, including the engineering department, the marketing department, and the investment department. Between 1994 and 1999, the heads of these departments were all Singaporeans. These Singaporeans were not Singaporean government officials; instead, they were employed after an open recruitment process in Singapore. However, this research found that nearly all the Singaporean department managers had prior relevant experience; several used to be employed by the Jurong Town Corporation, which was directly responsible for developing Singapore’s industrial estates, while there were a couple of other managers who used to work for either the Singapore Economic Development Board or the Singapore Trade Development Board. In 1994, the Suzhou Industrial Park began with the development of Phase One, which was eight square kilometres in size. The CSSD officially ‘bought the lease for the land’ from SIPAC at a rate set

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by the central government in Beijing. The engineering department began work immediately, clearing the land and installing the infrastructure. The marketing department sent sales teams to selected cities in Europe (London, Frankfurt and Paris) and North America (New York, Chicago and San Francisco) as well as Hong Kong and Tokyo. As mentioned earlier, the CSSD also had a branch office in Singapore, which was responsible for targeting tenants from the Southeast Asia region. The CSSD’s primary ‘targets’ were the established industrial transnational corporations, which had their main or regional headquarters in one of these cities. It was equally obvious that domestic ‘Chinese’ enterprises – regardless of their size and scope – were excluded from the ‘search’. The reason given by the CSSD official interviewed was: Chinese enterprises did not fit our tenant profile. The SIP was designed to attract FDI. Getting Chinese enterprises would not constitute FDI. In any case, these enterprises could locate elsewhere, which was probably more suited for them in terms of price and infrastructure needs. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) This research found that the CSSD’s management culture was carefully organized to reflect its ‘international outlook’, according to the CSSD Marketing Manager, rather than appearing as a typically Chinese organization. When asked to elaborate, he said: Because we deal with international clients, like multinational corporations, we must adopt an international outlook. At the CSSD, all our staff – from our clerks to our top managers – must be equally conversant in English and Chinese. We also established a language management section, where we have a small team of language translators, including a woman who is the Japanese, English and Mandarin translator, and several others who are English and Mandarin translators. The CSSD was central to the Suzhou Industrial Park because it was the main marketing arm, which would have initial contact with potential tenants. By having Singaporean nationals heading all the departments, the Singapore government was intentionally taking advantage of the country’s experience in dealing with industrial transnational corporations. More importantly, it appeared that the CSSD

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intentionally sought to portray itself as being distinctively ‘Singaporean’ in character; this was achieved through having the Singapore government closely involved in the organization, and adopting socalled ‘international management’ practices, as well as having experienced Singaporean managers heading the various departments. As suggested in the previous chapter, the Singapore government and Singaporean bureaucrats were generally viewed by industrial transnational corporations as being highly trustworthy and credible, with this reputation earned during Singapore’s industrialization between 1965 and 1980. In comparison, it believed that local Chinese administrators of Special Economic Zones were inexperienced and inefficient, especially when dealing with foreign investors. Therefore, as a strategy, the CSSD hoped to emphasize its ‘Singaporean-ness’ as a competitive advantage to attract potential investors to the Suzhou Industrial Park. SIPAC In the inter-governmental collaboration, the other important organization was the Suzhou Industrial Park Administrative Committee. It was the local administrative authority, not just for the Suzhou Industrial Park’s 70 square kilometres, but also the area immediately surrounding the zone. Thus, it administered a total of 128 square kilometres, which was east of Suzhou old city (historic centre). It differed from other local authorities in charge of a Special Economic Zone or an Economic Development Zone in that it did not have to oversee the estate’s development and marketing; this task was the responsibility of the CSSD. SIPAC therefore concentrated on ‘natural resources regulation, administrative approval, pro-business services and coordination with related government departments or agencies at various levels’ (CSSD 1999: 3). Industrial transnational corporations that established operations within the zone would have to deal with SIPAC when they applied for a business licence, they submitted building or renovation plans, needed approval before starting operations in their factories, and most regularly, paid their taxes. In addition, SIPAC was tasked to manage and regulate human resources at the estate. It also administered services such as the selling of leasehold rights of the land under its jurisdiction, approving investment projects, the planning and regulation of the usage of land and natural resources, construction, traffic growth and environmental protection of its designated area (CSSD 1999: 6). Officials and employees of SIPAC were appointed by the Provincial Council, whose office was in Nanjing, the capital of Jiangsu Province.

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In the inter-governmental collaborative agreement, SIPAC was the main agency that would undergo the Singapore government’s software transfer programme. More specifically, training would be provided in various aspects of industrial administration. While the programme will be discussed in detail below, it is important at this stage to point out that SIPAC was an extremely important organization as far as the collaborating governments were concerned. To the China government, the software transfer programme functioned as an experiment to see if the so-called ‘Singaporean operating system’ – which was perceived to be a form of authoritarian capitalism that had industrial efficiency – was suitable as an alternative developmental path for China. If SIPAC was able to absorb and adapt the Singaporean operating system effectively, and if the system brought developmental benefits for the Suzhou Industrial Park zone, then the system could be implemented in other areas of China. As discussed in the previous chapter, the Beijing leadership preferred China to operate under the Singaporean system rather than under a totally ‘free market’ capitalist system, which was perceived to incur tremendous social and political costs for the country. To the Singapore government, SIPAC was equally important as it hoped that the organization would absorb the software transfer effectively and distinguish itself from other local Chinese authorities that administered the SEZs and other economic zones by being more efficient and effective. Thus, the collaborating governments hoped that SIPAC would also become a critical competitive advantage for the Suzhou Industrial Park. This was articulated by both governments as follows: What we need is to train a team of people who will master international economic management, gather practical experience and have creativity and a pragmatic attitude. (Yang Xiaotong, Vice-Governor of Jiangsu, quoted in Singapore Straits Times 5 December 1994) We have two sets of people looking after the baby, one used to looking after the baby in the Chinese way and the other in the Singapore way. And we are trying to teach them how to handle the baby in the Singapore way. (Goh Chok Tong, Prime Minister of Singapore, quoted in Financial Times (UK) 27 May 1997) SIPAC officials were recruited from a nation-wide search. This was fairly uncommon in China, as employment for most organizations

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tended to be local in focus. The collaborating governments wanted SIPAC to be staffed by the most highly qualified persons possible. In order to achieve this, the average remuneration for SIPAC officials was reportedly higher than for most other local authority employees. There were administrative officers who were natives of Nanjing and Wuxi in the Jiangsu region, Shanghai and several others from northern provinces, including two from Beijing and one from Hebei. As such, it was interesting to note that very few of the SIPAC officials could speak or understand the local Suzhou dialect. Even though many of these officials had not worked in the civil service or government previously, all of them were academically highly qualified; all of them had university degrees, with several of them holding postgraduate qualifications. It was also interesting that on the SIPAC website, there was a section that not only highlighted the academic qualifications of the officials, it stressed that their average age was just under 35 years (http://www.sipac.gov.cn). The objective of this assertion could be interpreted as attempting to highlight another competitive advantage, indicating that the Suzhou Industrial Park’s local authority was not staffed by aging former Communist Party cadres but by the new generation of enthusiastic, bright and talented officials. However, it was also possible that SIPAC staffed itself with younger personnel because they had to undergo the software transfer. As one Singapore government official, who was directly involved in the software transfer programme, remarked: It might have been difficult to teach old dogs new tricks. I suspect SIPAC wanted fresh, impressionable and highly ambitious Chinese men and women, simply because they were hungry to learn. After all, this could be an opportunity to make a name for themselves, not just in the government circles, but in the future, maybe some could be very attractive to foreign companies, who might want to employ someone that had direct experience of working within the government. (SEDB official, Singaporean citizen, male, aged 40–5) Government-to-government collaboration The other major structure, which incorporated several organizations, was the collaborative project’s ‘governance system’. In the inter-governmental agreement, the Suzhou Industrial Park would be overseen by the Joint Working Committee, which was co-chaired

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by the Suzhou Mayor and the Chairman of the Singapore Economic Development Board. This Working Committee answered to the Joint Steering Council, which was co-chaired by China’s Vice President Li Lanqing and Singapore’s Deputy Prime Minister Lee Hsien Loong, Lee Kuan Yew’s son. By having Singapore’s Deputy Prime Minister and China’s Vice Premier sitting on the Joint Steering Committee, the Suzhou Industrial Park’s level of national importance was made evident to investors. Also on the Council were ministers, vice ministers and senior bureaucrats from key ministries from both countries. Representing China were ministers and bureaucrats from the State Planning Commission, the SEZ Office, the State Economic and Trade Commission, the Ministry of Finance, the MOFTEC, the People’s Bank of China and the State Taxation Bureau. From the Singaporean side, ministers and bureaucrats from the Ministry of Trade and Industry, Ministry of National Development, the Ministry of Environment, the Ministry of Foreign Affairs and the Economic Development Board were represented (CSSD 1999: 12). The Joint Working Committee would meet four times a year, while the Joint Steering Council would meet annually if there were no extra-ordinary calls for meetings. These organizations served several purposes: first, they were structures of accountability and governance. This meant that CSSD and SIPAC had to report to the Council and the Working Committee, ensuring that performance targets were achieved. Second, these organizations served to demonstrate the close collaboration between the two governments. As such, the two governments hoped that industrial transnational corporations would perceive that the political risks of locating in the Suzhou Industrial Park were reduced. Finally, by appointing important government officials from both countries onto these organizations, it was a symbolic gesture demonstrating that the Suzhou Industrial Park had top-level government-to-government support. Again, the aim was to create competitive advantages to distinguish the zone from other industrial estates in China. In comparison, while local city mayors and provincial party leaders might be on the boards of other Special Economic Zones, none of them could boast of such national level support. Even for the other Singaporean regional industrial park in China, the Wuxi Industrial Park, the board was filled by a senior manager from the Singapore government-linked corporation managing the project, several city authority officials and one provincial official.

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Infrastructural advantages As discussed in the previous chapter, the collaborating governments were confident that the Suzhou Industrial Park could be competitive within the Chinese segment of the global industrial production system if it could provide high-quality secondary factors of production. China generally lacked high-quality industrial infrastructure, particularly in the many Special Economic Zones. Many had poor quality of water and sewerage systems, as well as an unreliable power supply (Leung 1986: 2–3). It was believed that the Singapore government could assist the Suzhou Industrial Park in developing ‘international standard’ or ‘world class’ infrastructure. The collaborating governments were confident that this would be eagerly sought after by industrial transnational corporations. Industrial infrastructure referred not only to the mortar and bricks that went into building factories, but it referred to every aspect of the Suzhou Industrial Park’s ‘hardware’. According to a CSSD official that was interviewed: Infrastructure, or ‘hardware’ as we call it here, includes everything ‘solid’ – the factories, roads, power cables, water pipes, sewage system, and even the trees along the roads. That was what we were tasked to develop. So when this place had to be ‘world class’, even the trees and the shrubs had to be ‘world class’. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) The CSSD proceeded to build utility plants specifically for the Suzhou Industrial Park. The power and electricity supply was to be supplied from the Suzhou Industrial Park’s own 1,200 megawatt diesel-fired Huaneng power plant at Taicang, located 20 kilometres away (CSSD 1999: 18). The Taicang plant was projected to be completed only in the year 2000. Thus, between 1994 and 1999, power was supplied from the national grid emanating from the Huaneng plant (CSSD 1999: 61). The Suzhou Industrial Park’s water treatment plant sourced its raw water from Lake Tai (80 kilometres away) and would supply 150,000 cubic metres of water per day initially (for Phase One of the park). The capacity could be increased to 600,000 cubic metres when the park expanded. According to the CSSD: This water works treats water better than Chinese and WHO 1993 potable water standard. Thus there is no need to install filtration devices if the water standards meet user requirements. (CSSD 1999: 66)

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The Lake Tai Water Treatment Plant became operational in 1998. In an interesting move, the CSSD published its ‘treated water standards’, essentially making a pledge on the minimum required levels for the quality of the water. For example, it outlined thresholds for levels of alkalinity, chloride, nitrates, iron, lead, copper and DDT (CSSD 1999: 68). This was a clear strategy to assure potential investors of the park’s water quality standards. The CSSD also built a sewage treatment plant and a toxic waste treatment centre for the zone’s exclusive use. As another means of demonstrating that these facilities would be of high quality, the CSSD awarded the development contracts to either Singaporean companies (including state-owned and governmentlinked companies) or Singaporean joint ventures with other transnational corporations. For example, Township Construction, which was awarded a US$10 million contract to begin development of the first two square kilometres in Suzhou, was a joint venture between Keppel Integrated Engineering (KIE), a Singapore government-linked company, Lum Chang and Sum Cheong, both private Singaporean companies which had previously undertaken Singapore government projects (Singapore Straits Times 18 August 1994). Similarly, gas supplies at the Suzhou Industrial Park came from a joint venture between Shell (a transnational corporation), Keppel Integrated Engineering, and the SIP Economic Development Company. Steam was also supplied by Keppel, which built the Keppel Steam Plant within the Suzhou Industrial Park. The only utility that was not unique to the zone was telecommunications, which was supplied by the Suzhou Post and Telecommunications Bureau. However, the main competitive advantage of the Suzhou Industrial Park was the actual industrial infrastructure, which referred to the land and factories. By 1999, the CSSD reported that it had spent over US$500 million preparing the land and other infrastructure. This sum was deemed to be ‘very high’ by several of the officials interviewed. The logic behind this high expenditure was explained by a CSSD official as follows: It is not often that these architects, planners and engineers have a totally blank canvas to work from; but given this opportunity, we wanted to design the most accessible industrial park for the investors. It all boils down to ensuring that we design something that somebody would want to buy! So in order to be world-class, we spare no expense to build the best infrastructure possible. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40)

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The CSSD architects and engineers were also given a mandate to ensure that the design of the zone was highly ‘ordered’ and ‘rational’. With that in mind, the planners decided to build Phase One of the zone in the form of a ‘grid’, with a central strip dedicated as a ‘town centre’, which would house a shopping centre, a school, several residential projects and a commercial centre. Allowances were made for the four canals that ran through the estate, but in general, all the industrial properties were well-spaced and the planners intentionally wanted each stand-alone plot to have a small patch of surrounding grass fields. The CSSD prepared plots of industrial land of various sizes (minimum 0.5 hectares), all serviced by roads and utilities. The first 8 square kilometres (Phase One) was land-filled to more than 2.626 metres above the Yellow River level (CSSD 1999: 18). This height was chosen because it was believed to be higher than the worst flood recorded in Suzhou. According to the SEDB officer stationed in Suzhou: What we have done is to install the most modern and most effective structures, communications, and technologies to this area. On the south side, Xinsu has built its own estate within the estate, mostly with ready-built factories. On the north side, we have prepared and treated the land, provided the connecting roads, power, communications, sewage and water links. For investors, it is almost plug and play [a term referring to immediately being able to start operations by just putting the plug into the socket]. (SEDB Official, Singaporean citizen, male, aged 40–5) The CSSD also introduced laws, restrictions and controls over what could be installed by tenants. For example, there was an investment criterion for the Suzhou Industrial Park that stated that a minimum investment of US$200 per square metre on the Gross Floor Area was required to ensure an adequate standard of factory buildings in the park. Also, even though Suzhou is not in an earthquake zone, all buildings were still required to be built to sustain an earthquake intensity of magnitude ‘six’ on the Richter scale (CSSD 1999: 20). In addition, investors were required to comply with all of CSSD’s planning, safety, environmental and other regulatory controls, some of which were standardized for all of China. The objective of these controls was to ensure that the infrastructure in the Suzhou Industrial Park would be of the highest quality. According to an official of the CSSD:

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One other important component of the Suzhou Industrial Park was the ready-built factories (RBF). These RBFs were projected to enhance the competitiveness of the Suzhou Industrial Park. This was not only because they relieved tenants of the need to spend time and money building their own factories, since they were developed by the Singapore government, they were believed to be of a superior quality as well. The organization ‘assigned’ to develop RBFs in Suzhou was the Jurong Town Corporation International (JTCI). The Jurong Town Corporation was the primary developer of industrial estates in Singapore since 1965. In the 1990s, it established a ‘regional’ commercial wing, known as JTC International, hoping to engage in industrial property projects within the emerging Asia Pacific Region. JTCI was also involved in developing and managing several other Singaporean regional industrial parks. In Suzhou, after there was a formal open tender, JTCI was given the contract to develop a cluster of RBFs in the southern section of Phase One of the Suzhou Industrial Park. JTCI established an office in Suzhou, known as Xinsu Industrial Development (Suzhou) Company Limited. Xinsu is an amalgamation of Singapore (Xin) – Singapore in hanyu pinyin is Xin Jia Po – and Suzhou (su). For the Xinsu industrial estate (the designated RBF cluster), Xinsu sub-leased the land from CSSD in a commercial transaction, after which it developed ready-built factories of several different specifications. This included stand-alone units or units in multi-storey complexes. According to Xinsu: At the heart of the vibrant China–Singapore Suzhou Industrial Park is a series of ready-built factories owned, developed and managed by the Xinsu Industrial Development (Suzhou) Co. Ltd. Modelled after Singapore’s successful industrial estates, Xinsu’s factories offer international manufacturers the advantage of easy entry into the dynamic Chinese market, or to tap China’s vast resources to reach world markets. World-class ready built factories, complete with the vital infrastructure and services, minimise hassles at start-ups, allowing investors to devote their full efforts to building their business. (Xinsu 1999: 1)

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At the Suzhou Industrial Park, tenants could sub-lease RBF units for a minimum of three years, or buy the leasehold from Xinsu. With the availability of RBFs, investors had the possibility of a quick start-up, only undertaking minor renovations to customize the RBFs to suit their operations. RBFs also allowed certain investors the flexibility to ‘test the water’ with a small initial operation in Suzhou. Should these operations turn out to be successful, these enterprises could expand into a larger unit or choose to develop their own factories. With the relatively short minimum sub-lease, and with the RBFs’ relatively low set-up and renovation costs, should an industrial transnational corporation decide not to extend its stay in Suzhou, withdrawal costs would be significantly lower than if the company had built its own factory. By 1999, Xinsu’s RBFs occupied 13.7 hectares of the total eight square kilometres at the Suzhou Industrial Park, which translated into about 25 per cent of the overall area. This was fairly significant, considering the ‘town centre’ accounted for 30 per cent of Phase One. Although the provision of high-quality infrastructure was aimed at attracting industrial transnational corporations to the Suzhou Industrial Park, it made the zone more expensive to industrial transnational corporations when compared to many other industrial estates in China. Still, the collaborating governments believed that the zone’s overall costs would still be lower than in ‘developed’ industrial areas such as Hong Kong, Taiwan, Singapore or South Korea. In addition, with investor interest in China at an all time high – this was the period of ‘China Fever’ (The Economist 1 March 1997) – the two governments were confident that industrial transnational corporations would be willing to pay a premium for better quality infrastructure.

Institutional advantages According to a report in the Singapore Straits Times 15 September 1994, there was a banner at the entrance of the Suzhou Industrial Park, which read: Learn from Singapore’s experience, build a Singapore standard industrial park. (Reported in Singapore Straits Times 15 September 1994) This banner referred to perhaps the most important aspect of the Suzhou Industrial Park project: the ‘software transfer’ programme. This programme was designed to give the estate a uniquely ‘Singaporean operating system’ in China. To many industrial transnational

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corporations, despite China’s cheap primary factors of production, investing in China was viewed as highly risk-laden because of the country’s lack of effective secondary factors of production. More specifically, China had a weak governance system, lacked formal legal institutions and there was a prevalence of ‘grey’ institutions (Wong 1999: 55). Economic agents could overcome these weak governance structures by utilizing informal institutions such as Chinese business practices or guanxi (see Hamilton 1997). However, the Singapore government was confident that many industrial transnational corporations did not want to (or did not know how to) play this ‘game’. Instead, these enterprises preferred to operate within institutions that were developed by the Singapore government for the Suzhou Industrial Park. ‘Institutions’, could be defined as ‘the rules of the game, some formal others informal’ (North 1990: 1). The main role of institutions is governance, outlining how things should be done, both formally and informally. In this sense, the collaborating governments wanted the Suzhou Industrial Park to be governed or administered differently from other Special Economic Zones in China. It needs to be reiterated that the Suzhou Industrial Park was not allowed by law to offer different economic policy incentives from other Chinese Special Economic Zones. However, the administration and governance of these policies could be implemented differently. Thus, the inter-governmental collaboration hoped that by implementing a Singaporean operating system, investors would be assured that there would be a stable and predictable operating environment for investors to locate in the Suzhou Industrial Park, eliminating uncertainties and risks. This would be achieved through the software transfer by the Singapore government to SIPAC, which was the main administrator of the zone. The programme’s ‘official’ objective was to impart Singapore’s ‘accumulated and proven methods of industrial development and administration’ to its Chinese partner (CSSD 1999: 10). However, the software transfer programme had the purposes of providing governance and credibility building: Software transfer refers to the sharing of Singapore’s successful public administration and economic management experience with the Chinese authorities so that they can formulate pro-business policies in the CS-SIP, and govern with transparency and efficiency . . . SIPAC together with the SSPO will identify the relevant type of ‘software’ to be shared. Mutual visits and training attachments help Suzhou officials understand the Singapore way as well as

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international practices. Together with Singapore government officials, Suzhou officials decide how best to adapt Singapore’s practices to suit local circumstance by selecting and modifying appropriate elements. Singapore sends its government officials to Suzhou to assist in this adaptational process. (CSSD 1999: 10, emphasis in the original) The software transfer’s objectives were elaborated by a SEDB officer stationed in Suzhou: We want SIPAC to be fast, efficient, pro-business, and professional towards investors. SIPAC has to be the solution, not the problem. For speed, we set specific time periods for nearly every task, from business license approvals to answering queries. For efficiency, we wanted SIPAC to have at its fingertips answers to every question. For a pro-business environment, we want SIPAC to be sympathetic and understanding to the needs of the investor. Of course, we want them to be firm and fair at the same time, but we believe these two concepts are compatible. All this adds up to a sense of professionalism. This is what got Singapore a good name, and if they can get it done here, it will give them a good name too. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) The software transfer programme was given high priority by the collaborating governments. The Singapore Software Project Office (SSPO) – administered by the Singapore Economic Development Board – was established in 1993 in Suzhou. By 1996, nearly 50 Singapore government bodies – including the Ministries of Labour, Trade and Industry, and National Development, the Housing Development Board, the Central Provident Fund Board, the National Trade Union Congress, the Trade Development Board and the Urban Redevelopment Authority – were involved in conducting courses for Chinese officials both in Singapore and in Suzhou (Singapore Straits Times 16 April 1996). In 1996 alone, 200 Chinese officers and bureaucrats were sent on short training trips to Singapore (Singapore Straits Times 16 April 1996). The courses, run in Mandarin, covered three areas: ‘economic management’, encompassing marketing, registration of companies and incentive programmes for investors; ‘urban management’, which covered environmental protection, building control and town planning; and ‘labour management’, which included employment contracts, health care and labour insurance. In addition,

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specialized courses on customs clearance, waste management, workers’ provident fund, human resource matters and real estate management were also organized. The Software Transfer Project’s Chief Co-ordinator also reported that Singaporean officials from various bodies were sent to Suzhou for up to two months at a time to train Chinese officials (Singapore Straits Times 16 April 1996). Although no figures were supplied for the cost of these programmes, it was evident that this was not a ‘cheap exercise’, especially to the Singapore government that was financially underwriting the programme. However, this research found that the software transfer involved more than just the imparting of ‘skills’ or ‘expertise’. According to the SEDB official interviewed who was involved in the programme, the Singaporean partner in the Suzhou Industrial Park was hoping to bring about ‘a wholesale change of attitude’: The SIPAC officials that I have worked with are very bright people. They learn things very quickly. Their level of understanding is excellent. However, we wanted to give them more than just knowledge and skills. We wanted them to have a probusiness attitude. They had to believe that following the rules and procedure, with utmost efficiency, was the only way to maintain the SIP’s niche as the best industrial zone in China. (SEDB Official, Singaporean citizen, male, aged 40–5) In addition, the Singapore government also wanted to instil the importance of ‘meritocracy’ within SIPAC’s managerial culture. Meritocracy, defined by the Singapore government as a competitive system that rewarded performance outputs, had been a key ideology in Singapore (see Hill and Lian 1995). The Singapore government believed very firmly that the ideology was a key aspect in preventing corruption, cronyism and nepotism within the civil service. It also justified the relatively high salaries for civil servants, especially those that performed well. Thus, SIPAC hired the best-qualified persons for each position, and remunerated them accordingly. As such, although no one was willing to report exact figures, several Singaporean officials interviewed were willing to mention that SIPAC officials were paid between 25 to 40 per cent more than similar local municipal authority officers in the same position. Furthermore, under the advice of the Singapore government, SIPAC conducted a nation-wide recruitment drive for officers. This was rather unusual in China, as geographic mobility of labour was still uncommon, as will be discussed in the next section.

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Ultimately, SIPAC was geared towards emulating the Singapore government, as far as industrial administration was concerned. The collaborating governments each had its own reasons for ensuring that the software transfer would be successful. For the China government, it hoped that SIPAC would absorb the programme, so that it could be utilized for other industrial zones and perhaps even the rest of China in the future. This was because at that time, industrial administration was viewed as one of the country’s greatest weaknesses, particularly with inefficiency and corruption still reportedly being rife even at the beginning of the 1990s. For the Singapore government, the software programme would give the Suzhou Industrial Park a unique competitive advantage within China, as the Singaporean operating system would distinguish the estate from all other zones. This was central to the Singapore government, as it was confident that there were many industrial transnational corporations that preferred to operate under Singaporean ‘institutions’ rather than having to adapt to Chinese business practices. Yet, while industrial administration was the most important aspect of the software transfer programme, it was not very well known to the public and the media that the China government requested to the Singapore government that ‘supplementary’ institutions were also imparted to SIPAC. The two most important supplementary institutions were in the sphere of labour management, ‘public’ housing development and a provident fund social welfare system. ‘Experimental’ systems As suggested in the previous chapter, the China government was ambivalent about embracing ‘free market capitalism’. Since the early 1970s, it had admired how the Singapore government had maintained economic efficiency and industrialization together with providing effective social welfare policies (see Wong 1999, Lee, K. Y. 2000). In addition, the Singapore government wanted to implement a labour management system that would encourage geographic mobility, which would benefit the industrial transnational corporations that were tenants at the Suzhou Industrial Park. Although Suzhou city had a large pool of highly skilled persons, the Singapore government wanted the employers (industrial transnational corporations) in the park to be able to recruit staff from all over China. It proposed to the China government that this was, therefore, an opportunity for the China government to experiment with its (internal) migration policy. Previously, labour mobility was virtually non-existent in

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China. This was because each individual was tied to his or her xiangqu (literally translated into village district) or local district. The existing system provided the individual with all the social, medical, educational and residential entitlements under a socialist system. If an individual decided to move from one city to another, he or she would have to apply for a transfer of xiangqu from one district to another. Considering the tight residential situation in urban China, legitimate labour mobility was more or less considered impossible. The only exceptions to this were for individuals who were civil servants, where the state or provincial authorities would be in a better position to facilitate the ‘transfer’. These civil servants would be issued with the Blue Residency Permit, which gave them equal rights and privileges to local residents. Second, in China, employment matters were managed by local renqaiweiliu zhongxin (talent exchange centres), which were state-run employment agencies. After the 1979 economic reforms, China faced a massive problem of uncontrolled and unauthorized labour migration, mostly from rural areas to urban centres, particularly those that were close to Special Economic Zones. This was because the economic situation in the rural areas was very poor compared to the rapidly growing urban centres. Shenzhen, in the Guangdong province, was an example of this trend (see Wu 1999). Local municipal authorities in that area could not regulate or cope with the large inflow of workers. This had led to many social problems, including the rapid growth of slums, criminal activity and social unrest (due to competition for employment). Suzhou city had historically not faced such a problem, as it was not an important industrial centre, nor had it a large body of industrial transnational corporations. However, with the development of the Suzhou New District, since 1990, and the Suzhou Industrial Park, since 1994, the city could face an onslaught of unauthorized workers, placing a serious strain on social services and social stability in the small city. For the Suzhou Industrial Park, SIPAC was advised by the Singapore government on how to establish a ‘talent exchange centre’ of its own, known as the Suzhou Industrial Park Human Resource Company (SIPHRC) in the industrial estate, albeit with a slight, but significant, difference. According to a SIPAC official: Although we had these employment centres, they were very different from those in other estates. We [SIPAC] felt that we shouldn’t allocate employees to companies. This was certainly not how they hired workers, so we felt that by doing this, it would

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not be ‘appreciated’ by the multinationals. We thus allowed the companies to interview, recruit and hire employees themselves. (SIPAC Officer, Chinese citizen, male, aged 30–5) Thus, industrial transnational corporations were not obliged to ‘use’ the SIPHRC. Instead, it functioned as an information consolidator and intermediary for transnational corporations and the workers by assisting in setting up recruitment fairs on behalf of employers, or announcing vacancies at a company. It could also process ‘transfer of personnel records’, for persons coming to work in the Suzhou Industrial Park, and even the processing of passports for overseas training for PRC nationals. However, the most significant power that SIPAC was given was in the area of hiring non-Suzhou residents: Besides hiring from Suzhou, investors in CS-SIP can also hire non-Suzhou residents to augment their talent pool. University graduates from all over China may be recruited, provided they are not dingxiang (pre-assigned) or weike (company-sponsored) students. College and specialised secondary school graduates (vocational schools) from other cities may also be recruited. All other categories of graduates may be recruited with SIPAC’s prior approval. At the lower-skills level, hiring of non-Suzhou residents is permitted if the enterprises can show proof of their unsuccessful recruitment attempts within Suzhou. (CSSD 1999: 31) Dingxiang students were state-level scholarship recipients normally earmarked for posts in the civil service, while weike students were expected to serve a bond of service with their sponsored company that had paid for their education. To establish a ‘mobile labour’ policy, the Singapore government urged the China government to expand the ‘Blue Residency Scheme’. Blue Permit holders were allowed to enjoy similar rights to residents, including educational opportunities for their children. As suggested earlier, the Blue Permits were normally meant for civil servants, who were posted out of their hometown. However, with the Permits, they would be able to gain access to all the amenities that local residents would receive. Thus, Blue Permit holders would have the same housing benefits and access to public amenities in the Suzhou Industrial Park as local residents. Children of Blue Permit holders would also receive the same benefits as local resident children, particularly in gaining access to public education. The new regulation allowed Blue Permit holders to become

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Permanent Residents after two years of residency. The key difference was that anyone, not just civil servants, employed in the Suzhou Industrial Park would be eligible to apply for the Blue Residency Scheme. The Singapore government had its own motivations for proposing this system. It believed that labour mobility would be perceived by industrial transnational corporations to contribute to the Suzhou Industrial Park’s ‘pro-business’ environment. In other words, tenants would have the option of hiring a local Suzhou resident, or any other person from any part of China, should there be no locals that were suitably qualified. For the China government, the scheme also served as a testing ground for China’s own social and labour reforms. This research found that the Blue Residency Scheme was only utilized to recruit senior level managers, rather than for factory operators or technicians. Most companies included in this research’s sample reported that a small handful of senior managers were Blue Permit holders. The reasons given were varied. Some companies transferred managers for their offices or factories in other cities, since they had the necessary expertise and experience. Others were seeking specific skills which were, at the time, not available in Suzhou. For example, one company required a Ph.D. holder in chemical engineering; however, after a six-week search in Suzhou, the company cast its net nation-wide, and eventually hired a person from Beijing. On the other hand, some respondents said that it did not make economic sense to hire someone from out of town for basic shop-floor work, especially since there was abundant lower-skilled labour in Suzhou. Another institution that the China government was keen to implement was the Singapore government’s version of the Provident Fund scheme. The China government had admired Singapore’s Central Provident Fund system, which had been in operation for more than 25 years (Wong 1999: 57). It was credited as being a ‘winwin-win’ scheme, for the state, enterprises and the workers. For the Singaporean state, these savings were even utilized for expenditure in developmental projects, such as healthcare and public housing. For enterprises, the scheme was convenient as it meant that there was no need to have a collective bargaining agreement for welfare issues in Singapore. For workers, the scheme acted as a form of social security. In certain urban centres in China, there was a Provident Fund system that functioned as a communal mandatory savings system, where 20 per cent of an employee’s wages went into a consolidated communal fund administered by the company. In a society where residential, medical and education needs were entirely

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provided by the state, the key objective of the communal fund was for retirement support (see Liu 2000). However, for the Suzhou Industrial Park, its version of the Provident Fund would function as an individual savings account, where its use was left up to the individual. In this system, the employee and employer would both contribute a fixed percentage of the income to the employee’s individual Provident Fund account. The Suzhou Industrial Park Provident Fund (SIPPF) scheme was introduced in April 1997 on a trial basis, where 4,000 employees from 63 companies participated (Singapore Investment News 1 January 1998). The original contribution was 25 per cent from both sides. The contribution was lowered to 20 per cent as a result of the Asian Financial Crisis in April 1998. Again, each of the collaborating governments had their own motivations for seeing the Provident Fund scheme succeed. The Singapore government hoped that industrial transnational corporations would view the Provident Fund system as contributing to the ‘pro-business’ environment, as it relieved them of having to officially manage their employees’ social security and welfare. However, this scheme, along with the mobile labour policy, was more important to the China government as it hoped to find a workable social welfare system as it progressed towards ‘industrial capitalism’. The third aspect of the supplementary system was the development of public housing. As with the Provident Fund scheme, the China government had admired the Singapore government’s highly successful public housing programme, which developed many lowcost high-rise apartments, since the early 1970s. By the 1980s, over 80 per cent of Singaporeans were living in such state-built apartments (Perry, Kong and Yeoh 1997: 75). Therefore, at the Suzhou Industrial Park, the Housing Development Board and the Public Works Department of Singapore were invited to give advice on how to develop a public housing estate, which would consist of mostly low-cost and high-rise apartments. Also, as mentioned earlier, several SIPAC officials were sent to Singapore on an attachment programme to learn directly from these two Singaporean statutory boards, as part of the software transfer programme. The Suzhou estate was earmarked to be located directly in the centre of Phase One, beside the commercial centre. From SIPAC’s perspective, the objective was not only to provide housing for employees working in the zone, it also had to manage the housing development programme carefully as it was mandated to become ultimately ‘self-funding’. This meant that after an initial seed subsidy from the China government, SIPAC then had to build the apartments, and price them competitively so

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that local Suzhou residents would purchase them, which would, in turn, give SIPAC more revenue to expand the programme. By mid1999, the first estate was nearing completion. Initial reports were that all the apartments had already been reserved, since many employees working in the Suzhou Industrial Park could utilize their Provident Fund savings as the initial deposit. The housing development programme was, perhaps, the only nonessential aspect of the software transfer for the Singapore government. It did not directly contribute to enhancing the competitiveness of the Suzhou Industrial Park. However, it was a very important aspect as far as the China government was concerned. Developing affordable public housing in China, especially housing that could eventually become ‘self-funding’ was a key developmental objective.

Governmental support In the Suzhou Industrial Park, top level governmental support was also envisioned as a competitive advantage. The collaborating governments believed that a high degree of governmental support would demonstrate to potential investors that the zone had a high level of importance within China, in turn demonstrating the zone’s long-term viability. Political capital As discussed earlier, one clear sign of the top level governmental support could be seen in the project’s Joint Working Committee and Joint Steering Council, which was filled by senior state officials and bureaucrats from both governments. This form of support was viewed as useful ‘political capital’. This concept is somewhat confusing, not only because it has a specific reference to China and other socialist and post-socialist societies, it was also utilized by the collaborating governments as well. In the literature on socialist and post-socialist societies, ‘political capital’ has been used to refer to the utility of an individual’s political affiliation; in China’s case, it was argued that a Communist Party member would have distinct privileges over others (see Nee 1996, Bian and Logan 1996, Zhou 1997). However, in the case of the Suzhou Industrial Park, political capital was defined as the utility of overt governmental support. According to a CSSD official who was interviewed: I think it is quite obvious that both governments – the China and Singapore governments – have invested so much in this

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project. Not only money, but also moral and political support. They openly endorse the project, and they give testimonies about how this place is a high level inter-governmental project. They also visit this place all the time, so it gets a lot of publicity, especially with the international media. This [the support] was one of the SIP’s strongest advantages, in the early years, as overt government support was very important to investors. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) According to the official, such support gave the zone a level of prestige not found in most other Special Economic Zones. This level of prestige enhanced the zone’s credibility, which, in turn, could be directly translated into enhancing the zone’s long-term viability. Such a view was corroborated by a CSSD marketing manager: One of our marketing strategies was to highlight to potential tenants the high degree of top level government-to-government support behind the SIP project. We knew that this [support] would be one of our more unique advantages, something that distinguished us from other zones in China. This park had the strong backing of not one, but two national governments. Simply put: we believed that a project with such strong backing was a fail-safe site, especially for investors. Investors would be assured that the two governments would not allow the project to fail! (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) As suggested in these quotes, the China government’s ‘political capital’ could be seen from the manner and the frequency in which it endorsed and supported the Suzhou Industrial Park. Between 1992 and 1996, central figures of the Beijing administration – such as Zhu Rongji and Li Lanqing – were regular visitors to the zone. Also, President Jiang Zemin was reported to have said that the Suzhou Industrial Park was the ‘priority of all priorities, and must not be allowed to fail’ (SIPAC 1999: ii). As such, the China government’s investment, as part of the collaborative relationship, was its frequent public endorsement of the Suzhou Industrial Park. For example, China’s Acting Premier Zhu Rongji was quoted as saying that from what was learnt in Suzhou, ‘we will make the five Special Economic Zones and Pudong New District better’ (Singapore Business Times 5 October 1995). Implicit in this statement was both an endorsement

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for the zone as well as a criticism of other estates. Similarly, the Suzhou Municipal Party Committee, which held its annual meeting in January 1996, made a statement ‘to exhort the people of Suzhou to wholeheartedly support and hasten the pace of development [for the SIP]’ (Xinhua 23 January 1996). There were also many similar public statements from the Co-Chairman of the Joint Steering Committee, Li Lanqing, who was also China’s Vice-Premier. Fostering closeness Although the two governments had invested much ‘political capital’ in the collaborative project, it was important to note that they also invested quite heavily in fostering closeness between each other. The rationale behind this strategy was simple: closeness between the partners would improve the actual collaboration which, in turn, was initially viewed as acting as a form of assurance for the potential investor for the long-term viability of the project. As suggested in the business literature on collaborations, if partners are close, then there would be familiarity and trust within the venture. In turn, familiarity and reciprocity would have direct operational consequences, as they are believed to improve efficiency through the reduction of transaction costs between partners. In this sense, both partners were keen to foster closeness. This was mainly achieved through reciprocal gestures. For example, on 22 March 1996, Mr Wong Hung Khim – the Chairman of Jurong Town Corporation, the parent company of Xinsu Development Company in Suzhou – was named an honorary citizen of Suzhou (Singapore Straits Times 22 March 1996). In the same article, it was reported that in October 1995, the Chairman of the CSSD, Lim Chee Onn, was awarded the same award a year earlier. Furthermore, with increasing reciprocity, partners would be more willing to ‘go that extra mile’ for each other. According to a CSSD official: At the beginning, we [CSSD] approached Beijing to give SIPAC the power to approve projects up to US$50 million in fixed investment commitments without having to seek Central Government approval. This was because the rule for all the Special Economic and Development Zones stated that the local governments could approve projects up to US$30 million on their own. For projects above that figure, they had to seek approval from Beijing. As many projects in Suzhou might consist of large investment commitments,

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the Singapore government was concerned that having to apply to Beijing might be a bureaucratic disadvantage, leading to possible delays and increased transaction costs. However, if large projects could be approved in Suzhou itself, then the turn-around time would be quicker and the investments more quickly realized. Therefore, we were asking for a privilege – for greater financial decision making autonomy – that the other zones did not have. The response from Beijing surprised us. True enough, in 1994, Beijing granted SIPAC the authority to approve investments of up to US$50 million. But in 1995, it gave the SIPAC complete autonomy over the financial decision making. In other words, SIPAC could approve projects of any size without turning to Beijing. Even though by 1999, only a very small handful of investors went above US$30 million, by conferring this financial autonomy onto SIPAC, it was a gesture by the Central Government that demonstrated its commitment to the project, which in turn was perceived to make the investment climate for foreign investors more attractive. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) The ‘political capital’ invested mainly by the China government was believed to be highly important, as it acted as a form of assurance for industrial transnational corporations over the zone’s long-term viability. The two governments were also intentionally hoping to improve their collaborative relationship which, it was believed, would not only enhance their operational efficiency but, also, might lay the foundation for improving diplomatic bilateral ties at the international level in the future.

Marketing strategy Once the Suzhou Industrial Park was given the go-ahead by the two governments in 1993, the CSSD began to market the zone to industrial transnational corporations. Already, the CSSD was aware that there was a strong demand for industrial property in China. Furthermore, it was very confident that an industrial estate that had high-quality industrial infrastructure and administration would be highly sought after by these enterprises. Last, the CSSD was hoping to utilize the Singapore government’s credibility, as an efficient and effective infrastructure developer and industrial administrator, as a marketing strategy. Therefore, the CSSD was intentionally seeking to highlight the Suzhou Industrial Park’s Singaporean connection. In

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1993, the CSSD and the SEDB immediately began marketing units within the zone to certain industrial transnational corporations and Singaporean companies: The EDB will tap its network of international offices and experience in investment promotion to help SSTD and CSSD step up the marketing of the SIP. We aim to attract more quality industrial projects to make this a top-class industrial park. (Philip Yeo, Chairman SEDB and Chairman of CSSD, quoted in Singapore Business Times 27 January 1996) It is important to note that, in 1993, the Suzhou Industrial Park not only was a ‘virtual’ zone – as building work had not yet begun – but officially did not even have its operating licence approved. Yet, with the strong political support of the collaborating governments, the CSSD was totally confident of the zone’s launch. However, it decided to adopt a narrow targeted marketing campaign, rather than a full-blown global approach: Although there was a long-term objective to completely fill up the park, the short-term objective was to get a handful of companies to commit immediately. We wanted to announce some takers during the ground-breaking ceremony scheduled for 1994. We were intentionally hoping that this would create the snowball effect. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) According to informants from the Singapore Economic Development Board and CSSD, ‘snowballing’ was a marketing technique that used the presence of some companies in the park to attract others. The CSSD officer explained how they understood the concept of ‘snowballing’: The first premise was that by getting big brother companies to locate in the park, little brothers would also choose to come. This meant that if large industrial operators were located at one site, the supplier or support companies might decide to locate there as well. For instance, if an automobile plant will be located in one place, supplier companies – such as those producing individual parts or electronic components – might choose to locate nearby to take advantage of the big brother’s presence, and thus reduce their

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logistic costs. Therefore, we targeted the large finished products manufacturers, hoping that their presence would snowball and attract their components suppliers as well. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40, emphasis in original) The ‘big brother–little brother’ idea was based on industrial ‘agglomeration’ (see Hayter 1997). The second premise was to use the presence of existing companies to indicate the ‘health’ of the zone to other prospective companies. To the marketing personnel, ‘health’ here referred to a combination of strategic location, efficiency and prestige. According to the SEDB Officer in Suzhou: In marketing terms, if the [Suzhou Industrial] Park could boast the existing presence of big name companies that have pumped in lots of money, then it would indicate their confidence in the park. In this sense, the bigger the investor – both in terms of brand name or amount invested – the healthier the park. The health of the park could therefore be used to attract other companies to come as well. (SEDB Official, Singaporean citizen, male, aged 40–5) On 14 September 1994, during the zone’s ground-breaking ceremony, the CSSD announced that 14 ‘pioneer’ companies had chosen to locate their operations in the park (Singapore Straits Times 15 September 1994). These companies had made their decisions based on off-site plans even before building began at the zone. Of the 14 companies introduced at the ground-breaking ceremony, only six were involved in industrial activities. Two other companies were property developers, while another company was using the park as a base for taxi operations. Three other companies in fact never took tenancy at the zone. However, as this research found, nine other companies had signed up in 1994, but opted not to go public with the announcements. Therefore, this research would consider all of them as ‘pioneer’ companies. Of the ‘pioneer’ companies in Suzhou involved in industrial activities, managers from ten of them were interviewed. Information from these interviews was also supplemented with secondary data that existed in the public domain, including newspaper reports, brochures and other publications. At the ground-breaking ceremony, the CSSD announced that the Suzhou Industrial Park’s largest investments had come from Samsung (semiconductors), which pledged US$450 million and had acquired 33 hectares, followed by Lion Nathan (brewery),

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which committed US$250 million on a 15-hectare plot (Singapore Straits Times 15 September 1994). In the same report, it was said that American Micro Devices (AMD) (microchips) and Pokka (soft drinks) had invested US$29 million and US$15 million respectively. By the end of 1995, the other companies that had announced that they would take up tenancy at the Suzhou Industrial Park included Becton Dickinson (medical devices) (US$50 million), Nabisco (foodstuff) (US$50 million), and Solectron (microchips) (US$45 million). Other companies that were coming to the Suzhou Industrial Park within the next year included Vickers (mechanical pumps), Siemens-Rexton (hearing aid devices), Knowles (medical accessories), MTU (engine parts), Hitachi (semiconductors), Singapore Technologies (mechanical parts), Amtek (metal stamping) and Delphi (automotive components). The announcements that these companies – many of them heralded as so-called ‘Fortune Global 500’, ‘US Global 500’ and ‘Asiaweek 500’ companies – had taken tenancy were extremely important to the reputation, status and credibility of the Suzhou Industrial Park. The ‘health’ of any industrial zone, be it a country or a region, depends very much on the size of the investment commitments, the reputation of the companies and the number of investors attracted. In this regard, the Suzhou Industrial Park could be considered ‘healthy’ for having lined up this many ‘large’ investors with their relatively large investment commitments, particularly considering that the CSSD was able to get many of these companies to commit even though the zone had not been built. The CSSD’s marketing department and the Singapore Economic Development Board had also strategically targeted companies that were already familiar with the Singaporean ‘operating system’ from their earlier operations in Singapore. According to a CSSD official, a critical aspect of the marketing strategy was to highlight the Singapore government’s credibility as an effective and efficient industrial developer and administrator. Many of these companies had personally seen that the Singapore government – as an industrial developer and manager – often kept its promises and produced tangible results. Already, some of the Singapore government’s regional industrial parks – such as those in Batam and Bintang – were fairly successful in terms of achieving the initial objectives of cost savings and efficient administration. The Suzhou Industrial Park’s reputation was further boosted by the strong support of both the Singapore and China governments. If ‘big brother’ companies were willing to commit large investments in the Suzhou Industrial Park, then it must mean that it had the makings of a ‘sure-fire winner’.

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Referrals Another strategy adopted by the CSSD was a system of referrals. The aim was to encourage the pioneer enterprises to offer positive referrals to other potential investors. Such referrals could be both implicit and actual. Actual referrals might involve agents endorsing a particular product. Implicit referrals might not involve any verbal or written endorsement; however, by itself participating or – in the case of the Suzhou Industrial Park – taking up tenancy at the park, would indicate its support. In other words, reports about a large industrial transnational corporation taking up tenancy at the zone would, therefore, be considered as an implicit referral. Referrals are an extremely important aspect of business relationships, as positive referrals usually indicate the existence of trust and credibility, and vice versa. Therefore, if private enterprises were willing to provide positive referrals for the Suzhou Industrial Park, then other potential investors might also be encouraged to view it in a positive light: One good word from the investors is worth 10 good words from us. (Lee Kuan Yew, quoted in Singapore Business Times 11 September 1996) Service the investor, draw him in, and give him the support he needs so that news will spread. Then better and better investors will come in. That is the way we built up Singapore. (Lee Kuan Yew, quoted in Singapore Straits Times 28 August 1995) This study found that the CSSD also utilized actual referrals. These were most evident in the CSSD’s marketing brochures and pages on its international website. As with most companies, the CSSD has its international corporate website, where an online brochure is available, along with reports of news and updates (http://www.cssd.com.cn). SIPAC’s own website also carries several endorsements, usually quoted from the companies’ press releases or speeches given at the launch ceremonies (http://www.sipac.gov.cn). In addition, Xinsu – which developed and marketed ready-built factories within the Suzhou Industrial Park – also published positive ‘testimonials’ from existing tenants in their marketing brochures. Finally, the SEDB also published public endorsements of the Suzhou Industrial Park, particularly in its own newsletter, the Singapore Investment News. Below are some publicly available endorsements, which operate as actual referrals:

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Construction We chose Suzhou [Industrial Park] because we are confident of Singapore’s involvement in the Park, the successful software transfer and customer satisfaction service provided by the Chinese government. Besides these, Suzhou’s highly literate population ensures an abundant and continuous supply of highly educated managers, staff and good workers. (Kentaro Hirata, Vice Chairman of Board and General Manager of Suzhou Towa Electron Co. Ltd, CSSD’s website, c. 1997) Suzhou’s excellent location will allow Harris to fully participate in the rapidly growing Chinese electronics industry. The CS-SIP offers the right setting and infrastructure from which to build a world-class semiconductor operation. (Tim Muth, Director of Manufacturing, Harris Semiconductors, CSSD’s website, c. 1997) China and Singapore have put so much effort into this prestigious project. We can only benefit. (Reimar Friedrich, Chairman, Siemens Medical Instruments, SIPAC’s website, c. 1997) Sumitomo Bakellite trusts that . . . the China–Singapore Suzhou Industrial Park will provide high-quality service and infrastructure to our Suzhou plant. (S. Kosaka, Managing Director, Sumitomo Bakellite Singapore, SIPAC’s website c. 1997) Our experience in the [Suzhou Industrial] Park has been more than positive. We are confident we can grow our China business using CSSIP as our manufacturing base. (Eugenio Naschoid, President of Beckton Dickinson Asia Pacific, Singapore Investment News 1 January 1998) Suzhou has been a good choice. Our project implementation, from the start of factory construction to setting up production was smooth and according to schedule. (Yap Chew Loong, General Manager, Beckton Dickinson Suzhou, Singapore Investment News 1 January 1998)

Endorsements for Xinsu are slightly different in focus, but essentially serve the same purpose:

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With Xinsu, it’s Singaporean standards in China. True to Singaporean efficiency, we set up production lines in three weeks to manufacture hearing aid and solenoid components and made our first shipment in six weeks. Backed by good service support, proximity to major transport routes and abundant skilled labour, Xinsu’s facility is a choice you will never regret. (Janson Hung, General Manager, Knowles Electronics Suzhou, Xinsu 1999: 9) Xinsu’s ready-built factory space met our needs for a quick startup. With the Singaporean involvement and a promise of a stable infrastructure, Suzhou was Chemfab’s entry point into China to service the potentially large domestic market. Our facility now manufactures industrial conveyor belts and PSAT in Suzhou. (Bob Lewis, Director, Chemfab Suzhou, quoted in Xinsu 1999: 12) Such endorsements can be commonly found on the websites of many other industrial estates, not just in China but all over the world. The function of these actual referrals is to enhance the reputation of the estate, and to demonstrate the degree of credibility and trust the existing investor has. In this sense, the CSSD was only adopting a regular marketing strategy as far as referrals were concerned. However, the CSSD officials interviewed said that despite its common utilization, referrals were still very important. For example, a CSSD Marketing Manager remarked: When we market the units to potential investors, we always give them a list of existing investors, and ask if they would like to speak to them. We don’t promise that we could grant all their requests, but we try to put them in touch with as many existing tenants as possible. If they visit Suzhou, we bring them to the factories and come back to collect them later. We don’t hang around like vultures. We have nothing to hide, nothing to fear. We don’t prepare the existing tenant to tell the potential investor anything. They can say whatever they want. We have had requests from potential Japanese investors to meet with existing Japanese companies, and so on. I don’t know of any bad referrals. I assume that most must be good. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40)

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The CSSD hoped that such endorsements and referrals would encourage interested industrial transnational corporations to invest in the Suzhou Industrial Park. The ‘bigger’ the name of the investor, the greater the degree of credibility and trust conferred to the zone. Therefore, it can be concluded that the CSSD’s usage of referrals was, in itself, a purposive strategy to enhance the competitiveness of the Suzhou Industrial Park, along with its implementation of infrastructural and institutional advantages, and top level ‘government-togovernment’ collaboration.

Launch We are going to make this succeed, or what will suffer is our reputation. When we have succeeded, we will open up branches in China. We have not put our brand name in Langfang or Shijiazhuang . . . but here, we will defend our quality, because here, our reputation is at stake. (Lee Kuan Yew, quoted in Singapore Business Times 25 August 1995)

In September 1994, when the Suzhou Industrial Park began operations, the inter-governmental collaborative experiment was also under way. For the Singapore government, the zone was, itself, unique from its other regional industrial park. For the first time, this involved a high degree of top level government support, as opposed to the other zones where only a government-linked corporation was mainly in charge. Yet, more broadly, the Singapore government was gambling that by strategically creating competitive advantage, particularly in the zone’s secondary factors of production, that the collaborative project would ultimately be successful. Success was crucial, as the Suzhou Industrial Park, with its high initial financial outlay, was viewed as being the most important test of the Singapore government’s ability to generate an external economy for Singapore. For the China government, although local development and economic growth was important, the project also was a national experiment to see if Singapore’s operating system would be appropriate for adoption as the country progressed towards full globalization and industrial capitalism.

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Complementary collaboration

Between 1994 and 1997, the Suzhou Industrial Park experienced some of the highest rates of foreign direct investment in China (Singapore Straits Times 3 May 1997). Thus, not only was the zone viewed as a commercial success, the inter-governmental collaboration was hailed – at the time – as an exemplary model of national economic development strategies. This chapter utilizes data gathered from Suzhou to identify the reasons behind the Suzhou Industrial Park’s competitiveness. It begins with a brief outline of the methodology adopted for the research, followed by a discussion on the profile of the industrial transnational corporations that chose to locate operations at the zone after 1994.

Background As suggested in the preceding chapters, the inter-governmental collaboration was designed to make the Suzhou Industrial Park highly competitive within China in order to attract FDI through encouraging industrial transnational corporations to take up occupancy at the zone. This research, therefore, intended to establish whether the collaborative strategies were effective by studying the reasons behind the industrial tenants’ choice to locate within the zone. Research methodology The data in this chapter was mainly collected from research conducted in Suzhou between June and September 1999. During that time, the research managed to include 56 enterprises into the sample, out of 82 enterprises that were fully operational at the time. From the sample of enterprises, the research conducted face-to-face in-depth interviews with at least one representative from each of these 56 enterprises.

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Complementary collaboration

Also, the research managed to interview a second respondent from 8 of these companies, cumulating in a total of 64 interviews. The respondents were all senior managerial staff based at the Suzhou Industrial Park. Of the 64 respondents, 30 were general managers, 10 were assistant managers, 10 were human resource managers, 10 were financial controllers and 4 were operations or floor managers. The average time taken for the interviews – which were based on a fixed semi-structured questionnaire – was 30 minutes; however, it was interesting that the longest interview lasted over 2 hours, while the shortest interview was concluded in only 15 minutes due to the respondent’s lack of time. Of the 64 interviews, 50 were conducted in English, while the other 13 were conducted in Mandarin. The one remaining interview was slightly different; the respondent, who understood English, replied in Japanese before it was translated into Mandarin by his company’s translator. Senior managers were selected to be the key informants, as they would be able to comment on their company’s business strategies; in 30 out of the 64 cases, the respondent was, himself or herself, directly involved in the site-selection process. The questionnaire had three main thrusts of inquiry: first, it sought to ascertain the reasons why these enterprises had chosen to locate their operations at the Suzhou Industrial Park. Second, it asked the respondents to evaluate their tenancy at the estate, with an emphasis on finding out whether their initial expectations had been met. Finally, the interview asked the respondents to provide comments on the Singapore government’s announcement (in June 1999) that it was disengaging from the Suzhou Industrial Park collaborative project. Data from the latter part of the interview will be analysed in later chapters. In addition, the respondents were asked to provide information of their companies’ size and scale of investment, number of persons employed and other background information. The research also utilized data gathered from secondary sources to supplement the primary data. These sources include newspaper reports, company brochures and other published documents. The industrial tenants Of the 56 enterprises included in the sample, there were 24 companies from North America, 15 from Europe, 10 from Singapore, and 7 from the rest of Asia (more specifically Japan). The geographic origin of the enterprises was determined by the CSSD based on the country that the largest shareholder was legally domiciled within. This research adopted the CSSD’s geographic classification as a means

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to identify the enterprises within the sample. Therefore, the respondents in this sample would come from either ‘American’, ‘European’, ‘Singaporean’ or ‘Japanese’ companies respectively. It must be noted that these geographical classifications were not very ‘scientific’ or even accurate. As an example, there was an enterprise located at the Suzhou Industrial Park registered as a 60:40 joint venture between a company from the US and Singapore respectively. Yet, it was classified by the CSSD as a North American enterprise. As the CSSD Marketing Manager explained to this research, the country (or region) of origin did not really matter as far as their business licence was concerned; it only mattered whether an enterprise was a ‘wholly foreign owned’ or ‘Sino–foreign joint venture’. He further explained that the geographical classification was done entirely as part of the CSSD’s marketing exercise. As such, the 60:40 US–Singapore joint venture was formally registered as a wholly foreign owned enterprise at the Suzhou Industrial Park. In terms of their official business licence, only three enterprises were registered as ‘Sino–foreign joint ventures’, whereas the remaining 53 were registered as ‘wholly foreign owned enterprises’. This was significant, as the Suzhou Industrial Park’s overwhelmingly ‘foreign’ constitution was remarkably different from the constitution in other Special Economic Zones. Between 1979 and 1996, ‘Sino–foreign joint ventures’ formed over half of China’s FDI, whereas wholly foreign owned enterprises only accounted for under 25 per cent (contractual joint ventures accounted for over 20 per cent, while joint exploration projects were only three per cent) (Wei 2000: 116). Based on their officially declared ‘business activities’, 53 enterprises within the sample were involved in ‘manufacturing’ activities. ‘Manufacturing’ was defined by the CSSD to include the production of footwear, pharmaceuticals, electronic components, appliances, computers and computer peripherals, polymer materials, automotive parts, primary and secondary telecommunications equipment and food and drinks. Two companies were involved in information technology (IT) softwarerelated activities, while the last company was an industrial machinery repair centre and support office. Of the 56 enterprises included in the sample, 31 companies were located in self-developed factory units, with the remaining 25 located in ready-built factories (RBFs). Finally, the CSSD also classified tenants based on the size of their factories, number of employees, and amount of fixed capital investment (see Table 4.1). The size parameters were defined by the CSSD, but varied across categories. This method of classification would result in several enterprises which crossed categories. For example,

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Table 4.1 Companies included in the research, based on size of factory, number of employees and fixed capital investment (n = 56) Size

Size of factory (sq.m.)

Number of employees

Small Medium Large Very large

Under 3,000 22 3,000–5,000 24 5,000–10,000 5 Over 10,000 5

Under 20 20–50 50–100 Over 100

Total

56

Fixed capital investment (US$ millions) 13 30 6 7 56

Under 10 10–30 30–50 Over 50

10 31 10 5 56

Source: Compiled from interview data.

there was one enterprise that was listed as a ‘large’ fixed capital investment investor, but was a small employer and only took up a small factory. The reason was that this particular enterprise was heavily technologically dependent, with the majority of its operations automated. However, the five ‘very large’ tenants were quite obvious in terms of their presence, as they took the largest factory floor space, employed the largest number of employees and committed the largest amounts of FDI. The following sections will discuss the data gathered from the research conducted in Suzhou. As all the managerial respondents requested ‘confidentiality’, the quotes utilized in the discussion will only identify them by their appointments within their company, the ‘geographic origin’ of their company (based on categories supplied by the CSSD), their citizenship, their age and gender. In addition, published data from secondary sources – such as newspaper reports, company brochures and official websites – will be utilized to supplement the primary data in the quotations.

Competitive advantages This research sought to identify what were the most important reasons that encouraged industrial transnational corporations to locate their operations in the Suzhou Industrial Park. Based on the interviews with the senior managers in the sample, it was found that the three most frequently cited factors were the zone’s infrastructure, administration and political support. In addition, respondents also highlighted several ‘supplementary’ reasons as also being important. These included the zone’s location in Suzhou city (which in turn was geographically close to Shanghai), its low factor costs, the availability of ready-built factories and the availability of information.

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Infrastructure As discussed in the previous chapter, the Suzhou Industrial Park boasted of having the most modern and high-quality infrastructure, which included a purpose-built power substation and water treatment plant. For nearly all of the enterprises included in this research, the promise of such high-quality infrastructure was central to their locational strategy: We took the word of the CSSD officials and the Singapore government, that this place [the Suzhou Industrial Park] would have the same standard of industrial infrastructure as sites in Singapore. In 1994, all we had were plans and promises. But we felt that if the Singapore government promised us anything, we would get it. (General Manager, American company 4, US citizen, male, aged 50–5) Infrastructure is actually very important for any industrial enterprise. We need a good place to work. We cannot have breakdowns in power or water. We deal with precision instruments, so the built environment is important. (General Manager, American company 18, US citizen, male, aged 45–50) This [factory in the Suzhou Industrial Park] is our second plant in China. The first was set up in Guangdong province almost two years ago. That one was plagued with problems, mainly stemming from issues with the industrial estate. The factory was poorly built, there were occasional power shortages, and the quality of the water was variable. We were not expecting much, but even the roads to our factory were terrible. We lost a lot of time and money trying to fix all those things. So when we came to know about this Singaporean-built park, we were of course very interested. It promised to be as good if not better than industrial estates in Singapore. It did not take much to convince us to locate our second plant here [in the Suzhou Industrial Park]. (Assistant General Manager, European company 14, Singaporean citizen, male, aged 30–5) For our company, the infrastructure was vital. We produce medicine, and we need high-quality water and a regular supply of electricity and steam. When we surveyed several sites in China

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Based on these responses, it was clear that many respondents were assured of the quality of the infrastructure because the Singapore government was directly involved in the zone. As discussed in previous chapters, it had a good reputation both as an industrial developer, and as a trustworthy government. According to one respondent: ‘We can always trust the Singapore government to deliver its promises’ (General Manager, European company 11, Singaporean citizen, aged 40–5). It was interesting that between 1994 and 1997, the demand for industrial space within the Suzhou Industrial Park was high even though it was generally more expensive than many other Special Economic Zones and Economic Development Zones. Many of the respondents indicated that the higher property cost was a reflection of the estate’s higher quality of industrial infrastructure: The SIP’s cost was slightly higher than most other places in China. But it was still lower than the premium sites like Pudong in Shanghai. Anyway, for the quality of infrastructure that we were getting, it was cheap. Do you know how much a facility like this in Singapore would cost? Almost five times as much. (Human Resource Manager, American company 3, Singaporean citizen, male, aged 45–50) There is a famous saying: You pay peanuts, you get monkeys. Our company decided to pay a bit more to get the best possible location within China. The Suzhou Industrial Park, even until today [1999], still has the best quality infrastructure. (General Manager, European company 11, Singaporean citizen, male, aged 40–5) Well, having good infrastructure is more than just having water, power and whatever. Look at the roads, the facilities, the build quality of the factories, they are all very good. We might not need these superior features, but we are thinking long-term, and better built factories means fewer repair bills in the future. (Operations Manager, Singaporean company 1, Singaporean citizen, male, aged 30–5)

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The emphasis placed on the zone’s quality of infrastructure by many of the tenants could be explained by the nature of their operations or the sectors that the company was in. From within the sample, enterprises from the pharmaceutical, telecommunications, semiconductor and chemical sectors prioritized the need to have ‘high-quality industrial infrastructure’: We chose to situate here [Suzhou Industrial Park] because the CSSD planned for a specialist pharmaceutical cluster within the estate. We examined the [Park’s] specifications very carefully, after which we were confident that our products could be produced at the highest quality control standards here. I would say that for us, the water supply and the power supply are most important. (Human Resource Manager, European company 4, Chinese citizen, female, aged 30–5) We produce mechanical parts here. We don’t really need worldclass infrastructure. But having them certainly helps. We’ve been here nearly two years, and we haven’t had any brown-outs [loss of power supply], contaminated water, etc. etc. Things here work nearly all the time, which is a major compliment in China, I can tell you. (General Manager, European company 5, Malaysian citizen, male, aged 35–40) Many respondents cited the availability of ‘ready-built factories’ (RBFs) as an important consideration. RBFs had played an important role in Singapore’s industrial transformation between 1965 and 1980, enhancing the country’s competitive advantage. They relieved investors of the financial burden of building their own factories. RBFs also facilitated a quick start-up for investors, as they only had to do minor renovations to customize the property to their specifications: RBFs are really good for medium sized companies like ours. This is our first venture in China, and we were not absolutely sure about our long-term strategy. So we took a three-year lease at Xinsu. Because we didn’t have to build our own factory, we kept costs low and moved in here fast. If our venture does well, we will then decide to expand or build our own factory. If it fails, we pack up and go home. Don’t want to be in a situation

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Complementary collaboration like [company name suppressed], who built their own factory, then had to leave China. (General Manager, American company 17, Taiwanese citizen, male, aged 40–5) RBFs were useful to us, because we wanted to start here quickly. What was the point of giving us our business licence in six weeks if it took one year to build the factory? Well, we wanted to hit the ground running. So we took a three-year lease here, and started renovations as soon as we got our licence. Took us a grand total of one month to do the place up to fit our machinery, and maybe another month to get it approved. Our first products took a grand total of six months to appear. Quite amazing. We could only achieve this sort of results in first world countries. (Assistant General Manager, European company 9, Chinese citizen, male, aged 30–5) We are not a big company, we are even in Singapore considered a SME [small and medium sized enterprise]. It would not have been worthwhile for us to build our own factory. So having RBFs of this size [one unit within a multi-storey block] greatly reduced our fixed costs. (Operations Manager, Singaporean company 4, Singaporean citizen, male, aged 35–40) One of the reasons why we are here is because of the RBFs. We took a short-term lease (three years) when we first came in 1998 and began moving in some of the operations straight away. Then we acquired our own plot over at the north side of the park, and after all the planning and checking, began building our own factory. That should be ready in six months (year 2000). Then we will shift out of the RBF into our own home. More importantly, after we move out, we really don’t have to worry about the old plot. (General Manager, American company 4, US citizen, male, aged 50–5)

There were several enterprises that adopted this ‘temporary housing’ approach to locating within the Suzhou Industrial Park. This was further confirmed by CSSD officers, who reported that enterprises such as Glaxo-Wellcome, Nokia and Andrew Telecoms were temporarily operating out of RBFs while their own factories were being built.

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Administration Another important reason that encouraged the location of enterprises was the ‘software transfer’ programme. As mentioned in the previous chapter, the aim of the ‘software transfer’ programme was to give the Suzhou Industrial Park a ‘Singaporean operating system’, which meant having an administrative system similar to the one in Singapore. Many respondents explained that the existence of the ‘Singaporean system’ was very important to their operations. For many enterprises included in the research’s sample, the promise rather than the actual existence of a Singaporean system was sufficient to satisfy their locational strategy: We chose to come here [Suzhou Industrial Park] because we knew there would be the software transfer. There is another Singaporean park in Wuxi [the Wuxi Industrial Park], but that one doesn’t have a software transfer programme. So while Wuxi might have good infrastructure and some Singaporean managers, the rules and policies are basically the standard Chinese ones. Now, to us, that was a potential problem. We much prefer to deal with Singaporean rules and policies, not just because we are familiar with them, but they are clear and transparent. (General Manager, American company 5, Singaporean citizen, male, aged 45–50) All the zones in China have fixed rules, but the problem is that the rules get interpreted in all kinds of strange ways sometimes. We don’t want to get caught up in such an uncertain situation. So when the Singapore government was going to train Chinese administrators and monitor them, we can rest assured that the rule of law will be observed here [Suzhou Industrial Park]. (General Manager, Singaporean company 3, Singaporean citizen, male, aged 45–50) Our interest in the Suzhou Industrial Park was based very much on our assumption that this place will be run according to Singaporean rules and regulations. It is good that the Singapore government is training local Chinese officials. I am sure the training will benefit us, as it will make our stay here simpler. But maybe the training will improve all of China as well. (General Manager, European company 6, French citizen, male, aged 35–40)

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Complementary collaboration Even if the software transfer is only 50 per cent successful, this place [Suzhou Industrial Park] would still be better than other zones in China. That was our logic when deciding where to locate our project. (General Manager, Singaporean company 7, Singaporean citizen, male, aged 40–5)

These responses were consistently echoed by most of the senior managers interviewed. However, it is worth pointing out that such views probably do not represent the vast majority of industrial transnational corporations that have located in Chinese industrial zones or estates that do not have the so-called ‘Singaporean operating system’. Even if the implicit criticism of the Chinese system – characterized by its grey rules and corrupt administrative practices – were true, the vast literature on foreign investment in China has shown that many industrial transnational corporations have easily dealt with such ‘obstacles’. Thus, the industrial tenants of the Suzhou Industrial Park have demonstrated one of two characteristics: first, they either did not feel confident enough to enter the Chinese economy by themselves; or second, they chose not to deal with the Chinese system. Viewed from the perspective of the global industrial production system, these enterprises were willing to pay a premium to gain access to high-quality secondary factors of production, which were available at the Suzhou Industrial Park. Many of these enterprises would rationalize that poor-quality secondary factors of production such as administration might lead to other costs. For many respondents, it was not only important that the zone had a ‘Singaporean operating system’, it was crucial that the system was implemented by the Singapore government: We were assured [by the CSSD] that the Singapore government took an active interest in this park. We also saw how important government leaders such as [Senior Minister] Lee Kuan Yew and [Prime Minister] Goh Chok Tong had regularly visited this place throughout the construction period. It gave us a sense of security that the Singapore government was making this a special project. I am not saying that it was the most important reason why we are here, but having them [Singapore government] around is like a form of collateral or insurance. (General Manager, American company 1, Singaporean citizen, male, aged 35–40)

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Whenever we make our decision on where to locate the plant, we have to provide justifications to headquarters. When I wrote the report, the first reason I gave, justifying why I selected this place [Suzhou Industrial Park], was that it would have a Singaporean operating system, implemented by Singaporeans. Having this arrangement reduced many uncertainties for our company, and it was therefore a relatively smooth process to justify locating here. (Assistant General Manager, American company 10, Canadian citizen, male, aged 30–5) Singaporean administrators are well known around the world as being competent, efficient, honest and trustworthy. If they were going to run the Suzhou Industrial Park, then it was almost a given that the park would have the best administration in China. We also were certain that the Singaporeans at the park would successfully train the local Chinese administrators. This made the park highly attractive to investors like us, which preferred clear, honest and competent administration. (General Manager, European company 15, Singaporean citizen, male, aged 50–5) During the interviews, many managers were asked to compare the ‘Singaporean operating system’ with ‘traditional Chinese business practices’. Their responses were interesting, as all of them did not negatively view the so-called traditional Chinese business practices, which included the utilization of guanxi and ethnic affinity: It is all about systems, and knowing how best to deal with systems. We are just a simple business, where we want to make money. We figured that we better understood Singapore’s operating system, and maybe we were not so competent in the traditional Chinese business practices. We don’t make value judgements that one is better than the other; we just felt that one was better for our operations. (General Manager, Japanese company 3, Japanese citizen, male, aged 50–5) I wouldn’t compare the Singaporean way against the Chinese way. There is no point in comparing, because I wouldn’t know which is necessarily better. For our company, we decided to come here because we are not familiar with the Chinese system. It would have taken a bit too much time and effort to learn.

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Complementary collaboration On the other hand, we had a factory in Singapore since the 1980s, and we were familiar with the Singaporean system. Makes the most sense for us to locate here [Suzhou Industrial Park]. (Assistant General Manager, American company 10, Canadian citizen, male, aged 30–5)

Therefore, the software transfer programme to transplant a Singaporean operating system to the Suzhou Industrial Park was a competitive advantage, at least for the enterprises that located operations within the estate. The main reason for this advantage was not only because it was perceived to be highly efficient and transparent, but also because many of the tenants were familiar with it. Political support Another frequently cited factor that influenced industrial transnational corporations’ choice for locating in the Suzhou Industrial Park was the ‘government-to-government (G2G)’ collaboration. Although the collaboration was a wide ranging series of measures, for many respondents, the ‘G2G’ nature of the project could be simply defined as having very high levels of governmental support and backing: Their [The Chinese and Singapore governments] co-operation and commitment in locating a world-class industrial park in Suzhou is a tremendous achievement and was very important to us in making the decision to locate our new factory here. (W. Russell Morcom, VP and GM, Harris Semiconductor Products Division, quoted in Singapore Investment News 1 May 1996) One reason why this park [Suzhou Industrial Park] is special is because of the high level of political support it receives from the China and Singapore governments. It is a national project, and governments do not want national projects to fail. So they will invest heavily in the project and make sure the project does well in the long term. Therefore their support would clearly benefit us as well. (Human Resource Manager, American company 24, Chinese citizen, female, aged 35–40) We felt that locating in a park, which had the strong political support of two governments, would be beneficial to us. If there

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were operational problems for us, we would be able to go directly to the top and get it fixed. Being here [in the Suzhou Industrial Park] was therefore better than being in an obscure industrial estate, far away from the radar of the government. (General Manager, Japanese company 20, Japanese citizen, male, aged 50–5) I think the relationship between Singapore and Beijing was very good. The leaders seemed very friendly with each other. I think that [the relationship] was important to us at the time. Our company felt secure under this umbrella. (General Manager, European company 12, Chinese citizen, male, aged 40–5) For some respondents, the overt political support from the top leaders of the China government was most important. For example, several respondents pointed out that the Suzhou Industrial Park had a disproportionately high level of support ‘from the central government’ considering the zone’s relatively small geographic size: Remember, China is a world superpower, and therefore it has superpower issues to deal with. Yet it appears to have given the SIP high priority. That tells us that the two governments will not let this park fail (or close down in the short term). Both their reputations rest on making this place a success. (General Manager, American company 13, Singaporean citizen, male, aged 40–5) To get any concessions out of the China government is a major coup. You see the WTO negotiations, and the NAFTA thing with the Americans. China never gives anything away. And they simply do not negotiate over things like Hong Kong, Macau and of course Taiwan. But look what the Singapore government got out of this. The SIP gets SEZ status, placing it as one of the most important sites in China. And then, there are all these privileges. This made the SIP very prestigious in China, which only benefited investors. (General Manager, American company 22, US citizen, male, aged 30–5) At the time (1994–6), we were monitoring the relationship between the Singapore and China government. We saw that the

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Finally, many respondents chose to locate within the zone because they believed that the high level of governmental support could enhance their own operations, as the following quotations indicate: If there are operational problems, such as tax problems or legal obstacles, we believe that by having top-level support at this park, we can get these sorted out faster and more efficiently. For example, we complained about one particular tax item, where we felt we were being taxed twice. When we brought this up with the park authorities, within days Beijing had a response. It is very important to have a direct line both to Singapore and to Beijing. And it is also very important that the line between those two is also good. (General Manager, Singaporean company 5, Singaporean citizen, male, aged 30–5) Because this park is a big cooperative project for the two governments, we get lots of top level visitors – [China’s Premier] Jiang Zemin has visited this place, [China’s Prime Minister] Zhu Rongji has been here twice in four years, [China’s Vice Prime Minister] Li Lanqing comes here once a year; on the other side, [Singapore’s Senior Minister] Lee Kuan Yew, [Deputy Prime Minister] Lee Hsien Loong and several others come here very frequently. This keeps the CSSD and SIPAC on their toes! They have to make sure that every time somebody big comes, they have good news to tell them; either in terms of new investments, new developments and so on. And they have to keep this place looking perfect! Now, this can only benefit the tenants. (General Manager, American company 13, Singaporean citizen, male, aged 45–50) Although all the respondents highlighted the ‘government-togovernment’ collaboration as a factor that encouraged their locational

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decision, this research found that this high level of political support carried some disadvantages as well. Several respondents said that the Suzhou Industrial Park’s high profile could potentially bring some negative effects: Although the high level of political support had some benefits, it had some costs as well. We knew from our experience of operating factories in many countries around the world that such a high level governmental project would mean that we were under the microscope all the time. There would be a regular flow of dignitaries, officials, politicians, and a whole string of other visitors. And we knew that this place would constantly be in the media spotlight. But with our experience, we knew how to handle the attention and still get work done; I [as manager] was more often diplomat than operations manager. (Operations Manager, European company 7, Chinese citizen, male, aged 35–40) Being located in such an important national project could bring about some disadvantages. For example, things here tend to be stricter and more rigid than in other places. So in a place like this [Suzhou Industrial Park], everything had to be perfect, even the lawn in front of our factory. Of course, the obsession with keeping this place perfect might detract us from our main mission, which is the manufacturing of our products. Thankfully, we managed to get on with our job. (Human Resource Manager, American company 9, Chinese citizen, female, aged 35–40) Some respondents indicated that the ‘close’ relationship between the two governments served as a form of assurance, both in terms of improving operational efficiency as well as in terms of indicating the long-term viability of the Suzhou Industrial Park: You must remember that the SIP had two landlords: the China government and the Singapore government. It would be very bad for the tenant if the two landlords did not get along. (General Manager, Singaporean company 3, Singaporean citizen, male, aged 45–50) In the early years, we believed that when the two governments were close, our day-to-day existence would benefit; we were sure

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Complementary collaboration that we could get priority treatment being under their umbrella. Also, one of the most serious concerns of any foreign investor in China was the long-term viability of any estate. When we saw that the two governments were close, we knew this place [the SIP] would have a long-term future. (General Manager, Singaporean company 9, Singaporean citizen, male, aged 35–40)

The high levels of political support and the ‘high visibility’ close relationship between the two governments (at least between 1994 and 1997) proved to be important factors that encouraged the location of transnational corporations at the Suzhou Industrial Park. From the interviews, these factors directly improved the long-term viability of the estate, in turn acting as an incentive to encourage companies to locate. These factors performed the function of reducing uncertainty and risk for potential tenants. Again, it has to be pointed out that there are many other industrial transnational corporations that have demonstrated that they were willing to invest in China even without these infrastructural or administrative advantages, or even without any degree of state support. At one level, this research has shown that there exists a particular ‘type’ of industrial transnational corporation that required ‘assurances’ and ‘security’ before they invested; at another level, it also shows that the inter-governmental collaboration was effective in that it identified this particular ‘type’ of foreign investor, and created conducive conditions to attract them.

Supplementary advantages On the basis of the interviews, there were supplementary reasons behind the location decision of the industrial tenants, in addition to the three main reasons (the infrastructure, the administration and the political support). These included the zone’s geographical advantages and so-called ‘Singaporean connection’. There was strong evidence that the Suzhou Industrial Park’s geographic advantages were important to the locational decision of the industrial transnational corporations. As discussed in the previous chapter, the Singapore government chose to locate the zone in Suzhou because of the city’s proximity to Shanghai, and its high level of human resources. As it turned out, these reasons were also important determinants, with the zone’s proximity to Shanghai as being the most important of the ‘supplementary’ reasons:

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We have selected Suzhou for its access to customers, transportation logistics, and the availability of labour, engineering resources and materials. (Ken Tsai, President of Solectron Asia, quoted in Singapore Investment News 1 January 1998) The region is very industrialized and is an excellent location for us to source for raw materials and market our products to the surrounding companies. (C. F. Chai, Vice President of Littelfuse OVS (Suzhou) quoted in Singapore Investment News 1 May 1996) I think Suzhou is really good. We are one hour away from Shanghai’s airport. And Shanghai has a major port. That means we cut down on internal transportation times. That’s costs savings. And there’s this new highway (Nanjing–Shanghai highway), where I can get people to or from Shanghai quickly. (General Manager, European company 2, Chinese citizen, male, aged 35–40) In fact, my main office is in Shanghai. All we have here is one floor manager and the production team. I can hop over here within an hour – traffic conditions permitting. And we can stay in Shanghai to be close to the banks, diplomats, whatever. Any further inland and we would have to consider opening a full office together with the plant. (General Manager, European company 8, Hong Kong citizen, male, aged 35–40) Some respondents also highlighted that Suzhou benefited from Shanghai’s cosmopolitan character. This meant they could access all of Shanghai’s ‘international amenities’, including its commercial services and international airport. However, the most commonly cited aspect about Suzhou’s location was its proximity to many other zones that housed many industrial enterprises. Respondents indicated that ‘clustering’ and ‘networking’ were very important for them, as it allowed them to source for the best and cheapest inputs, and also exchange information. Thus, being located in Suzhou would allow their firms to tap into one of the densest industrial networks, which could be found in the Pudong New Area in Shanghai. By 2002, this estate claimed to have over 8,000 foreign-funded projects, investing

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over US$40 billion; in addition, the estate housed over 6,300 domestic projects (Shanghai Daily 31 October 2002). The research also found that many respondents felt that Suzhou’s human resource supply and relative prosperity, aspects which the inter-governmental collaboration had marketed heavily, were only ‘mildly’ important reasons for their companies’ locational decision: Human resources may have played a part in our decision, but to be honest, China is so uniform that we will find plenty of university graduates, technical school graduates and high school leavers wherever we go. (General Manager, American company 20, Chinese citizen, male, aged 35–40) If there is one thing that China has in abundance, it is labour. If we really wanted cheap labour, we could have gone to the inner provinces, where the wages are really low, even for university graduates. But Suzhou is adequate, not as expensive as Beijing or Shanghai, so we are fairly satisfied. However, I won’t say we came to Suzhou only because of the human resources. (General Manager, Singaporean company 9, Singaporean citizen, male, aged 35–40) Several respondents suggested that if Suzhou was a prime reason for their companies’ locational choice, they did not have to locate their factories within the Suzhou Industrial Park. Respondents suggested that within Suzhou city itself, there was the Suzhou New District – located to the west of Suzhou’s historic centre – which also permitted foreign investment. There were other similar zones near Suzhou that allowed for foreign investment, including Kunshan, which was 15 kilometres east of Suzhou (and thus closer to Shanghai), as well as the Lake Tai industrial zone, which was 20 kilometres west of Suzhou city. Locating in any of these estates, the foreign investor would still enjoy all the same geographic advantages as the Suzhou Industrial Park. Furthermore, all the respondents were keenly aware that property prices at these estates were lower than at the Suzhou Industrial Park. However, all of the senior managers interviewed, categorically said that their companies ruled out locating in any of the nearby zones, reiterating that the Suzhou Industrial Park’s infrastructure, administration and high level of governmental support were much more important for their companies:

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We evaluated this park on a cost and benefit basis starting from the position of where the Singapore government was (going to set up). Now, the Singapore government isn’t going to place it in some God-forsaken wilderness; of course they want to get the location right. So once they chose Suzhou, we came here. (Financial Controller, American company 10, Canadian citizen, female, aged 25–30) Another supplementary reason for the tenant’s choice of locating within the Suzhou Industrial Park could be described as ‘the Singaporean connection’. Of the 56 enterprises included in the sample, ten of them were ‘Singaporean’ enterprises, consisting of six Singapore government-linked enterprises and four private enterprises. Of the remaining 46 enterprises in the sample, 30 of them either continued to maintain operations in Singapore, or formerly had operations in Singapore. Thus, only six enterprises in the sample did not have any prior ‘connection’ with Singapore. For Singaporean enterprises, all the respondents said that it was ‘automatic’ that they would have chosen to locate their operations within a ‘Singaporean-run’ estate: If we wanted to be in Suzhou, it was a no-brainer to select the SIP [Suzhou Industrial Park]. Yes, there was the [Suzhou] New District and several other open zones, but these other places were never an option. Why would we go to places to deal with strangers when we had our own people here? (General Manager, Singaporean company 5, Singaporean citizen, male, aged 35–40) Actually, we were advised to come here by the Singapore Economic Development Board. Of course we could have ignored the advice, but that would not have made any sense. In any case, it was easier to deal with Singaporeans and Chinese bureaucrats that knew what Singaporeans were like. (General Manager, Singaporean company 7, Singaporean citizen, male, aged 40–5) We are a small company, which did not have a lot of international experience. We decided it was best to locate our first venture in China within a Singaporean-run zone. Maybe in the future we might dare go somewhere else on our own, but the SIP was the

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For the other non-Singaporean transnational corporations, many claimed to have a Singaporean connection. Several of the respondents said that their enterprises still had operations – mostly as regional headquarters – in Singapore. Thus, they were in a position to receive a lot of information about the Suzhou Industrial Park from the CSSD’s Singapore office, as well as from the Singapore Economic Development Board’s main headquarters. Furthermore, between 1994 and 1997, the inter-governmental collaboration was also frequently highlighted by the local media, thus generating even more publicity for the zone: Our Asia regional headquarters is located in Singapore. And we used to have two factories there as well. So when we had expansion plans in the region, the CSSD and the EDB approached us in Singapore, and provided us with a lot of information. In that way, you could argue that we were already biased towards the SIP. From our Singapore base, we did not have that much information about other sites in China. Of course, we still had to make the trip to China to survey a bunch of sites, but our choice was always leaning towards the Singaporean-run SIP. (General Manager, American company 9, UK citizen, male, aged 40–5) We have had a factory in Singapore for over 20 years, and we know and like how things work in Singapore. We still maintain a good relationship with the Singapore Economic Development Board, and they were a good broker in helping us find a suitable location for our manufacturing in China. (General Manager, Japanese company 7, Japanese citizen, male, aged 40–5) It must be pointed out that for many of the Suzhou Industrial Park’s tenants, they had made their decision to locate either before building work had begun, or while the development was under way. In this sense, many of them trusted the Singapore government’s ‘promise’ to deliver infrastructural and institutional advantages, which was enough to encourage these companies to locate at the zone.

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The ‘other’ reasons for locating at the Suzhou Industrial Park included agglomeration objectives, and ‘dumb luck’. Agglomeration could be defined as locating to take advantage of supply links or being spatially close to one’s business partners. This was frequently articulated as: ‘We are here, because we supply so-and-so, who is also here’. This implied that companies that located to take advantage of agglomeration would probably have located wherever else their recipient company had chosen. This was the case for seven companies in the sample: Our company took a lease at the SIP because we directly supply them [a North American electronics company], who are across the road. In fact, we virtually made the choice to move [to China] together. I recall the Chief Executive Officers of the two companies coming to this agreement back in Singapore. (General Manager, American company 17, Taiwanese citizen, male, aged 45–50) Our company will follow [European company] wherever they go. They chose to come here, so it was a simple decision to locate here as well. They are the big brother, we are the little brother. The little brother will follow, the big brother will lead. (General Manager, Singaporean company 6, Singaporean citizen, male, aged 40–5) Interestingly, one company came to the Suzhou Industrial Park not because of its promised or actual competitive advantages, but because of ‘luck’: Our company located here simply by chance, what you might call dumb luck. We wanted to be in Shanghai Pudong, because our customers were all there. But our competitor had good connections with powerful people there. So we actually had applied for a business licence, and it got rejected several times, for reasons that we felt were unreasonable. So over one weekend, the former manager decided to come for a sightseeing trip to Suzhou, drove past this industrial park, which was actually only a signboard at the time. He noted the name, and cabled to our HQ to follow up. Three months later, we had the business licence in our hands. Nine more months down the line, we were fully operational. (Assistant General Manager, European company 13, Belgian citizen, male, aged 40–5)

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The data from the research would suggest that the inter-governmental collaboration has been successful in encouraging a particular ‘type’ of industrial transnational corporation, those that sought to take advantage of the advantages created by the zone, to locate operations in the Suzhou Industrial Park. It must be stressed at this point that the zone must be viewed in its proper perspective; for Phase One, which was about seven square kilometres, the target was to have about 150 enterprises take up tenancy. This number was very small compared to industrial zones in Guangzhou (Shenzhen) and Shanghai. Thus, with the strategies adopted by the collaborating governments, the target was not that difficult to achieve. However, what was important to note was that the level of FDI for Phase One was very high. According to Singapore’s Deputy Prime Minister, Lee Hsien Loong, who also was the joint chairman of the CSSD’s Steering Council: To-date, the SIP has attracted 99 projects with investment commitments of US$2.7 billion, of which 80 are industrial projects worth US$2.1 billion. The average size of the projects at US$27 million each was the highest in China and 44 were already in production with another 22 under construction. (Quoted in Singapore Business Times 15 January 1998) Therefore, it could be concluded at this stage that the main objectives of the inter-governmental collaboration were still believed to be attainable. As far as the Singapore government was concerned, the strong demand for industrial property appeared to indicate that the zone had the potential to become profitable. For the China government, the presence of industrial transnational corporations – as they were committing very high levels of FDI – laid the foundation for future developmental effects to the local area, particularly in the spheres of employment generation and technology transfer.

Evaluating the zone The second part of the field research in Suzhou was to get the respondents to evaluate their tenancy of the Suzhou Industrial Park. They were asked to comment on aspects that they either found to be ‘satisfactory’ or ‘unsatisfactory’, and then to identify the most outstanding aspect for each category. Respondents were also allowed to elaborate freely on these and any other issues. The objective of this research was

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to assess whether the promises made by the collaborating governments were realized, at least to the tenants. If these promises were realized, it would also mean that their collaborative strategies were successful. The data from the interviews gave a very strong indication that as far as the respondents were concerned, the Suzhou Industrial Park’s most successful aspect was the ‘software transfer’, followed by the estate’s infrastructure, the level of political support, and its geographic location, in a descending order of importance. It was significant that it emerged that respondents were willing to identify several aspects of the zone which they felt were less than satisfactory: these included the estate’s operating costs, and the quality of human resources in Suzhou. The following section examines both aspects in greater detail. Assessing SIPAC This research found that all 64 respondents in the sample considered the ‘software transfer’ in the Suzhou Industrial Park to be the most successful aspect of the collaborative project. Indeed, many respondents felt that the Suzhou Industrial Park had become very much like Singapore, in terms of its day-to-day operations. Nearly all the respondents said that SIPAC was ‘exemplary’ in being able to understand and implement the so-called ‘Singaporean operating system’: We’ve been here over two years now, and by and large, you can say this place resembles Singapore more than China, especially in terms of the rules and the laws, and the management of the park. We didn’t actually believe that this was possible in China. We thought that maybe the Singapore government could implement 50 per cent of their system here, which is a pretty good achievement already. Instead, I would say that it probably achieved 80 per cent and above. (Human Resource Manager, American company 2, Chinese citizen, female, aged 35–40) After two years here, I can safely say that the administration here in the SIP is pro-business, efficient and transparent. The Chinese administrators treat us as important clients, look after our welfare, and do whatever it takes to help us in our operations. For example, this request has a fixed three-day response time, or queries have a two-hour response time. This place is also predictable, which means we don’t have many surprises. Rules,

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Nearly all the senior managers interviewed reported that they were ‘satisfied’ with SIPAC’s performance, especially for its ‘business license approval’ procedures. On average, it took a fortnight for SIPAC to approve most projects, compared to an average of three months in other zones in China: We are a Western multinational company. We operate entirely above board. We don’t like hidden costs and personal benefits in business. We came on the basis that there would be a Singaporean system here. We can justify every single entry honestly in our account books. (General Manager, European company 5, Malaysian citizen, male, aged 35–40) We chose to invest in the SIP because we have confidence in the Singaporean-style management adopted by the Suzhou authorities. SIP has a pro-business environment. (C. F. Chai, Vice President of Littelfuse OVS (Suzhou) quoted in SEDB Press Release 25 March 1996) SIPAC was fast, clear and efficient. When we had not supplied the correct information, or had some vague figures, they contacted us for requests for information. We took over a month for our application, but some of that was our own fault, not theirs. (Operations Manager, Singaporean company 6, Singaporean citizen, male, aged 35–40) SIPAC has performance targets it set itself, and it states on its application forms that it estimates that it will take between two and four weeks to process, upon receipt of all the forms and necessary documents. In reality, they got ours done in a week

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and a half. This was amazing, because we submitted all our papers from Singapore by post and we weren’t even physically here. I heard that when other branches were applying to other zones in China, they had to wine and dine officials as part of the process. We didn’t face anything like that. The license came back so quickly, that in fact, it was a minor cost to us because we couldn’t operate – our factory hadn’t been renovated yet – but had to begin paying licence fees and those sorts of things. But better to have that, than being stuck in some red tape somewhere between here (Suzhou) and Beijing. (General Manager, European company 15, Singaporean citizen, male, aged 50–5) In November 1998, SIPAC made the unprecedented move of publishing ‘performance vows’ (Singapore Straits Times 10 November 1998). SIPAC announced that, for example, it would deal with emergencies within 24 hours (or within 72 hours for major breakdowns); respond to enquiries or answer correspondence within seven working days; and where matters required approval outside the authority of SIPAC, the agency would work with the relevant local departments to ensure that the requisite approval is obtained within three working days in general or seven working days at the latest (ibid.). It was even reported that these ‘performance vows’ were designed ‘to improve the investment environment further at the industrial park and to raise standards of service for domestic and foreign investors’ (ibid.). Although such a gesture might appear symbolic, it was highlighted by the Chinese media as being the first of its kind in the country. More importantly, even though other industrial estates might claim to be equally efficient, with this publication of the performance vows, SIPAC had institutionalized its service standards. This placed tremendous pressure on SIPAC to uphold these vows. Based on the research, most respondents included in the sample were aware of the performance charter: That they dare to state their duties so formally must put an awful amount of pressure on themselves. Imagine if they – for some reason – cannot deliver. I can just about imagine heads rolling. Come on, it is quite safe to say that nobody [companies] is going to read every letter of the law to SIPAC, but at least its there. They can’t fudge it later, or make up some rule as they go along. In the end, we benefit. (Human Resource Manager, American company 3, Singaporean citizen, male, aged 45–50)

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Many respondents indicated that they were very satisfied with SIPAC’s ‘transparency’. This was defined, by most companies, as an absence of ‘grey’ practices; instead, they were impressed by SIPAC’s adherence to ‘published’ procedures: For every problem, there is a black and white solution sitting in their investment guidebook. These officials carry this guidebook everywhere they go, and refer to it like a bible. So whenever we ask questions, they flip it open and refer to it. Everything is above board. If the answer is not in that book, they will get back to us in writing. I think in the west, if bureaucrats carry the rules around, something is wrong. Over here, it is a bonus! (General Manager, American company, Singaporean citizen, male, aged 35–40) The majority of managers interviewed felt that SIPAC officials were ‘professional’, in terms of being committed and competent at their duties. Ironically, when asked to elaborate on this ‘transparency’ and ‘professionalism’, most of the managers found it difficult to think of specific examples because they reported that everything proceeded mostly according to procedure and there was in fact no exceptional or outstanding aspect that stuck in their mind. But as one manager put it: ‘We prefer such dull but predictable transactions over uncertainties’ (General Manager, Japanese company 7, Japanese citizen, male, aged 40–5). On the aspect of ‘service’, many respondents were satisfied with the assistance provided by both CSSD and SIPAC during the businesses’ ‘start-up’ phase and the ‘after-sales’ service. Some respondents also identified the willingness of CSSD and SIPAC to solve problems, as well as receive feedback and criticism. Several respondents also said that CSSD’s willingness to act on behalf of the tenants under certain circumstances, especially when having to clarify certain legal or financial policies, was very helpful: We have 12 other plants in China. This was number 13. Lucky or unlucky number? Well, this plant took six weeks for the business licence to be approved, and three months renovation to the readybuilt factory. From the day headquarters approved this plant until the day we ran our first line, it was six months. The other 12 plants took an average of one year to start up. On the one hand, you can say we are a lot more experienced about doing things in China, after all, we’ve filled that business application form many times.

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Personally, I’ve filled it up three times [started-up three other factories]. But the process here was by far the smoothest and easiest. The CSSD and SIPAC officials were very efficient and helpful. (General Manager, European company 10, Finnish citizen, male, aged 40–5) This research also took the opportunity to solicit views from both China and Singaporean officials directly involved in the Suzhou Industrial Park themselves about the ‘software transfer’ programme. All the respondents reported that the software transfer programme was highly successful: The Chinese officials have shown that they can learn fast and thoroughly. They also were very interested and serious about the training. They weren’t in Singapore for a holiday for sure. Having been here for nearly four years, I personally can say that they were trying to implement what they learnt. Don’t just ask me, ask the companies. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) These SIPAC officials are a breed apart. Today [1999], they are miles ahead of their peers who are administrators in other zones. They think and act with the aim of assisting companies to do well here. We’ve shown them that if companies do well, they also do well. If companies feel that these fellows are not doing their job, they tell other companies not to come, and these officials’ jobs would be at stake. This is how they remain motivated and committed to the training we gave them. (SEDB Official, Singaporean citizen, male, aged 40–5) We learnt a lot from the Singaporeans. But what is most satisfying is that I can say that we can see the results of this training. Companies are happy with our work. This gives us the will to maintain this standard. (SIPAC official, Chinese citizen, male, aged 25–30) Sometimes, it is difficult for us. We have to behave in one way when we deal with the companies and the Singaporeans, and when we go downtown (Suzhou city), we have to use a different system. But we can do it, and by now, we are used to it. It just takes getting used to. (SIPAC official, Chinese citizen, male, aged 30–5)

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The software transfer programme was also cited as the most successful adaptation of the Suzhou Industrial Park in a study conducted by the Department of Business Studies at Nanjing University (see Wang 1998). Therefore, from the perspective of the respondents, which included Singaporean and Chinese officials as well as senior managers of companies in the park, the software transfer programme had achieved its objectives: the Suzhou Industrial Park had a distinctive Singaporean ‘operating system’, which was viewed as a competitive advantage. SIPAC’s performance was described by most as being atypical of other Chinese administrators; instead it was described as being highly professional and efficient. There could be three possible explanations for why the software transfer programme was effective: first, it had the backing of the China government. As suggested in the previous chapter, the software transfer programme was viewed as a possible path towards capitalism for the country; thus, the senior leaders in the Beijing government lent their weight to support the programme. As a result, the SIPAC officials were pressured to deliver the results. Second, SIPAC itself had incentives to implement the system effectively. SIPAC bureaucrats had to justify their relatively high salaries (when compared to other Chinese bureaucrats); many employees probably were worried that if they performed poorly in administration, they could be ‘replaced’. Finally, SIPAC was operating autonomously from other local authorities, governing a relatively small area. Thus, the software transfer programme did not threaten the status quo elsewhere in the city. However, from a motivational perspective, SIPAC officials themselves have expressed that they could see the positive impact of their acceptance of the Singaporean operating system, especially in terms of attracting and servicing investors. Thus, it could be argued that SIPAC was probably the most successful outcome of the inter-governmental collaboration. It demonstrated that the software transfer programme was not only viable for transplantation, but also easily adopted by the Chinese authorities. The fruits of the programme were evident, based on the positive assessment from nearly all the respondents included in this research. Teething problems The research did find some levels of dissatisfaction among the managerial respondents with the Suzhou Industrial Park. Interestingly, some respondents openly expressed dissatisfaction with the Singapore

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government. This could be attributed to the research being conducted immediately after the events of June and July 1999, when the Singapore government announced it was disengaging from the collaborative project. Therefore, this aspect will be examined separately in the next chapter. Also, the research found that many respondents were also dissatisfied with the Suzhou Industrial Park’s ‘costs structures’. When probed, many respondents singled out the zone’s relatively high per unit land cost as their source of dissatisfaction. This affected companies that bought the leasehold for the property as well as those that were sub-leasing ready-built factories. It was found that between 1994 and 1999, the land cost at the Suzhou Industrial Park was an average of 25 per cent higher than a similar plot across town at the Suzhou New District, and up to 40 per cent higher than in most other zones in China. The only exceptions were the Special Economic Zones, particularly Shenzhen, Shanghai’s Pudong New Area and estates in Beijing. In addition, several respondents indicated that they felt that conservancy charges – such as water, gas and electricity charges – were also high, especially compared to other industrial estates in China. When these respondents were asked if they felt they were getting value for money from the park, all of them retreated by suggesting that they understood that their companies were paying for premium services. Indeed, these respondents said that they would not consider relocating to another industrial estate in China. The reasons given included the high relocation costs, the availability of a Singaporean operating system and the assurance of quality infrastructure and utilities at the Suzhou Industrial Park. In this sense, these respondents simply wished that the costs were lower so that their operating margins would ‘look better’. Other ‘costs’ that some respondents found to be ‘unsatisfactory’ included having to provide free meals to employees, high building or renovation costs (for their factories), and high expatriate living costs (borne by the company). Again, bearing in mind that the interviews were conducted in 1999 after the onset of the Asian Financial Crisis, several respondents clarified that they felt the Suzhou Industrial Park’s relatively high land cost was exacerbated by the common use of ‘discounts’ at other Chinese industrial estates. As the next chapter will demonstrate, this was one of the biggest ‘headaches’ that the inter-governmental collaboration faced, as it severely reduced the competitiveness of the Suzhou Industrial Park. Certain respondents also indicated that they were dissatisfied with Suzhou’s ‘Human Resources’. For instance, one company said that hiring factory operators was easy but finding supervisors and administrative managers was very difficult. Furthermore, this respondent

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reported that ‘poaching’ was practised by many tenants within the park. This meant that some enterprises would ‘steal’ employees from their neighbours by offering higher salaries and perks. This drove costs up as companies had to compete to acquire or retain staff, or had to recruit from outside the region: I would say that the level of human resources in Suzhou is actually pretty poor. I don’t think the city has enough people at the junior executive or senior technical levels to satisfy the many multinational companies here. We realized this when we began recruiting personnel for these positions, and found a huge shortage. This was of course in stark contrast to the view from the CSSD and the Suzhou government that the city has some of the highest levels of human resources in China. In the end, many companies ended up recruiting university students even before they graduated. The only other choice would be to recruit people from other cities, but that is an expensive process for us. (General Manager, American company 19, Hong Kong citizen, male, aged 45–50) Still, the research indicated that the tenants at the Suzhou Industrial Park were generally much more satisfied than dissatisfied. Many of them felt that the Suzhou Industrial Park was generally very good but had a few ‘teething’ problems. Some respondents admitted that it was perhaps wishful thinking to expect a perfect industrial estate. In other words, the majority of these companies felt that their expectations for locating had been generally met. Most industrial tenants were ‘willing to pay the (financial) premium’ to be located in the Suzhou Industrial Park.

Synergy It has been a long two years since we started up, but we have now established the most important aspect of any China project: trust and understanding between partners. (Chan Soo Sen, Chief Executive of CSSD, quoted in Singapore Straits Times 15 February 1996)

The data from the research generally indicated that the inter-governmental collaboration was successful in creating competitive advantages for the Suzhou Industrial Park. Not only did it generate demand for industrial property from industrial transnational corporations, it

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also led to a high inflow of FDI between 1994 and 1997. Furthermore, the research found that most tenants were generally satisfied with their tenancy at the Suzhou Industrial Park, indicating that the specific strategies implemented by the collaborating governments were also effective. These aspects should have laid the foundation for a period of sustained development and growth for the zone. Instead, the zone suddenly faced a series of problems, which almost led to a deterioration in the inter-governmental collaboration.

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Crisis

Between 1994 and early 1997, the Suzhou Industrial Park was one of the most successful zones for attracting foreign investors. However, from the last quarter of 1997 until mid-1999, the zone was ‘in trouble’, as it was not only economically uncompetitive but also losing money. The most commonly cited reasons for the project’s problems were the impact of the Asian Financial Crisis and the intense competition from another industrial estate within Suzhou. This chapter explains why and how these problems placed the intergovernmental collaboration under tremendous strain.

External shocks In mid-1997, in a report to the Singapore government, the CSSD forecasted that the Suzhou Industrial Park was facing eroding competitiveness. This projection was based on the dramatic slowdown in the number of potential investors making inquiries in the first half of the year. According to the CSSD marketing manager interviewed, the zone targeted an annual growth rate of about 5 to 8 per cent in the first ten years. This figure was already conservative, considering that China’s national economic growth averaged 10 to 15 per cent in the early 1990s (Information Office of the State Council of the People’s Republic of China 1999: 1). In 1997, China’s GDP exceeded US$900 billion, which was the seventh largest in the world (ibid.). Between 1994 and 1997, the Suzhou Industrial Park’s FDI growth rates averaged 20 per cent (see Chapter 1). This translated into high occupancy rates at the zone, with only 10 per cent of the units for Phase One remaining unsold as of 1997. However, as 1997 proceeded, the mood of optimism turned to pessimism. The CSSD marketing manager explained the situation:

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Crisis You can say that business at the office has been slow since 1997. The new companies that started up in 1998 and 1999 were those that were signed up before or during the early months of the Asian Financial Crisis. Yes, we have had some business, but definitely not of the size and the scale we got in the early days, and mostly smaller than we hoped for. I would attribute the slowdown to the crisis itself. You see, the type of multinationals that come here are mostly those that are in the process of expanding operations, and willing to shift some lower end operations here. Under the pressures of the crisis, there was no logical reason for any company to be expanding. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40)

This meant that the zone’s short-term prospects for growth were drastically reduced. If the zone was unable to attract new tenants, the inter-governmental collaboration would be placed under strain. Without additional industrial transnational corporations, the China government would not be able to realize developmental effects such as employment creation and technology transfer for Suzhou. Similarly, the Singapore government would not be able to generate profits from the sale or lease of industrial units which, in turn, meant that it was unable to supplement Singapore’s domestic economy. The Asian Financial Crisis, which began in the middle of 1997, was identified by many respondents as a root cause of the Suzhou Industrial Park’s economic problems. This might appear to be surprising, considering that China’s economy largely managed to escape the crisis (see Naughton 1999). The Asian Financial Crisis began as a currency crisis but soon turned into ‘a crisis of the productive economy’ (Wade 1998: 1535). Many East and Southeast Asian economies were ‘dragged down’ by the ‘contagion’ effect of devaluating currencies (Chua 1999: 782). As a result, the markets for manufactured products shrank rapidly: The Asian economic crisis, as it has developed since 1997, has had disastrous consequences at a number of levels. Most obviously, it has led to bankruptcies, collapsing currency values, falling gross domestic product (GDP) and dramatic declines in the living standards of swathes of working and middle class people in those economies that have been most deeply affected. (Henderson 1999: 2)

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The crisis had a twofold impact on the Suzhou Industrial Park. First, existing tenants – industrial transnational corporations – were facing difficult economic conditions and were therefore not expanding operations. Second, the weak global and regional economies reduced the number of potential new tenants – industrial transnational corporations that sought to establish new ‘greenfield’ factories. For the existing tenants, the rapidly contracting Asian and regional market was a significant worry. The CSSD and SIPAC officials interviewed indicated that the first signs of ‘trouble’ could be seen when some companies located in the zone, particularly those involved in the electronics, semiconductors and IT sectors – sectors that were the most badly affected by the Crisis (Legewie 1999) – were struggling to stay financially afloat. Nearly three-quarters of the respondents in this research’s managerial sub-sample reported that the Asian Financial Crisis had affected their operations ‘negatively’, while the rest reported ‘no effect’. Of those who reported negative effects, two-thirds blamed the weak global demand for their products, which was directly caused by the crisis. Twelve companies said that their business was affected ‘very seriously’: Since the crisis started, we have been ordered to reduce production to around 40 per cent of capacity. This is terrible for us, as we came to China to satisfy growing demand in the region. How quickly things change. (General Manager, American company 12, Malaysian citizen, male, aged 35–40) This research found that only one company, which manufactured semiconductors, located at the Suzhou Industrial Park ‘went under’ in the last quarter of 1998 specifically because of the Asian Financial Crisis: I was the first general manager for company x. I was posted to China to acquire the property from the park developers, and I ordered the building of the factory. I was about to hire around 200 workers for our factory in 1997 when suddenly the US HQ told me to halt all operations. The world semiconductor market had dried up, and our HQ projected that operations here [in Suzhou] were no longer viable. In the first quarter of 1998, I was headhunted by company y, who were also planning to come to Suzhou. They were involved in a totally different sector, and wanted somebody with local experience. They knew I was not

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Crisis happy sitting in a factory with one security guard and one secretary. Some time in the middle of 1998, company x’s US HQ told me that they had decided not to proceed with operations in Suzhou. I was ‘retrenched’ as a sign of goodwill, and free to join this new company. However, in return, I have assisted in trying to find a buyer for the idle factory. It is very difficult because it was custom built to suit our operations. And frankly, it would only suit semiconductor operations. (General Manager, American company 5, Singaporean citizen, male, aged 45–50)

This research found that despite the Asian Financial Crisis, none of the companies included in the sample had laid off employees although 15 out of the 56 companies had lowered output levels. They were also not aware of other tenants retrenching any employees. However, many respondents admitted that they intentionally hired fewer employees than they had originally planned: Our company chose to proceed cautiously when we realized the crisis was not going to be a short-term problem. Our original plan involved establishing operations in January, and only hiring the bulk of our operators in May, when students in technical school graduated. We were looking for maybe 50 to 75 operators this year. But with the crisis, head office in America told us to halve output, because they were worried about excess capacity. So we only hired 30 operators. Maybe this was a blessing in disguise, as I could then train them properly. 75 brand-new operators might have been a bit problematic, especially for our first venture in China, from a training and human resource point of view. (Financial Controller, American company 15, Chinese citizen, male, aged 35–40) Some respondents explained this strategy by stating (to the Chinese authorities) that their companies were still in the process of startingup or ‘slowly growing’. They would only hire to full capacity when output was expected to be at full capacity. However, with the crisis under way, the majority of the tenants faced diminishing capacity. Several respondents said that they would recommend to their headquarters to recommence their original employment plan ‘after the crisis had blown over’. They were, as of 1999, unable to predict when this might be.

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The ‘slow down’ strategy of the industrial transnational corporations located at the Suzhou Industrial Park had ramifications for the developmental strategies of both governments. With the industrial tenants’ decision to operate at ‘sub-optimal’ levels (in terms of production and employment), the zone only employed 14,000 employees, which was significantly lower than the projected figure of around 40,000 for Phase One, according to a SIPAC officer interviewed. This clearly ‘disappointed’ the Chinese government. The zone was supposed to be a powerful development engine that generated employment for the local area: I think the employment figure is an interesting issue. You see, we have almost full occupancy here in Phase One, in terms of the number of companies taking up leases. But most companies were under-hiring workers. This was something we had a bit of a problem explaining to the higher authorities. High tenancy, low employment. (SIPAC official, Chinese citizen, male, aged 30–5) With existing tenants not expanding their operations due to the crisis, the Singapore government was also not benefiting from the collaborative project as additional units were not being sold or leased. However, a more serious problem which the CSSD – and by extension the Singapore government – faced was finding new tenants. According to a CSSD official: In the initial masterplan, we were supposed to start marketing Phase Two in late 1997. In our line, we work on a two-year time lag, so we wanted to tie up some investors by mid-1998. This was to report that we had secured several investors at the official launch of Phase Two in 1999. But 1998 was a really slow year, and 1999 was not much better. In fact, many of the prospective companies during that period consisted of such small investors that we could fit them into the unsold plots in Phase One. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) In the latter half of 1997, noticing a visible drop-off in prospective investors, the CSSD sent out short-term profit warnings. However, even though both partners were worried, the zone’s financial performance concerned the Singapore government more than the China

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government. For the Singapore government, its developmental objectives would only be realized if and when the zone generated financial profits, which then could be utilized to supplement Singapore’s domestic economy. The China government, on the other hand, was more concerned about immediate developmental effects such as employment generation and technology transfer. As Suzhou city did not face a serious unemployment problem at the time, it could be argued that the China government could afford to sit out a slight lull. Thus, the inter-governmental collaboration began to come under strain as the partners were not mutually benefiting from the project; more specifically, one partner was feeling the pinch more than the other. Furthermore, although FDI into China had contracted slightly during the period of the crisis, it was much higher than in other Asian countries. For 1997 and 1998, FDI into China was calculated to be around US$51 billion and US$52 billion respectively, which was lower than the US$73 billion invested in 1996, and the US$111 billion in 1993 (China Statistical Yearbook 1999). This, therefore, suggested that industrial transnational corporations were still investing in China, albeit at a lower rate. If this FDI was not coming to the Suzhou Industrial Park – as reported by the CSSD officials – where was it going?

Internal shocks Although most CSSD and SIPAC officials named the Asian Financial Crisis as the most serious problem that affected the Suzhou Industrial Park’s competitiveness, the majority of the managers included in this research pinpointed the ‘aggressive marketing strategy’ of a rival industrial zone – the Suzhou New District (SND) – as the primary problem. Although this research did not cover the SND per se, it asked these respondents to comment about the ‘other’ park. This turned out to be fruitful as many managers of companies in the zone not only had good information about the Suzhou New District, but were willing to share personal views about it as well. Most managers constantly gathered information about competitors, collaborators or cohorts as a basic norm of business operations. During the fieldwork, an opportunity was also taken to visit the Suzhou New District Administration where one official was interviewed. Also, I was given a tour of the park, and was shown an audio-visual presentation that was designed for marketing purposes. In addition, the Suzhou New District official also provided the research with brochures and publicly available documents.

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The Suzhou New District, which was the responsibility of the Suzhou Municipal Authority, was located to the west of Suzhou’s historic city centre. The estate, which was around ten square kilometres in size by 1999, was developed in the late 1980s when the Suzhou Municipal Authority was ordered by Beijing to relocate industrial operations out of central Suzhou in order to preserve historically important monuments, rivers, canals, parks and gardens (China Business Information Network 17 June 1996). This was because Beijing and the local Suzhou authorities were actively working to get UNESCO recognition as a ‘World Heritage Site’, which was eventually awarded in 1995 (see UNESCO 1999 and http://www.unesco.org/ sites/china/index.html). Although much of the earlier industrial activity in the historic centre of the city could be described as ‘light’ – textiles, consumer goods and foodstuff production – they were contributing to the pollution in the canals which, in turn, was threatening the historic buildings, the many gardens and the tourist trade. To deal with this relocation, the Suzhou Municipal Authority established the Suzhou New District Administrative Committee (SNDAC), organized in accordance with China’s laws on local industrial administration. Since the onset, the Suzhou Municipal Authority has designated that the city’s vice-mayor would concurrently be the Chairman of SNDAC. The estate was granted Economic Development Zone status in 1990, which allowed for foreign investment. The Suzhou New District was even offered to the Singapore government as a potential site to situate the inter-governmental project; however, this was turned down. SNDAC proceeded to market itself to industrial transnational corporations – mainly because it was hoping to benefit from developmental effects such as employment creation, technology transfer, and tax revenue earning – to join the many domestic enterprises that had relocated there. By 1996, the SND was reporting strong growth. In 1995, the number of Taiwanese-invested firms reached 1,800 (Chinese Business Information Network 6 February 1996). By 1998, it had attracted 101 ‘Hong Kong funded companies’, accounting for 32 per cent of the overseas-funded companies in the district (China Business Information Network 1 July 1998). Also, by that time, the SND had attracted many ‘Fortune 500 companies’: Over 340 foreign funded enterprises from 30 countries, including MNCs, such as DuPont, Motorola, Siemens, Philips, Sony, Panasonic, Mitsubishi, are investing in SND. 13 of the World Top 100 and 5 of the World Top 5 are investing here. There

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Crisis are 12 projects whose total investment is no less than US$100 million each. (SND 1999: 5)

The Suzhou Municipal Authority’s motivations could be explained by China’s post-1979 economic and political environment. One of the thrusts of the reforms was to restructure domestic industrial enterprises, particularly the large state-owned enterprises. This would be achieved by a combination of reliance on foreign partnerships, but also on a new economic philosophy of achieving ‘efficiency and rationalization’ through limited global competition (see Nolan and Wang 1999). By the mid-1990s, local and provincial authorities were faced with unemployment. With local authorities unable to create many new jobs on their own, the solution – one that was both favoured by local authorities and Beijing – was to turn to transnational corporations as developmental engines (see Yang 1997, Huang 1998). The SND enjoyed similar advantages to the Suzhou Industrial Park, including the geographic proximity to Shanghai and the city’s relatively highquality human resources. Therefore, it believed it could benefit from being connected to the global industrial production system. Like many other Chinese Special Economic Zones, the Suzhou Municipal Authority had initially focused on attracting Taiwanese and Hong Kong industrial investors to take advantage of their overseas Chinese connections, which turned out to be highly successful. However, by 1997, the SND focused on attracting larger industrial transnational corporations. Interestingly, the SND’s marketing strategy not only stressed the estate’s geographic advantages, it prominently highlighted the estate’s ‘high-quality’, ‘pro-investor’ and ‘efficient’ administration. It claimed that the SND operated with a ‘small government’ and that ‘priority is always given to investors’ (SND 1999: 1). ‘Small government’ was defined by the SND as follows: The district is concentrating its efforts on creating a new governmental structure and corresponding rules and regulations under the principle of small government. With the aim to serve, administrate, guide and co-ordinate the government’s authority mainly covers planning, land, finance, taxation, project approval, industry and commerce, in addition to providing economic administration similar to that of a municipal government. (Ibid.) The SND therefore claimed to have the same ‘one-stop’ capability as the Suzhou Industrial Park. This study found that SNDAC achieved

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this not by reducing the size of the local state bureaucracy, nor by making each office in the administration more efficient (which were the objectives of the software transfer programme for the Suzhou Industrial Park). Instead, SNDAC simply created another office to ‘do the running around for the investor’ (SND Official, Chinese citizen, male, aged 25–30). This office was staffed by young and highly educated Chinese bureaucrats who were highly competent in European or Japanese languages. This ultimately meant that while the paperwork had to go through the many rungs of the local state bureaucracy, the investors were not directly involved in the process. Such a pro-active administrative office appeared to be the exception rather than the norm in China (see Lever-Tracy, Ip and Tracy 1996). The research therefore found that the SND had clearly adopted many of the strategies that had applied at the Suzhou Industrial Park. Although the officials of the SND Administrative Committee were not included in the Suzhou Industrial Park’s software transfer programme, there was some circulation of personnel between SIPAC, the Suzhou Municipal Authority, and the SND Administrative Committee. Furthermore, some of the most basic aspects about the software transfer – such as the reduction of red-tape in administrative procedures – did not require the intelligence of a ‘rocket scientist’, as one respondent put it, to replicate. Thus, it was clear that the SND had simply looked over the fence, understood what made the Suzhou Industrial Park successful and replicated it. Throughout this period, the collaborating governments were fully aware of the SND and its strategy. Members of the Singapore government – including Singapore’s Deputy Prime Minister Lee Hsien Loong – had even paid occasional visits to the SND between 1994 and 1997. However, they never really viewed the Suzhou New District as a direct competitor. Instead, it had ‘rationalized’ a clear division of labour between the two Suzhou estates for investors, as explained by a CSSD official: If you look at the so-called Fortune 500 companies at the SND, nearly all of them are joint-ventures with Chinese enterprises. Even when there are wholly foreign owned enterprises at the SND, they are staffed by either Hong Kongers (sic), Taiwanese or ABCs [American Born Chinese]. That tells you a lot. Then they get these managers to deal with the bureaucracy, i.e. they are the middlemen. At the SIP, we [CSSD] are the middlemen. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40)

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A Singaporean diplomat interviewed in London (UK) offered a similar view: It [choosing an industrial location] is like buying a car you see. Some people would pay for a Mercedes Benz [premium car], while others would only pay for a Lada [budget car]. In the end, it still has four wheels to bring you around, but different people will want different things from each car. And I think it is good to have differentiation of products, and this gives the consumer choice! (Singaporean state bureaucrat, Singaporean citizen, male, aged 55–60, interview conducted in London, 1998) This implied that the collaborating governments envisioned the SND and Suzhou Industrial Park targeting different ‘types’ of industrial transnational corporations as tenants. The Suzhou Industrial Park would aim for those that preferred to deal with the Chinese bureaucracies via the Singapore government, whereas the SND went after those that required an ‘interface’, which would be the Singaporean operating system. Such a division might not be a problem if the ‘market’ was large and constantly growing, as China had been between 1980 and 1990. However, by 1997, with the onset of the Asian Financial Crisis, the two estates were competing directly for a small handful of investors. While competition might be viewed as being ‘healthy’, what particularly upset the Singapore government was the Suzhou New District Administrative Committee’s (alleged) underhanded tactics to attract investors. More specifically, the Singapore government accused SNDAC of ‘undercutting’ property prices, and simultaneously running a ‘smear campaign’ against the Suzhou Industrial Park. According to Singapore’s Senior Minister Lee Kuan Yew, the Suzhou Municipal Authority was playing ‘bureaucratic shenanigans’ (Sydney Morning Herald 21 March 1998). Dirty tricks? Taking each ‘allegation’ in turn, this research found that the SND indeed had lower industrial property prices. This was, of course, no surprise to anyone. The Singapore government had even believed that this differential ‘premium’ reflected the Suzhou Industrial Park’s superior infrastructure and administration. This study found that between 1996 and 1999, the SND’s per unit prices were 25 to 40 per cent lower than comparable units over at the Suzhou Industrial

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Park. According to one respondent, the average land price in the Suzhou Industrial Park was US$50–70 per square metre, compared to US$80–100 per square metre in Pudong (Shanghai), and US$30–40 in SND (SIPAC official, Chinese citizen, male, aged 25–30). One respondent from the managerial sample offered this insight: They [SNDAC] could even afford to give away the land free if they wanted to, because employment creation was their topmost priority. The Singaporean developers, on the other hand, were more concerned about making profits. These profits could only be generated after covering the land costs and infrastructure costs. (General Manager, American company 4, US citizen, aged 50–5) However, it became clear that the SND’s lower price was not really the ‘problem’. Instead, some respondents claimed that the problem was the SND’s so-called ‘moving target’ principle: I’ve heard that the rival estate has a moving target principle. That means, it doesn’t have a fixed or published cost for anything. Anything is negotiable, and that it operated a ‘cannot be beaten for price’ system. This means that if this side offers US$75 dollars, then it would offer US$50 dollars. And also, if you could go prove to them that somewhere in Shandong offered US$45, they would go down to US$40. I don’t know if this is true, but this is what we heard they do. (Assistant General Manager, American company 8, Malaysian citizen, male, aged 35–40) Moving target? Yes, I’ve heard of something along that line. They [SND] don’t really fix their property cost. They also don’t make this information available. They claim that there are many other conditions other than price, so that they can offer discounts for longer-term tenancy. But we were not fooled by this low price. There are always hidden costs where such administrators will recoup their losses; they could charge service fees, administration fees, God-knows-what fees . . . worse still, they could raise the low prices later. What’s to stop them? (Operations Manager, Singaporean company 1, Singaporean citizen, male, aged 30–5) This moving target system is employed everywhere. Not just in industrial estates, but also for private housing. And I don’t think

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Crisis the SND only monitors and reacts to the SIP’s prices; I am sure they move in response to prices around the whole of China. (Assistant General Manager, Japanese company 5, Chinese citizen, male, aged 30–5)

A CSSD official was asked about this issue. Rather than address the question directly, he gave a broader view on land price competition in Suzhou: We faced a dilemma. Should we lower the property prices to match the other estates in China? If we did, we would be operating at a loss. After all, we acquired the land from the China government in a financial transaction and at almost market prices at the time. So you could say that there was already a base cost for us. And then we put in the value-added, which is the infrastructure, communications and so on. Now selling the properties at a loss might not sound like such a crazy idea; after all, if we managed to get tenants, then we might make it back from management or service charges. But that would be in the long term. However, the real reason why we didn’t slash is that we didn’t want our park to resemble the others. We couldn’t allow investors to think that if our costs were the same as the others, then what they would be getting [in terms of infrastructure and so on] would be the same as the others. The SIP is a premium site, so we made a decision to stick by our prices. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) In general, although property price was a consideration for many industrial transnational corporations, it was not the most important factor for some enterprises. Most senior managers interviewed admitted that for certain types of industrial transnational corporations, property price levels would be a very important factor. These were usually those involved in low value added operations, where the minimization of factor costs, especially the primary factors such as land, labour and raw materials, was paramount. Others were more concerned about the availability and quality of secondary factors of production. Some managers that were interviewed explained the latter sentiment, arguing that any ‘savings’ made in primary factors – such as on property costs – needed to be balanced against other ‘hidden’ costs, such as the uncertainty and risks costs. Once again, some companies might be willing to take such risks, whereas others would prefer more assurances of security.

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This research found that no companies had been lured away or had ‘defected’ from the Suzhou Industrial Park to the SND between 1994 and 1999. Many of the senior managers interviewed said that they might understand why some foreign investors would be impressed with the SND – for the administration’s ‘professionalism’ and more importantly with its ‘cost structures’ – and they added that they would not hesitate to recommend it to other companies. They would not, however, recommend that their own company move across town, for reasons such as requiring the Suzhou Industrial Park’s quality infrastructure, and high relocation costs: From what I see, many of the multinationals over at the SND located there because (1) they did not need the Singapore connection, and (2) they were much more cost conscious than us. Over at the SND, many of the multinationals there are joint ventures, unlike over here [mostly wholly foreign owned enterprises]. As a JV, they already have means to deal with the Chinese, by using their local partner! They also use [ethnic] Chinese managers, who may be American or Taiwanese citizens to deal with the local government. We don’t operate like them. We want to stay here because we need the Singapore connection. This connection does not only mean having the Singapore government around; it means operating under the Singaporean system, which our company is used to. (General Manager, American company 22, US citizen, male, aged 30–5) Yet, these respondents insisted that there was intense competition between the two Suzhou estates for future, rather than existing, tenants. When asked about this, the CSSD officials interviewed claimed that they had no first hand information about ‘losing’ clients to the SND. They reiterated their stand that the Suzhou Industrial Park was hurting because there were far fewer prospective tenants, as opposed to having lost out to the SND for tenants. While the price undercutting issue was described by the CSSD Marketing Manager who was interviewed as ‘unsubstantiated rumours’, the second allegation – the so-called ‘smear campaign’ – was, according to this official, ‘very real, and had diplomatic consequences’. The campaign reportedly arose from one specific incident. In early 1997, Suzhou’s vice-mayor Wang Jinhua went to Germany both in his political capacity and as the Chairman of SNDAC trying to secure foreign investments for his own park. When meeting with

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business leaders of many enterprises in Hamburg, he was reported to have openly ‘discredited’ the Suzhou Industrial Park. This was how Singapore’s Deputy Prime Minister Lee Hsien Loong described the ‘Hamburg’ incident in parliament: We were astonished to learn that the Vice-mayor of Suzhou had gone to Hamburg, Germany and told the special commissioner who is responsible for German-Singapore-China joint projects: ‘You should not go in with Singapore. Come in alone, we don’t need Singapore. President Jiang Zemin does not support Suzhou Industrial Park.’ (Quoted in Singapore Business Times 15 January 1998) This research managed to interview the special commissioner in question. He held the appointment of Germany’s Honorary ConsulGeneral of the Consulate-General to the Republic of Singapore. This is how he remembered the incident: He [Suzhou’s vice-mayor] told us that Beijing did not support the Suzhou Industrial Park in any special way. He said that the President and the Premier supported every industrial estate in the same way, and no one had preferential treatment. Therefore, the Suzhou Industrial Park was nothing special. Coming to the Suzhou New District or the Suzhou Industrial Park or any other area would be just the same. In fact, he said that the Suzhou New District had even better tax incentives than many other parks, including the Suzhou Industrial Park. (Interview conducted in Hamburg, September 1998) Although there had been ‘rumblings’ that the SNDAC’s marketing department was playing dirty to steal investors from the Suzhou Industrial Park, this incident in Hamburg was ‘concrete proof’ (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40). When asked to comment on this incident, an official from the Suzhou New District Administrative Committee was only willing to say: Certain mistakes had been made by certain people, especially those who have political rather than business capacity. But one small incident – if it was indeed true – was really blown out of proportion. But I want to say that the SND and the SIP are like brothers, both born from the same mother: Suzhou. And as you know, sometimes brothers fight. But in the end, things will always work out between them. You know what people say about the

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two estates? They are the two wings of one bird; the bird is Suzhou city, and Suzhou will only fly when both wings flap together. (SND Official, Chinese citizen, male, aged 40–5) However, beyond the Hamburg incident, no one could provide even another anecdote of inter-estate competition. This has led several senior managers interviewed by this study to conclude that once again, this allegation was a ‘smoke screen’ for other problems.

Damage control In the final quarter of 1997, the inter-governmental collaboration – which had been very close – began to be tested when the CSSD reported its forecast about the Suzhou Industrial Park’s short-term prospects. Leaders of the Singapore government, especially those that were directly involved in the collaborative project, were very upset. In December 1997, Singapore’s Senior Minister Lee Kuan Yew arrived in Suzhou for what should have been a routine visit. Instead, he began ‘berating’ officials in Suzhou: Right now, the energy is divided between two industrial estates. That’s wasting time, energy and causing too much friction. (Quoted in Singapore Business Times 5 December 1997) Soon after, Singapore’s Deputy Prime Minister Lee Hsien Loong told Parliament that the zone’s progress was being affected by the ‘aggressive promotion’ of the Suzhou New District. He assured the house that the problems were being dealt with at the national as well as municipal levels: We are in contact with them [the China government]. We have not negotiated the issues in further detail. We are now studying the problem in order to have a considered, mature response which we will convey to the Chinese side as our view of how to deal with this problem and we expect the Chinese side to study that and give us their response in due course. (Singapore Business Times 15 January 1998) Throughout this period, the Singapore government did not reveal any details about the ‘negotiations’. In January 1998, Lee Kuan Yew took the opportunity of his visit to Beijing to raise his dissatisfaction with the Suzhou Industrial Park with China’s President Jiang Zemin.

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Lee was unhappy with ‘the attitude of Suzhou authorities [Suzhou Municipal Authority] who were felt to be dividing their support between the SIP and a project of their own’ (China Economic Review 23 January 1998). Lee threatened to withdraw the Singapore government’s financial support for the collaborative project. The Singapore government’s frustrations stemmed from its profit motivation. If the Suzhou Industrial Park was unable to generate profits, it would be unable to fulfil the Singapore government’s developmental objective, which was to supplement Singapore’s domestic economy. The Singapore government’s financial exposure in the collaborative project was very high; it was, after all, the majority financier since it held 65 per cent of the project’s shares. However, it was also liable for any financial losses or debts arising from the project. In addition, Lee’s anger could be explained by his own personal involvement in the project. As discussed in the previous chapters, not only was Lee central to the genesis of the Suzhou Industrial Park, he personally promoted the collaborative project. The China government was caught in a sensitive position. It did not appear to be ‘hurting’ as much as the Singapore government; worse still, it was even benefiting from the collaborative project. The existing tenants had generated some employment for the residents of Suzhou. At the same time, many Chinese officials were being trained in the ‘software transfer’ programme. Also, the China government was only a minority shareholder in the project, which meant that its financial losses were not as severe as those of the Singapore government. Thus, this ‘imbalance’ was threatening to destabilize the collaboration. During this period, the China government tried to salvage the situation. This was evident when China’s President Jiang assured Lee that China was committed to the Suzhou Industrial Park and arranged for a ministerial meeting to take place in April 1998 in order to resolve the matter (China Economic Review 23 January 1998). Beijing moved swiftly, giving the Suzhou Municipal Authority a metaphorical slap on the wrist. In March 1998, Chen Deming was installed as the new mayor of Suzhou. His first statement with regards to the SIP–SND ‘rivalry’ was that the Suzhou Industrial Park was ‘the priority of all priorities’ (Singapore Straits Times 10 March 1998), echoing the phrase used by President Jiang in 1995: We will make it the most important project in the whole of Suzhou, because what is most important to the country is, of course, most important to Suzhou. We hope to ensure that it (SIP) would break even this year. After three years of profits, we will float it on the

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stock market. We will definitely follow Jiang’s principle which is to steam on resolutely ahead with this project. As Mr Jiang has said, there will be no backsliding, no failure, and we will co-operate to the end and work together for success. (Singapore Straits Times 10 March 1998) In May 1998, in another gesture of strong support, Premier Zhu Rongji gave his personal backing for the Suzhou Industrial Park (Singapore Straits Times 29 May 1998). This was probably in response to calls made by the Singapore government to re-state Beijing’s commitment to the project, in the wake of the Hamburg incident, where it was alleged that Beijing had lost interest. In a report published in the Singapore Business Times, a Jiangsu party secretary tried to defuse the situation by publicly apologizing for the Suzhou Industrial Park’s low profitability (Singapore Business Times 14 September 1998). In the final quarter of 1998, the China government took several more measures in support of the Suzhou Industrial Park. The People’s Daily gave the park front page coverage, reporting that the Suzhou Industrial Park had very quickly become the fourth largest zone in China for attracting foreign investments because of the successful transfer of Singapore’s experience. It stated that the Suzhou Industrial Park’s administrative system was ‘streamlined, co-ordinated and highly efficient, requiring two-third fewer administrative staff compared to similar zones’ (People’s Daily 22 October 1998). In November 1998, the Suzhou Industrial Park was invited to participate in a China State Council exhibition in Beijing celebrating 20 years of foreign investment in China (Singapore Straits Times 27 November 1998). In the exhibition, the Suzhou Industrial Park was allocated a booth, alongside 46 other kiosks assigned to the country’s 21 provinces, 5 autonomous regions, 4 municipalities, 5 Special Economic Zones, 3 cities with sub-provincial status, with 8 remaining kiosks assigned to 20 ministries and bureaus. In the report, being allocated such a booth ‘highlights the importance which the Chinese central government accords the project’ (Singapore Straits Times 27 November 1998). In December 1998, Xinhua – the Beijing government’s official news agency – released a report that once again showed Beijing’s support of the Suzhou Industrial Park. It read: In the SIP, the relationship between government and business is not one between the regulator and those who are regulated, but is instead a relationship between a service provider and its clients.

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Crisis It is also a special development zone because it is the only one in the country at present that draws on foreign economic and public administrative experience. Through strict laws and regulations, and drawing on Singapore experience of honest and clean government, not a single civil servant in the park’s administrative committee has broken the law or committed a crime. This has earned the committee the high acclaim of the Central Commission for Discipline Inspection. (Quoted in the Singapore Straits Times 11 December 1998)

In another gesture from Beijing, the Suzhou Industrial Park was exempted from a new national tax on foreign investments in January 1999. The new tax was to provide fairer income distribution between the development zones and the rest of the country, where the new tax rule terminates tax refunds given by the central government to local administrations of such zones. Previously, local governments in these zones were allowed to retain (and thus not remit to Beijing) 100 per cent of their tax collections for ten years. Originally, Beijing had designed for these tax revenues to be used by the local authorities for their own local development. Thus, Beijing was trying to appease other regions that did not have foreign investments. The new tax system was to reduce the ‘rebate’ by 25 per cent each year until zero, which effectively meant that by the fifth year, local authorities were expected to hand over 100 per cent of tax revenues to Beijing. However, the Suzhou Industrial Park would receive a special concession, where a five-year grace was given at 20 per cent per year (Singapore Straits Times 9 January 1999). Publicly, the China government went on record to say that the concession was given to the Suzhou Industrial Park because the development was launched late compared to other zones (ibid.). The Suzhou Industrial Park was launched in 1994 while the other SEZs had been in existence since 1979 and most other development zones took off in the mid-1980s. However, it was highly likely that it was a conciliatory gesture towards the Singapore government over the Suzhou New District issue. Despite all these actions, by the end of 1998, the prospects for the Suzhou Industrial Park remained weak, according to CSSD officials. The zone’s ‘superior’ industrial infrastructure and administration were not ‘recession proof’. There were very few new tenants that had taken leases at the zone, and fewer overall inquiries. The immediate strategy of the Singapore government, calling forth the support of the Beijing government, had not made much difference. The launch of Phase Two,

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already postponed since the middle of 1997, was declared to be ‘postponed indefinitely’. The CSSD Marketing Manager told this research: It was a very uncertain time for us. The world market [for industrial property] was virtually dead. And we had this major national project in our hands. Everybody was watching us, waiting to see what we should do. It made no economic sense to proceed with Phase Two if business was going to be so bad. In May 1999, the Suzhou Industrial Park came under serious pressure, when the CSSD had ‘defaulted on its payment’ on a capital loan (Singapore Straits Times 10 May 1999). The Singaporean consortium – which owned 65 per cent of the shares of the Suzhou Industrial Park – had chosen not to repay an instalment on a capital loan estimated at around US$10 million. It instead asked for an extension until the future of the project was resolved. The request for an extension – which was approved – was confirmed by the creditor banks (Singapore Straits Times 10 May 1999). However, for the Singapore government, this request for extension indicated that the economic health of the Suzhou Industrial Park was very poor. Viewed from the perspective of the Singapore government, the Suzhou Industrial Park collaborative project was a financial ‘black hole’. Its partner, the China government, was well-intentioned but ultimately could not solve the zone’s ‘local problems’. To worsen the situation, the Suzhou Municipal Authority not only did not show any understanding or support, it proceeded to compete against the Suzhou Industrial Park for foreign investors.

The divide This research had found that nearly all of the senior managers interviewed made the point that the Singapore government’s relationship with the China government was seriously threatened by the poor relationship between the Singapore government and the Suzhou Municipal Authority. They argued that closer relations between the two parties would have led to fewer problems in Suzhou. Although such a view was, itself, contentious, it was important to understand why these senior managers held such an opinion: Relations between downtown Suzhou and here [Suzhou Industrial Park] are not good. In fact, I don’t think the Singapore government ever had a relationship with them. It seemed interested in

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Crisis developing ties with Beijing. Everything went through Beijing. This might have caused the Suzhou mayor to lose face. It was as if he was completely transparent. Beijing and Singapore talked right through him as if he was not there. No wonder he doesn’t really care for the Suzhou Industrial Park. (General Manager, European company 1, Chinese citizen, male, aged 35–40) I believe that the problems began when the Singapore government told the Suzhou mayor ‘No thank you’ when he offered them the SND way back in 1991 or 1992. And it went about constructing this park in a manner that appears to be an implicit criticism of the SND. I mean, when the Singapore government markets the SIP, it keeps talking about not being a typical Chinese estate. Even without naming the SND, it was obvious who was being implicated. (General Manager, American company 20, Chinese citizen, male, aged 35–40)

Thus, in the eyes of many managers that were interviewed, the Singapore government intentionally marginalized the Suzhou Municipal Authority and focused all of its intentions on Beijing. Many felt that such a strategy could be interpreted by the Suzhou Municipal Authority as ‘arrogance’. This arrogance meant that the Singapore government ‘looked down’ on the Suzhou Municipal Authority. An example offered by a local Suzhou academic researcher drove home this point rather clearly: In summer 1997, Suzhou was hit by floods. The whole SIP was landfilled by three feet (0.9 metres), and therefore completely escaped flooding. However, downtown Suzhou and the SND were quite seriously affected by the floods, with problems such as factories unable to operate because workers could not get to work, or that the flood water made operating the machines impossible. From what I gathered, rather than offer sympathy or help to the SND, the SIP used this incident as a case to prove their superiority. Of course this upset the Suzhou mayor and the SND. This only strengthened the Suzhou government’s perception that the SIP – and I mean both the Singaporeans and the Chinese officials administering the park – were simply arrogant. (Male, Chinese citizen, aged 35–40, interviewed in Suzhou, 1999)

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Interestingly, many respondents utilized the phrase: ‘The Singapore government should have given the Suzhou Municipal Authority some face.’ Face-giving in China has been examined widely, particularly in the business (joint-venture) literature (see Child 1994, Yan and Gray 1996), and thus requires no further elaboration here. Although it is not clear whether face-giving would have made any difference in Suzhou, what was clear was that the majority of the respondents agreed that the Singapore government did not attempt to give face at all. Second, if the Singapore government appeared arrogant and aloof, the CSSD and SIPAC similarly maintained an arms-length distance from the Suzhou Municipal Authority and the SNDAC. Thus, as a policy, the CSSD and the SIPAC remained strictly on ‘business terms’ with the Suzhou Municipal Authority. As explained by a SIPAC official: We [the Suzhou Industrial Park] do business with them [Suzhou government]. If we need anything from the Suzhou government, we pay for it. For example, we pay them for electricity, water and even the public bus services. We are not obliged to do anything for them, nor are we obligated. I think this is a good way of coexisting. (SIPAC official, Chinese citizen, male, aged 30–5) Some managers interviewed were quite convinced that this ‘businesslike’ approach could be construed as being disrespectful in a traditional Chinese context, even though there have been many studies arguing that such practices are declining in importance (see Guthrie 1999): It is not just about guanxi, but being sociable and close to everyone you do business with in China is very important. I’ve been in China for close to ten years with a variety of different multinationals, and the reason why they want me to run this plant is because I know how to develop good relations with the Chinese wherever I go. Now, would it have been so impossible for the Singapore government to give the local Suzhou leaders some face? The Suzhou people were always trying to be supportive, but I did not see the Singaporeans give anything back. So I can understand why there were problems of communication at the ground level. (Financial Controller, American company 23, Chinese citizen, female, aged 30–5)

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Crisis I think the Singapore government was quite out of touch with the reality of doing business in China. We have heard that they distanced themselves from the Suzhou side because of their fear of guanxi. But in reality, this guanxi thing was not about personal favours or corruption. It was about having good social ties. In this context, by not even being interested in being friendly with the local authorities was certainly a snub and caused them to lose face. The Suzhou people would therefore see the Singaporeans as high and mighty, and they don’t really care for them much. (General Manager, European company 2, Chinese citizen, male, aged 35–40) The problem with China is that even though the economy is developing fast. There is much talk that guanxi is losing its grip. I am not so sure; I think deep down, it matters. I suspect that when it suits the Chinese, they drop guanxi, especially if they stood to gain. However, when they want to, they will use guanxi. It is my own view that no matter what goes on, whether these Chinese managers get Harvard MBAs [Master of Business Administration], or even after 100 years, I don’t see guanxi disappearing. (Human Resource Manager, American company 7, Chinese citizen, female, aged 35–40) Doing business in China is more than just about having guanxi. It is being sensitive to local conditions. We have operations in five continents, and even though our logo is the same, operations vary. Why? Because we believe that to be effective, we must adapt and maximize the local conditions. As they say, when in Rome, do as the Romans do. The Singaporeans tried to bring Singapore to China. They talked about software transfer. Don’t they know that for software to be transferable, the hardware must be compatible? You can’t run Apple [software] programmes on IBM! It was like doing a blood transfusion of two different blood types. Appeared to work for a short while, and then failed miserably later. (Financial Controller, American company 21, Chinese citizen, male, aged 35–40)

Thus, many argued that the Suzhou Municipal Authority, marginalized and ‘disrespected’, had no incentive to support the Singapore government in Suzhou. Finally, in a related issue, the ‘adjustment’ strategy adopted by the Singapore government to cope with the

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Suzhou Industrial Park’s problems – approaching the central government in Beijing to ‘control’ the Suzhou Municipal Authority – could not have helped improve relations within the city. At no time during this period did the Singapore government ever enter into discussions with the Suzhou Municipal Authority. Indeed, to some managers that were interviewed, the Singapore government treated the Suzhou Municipal Authority as a rogue agent and hoped for the watchdog (Beijing) to clamp down on its ‘deviant’ activities. Furthermore, some respondents had heard ‘rumours’ that leaders of the Singapore government specifically asked Beijing to close down the Suzhou New District completely, especially in the first half of 1999. Other respondents said that they had heard about a Singaporean proposal to Beijing, which suggested that all new investments would go to the Suzhou Industrial Park; only when it was full should the Suzhou New District be utilized again. None of these anecdotes or rumours could be verified. However, if these were true, such proposals could not have endeared the Singapore party to the Suzhou Municipal Authority. Although the ‘revenge’ theory might be very popular with some respondents, an explanation based on the political economy of postreform China would appear to be much more plausible. To the Suzhou Municipal Authority, local economic development was paramount, not just for the city’s continued prosperity, but also because the political careers of the leaders were at stake. In this sense, the Suzhou Municipal Authority must have been initially excited about the prospects for local development if it collaborated with the Singapore government over the Suzhou Industrial Park, especially if the zone had been situated within the Suzhou New District. However, when the Suzhou Municipal Authority was ‘marginalized’ by the Singapore government, it could not afford to stand idly by and feel sorry for itself. Instead, it had to survive in an ever-increasingly competitive environment by becoming ‘entrepreneurial’ (see Duckett 1998). Since it was not going to see any direct benefits from the Suzhou Industrial Park, the Suzhou Municipal Authority had little motivation to see its neighbour succeed economically, especially not at the expense of its own Suzhou New District during ‘lean’ times such as the Asian Financial Crisis. To the Suzhou Municipal Authority, the Suzhou Industrial Park only brought indirect benefits through employment of workers. Furthermore, the Suzhou Industrial Park did not even meet its original employment targets because of the global economic slowdown. All the tax revenues that were collected from foreign businesses were remitted by SIPAC directly

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to Beijing, by-passing the Suzhou Municipal Authority. It could, therefore, be concluded that while the Suzhou Industrial Park might have contributed to Suzhou’s economy, it – as an industrial estate – did not directly benefit the Suzhou Municipal Authority. Therefore, the Suzhou Industrial Park was just another competitor, one that threatened the Suzhou New District’s, and its leaders’, own survival. Several managers interviewed concluded that the Singapore government was politically and culturally naïve, as far as doing business in China was concerned. Many of these respondents admitted that they had initially assumed that the Singapore government had ‘cultural affinity’ with the China government and the Chinese business system. After the problems of the Suzhou Industrial Park had surfaced, many of these managers realized that this assumption was false: They [the Singapore government] assumed that the China government functioned in exactly the same way. So, they assumed that if the top leadership said ‘Jump’, those at the bottom would say ‘how many times?’. Unfortunately, as the Singapore government found out, this is not how things work in China. (Financial Controller, American company 11, Chinese citizen, female, aged 25–30) I think that the Singapore government made the serious mistake of only dealing with Beijing. You can see that whenever there is a problem, Singaporeans go to Beijing. But if the problem is a Suzhou problem, you ought to deal directly with the Suzhou mayor. Beijing talks loudly but does not act very much at local level. You want anything done, you do it at the local level. Thus, they did not realize that Suzhou is very far removed from Beijing. (General Manager, European company 3, Singaporean citizen, male, aged 35–40) It was clear that the Singapore government had misjudged the nature of Chinese politics in the late 1990s. Unlike earlier periods, Beijing did not have the high level of control over the various regional and provincial authorities (see Yang 1997). The commonly cited reasons for this change in governance include the new strategic relationships from centre to the periphery, and also economic autonomy of the regions or provinces. The former explanation is based on the ‘reinvention’ of the Chinese Communist Party with the passing of the old guard, which began with the death of Mao Tse Tung but

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intensified during the final phase of Deng Xiaoping’s rule (see Dittmer and Wu 1995, Zhong 1996, Zheng 1999). The new generation of Chinese leaders ‘traded’ power for autonomy because it was unable to command total control of the provinces and regions due to a lack of political and economic resources (Zheng 1999: 1160–1). While this might sound like a contradiction in terms, the reality was that Beijing granted autonomy in certain spheres – particularly in the economic and political sphere – for allegiance (Huang 1996: 655). Upon receiving autonomy, regional and provincial governments began their own power-building programmes. Some traditionally powerful provinces – such as the south China regions bordering Hong Kong, Macau and Taiwan – as well as Shanghai city, took advantage of Beijing’s Special Economic Zone policies to become economically and politically more powerful than in the past (Wu 1999, Ma 1999). This created mini-entrepreneurial states – more accurately, provincial governments with entrepreneurial motivations – competing with each other and other East Asian states (and other regions) for investment (see Breslin 1996, Duckett 1998). In sum, even though China might appear to still be a socialist-communist country, the centre (Beijing) was not economically, politically or even socially omnipotent. The root of the problem, as far as the Singapore government was concerned, was that it thought that Beijing had total control over the various provincial and city authorities. An analyst in the consulting industry from Price Waterhouse Coopers, C. W. Chey, concisely summarized the issue as follows: ‘[The Singapore government] misjudged the ability of the local authorities to ignore orders from Beijing’ (Singapore Business Times 18 September 1999). This was also (later) admitted by Lee Hsien Loong, Singapore’s Deputy Prime Minister, when reflecting on the Suzhou Industrial Park: I think we underestimated the length of the chain of command between the centre and the locals, and the extent to which the locals have latitude. (Quoted in Singapore Straits Times 10 July 1999)

Decreased competitiveness After several years of strong growth, the Suzhou Industrial Park was in trouble. The Asian Financial Crisis caused a change in the external environment that negatively affected the Suzhou Industrial Park’s competitiveness vis-à-vis other industrial estates competing for foreign investors. One such competitor was the Suzhou New District. Thus,

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the pressure was on the zone to maintain its competitive niche or enhance the zone’s profitability. It, however, could not compete on the basis of price. Furthermore, it was clear that the Suzhou Municipal Authority did not appear sympathetic to the zone’s plight. To complicate matters further, these issues were straining the inter-governmental collaboration. The problematic situation was untenable, even in the short term. This led the Singapore government to take drastic action, as will be discussed in the next chapter.

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6

Disengagement

The first part of this chapter is concerned with exploring the reasons why the intergovernmental collaboration began to unravel, leading to the Singapore government’s announcement in July 1999 that it would officially disengage from the collaborative project after January 2001. The second part of this chapter concentrates on the aftermath of the disengagement.

Irreconcilable differences By the end of 1998, the CSSD had no choice but to report that the Suzhou Industrial Park was in dire economic straits. As discussed in the previous chapter, the zone’s lack of competitiveness was straining the inter-governmental collaboration. The Suzhou Industrial Park was not achieving the Singapore government’s primary developmental objective, which was to generate profits that could be utilized to supplement Singapore’s domestic economy. At the beginning of 1999, the project’s problematic status also had political ramifications for the Singapore government. Not only were some opposition political parties in Singapore publicly questioning the wisdom of the state’s investments in China, the public’s support for the collaborative project also waned. Two prominent and outspoken members of Singaporean opposition political parties, Chee Soon Juan and J. B. Jeyaretnam, began to criticize the ‘Suzhou fiasco’ not only in public, but in parliament as well (Singapore Straits Times 1 April 1999). In addition, Singaporean lawyer John Tessensohn wrote a scathing opinion piece, titled ‘Why not transform Suzhou into a high tech theme park?’ which was eventually published on an independent internet website (see Tessensohn 1999). Opposition and criticism of the Singapore government’s involvement in the Suzhou Industrial Park had been voiced as early as 1997 (see Singapore Straits Times

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3 May 1997). However, during that time, with the zone generally doing quite well, the Singapore government chose simply to ignore such views. However, with the zone’s competitiveness deteriorating, there was more pressure on the Singapore government to rectify the situation. For example, one opposition member of parliament tabled a motion asking the Singapore government to disclose whether the project was losing money and ‘whether the China government had abandoned the project’ (Singapore Business Times 15 January 1998). In response, Singapore’s Deputy Prime Minister Lee Hsien Loong, told parliament that ‘problems were being worked out’, and the four-yearold zone could become profitable in the ‘medium term’ (Singapore Business Times 15 January 1998). The Suzhou Industrial Park’s problems were also causing uncertainty among existing tenants and potential investors. At the beginning of 1999, there were some signals from the global economy that the worst of the Asian Financial Crisis was over (Economist 3 January 1999). Thus, the CSSD ought to have been gearing up for another foray into the global industrial production system, aiming to encourage a fresh round of investors or industrial tenants. However, as the marketing manager of the CSSD told this research, planning for the future during a period of high uncertainty was almost impossible. The uncertainty mainly stemmed from the strained inter-governmental collaboration. As discussed in the previous chapter, the zone had already accumulated a debt of around US$10 million at the beginning of 1999 (Singapore Straits Times 10 May 1999). However, the Singapore government, as the majority shareholder of the project, chose not to service the repayment, as it wanted the future of the zone settled conclusively. In addition, with the Singapore government rumoured to have threatened a complete pullout of the project, the CSSD was unable to make any guarantees to potential investors about the status of the zone’s landlord. At the end of the first half of 1999, the CSSD urged the collaborating governments to resolve the situation. Not only had the Asian Financial Crisis and the competition from the Suzhou New District affected the Suzhou Industrial Park’s competitiveness, the uncertainty during this period was making things more difficult for the recovery period. However, the Singapore government faced two obstacles. First, Beijing did not appear to be able to solve the problem. Second, the Suzhou Municipal Authority did not appear interested in accommodating any requests from Singapore. Indeed, it could be argued that the Suzhou New District ‘went on the offensive’. For example, the Suzhou mayor, Chen Deming, justified the Suzhou Municipal

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Authority’s aggressive promotion of the Suzhou New District, arguing that this estate could not be compared to the Suzhou Industrial Park, which was built to international standards (Economist 3 January 1999). He also pointed out that ‘competition’ did not just come from SND, but also from neighbouring zones in Wuxi, Kunshan and Shanghai. Therefore, according to Suzhou mayor, Chen Deming: The SND should be allowed to continue to grow as its development had already been under way for some time. It was more important for both parties to come up with a good way to allow the two industrial parks to co-exist. (Quoted in Lianhe Zaobao 15 March 1999) However, the Suzhou Municipal Authority’s most potent ‘weapon’ against the Singapore government was the Suzhou Industrial Park’s economic statistics. In the first half of 1998, the zone reported its largest increases in new investments. Although it had secured US$45 million in new FDI for the first quarter of 1998 (Singapore Business Times 30 April 1998), by the end of June, the total for the first half of the year surged to US$495 million (Singapore Business Times 8 July 1998). By September 1998, it had secured over US$1.1 billion in new investments (Singapore Business Times 27 October 1998). This surpassed the original projected target of US$800 million for the entire year (Singapore Business Times 3 February 1999). It was also announced that the tax revenues from the Suzhou Industrial Park peaked at US$50 million, an increase of 79 per cent over the previous year (Singapore Straits Times 24 May 1999). The Suzhou Municipal Authority argued that the Suzhou Industrial Park was clearly doing well, and the Singapore government’s assessment that it was in trouble was therefore inaccurate. The Suzhou Industrial Park’s surge in FDI for 1998 and early 1999 could be explained by the CSSD. The majority of these investments were actually committed either in late 1996 or in early 1997, before the Asian Financial Crisis set in. Thus, the two-year lag reflected the time required for the business licence to be approved and the factory to become operational before the investments were fully realized and reported. Furthermore, this research found that for 1998, rather than securing many new tenants for the Suzhou Industrial Park, it attracted a small handful of huge investments, such as Nokia’s US$100 million plant (Singapore Straits Times 29 October 1998), Glaxo-Wellcome’s US$100 million plant (China Britain Trade Review 1 February 1999), and Andrew Telecom’s US$120 million plant

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(Singapore Straits Times 24 March 1999). CSSD officials reported that these investments were the exceptions rather than the norm. Also, because of the size of the investments and the intricacies involved in the building of three very sophisticated factories, these three projects took much longer than the average one-and-a-half years to come to fruition. In any case, these ‘strong’ figures were utilized by the Suzhou Municipal Authority to indicate that ‘all was well at the Suzhou Industrial Park’, and therefore justify its own aggressive marketing of the Suzhou New District. Several members of the Singapore government felt that the Suzhou Municipal Authority’s utilization of these statistics amounted to ‘salt being rubbed into our [Singapore’s] wounds’ (Xinsu Manager, Singaporean citizen, male, aged 30–5). However, what was more problematic was that the Singapore government was seen to benefit from the collaboration. The high levels of FDI reflected how much each enterprise spent for their fixed capital costs; only a small proportion of the FDI figure was the amount paid for the property, which was the revenue that the CSSD would profit from. Also, the high tax revenues that were reported would not benefit the Singaporean economy, as all of it went to the Chinese partner, which in this case was the Beijing government. Faced with these apparently insurmountable obstacles, the Singapore government announced that it would ‘disengage’ from the project. On 28 June 1999, the following was announced at a press conference in Suzhou: The Singapore Government will hand over control of the Suzhou Industrial Park project to the Chinese Government in 18 months’ time under a framework unveiled yesterday. Singapore will cut its stake in the massive project to 35 per cent from 65 per cent and hand over management of the park on 1 January 2001. (Singapore Straits Times 29 June 1999) Although the term ‘disengagement’ was never used by the Singapore government, it was the most appropriate concept to explain the situation. Disengagement could be defined as the Singapore government’s strategy to relinquish control of the project, without completely withdrawing from it. Officially, the inter-governmental collaboration would still be functioning, as the Singaporean consortium would remain in the project after 2001 as a minority shareholder. However, as far as its national economic development strategies were concerned, the Singapore government was ending the collaboration with the China government.

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Details of the disengagement The details of the disengagement were clearly spelt out at the press conference, where the Singaporean Permanent Secretary of the Ministry of Trade and Industry and a party secretary of the Jiangsu government signed a Memorandum of Understanding. It was agreed that the Singaporean partner would undertake the completion of Phase One before reducing its stake in the project to 35 per cent while the Chinese consortium would correspondingly increase its stake to 65 per cent. In the original masterplan, Phase One was expected to be completed by January 1999. However, due to the Asian Financial Crisis and the other related problems, by mid-1999, there was a large segment of Phase One that had not been developed. Thus, the new deadline for completion was set at January 2001. Also included in the agreement was that the Singapore government would officially continue its ‘software transfer’ programme until January 2001, training Chinese officials in Singapore through attachment and relevant training courses. The MOU also outlined how the development of further phases of the Suzhou Industrial Park, which required an additional US$100 million to meet operating and development costs, would be undertaken: Both sides view that CSSD should plan and work to significantly enhance its financial performance. They will assist CSSD to achieve this turnaround as soon as possible. Meanwhile, CSSD requires a new loan of US$100 million to meet its operational needs. For this purpose, both consortiums will guarantee their share of the additional loan in accordance with their relative share-holding in CSSD. Beyond this commitment, it is up to SSTD and CSIPC to independently decide whether to inject new funds or to guarantee new loans depending on the financial performance of CSSD. (CSSD, MOU, 28 June 1999, paragraph 11) In terms of the actual transfer of shareholding, it was later announced that the CSSD would appoint external auditors to value the Suzhou Industrial Park’s shares, after which the Chinese partner – namely the eleven Chinese organizations that had formed the Chinese consortium – would officially ‘buy’ from the Singaporean partner. The Chinese consortium nominated Beijing-based China United Asset Valuation Company, while the Singaporean consortium nominated the Hong Kong-based Sallmanns, to jointly value the shares (Singapore Straits Times 12 October 2000). This financial

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transaction between the two partners could be viewed as a means of ‘compensating’ the Singaporean consortium for its heavy financial losses incurred during the project’s early phase. As the share valuation and handover process was considered a confidential matter, there were no publicly available details about the transaction. However, it would be safe to estimate that the sale of 30 per cent of the Suzhou Industrial Park’s shares would not cover the financial investments made by the Singapore government. It could also be argued that the Chinese partner was willing to ‘pay’ for control of the Suzhou Industrial Park, not only because it believed that the estate would eventually be profitable, but also because there were development imperatives. It was also reported that the conflict between the Suzhou Industrial Park and the Suzhou New District would be resolved by having the Suzhou Municipal Authority directly involved in the former project’s administration (Singapore Straits Times 29 June 1999). More specifically, Singapore’s Deputy Prime Minister, Lee Hsien Loong, said that involving the Suzhou Municipal Authority would ‘avoid unproductive competition between both parks’ (Singapore Straits Times 17 October 2000). In this regard, the Chairman of the Suzhou New District Administrative Committee, Wang Jinhua, was nominated to oversee CSSD as well as SIPAC. This meant that one person would have overall control over all of Suzhou’s investment zones. However, the Memorandum of Understanding also included one important clause: the China government agreed that within Suzhou city, the Suzhou Industrial Park must be given priority over the Suzhou New District by the local municipal authority. Although this might appear to be a slight to the Suzhou mayor, it must be noted that the Suzhou Municipal Authority was henceforth directly in control of the CSSD. Thus, it would be party to future profits from the project as well. For the Suzhou Municipal Authority, supporting the Suzhou Industrial Park after 2001 would be directly financially beneficial. Yet, it was interesting that Mayor Chen could not resist one parting shot at the Singapore government. When interviewed by the media after the announcement ceremony, he told the press that ‘Singaporean investors should be cautious in future tie-ups’ (Singapore Business Times 29 June 1999). He went on to say that the manner in which Singapore and China resolved their differences over the Suzhou Industrial Park showed that there was a ‘cultural divide’ between the two: In our co-operation in the past five years, that we have to use an MOU [memorandum of understanding] to solve our problems

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is because of the cultural differences in the two countries, and the different understanding of the items in the documents. (Chen Deming, Mayor of Suzhou, quoted in Singapore Business Times 29 June 1999) Interestingly, in December 2000, Suzhou mayor, Chen Deming, was promoted to the position of Suzhou’s Party Secretary, the city’s highest political post (Singapore Straits Times 30 December 2000).

Repercussions With the announcement of the disengagement, the Singapore government immediately faced a loss of ‘credibility’ within the global industrial production system. This research found that many managers which were included in the sample felt that the Singapore government made a bad business decision by disengaging. When probed, some respondents reported: I feel the Singapore government took the easy way out. It was more concerned about short-term profits, and took the first available opportunity to cut losses and get some money back. Withdrawal does not place the Singapore government in a favourable light; they resemble opportunists rather than true entrepreneurs. Such a hasty withdrawal by the Singapore government certainly weakens any claims to being a trusted brand name as a regional economic player. (General Manager, European company 12, Chinese citizen, male, aged 35–40) Investments in infrastructure never make quick profits. That’s a given. So why did the Singapore government pull out so quickly, especially after an extra-ordinary event like the Asian Financial Crisis? It must indicate that something is very wrong with the long-term potential of the Suzhou Industrial Park. That is not comforting news to us. We are here on the assumption that this park has a long-term future. (General Manager, American company 20, Chinese citizen, male, aged 35–40) The Singapore government gives the impression that they are quitting because they cannot handle one small little local authority [the

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Disengagement Suzhou Municipal Authority]. That’s essentially what we hear around here. How can that be? What happened to its support from Beijing? It cannot be because of the Suzhou New District alone. There must be something else fundamentally wrong about this park. They should be totally honest and tell us what this is. It’s like buying a house from an agent who is quite obviously shying away from telling you the whole truth. (Financial Controller, American company 14, Chinese citizen, male, aged 35–40) The Singapore government has to make its own forecasts and predictions. And we have to make ours. They don’t see a future here, that’s their problem. We do. And if this place gets going after pulling out of the [Asian Financial] Crisis, they [the Singapore government] will lose out, won’t they? (General Manager, European company 5, Malaysian citizen, male, aged 35–40) I can tell you that the word has been going round, not just here in Suzhou or China, but around the world, that the Singapore government is losing it. This ‘I quit’ attitude has not gone down well, and indeed surprised a lot of business people. They [the Singapore government] should have stayed and solved whatever problems there were. This could come back to haunt them, not just in China, but probably even in Singapore too. (Financial Controller, American company 23, Chinese citizen, male, aged 25–30)

These views generally indicated that these respondents felt that the Singapore government had ‘abandoned’ not only the Suzhou Industrial Park, but the tenants as well. This research found that the Singapore government was well aware of such sentiments. It therefore began a ‘damage limitation exercise’. CSSD officials were given clear instructions on how to reassure existing tenants. The main strategy was to stress that the Singapore government had not completely withdrawn from the project, as evidenced by its minority shareholding status. Also, CSSD officials were telling existing tenants – and prospective tenants as well – that it was still in the Singapore government’s financial interest to ensure that the project become profitable, due to its 35 per cent shareholding. According to Singapore’s Deputy Prime Minister, Lee Hsien Loong:

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Shall we then assume that what we have committed is lost? No I never assumed that. I’ll continue fighting and try to get back as much as possible. (Lee, quoted in Singapore Straits Times 17 September 1999) Another strategy utilized to assure tenants was the intensification of the ‘software transfer’ programme, which sought to give the project a uniquely ‘Singaporean operating system’. The programme had been considered a relative success, with leaders in Beijing satisfied with SIPAC’s progress as an administrative committee (Singapore Straits Times 11 December 1998). Therefore, as part of the Singapore government’s disengagement strategy, it stressed that the programme would continue to train the number of Chinese officials that was originally agreed. The only proviso was that the training period would be condensed into two years (scheduled to end with the official handover on 1 January 2001), as opposed to the original plan to run the programme for five years. The aim of the software transfer programme, which was to give the Suzhou Industrial Park a uniquely Singaporean character, remained intact. Indeed, the Singapore government still believed that this aspect would be the project’s competitive advantage even with the Chinese partner as the majority shareholder and prime mover in the collaboration. While commenting on the Singapore government’s pledge to continue to transfer the software, Singapore’s Senior Minister Lee Kuan Yew said: ‘It is for the SIP to preserve its uniqueness, to be a useful point of reference for officials in other parts of China’ (Singapore Straits Times 9 June 2001). However, at the same time, all the managers interviewed stressed that they were confident of doing well at the Suzhou Industrial Park, with or without the Singapore government. According to some respondents, the disengagement simply meant a change of landlords. For enterprises that were already in full operation, this would account for little: If you came to the SIP solely because of the Singapore government, then you shouldn’t be here at all. The Singapore government’s presence should be one of many factors, but not the overriding factor. Over-reliance on this factor makes bad business sense. We’re here because of the trickle down effect that the Singapore government brought – the infrastructure, the system and employment conditions. But once we are here, whether we make money or not, we cannot blame the Singapore government! Once we are

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Disengagement up and running, our fate is in our hands. If we go bust, we cannot blame the Singapore government. (Human Resource Manager, American company 24, Chinese citizen, female, aged 35–40) I admit we needed the Singapore government around during our development stage, but not now. We are established and we are considering expanding, regardless of who is in charge. We stay out of the politics, and stick to business. And business in China is good. (General Manager, American company 12, Malaysian citizen, male, aged 35–40) We’re concerned about the future of this park, but then again, like any good business, we’re always concerned about the future. There was some concern from headquarters, not so much about the Singapore government’s presence in the future, but whether their protracted bad relations with Suzhou itself might cause us some problems down the line. My own reading is that if Suzhou was in charge, then this problem should disappear. (General Manager, Japanese company 3, Japanese citizen, male, aged 50–5) We have seven plants in all of China. The other six don’t have the Singapore government anyway, so for us, this [disengagement] is minor. Even without them [Singaporeans], the infrastructure and system should remain. It is working well, and why should they change a good thing? (General Manager, European company 11, Singaporean citizen, male, aged 40–5) We are definitely worried about the issue [disengagement]. But what can we do? We have invested very heavily in this plant, and it would cost too much to relocate now. Maybe five or ten years down the road, we will have a review of operations here; and if things are not conducive, we will move. (General Manager, Japanese company 7, Japanese citizen, male, aged 40–5) We take the position that we were already privileged to benefit from the earlier presence of Singapore government, which was extremely instrumental in aiding our smooth start-up in China.

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We came here because we were promised a smooth entry to China; we’ve got that now. Since then, the last two years have been fantastic for us. So the next step is to expand. In that regard, the presence of the Singapore government is not a factor. The main factor is our business strategy from now onwards. (General Manager, European company 2, Chinese citizen, male, aged 35–40) If the China government want to retain their customers, they have to maintain this standard at least, if not do better. Even giving us the treatment that you get at an average zone would be bad for us. But the Chinese are not stupid, and they are also good businessmen. So I expect this place to do alright. (Operations Manager, European company 7, Chinese citizen, male, aged 35–40) As long as we make money and business is good, we don’t care who we pay our rent to. (Human Resource Manager, American company 2, Chinese citizen, female, aged 35–40) It was further found that the decision made in June 1999 to disengage not only had a positive impact on existing tenants, but potential tenants were also heartened by the news. According to the CSSD Marketing Manager, investors might hate uncertainty, but marketing agents hate uncertainty even more: Now that we know exactly what this place is going to be like in the short and medium term, we can go out and market this place again with full confidence. Previously, when we were asked about what was going to happen in the short term, we tried to skirt the issue. Now, we can tell potential investors exactly what to expect from the Suzhou Industrial Park. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) These officials were, however, under no illusions about the difficulty of their tasks. In September 1999, the CSSD announced the following: The Singapore-China Suzhou Industrial Park is anticipated to chalk up accumulated losses of US$90 million by the end of

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Disengagement next year [2000]. However, Singaporean and Chinese leaders who oversee the development of the government-to-government joint venture expressed confidence that the project would turn profitable some time in the near future. The CEO of the ChinaSingapore Suzhou Industrial Park Development Co (CSSD), the township’s developer, said yesterday that yearly losses averaged US$23–24 million since the park was established five years ago . . . The losses were attributed to interest costs, operating losses and a one-time write-off on the sale of water and sewage plants in the SIP. (Singapore Straits Times 15 September 1999)

The CSSD then issued a follow-up statement correcting the financial figures supplied, stating that the average annual losses were US$15 million between 1994 and 1996, and US$23 million between 1997 and 1999 (Singapore Straits Times 21 September 1999). Still, the CSSD was facing an uphill task in order to make the Suzhou Industrial Park profitable.

The new management With majority control of the Suzhou Industrial Park, the Chinese partner – which now included the Suzhou Municipal Authority – stated that it would immediately begin work on leading the project to profitability (Singapore Straits Times 17 October 2000). Despite such optimism, the reality was that, as the majority shareholder in the project, it would bear the majority of the burden for any debts that the project had previously incurred. The incoming Chief Executive Officer of CSSD, Wang Jinhua, admitted the project’s debts were ‘indeed not low’ (Singapore Straits Times 17 October 2000). Still, according to a Jiangsu provincial government official, the shortterm objective of the project was to become listed in a stock exchange by 2004 (Singapore Straits Times 30 September 2000). The logic behind this objective was fairly straightforward: in order to qualify for listing in a stock exchange such as the Shanghai Stock Exchange, a company must show ‘strong profits’ for three consecutive years. Thus, the Chinese partner was using the stock listing as a motivational strategy, clearly outlining the project’s priorities. With the Singapore government already committed to completing the software transfer as originally agreed, the onus was on the Chinese partner to come up with a business plan in order to make the project profitable. It was, therefore, interesting to note that under these new

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circumstances, developmental motivations have been marginalized in favour of profit seeking. As the following section will demonstrate, although a project’s profitability might also lead to broader economic development, it need not necessarily be so. Even before the Chinese partner officially assumed control over the project, it had promised to reach US$10 billion in cumulative foreign direct investment by the end of 2002 (Singapore Straits Times 24 October 2000). More specifically, CSSD’s new CEO, Wang Jinhua, set the target of US$7 million operational profit for the year 2001 (Singapore Straits Times 19 January 2001). Considering the Suzhou Industrial Park had an average operational loss of an average of US$15 million each year since 1994 leading to a cumulative loss of US$77 million by 2001 (Singapore Straits Times 5 May 2001), this profit forecast was highly optimistic. The first course of action for the Chinese partner was to install new executives at the zone. As mentioned earlier, immediately after the announcement of the disengagement, Wang Jinhua – who was also the Vice Mayor of Suzhou and the Chairman of the Suzhou New District Administrative Committee – was appointed as the Chief Executive Officer of the CSSD. However, more crucial for day-to-day operations was the appointment of managerial executives. In May 2000, Yang Zhiping was appointed as the deputy executive officer of the CSSD, which meant that he was effectively the most senior operations manager of the company. Yang, formerly the executive in charge of business development, was the first of a whole range of appointments, which saw nearly all the Singaporean staff being replaced by Chinese nationals. A CSSD official took great lengths to explain that this measure was not ‘a form of retribution to Singaporeans’ but was a cost-cutting exercise. Singaporean managers at the CSSD in Suzhou were paid expatriate wages, which were four times the average salary of a Chinese national holding a similar position. The official further stressed that after six-odd years of hands-on learning, the new leadership of the CSSD felt that the Chinese nationals were ready to undertake the responsibilities. According to Yang: I feel that this is not a total changeover. Our responsibility as the majority shareholder will be heavier and the work burden might be greater, but we will still have the participation of the Singapore side in management and at the board level. Before the handover, there are more Singaporeans in the management. Later on, there will be more Chinese, but this does not mean that it [Suzhou Industrial Park] is a totally Chinese thing.

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Disengagement In future, several Singaporeans will be working with us to continue the development of this park. (Quoted in Singapore Straits Times 11 October 2000)

The new CSSD embarked upon a public relations exercise to improve the project’s image. It announced, in May 2000, that as far as the Suzhou Industrial Park was concerned, there were four ‘nochanges’. There would be (1) no change in the inter-governmental cooperation framework; (2) no change in the essence of the joint venture; (3) no change in the goal of developing the park; and (4) no change in the guarantees given to all park investors (South China Morning Post 15 May 2000). Furthermore, the new management team of the CSSD were frequently portrayed as being ‘English-speaking and young’ – with a reportedly average age of 34 – as a strategy to convince potential tenants that the zone was not run by old communist party cadres (Singapore Straits Times 11 October 2000). One of the CSSD’s first new profit-oriented strategies was to allocate more land within the Suzhou Industrial Park for housing ventures. More specifically, housing that could be described as aiming for ‘middle and high end’ users. The Suzhou Industrial Park already had several housing projects, namely two condominium facilities mainly catering to expatriates as well as a large cluster of low-cost high-rise apartments, which could be afforded by most Chinese nationals in managerial positions. However, the new strategy sought to develop over 1,000 new apartments, which were predicted to cost 2,300 yuan (US$255) per square metre, as opposed to the average of 1,500 yuan (US$166) per square metre for the earlier low-cost apartments (Singapore Straits Times 10 October 2000). In the same report, the CSSD was reportedly interested in embarking upon the development of exclusive villas and townhouses within the Suzhou Industrial Park, tentatively named ‘Casa de Esplanade’. Thus, CSSD was keenly aware that there was a strong demand for executive-type housing in Suzhou and, therefore, targeted real estate ventures as a supplementary strategy to boost income. However, real estate developments could not be considered to be true development projects. Although some people would be employed in the construction of these projects, utilizing land designated for industrial use for housing would ultimately mean a reduction in employees within the area. Of course, it could be argued that the Suzhou Industrial Park project was geographically large – it was 70 square kilometres, which was by itself larger than Suzhou historic centre – enough to undertake

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both housing and industrial projects. Yet, it was clear that the Chinese partners had prioritized profitability over development.

Separate ways On 1 January 2001, the handover ‘ceremony’ was a very low key affair. According to SIPAC official, Ma Jun, the ceremony only involved some document signings without any fanfare. No senior officials from either government were present (Singapore Straits Times 1 January 2001). Instead, the priority was to make the project profitable. In this respect, there were encouraging signs for the CSSD. Already, by late 2000, the cumulative foreign direct investment reached US$7.38 billion, with 197 tenants located in the zone (Singapore Straits Times 17 October 2000). This meant that FDI for the year alone was US$2 billion. However, in 2001, the Suzhou Industrial Park saw several new tenants with huge investments. In the semiconductor sector, Philips reportedly committed US$1 billion for a large facility, while Fairchild committed US$200 million (Singapore Straits Times 28 April 2001). The Philips semiconductor facility, scheduled for completion in 2006, would eventually employ a workforce of around 3,500, of which 500 would be in engineering positions (Singapore Business Times 12 March 2002). Philips expected to source locally for all positions, other than at the most senior management levels (ibid.). The Philips investment has been highlighted by the media as being significant, as the Dutch electronics enterprise has had a history of locating operations within the Suzhou New District (five factories as of 2000). However, Philips was convinced by Wang Jinhua to establish its sixth plant across town in the Suzhou Industrial Park (Singapore Straits Times 2 June 2001). The Singaporean media mentioned this investment as a sign that the zone was clearly moving in the right direction. However, from a more critical viewpoint, the location of the investment, as long as it was within Suzhou city, would not have mattered significantly to the Suzhou Municipal Authorities, now that it was directly in control of both estates. The number of jobs created would have been exactly the same, regardless of which side of the city Philips had chosen to locate. Thus, it could even be argued that the Suzhou Municipal Authorities channelled Philips to the Suzhou Industrial Park to make the account books more presentable. In that year, CSSD announced that the Suzhou Industrial Park saw an operational profit of US$640,000 for 2000–1 (Singapore Straits Times 13 May 2001).

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The CSSD pushed ahead with an even more aggressive marketing campaign for the Suzhou Industrial Park. The most significant aspect of this campaign was that, perhaps for the first time in its history, the CSSD specifically targeted Taiwanese and Hong Kong enterprises as potential tenants. In the past, when the Singapore government was directly in control of the zone, Taiwanese and Hong Kong enterprises were not initially considered to be the project’s ‘target market’. The reason for this was because these enterprises were unlike most other industrial transnational corporations that were interested in investing in China. Taiwanese and Hong Kong enterprises were extremely familiar with the Chinese system, both in terms of establishing joint ventures as well as directly dealing with the Chinese political authorities. Thus, these enterprises, which did not require the ‘Singaporean operating system’, would not pay more to locate at the Suzhou Industrial Park, since there were many other locally administered zones (including the Suzhou New District and Kunshan Industrial Park, which was 30 kilometres west of Suzhou) that were lower in cost. However, by mid-2002, after the CSSD had made a ‘price adjustment’ for industrial units at the Suzhou Industrial Park – reducing the average rate from a high of US$70 to the US$30 per square metre average – Taiwanese investors were, according to one report, clearly more visible (Singapore Straits Times 21 October 2002). The report also identified specific Taiwanese companies that have taken up tenancy at the project, including enterprises such as UMC, Uniwill, Acer, FIC, King Ling and Hannstar; no figure was given for the amount of FDI committed by these Taiwanese enterprises (ibid.). After seven years of financial operational losses, the Suzhou Industrial Park, under the stewardship of the Chinese partner in the collaboration, announced its ‘maiden profit’ of US$7.6 million, earned in 2001 (Singapore Straits Times 19 January 2002). The cumulative FDI had risen to US$13 million (Singapore Straits Times 29 May 2002). The Suzhou mayor, Yang Weizi, admitted that a large part of the reason behind the profit was due to an increase in the prices of commercial and residential land at the park (ibid.). This was probably a reflection of China’s continued economic growth, rather than of any specific measure undertaken by the CSSD. Still, considering the project’s financial earlier difficulties, it must be acknowledged that turning in a profit was already an important step. The timetable for stock market listing was not addressed, other than a mention that the CSSD would be listed after three years of continuous profit. What was perhaps even more ambitious was the

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announcement that the Chinese partner of the CSSD was going to forge ahead with an additional investment of US$1 billion to develop the rest of Phase Two and begin work on Phase Three (ibid.). With Phase Two scheduled to be completed in 2003, the Suzhou Industrial Park’s built-up area would stand at 12 square kilometres. The Singaporean media continued to give the Suzhou Industrial Park wide coverage, even after the Singapore government’s disengagement. When commenting on reports of the project’s new-found success, the Singapore government’s official position was that it was satisfied with how the zone had turned out, emphasizing that its decision to disengage was always based on doing whatever was best for the zone. In reality, the Singapore government’s choice to disengage was based on its desire to maintain close bilateral diplomatic ties with Beijing. In other words, the Singapore government felt that friendship was more important than profits. For example, Singapore’s Deputy Prime Minister, Lee Hsien Loong, was quoted as having said: ‘Suzhou difficulties were handled well enough to leave bilateral relations healthy’ (Channel News Asia 23 September 1999). Similarly, as the outgoing Chinese ambassador of Singapore commented in August 2000, the decision to hand over control of the zone to the Chinese partner immediately reduced the ‘frustrations’ within the collaboration, and ensured that ‘China-Singapore bonds remained sturdy’ (Singapore Straits Times 17 August 2000). Viewed from a broader perspective, the Singapore government’s choice – between profits or maintaining good bilateral relations with Beijing – was obvious. The Suzhou Industrial Park was one of many bilateral programmes between the countries (see Lee, L. T. 2001). Furthermore, a strained government-to-government relationship would harm non-governmental economic and cultural relations between Singapore and China as well. As it stood, China was Singapore’s second most important trading partner. The level of trade has increased from US$3 billion in 1991 to over US$17.5 billion in 2001 (Singapore Business Times 21 November 2001). Also, China has been Singapore’s top foreign investment location since 1997 (Singapore Straits Times 22 August 2002). More specifically, by 2002, the cumulative contractual of Singaporean FDI to China has been US$38.69 billion, with the actualized FDI amounting to US$20.24 billion; the total number of Singaporean investment projects in China was 9,875 (ibid.). Although there were several Singapore government-linked corporations and state-owned enterprises investing in China, the majority of Singapore’s FDI came from private enterprises (Yeung 2000). Simultaneously, China’s share of

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Singapore’s total international trade peaked at 6.25 per cent in 2002, which meant the country was the fourth largest trade partner behind Malaysia, the US and Japan; its investments in Singapore rose from US$400 million at the end of 1996 to US$640 million at the end of 1999 (Singapore Straits Times 15 September 2002). Thus, there were economic imperatives for maintaining good bilateral diplomatic relations between the two governments. When the Singapore government no longer viewed the Suzhou Industrial Park as a development strategy, the tensions within the collaboration at the time were also reduced. As the CSSD Marketing Manager told this research: If this was a business venture, then we have to make money. That is straightforward enough. If this was a political programme, then making money is not so important. I guess you could say that when we started out in 1994, the SIP was both a business and a political venture, which was a problem for us at the ground level. Now that this discrepancy is cleared up, we [the CSSD] can proceed without any conflict. (CSSD Marketing Manager, Singaporean citizen, male, aged 35–40) The Singapore government’s emphasis on maintaining strong ties with the China government was also evident during the point of the handover of the zone in January 2001. The Singapore Software Project Office published a souvenir book, entitled In Unison (2001), which was, according to Singapore’s Deputy Prime Minister, Lee Hsien Loong: ‘to commemorate the years of cooperation, and document what we have achieved together, as a token of its appreciation to the Chinese side’ (Singapore Software Project Office 2001: i). Lee admitted that difficulties were encountered when developing the Park. This was ‘natural’, given the ‘ambitious scope of the project, and the different culture and expectations of the two partners’ (ibid.). However, he proceeded to note that the problems have been amicably and fundamentally resolved; thus, the SIP was ‘a tangible symbol of the close cooperation between China and Singapore’ (ibid.). The souvenir was a 225-page ‘photo-essay’ of the Suzhou Industrial Park, which was not for sale to the public; instead, it was a limited run souvenir intended as a gift to the tenants of the zone, and the members of the Singaporean and Chinese consortium, as well as to the participating state bureaucracies and government offices. The objective of this souvenir was therefore to dispel any lingering doubts

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and publicly confirm that the government-to-government relationship was close. With the inter-governmental collaboration no longer under strain, many leaders on both sides were willing to directly address the collaborative project in a positive light. In June 2001, China’s President, Jiang Zemin, called for ties to be further strengthened in a meeting with Singapore’s Senior Minister, Lee Kuan Yew, at the Suzhou Industrial Park (Singapore Straits Times 9 June 2001). He even used the project as an example of how the cooperation had been ‘fruitful’ (ibid.). China’s National People’s Congress Chairman, Li Peng, the second highest-ranking political leader in China, was quoted as having said that the Suzhou Industrial Park had borne fruit and had blossomed (Singapore Straits Times 12 June 2001). In January 2002, Singapore’s Deputy Prime Minister, Lee Hsien Loong, said that there was much better understanding between the Singaporean and Chinese partners in managing the Suzhou Industrial Park after sorting out the earlier differences (Singapore Business Times 17 January 2002). He further added: Our interactions and exchanges have enabled us to build up close rapport and a warm working relationship based on mutual trust and the spirit of cooperation, not only with the Suzhou municipal government but also with the Jiangsu provincial government and the central government. (Quoted in Singapore Business Times 17 January 2002) In 2002, Singapore’s Prime Minister, Goh Chok Tong, when meeting with China’s Vice Premier, Li Lanqing, over the Suzhou Industrial Park, expressed happiness with bilateral relations and agreed that it was based on a high level of mutual trust between the leaderships of the two countries (Singapore Straits Times 29 May 2002). During the same meeting, Li said that the Suzhou Industrial Park ‘has become a successful model of friendly cooperation between China and Singapore’ (ibid.).

Evaluating development A Singaporean perspective According to Singapore’s Senior Minister, Lee Kuan Yew, the Suzhou Industrial Park has been a ‘chastening experience’ for the Singapore government (Lee, K. Y. 2000: 210). As a national economic development

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strategy, it had its fair share of successes and failures, as the next chapter will discuss. However, it was interesting to examine how some leaders of the Singapore government evaluated the collaborative project. Many Singapore government ministers went on record saying that the collaborative project was a ‘valuable lesson’. According to Singapore’s Deputy Prime Minister, Lee Hsien Loong, the collaboration was described as follows: Valuable experience . . . it was an ambitious project, but the alternative is worse, never to try risky things, which we get blamed for too. We learned a lot of things from this project – how they work together with them so that you can get things done despite the difficulties. (Lee Hsien Loong, Deputy Prime Minister of Singapore, quoted in Singapore Straits Times 10 July 1999) Such a view was repeated on several other occasions, including during an in-depth interview conducted by Fortune magazine with Lee Hsien Loong (Fortune 25 January 2000). In addition, the outgoing Singaporean CEO of CSSD remarked that the collaborative project’s problems showed the only way to do business and survive in China (Far Eastern Economic Review 26 August 1999). On the other hand, there were other views which assessed the project quite differently. Singapore’s Senior Minister, Lee Kuan Yew, indicated that the Suzhou project ‘failed’ because of the lack of political will and effectiveness by the leaders in Beijing: We would have done better if we had chosen a city with the shortest and most direct chain of command from the Chinese centre [i.e. Beijing]. Proximity to the top leaders would have helped, with fewer administrative layers between them and the project. (Quoted in Forbes 15 November 1999) In this light, it was unclear whether Lee could not, or would not, grasp the nature of politics in China. In any case, Lee continued to criticize the reluctance of the Chinese authorities to make the necessary improvements in order to conform to international business practices; instead, they chose to retain archaic systems such as guanxi (Lee, K. Y. 2000: 179). Lee, however, noted that the problems between Singaporeans and the Chinese was not ‘a matter of language

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and culture. The fundamental problem was in our two different mindsets, the way we think, our way of life, our working habits and styles’ (Singapore Straits Times 11 December 2000). The logical conclusion to Lee’s view would, therefore, be that Singaporeans – and by implication, the Singapore government – did have cultural affinity with the Chinese in China; however, such affinity was of little operational utility in China. As discussed earlier, the Suzhou Industrial Park was one of several programmes within the Singapore government’s ‘regional industrial parks programme. As a national economic development strategy, it was designed to generate financial profits that could eventually supplement Singapore’s domestic economy. By late 2001, the regionalization strategy had not been successful. Although some of the other regional industrial parks had achieved initial occupancy targets – for example, the oldest project at Batam saw over 93 per cent of available industrial lots taken up (Singapore Straits Times 22 August 1997) – they also faced many problems. Similar situations were reported for several of the other industrial estates in Wuxi, Ho Chi Minh City and in Bangalore. However, after 1998 – the Asian Financial Crisis struck in the middle of 1997 – these projects saw a slowdown of new investors. The crisis also directly affected estates in Indonesia and Thailand. For example, the Thai–Singapore 21st Century Industrial Park (known as TS 21) located in Rayong (south of Bangkok), scheduled for launch 1997, was delayed for nearly two-and-a-half years as the Singapore government did not want to embark upon a project due to the weak market for industrial property in Thailand (see Bangkok Post 10 September 1998). The Singapore government-linked corporation assigned to develop this zone even had to publicly deny rumours that this particular project would be abandoned (ibid.). In addition, other ‘spillover effects’ of the Asian Financial Crisis – such as the social and political upheaval in certain countries – also affected the Singaporeandeveloped parks. The TS 21 project in Thailand saw many environmental demonstrators protest over ‘the dumping of toxic materials’ into a neighbouring reservoir, which was critical to the farmland in the surrounding area. The first protest was held in 1999 when the project was re-launched (see Bangkok Post 20 February 1999) and again in the year 2000 (see Bangkok Post 5 April 2000). The Singapore government-linked corporation administering the zone had to publicly assure the local population that all chemical operations were subject to the zone’s stringent policies regarding waste management; however, the local population did not accept such assurances

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and made a collective plea to the Thai Prime Minister on this issue (Bangkok Post 11 May 2000). With all the problems facing the TS 21 project, the Singapore government-linked corporation announced in November 2000 that they had decided to put the ‘Thai project on hold again’, both because of the environmental concerns as well as the slow recovery of the Thai economy (Singapore Straits Times 9 November 2000). Also, in 1999, during the height of the political turmoil in Indonesia caused by the crisis, the Batam and Bintang Industrial Parks were affected by riots and work stoppages. This was caused by the ethnically driven conflict between the Batak and Flores Indonesians who had migrated to the islands in search of employment (see Far Eastern Economic Review 12 August 1999 and Singapore Straits Times 2 August 1999). At one stage, the Singapore government contemplated withdrawing operations in Indonesia for safety reasons (Singapore Straits Times 2 August 1999). Most importantly, by 2002, there have been no reports that any of the Singapore government’s regional industrial parks had actually been ‘profitable’. By the beginning of 2002, the Singapore government has not officially announced that the regional industrialization programme has been abandoned. However, there have been some indicators that the state has changed its position with regard to the programme as a national development strategy. For example, Singapore’s Minister for Communications and IT, Yeo Cheow Tong, told reporters that the Singapore government was ‘more inclined to let the private sector explore individual investment projects in China after the Suzhou experience’, when the Guangdong authorities asked him to consider establishing a Singaporean regional industrial park there (Singapore Straits Times 19 July 2001). Also, since 1997, the Singapore government has not announced any new regional industrial parks projects. Additionally, the Singapore government has reduced its stake in existing projects. In May 2002, SembCorp – a Singapore government-linked corporation – reduced its stakeholding in the Wuxi Industrial Park to 38.5 per cent, handing over management and operation of the project to the local Wuxi authorities (Singapore Business Times 14 May 2002). The reason given for the decision was stated as follows: In view of the intense competition among industrial parks in China, it is necessary for us to change the operating model for this park. (Low Sin Leng, Chief Operating Officer of SembCorp, quoted in Singapore Business Times 14 May 2002)

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At the beginning of the twenty-first century, the Singapore government appeared to make another significant shift in its ‘developmental’ philosophy. Not only has it prioritized ‘life sciences’ as a new thrust in its national economic development strategy, it has considered reducing its own influence in the economic sphere as a strategy to boost indigenous entrepreneurship. These ideas were proposed by the Economic Review Committee, a government-initiated think tank tasked to ‘remake’ Singapore’s economy (Manufacturing Subcommittee 2002). A Chinese perspective This is the perspective that is perhaps hardest to evaluate. Not only are the China government’s national economic development strategies highly varied and heterogeneous, specific programmes and thrusts are, also, often not clearly articulated. As emphasized earlier, the Suzhou Industrial Park, for the China government, was in real terms only a drop of water in the ocean. Not only was it one of over 400 Special Economic Zones in China, it was located in a relatively small and minor city (Suzhou), as opposed to being located in a major urban centre such as Beijing, Tianjin, Shanghai or Guangzhou. Yet, the most senior leadership in Beijing had constantly given the Suzhou Industrial Park project its strongest levels of political support. Also, it was fairly surprising that the China government was willing to treat the Singapore government not just as an equal partner but to defer to the Singaporeans on many occasions. The China government was clearly a world superpower with superpower issues to deal with; however, it still attempted to pacify and incorporate the Singapore government whenever it could within the inter-governmental collaboration. One reason why the China government invested so much effort into the Suzhou Industrial Park project could be because it was viewed as a significant economic, political and social experiment by many senior leaders in Beijing. The aim of the inter-governmental collaboration was to benefit from FDI. However, since China was already a powerful FDI magnet by the beginning of the 1990s, the Suzhou Industrial Park was an experiment to improve the country’s secondary factors of production. This was the main purpose behind the project’s ‘software transfer’ programme. By 2002, with most observers agreeing that SIPAC had effectively absorbed the ‘software transfer’, and with even the Suzhou New District – which was not officially part of the transfer – clearly improving its own secondary factors of production, the prospects for the other zones to improve their secondary factors remains extremely high. If the other zones

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could improve their secondary factors of production, then it could be predicted that the country – even though it is still officially only partially open to foreign capital in 2002 – could even surpass the US as the world’s highest recipient of FDI. Yet, below the obvious surface of the Suzhou Industrial Park’s FDI strategies and the software transfer programme, the intergovernmental collaboration also included several other less publicized aspects such as the labour mobility management scheme, the provident fund scheme and the public housing development scheme. It could be argued that if the SIPAC officials were able to internalize and implement these schemes, then it would be possible that the social costs of the FDI-oriented national economic development strategy, which have been fairly high in China, might be minimized. It could, further, be argued that if the so-called Singaporean ‘operating system’ could be effectively transplanted in China, it could potentially be a ‘win-win’ situation when viewed from the China government’s perspective. The state would ‘win’ as it retained its primary position within society as a heavily interventionist state – necessarily planning and leading in most economic spheres of social life – while the population would also ‘win’ as they would reap the social benefits of development. However, the case of the inter-governmental collaboration raises several concerns, not just for the China government but also for other segments of Chinese society. The intensity of intra-national competition for FDI – as witnessed by the initial competition between the Suzhou Industrial Park and the Suzhou New District – is inherently problematic, albeit entirely expected. The global industrial production system has always been unforgiving, as are all ‘markets’, where competitiveness is the main determinant for distribution. Thus, even though many governments – national as well as sub-national – attempt to channel FDI towards regions that require development the most, the reality is that investors will ultimately seek to locate or situate their capital in regions which are most conducive to them. In China, the national government has persisted with a strategy that allows regions, provinces and cities to openly compete for FDI. Only a handful of projects are exempted from the intra-national competition, as the state retains tight control over selected mega-projects and natural resource extraction programme. As suggested earlier, this strategy has allowed Beijing to reduce its subsidies to the respective regions; however, the consequence has been that the regions have increased their economic independence from the centre. This,

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already, has subsequently led to a higher degree of autonomy for the regions. As such, it is a double-edged sword for both the region as well as the state, as there are benefits and costs for both parties involved. Ultimately, the key developmental issues facing China at the beginning of the twenty-first century is not just about the country’s relationship with the rest of the world, but also about the changing centre–province relationships. Thus, as the competition within the global industrial production system necessarily creates winners and losers, the key social question is how the national government manages the fallout from the competition, both at international level and at sub-national level. Although China, as a nation, might appear to benefit from FDI, some regions and provinces within the country will benefit more than others. Will the state adequately redistribute the gains from the winners, and support the losers, so that the disparity between regions and cities is minimized? If not, it could be predicted that the socio-political ramifications will be far-reaching, as certain regions or cities shift upwards to become ‘global cities’ whereas others get left behind. In a related scenario, the Suzhou Industrial Park inter-governmental collaboration might also have a negative effect on the many small and medium sized enterprises in China. As argued by many observers, the large Chinese state-owned enterprises are dinosaurs waiting for extinction, simply because they cannot be efficient within the global industrial production system, or more generally within the global economy; instead, small and medium sized enterprises – which may be state-owned, private or even Sino–foreign joint ventures are identified as being the engines of China’s economic future (see Nolan and Wang 1999, Nolan 2001). As such, the Suzhou Industrial Park, as it is an exclusively ‘foreign’ Export Processing Zone, could have the reverse effect of stunting domestic enterprise creation. Of course, the China government was fully aware of this possibility; however, it was confident that the benefits – which were employment creation and technology transfer – would outweigh the costs. Yet, with more regions, provinces and cities in China catching the ‘zone’ fever, coupled with the possibility that within a few years the whole of China would be fully open to global capital as a result of the country joining the WTO, FDI might become the most important national economic development strategy. By itself, FDI would not be a developmental problem; however, it would be a very serious problem only when various governments – national and sub-national – become over-dependent on FDI.

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Sunset and sunrise On 1 January 2001, when the sun set on the Suzhou Industrial Park as an inter-governmental collaborative venture, the sun rose on the Suzhou Industrial Park as a Chinese Special Economic Zone with Singaporean characteristics. It would be difficult to argue that the Chinese-directed zone was a completely new beginning, as the Suzhou Industrial Park cannot free itself from its legacy. Indeed, there is evidence that the Suzhou Municipal Authority will persist in marketing the zone as an estate with Singaporean institutions in order to maintain its competitiveness. However, the performance of the zone has not been the main focus of this study. Instead, this book has been concerned about the consequences of state collaboration to achieve economic development. The final chapter will review the main outcomes and issues arising from the collaborative project.

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Conclusions

The Suzhou Industrial Park, as a collaborative project, has been unique among the many national economic development strategies adopted by governments across the world. In an era when most governments were competing against each other for FDI, the case saw two governments hoping to mutually benefit by collaborating to attract foreign direct investment to the Suzhou Industrial Park. What insights can this case contribute to the already vast literature on the sociology of national economic development strategies?

The collaborative project The Suzhou Industrial Park collaborative project was both a success and a failure. In addition, individually, it could be argued that each partner had their own successes and failures. For the Singapore government, the Suzhou Industrial Park was its ‘flagship’ zone within the ‘regional industrial parks’ programme. As it was the largest and most expensive zone, it necessarily was the most ‘prestigious’ as well. Furthermore, the Singapore government also invested heavily in the software transfer programme. As a national economic development strategy, the zone was geared towards generating financial profits which could be utilized to supplement Singapore’s domestic economy. It also had a secondary objective of improving inter-governmental diplomatic ties. In order to achieve profitability, the zone necessarily had to ‘earn’ more than it cost to develop and maintain. Thus, the economic niche that the Suzhou Industrial Park was hoping to capture was within the global industrial production system. The Singapore government had identified that the Asia Pacific region – which had abundant and low-cost primary factors of production – was lacking in high-quality secondary factors of production, particularly industrial infrastructure and administration. Therefore, the Singapore

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government believed that it could effectively supply this niche through its regional industrial parks programme in general, and through the Suzhou Industrial Park specifically. In this regard, the Singapore government’s foresight has been proved correct. At one level, industrial transnational corporations, which generate the demand for factors of production in the global industrial production system, have generally shown enthusiasm for the Suzhou Industrial Park. The relatively high levels of FDI coming to the zone, even during the period of the Asian Financial Crisis, was evidence of this. The reasons for the Suzhou Industrial Park’s competitiveness within the global industrial production system were its high-quality industrial infrastructure and administration, as well as its geographic location. These advantages were, in many ways, ‘created’ by the Singapore government’s inputs within the collaboration. However, on deeper analysis, it was clear that even though the demand for high-quality secondary factors of production might be strong, it did not always translate into immediate profits for the Singapore government. In the time that the Singapore government was directly involved in the collaborative project (1992–2001), the zone was not profitable, nor was it viewed as being profitable in the medium term. Even when the project turned in its first profits, it was mainly due to new strategies adopted by the CSSD to move into the residential property market, and the targeting of industrial transnational corporations that were not actually seeking high-quality secondary factors of production (for instance, Taiwanese enterprises that just wanted to access cheap primary factors of production). During the difficult times (as caused by the Asian Financial Crisis), the zone’s lack of competitiveness created political problems back in Singapore for the government. This ultimately led to the Singapore government’s decision to disengage from the collaboration, retaining only a minority shareholding. The China government, on the other hand, would probably view the project rather differently. Although it might be sympathetic to its partner’s economic difficulties, the China government would have to admit that the Suzhou Industrial Park has achieved the dual purposes of generating development for the local area as well as effectively experimenting with a Singaporean administrative system. The latter objective was important to the China government, as the leaders were hoping to find an alternative to the ‘free-market’ form of global capitalism, which was believed to incur heavy social costs. Furthermore, considering that the project seemed to perform better after the Chinese partner took over, it could be argued that the Chinese administrators

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had effectively learnt how to compete in the global industrial production system, at least in the short term. However, it would not be accurate to suggest that the collaborative project would eventually lead to a massive sea-change for the China government or for the Chinese economy. In reality, the zone was geographically still very small compared to the other Special Economic Zones and Economic Development Zones in China. Also, the collaboration was financially relatively small when compared to some of the state-directed Sino– foreign joint ventures in China. Yet, the project should not be dismissed as a fancy experiment or a luxury for the China government; if the country could improve its secondary factors of production in the manner that the Suzhou Industrial Park as well as the Suzhou New District have, then even greater volumes of FDI could be expected. This, therefore, might still turn out to be significant, since FDI remains one of several important thrusts in the China government’s national economic development strategy. The Suzhou Industrial Park’s competitive advantages, ironically, turned out to be its weaknesses. This was true for the collaboration as well as for the zone. For example, one of the advantages of the collaboration – the top level ‘government-to-government’ support and backing for the project – ‘backfired’ when the key local economic agent – in the Suzhou case this was the Suzhou Municipal Authority – was marginalized and decided to compete directly against the project. Soon, day-to-day operational problems at the local level were suddenly magnified. Part of the reason was that the leaders of the Singapore government did not fully understand the nature of politics and business in China. They assumed, incorrectly, that local concerns would be fully aligned with national concerns. Interestingly, this is often found to be the most common reason behind the failure of certain Sino–foreign ventures as well. Also, the Singapore government assumed that the way to solve local problems was through the national government. As the Singapore government eventually discovered, the regional–central relationship in post-1990 China were much more complex than originally thought. Therefore, the ‘mixed fortunes’ of the collaborative project were not just the result of the collaborating governments’ strategies. Equally responsible were the resources, motivations and strategies of competitors, as well as the influence of the external environment which, in this case, was the impact of the Asian Financial Crisis. Also important was global industrial production system itself, especially the ‘variable’ demand for factors of production. Since industrial transnational corporations drive the system through generating demand for factors, the system, therefore, is significantly

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affected not only by the global business strategies but also by the mood and sentiment of these enterprises. As such, the Suzhou Industrial Park’s high-quality secondary factors of production, which were its industrial infrastructure and administration, had its advantages and disadvantages. In some ways, it was a premium within China, catering to industrial transnational corporations that specialized in high technology sectors, which tended to commit high volumes of FDI. However, high-quality secondary factors of production also meant that the project had significantly higher property costs, in turn reducing its competitiveness in China. While the premium might not be an issue during periods when there was strong demand, in leaner times – such as during the Asian Financial Crisis – the zone was, therefore, less competitive, especially when compared to other Special Economic Zones in China. The zone At the beginning of this book, a distinction was made between the Suzhou Industrial Park as an economic-geographic zone and as a collaborative project. After 2001, the two concepts have been further decoupled because the collaboration is no longer in operation while the zone continues to exist. The Singapore government, with its disengagement, has discharged itself of most of its obligations, particularly in the software transfer. Furthermore, the Singapore government made clear it would only provide advice on the zone if specifically asked. In this sense, the Singapore government’s presence after 2001 would be negligible. The 35 per cent shareholding that is owned by the Singaporean consortium would be of interest only to the investing enterprises, most of which are private ‘for-profit’ companies, with only a few Singaporean state-owned enterprises and government-linked corporations involved. The China government would also not be directly involved in the zone after 2001, as it has handed control and management to the local Suzhou Municipal Authority. The only remnant of the collaborative project would be in the Joint Steering Committee, which was still chaired by China’s Vice Premier, Li Nanqing, and Singapore’s Deputy Prime Minister, Lee Hsien Loong, as of 2002. They would meet annually, unless there was an extraordinary call for meetings. However, it is highly unlikely that the two national governments would be investing as much time or energy in the zone as they had in the first decade. This means that the Suzhou Industrial Park, as an economic zone, would be, basically, on its own from 2001 onwards. Its history might

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give it a slight competitive advantage, on the basis that it was once a nationally important project, it had undergone the ‘software transfer’ programme, it was built to the highest quality infrastructural standards (at least for Phase One of the zone), and could boast of having some prominent industrial transnational corporations already as tenants. However, it would no longer have access to the marketing networks of the Singapore and China governments. In other words, the Suzhou Industrial Park would have to compete head-on with the many other Special Economic Zones in China and also within the Asia Pacific region without the inter-governmental support. It is predicted that the competition in the short and medium term would, therefore, be intense, and would probably intensify even further when the full effects of China’s entry into the World Trade Organization are realized. When the latter happens, it is expected that the China government will no longer restrict FDI to limited geographic zones. Rather, the whole of China would be open to investors, in turn increasing the number of city and provincial administrators who might become competitors within the global industrial production system.

National economic development strategies The case of the Suzhou Industrial Park between 1992 and 2002 has examined how two typically ‘interventionist’ governments collaborated rather than competed to attract FDI as part of their respective national development strategies. As suggested in the previous section, the collaboration was successful in some areas but problematic in others. However, the collaborative venture offered several important insights into the workings of the global industrial production system, and also national economic development strategies that rely on FDIoriented industrialization. As with all collaborations, the key to success must be complementarity and mutual benefit. This means that not only must partners have complementary strengths, they must both benefit from the venture. This generalization would also hold true if the collaborators are national governments, as this research has found. During certain periods, the collaboration managed to achieve all of its intended objectives, drawing upon the complementary strengths of the partner governments. At the same time, the partners were equally benefiting from the collaboration, encouraging them to continue with their involvement in the venture. This research has also found that certain other aspects, which were deemed as important, turned out to be less than functional for collaborations. In this case, ‘cultural affinity’ – the

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perception that the partners were culturally sympathetic and empathic – in reality only served to get the collaboration started; however, as the collaboration proceeded, the perceived cultural affinity was no longer useful as it was unable to deal with day-to-day operational problems. Viewed from another angle, the problem with the China– Singapore collaboration was also not due to cultural difference, but again due to the real-time operational problems. As with all business ventures, the strategy – or joint strategies – alone would not be the main determinant of the outcome of the collaboration; instead, equally important would be the impact of externalities. Thus, the collaboration – as a national economic development strategy – was clearly floundering when it was unable to react decisively to the rapid changes in the external environment, which in the case of the Suzhou Industrial Park was the emergence of other competitor zones and the impact of the Asian Financial Crisis. Furthermore, and perhaps more importantly, the inability to deal with the external environment directly affected the inter-partner relationship, placing a huge strain on the collaboration itself. Yet, perhaps the most important issue is whether inter-governmental collaboration to attract FDI, in order to initiate industrialization, was ‘useful’ for encouraging economic development. This research has shown that such an FDI-oriented strategy could be effective if, and only if, industrial transnational corporations respond. Unfortunately, industrial transnational corporations hold most of the cards in this ‘game’. In their drive for profitability, these enterprises would transcend national borders to source for the most efficient primary and secondary factors of production. These enterprises do not place national development or economic growth of a region when they make investment decisions. Thus, for governments, an FDI-oriented strategy is highly risky. However, for some governments, FDI is the only option for national development and economic growth and, therefore, participation in the global industrial production system is a necessity. If this is the case, the government must create conditions so that the FDI would be mutually beneficial to all the parties concerned, which includes the government, the industrial transnational corporations and the rest of the local society. Still, from within the sociology of national economic development strategies perspective, it must be stressed that FDI by itself does not necessarily lead to economic growth and social development. Instead, the critical issue is actually how governments manage and utilize the FDI. At this stage, it is worth asking whether there are any alternatives to FDI-oriented national economic development strategies. Obviously,

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there is no straightforward and simple solution to this issue. Different situations require different responses. The China government has been cautious enough to have a fairly diversified national economic development strategy, where the FDI-oriented component (the Special Economic Zones programme) is only one of several sub-programmes. The Singapore government, on the other hand, has shown a tendency to have one major national economic development strategy. Even the regionalization programme, which has several different thrusts, is not diversified enough. When the ‘region’ became the problem as a result of the Asian Financial Crisis, most of the sub-thrusts – as they were all intrinsically tied to the region – floundered as well. This is perhaps why some economists argue that indigenous industrial entrepreneurs – usually small and medium sized enterprises – should become the main engines of economic development in any given society. However, not every society has the ability to induce this; even Singapore, for all of its economic growth over the past 30 years, has difficulties achieving this. Of course, the high degree of state intervention, itself might, intentionally or otherwise, suppress indigenous industrial entrepreneurship. As such, state intervention remains a central concern for Asia, as most Asian governments are still interventionist (Singapore and China), or are living with the consequences of over-intervention in the past (for example, Japan and South Korea). It is probably beyond the scope of this study to reliably comment on the future of collaborative national economic development strategies. In many ways, it is difficult to theorize on the basis of a single case. However, in an era of rapid economic globalization, where industrial transnational corporations apparently are becoming more and more powerful, certain governments still believe that interventionist strategies are the best options for overall economic, political and social development. Some interventionist governments will turn to FDI as an instrument to stimulate the local economy. And it would be conceivable that, in the future, some other governments might jointly collaborate rather than compete to attract FDI for the purposes of stimulating development and economic growth. The Suzhou case was instructive as it showed a whole range of advantages and disadvantages, as well as costs and benefits with the adoption of FDI-oriented strategies. It also highlighted the synergies and the conflicts within any collaborative venture. Ultimately, the conclusion that can be drawn from the case is that the maintenance of a situation of mutual benefit within a collaborative venture is extremely important.

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Index

administration 1, 19, 25, 26, 28, 30, 35, 39, 56, 64, 67, 75, 86, 98, 100, 110, 122, 124, 132, 167–8, 170; bureaucratic 25; public 38–9, 64 agglomeration 43, 77, 103 Amsden, A. 5, 6 Asian Financial Crisis 71, 111, 115–20, 124, 137, 139, 142, 145, 147, 148, 161–2, 168, 169–70, 172, 173 Batam 28, 29; industrial park 29–30, 42, 78, 161, 162 Beijing city 44, 45–6, 100, 111, 129, 131, 163 Buckley, P. J. 9, 15, 16, 25 business strategy 9, 10, 11, 84, 151, 170 capitalism, ‘authoritarian’ 37, 56; ‘free market’ 4–5, 17, 56, 67, 110, 168; ‘global’ 31, 168; ‘industrial’ 71, 82; see also economic globalization Chang, H. J. 6–9 chemical sector 89 Chen, Deming 130, 142–3, 146–7; see also Suzhou Mayor Child, J. 15, 17, 135 China 31–7; ‘China fever’ 37, 63; economic growth 31, 37, 115,

156; economic reform 31–7, 43, 68, 70, 122; geo-political status 36; ‘modernization’ drive 31; political economy 137–9, 160; state-owned enterprises 18, 31, 33, 46, 48, 54, 122, 165; subsidies to provinces 36, 164; superpower 36, 95, 163 Chinese business system 17, 19, 34, 36, 39, 64, 67; traditional 18–19, 35, 93 collaboration 15–18, 74; complementary 15, 19, 171; inter-governmental 2–3, 19, 41, 48, 49, 55, 57–8, 64, 74, 82, 83, 94, 96–7, 98, 100, 102, 104, 110, 112, 115–16, 120, 129, 130, 141, 144, 158–9, 163, 164–5; see also jointventures communism 17; in China 35, 139; Communist Party 57, 72, 138, 154; threat in Singapore 23, 38; see also socialism competition, global 14, 122; for FDI 3, 11, 13, 14, 28, 51, 164–5, 171; for investors in China 44, 115, 124, 126, 127, 129, 142–3, 146, 162, 171 corruption 10–11, 23; in China 35, 37, 67, 92; in Singapore 24, 66

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Index

credibility, state 10–11, 24, 25, 29, 64, 75, 78–9, 81, 147; see also trust CSIPC (China Suzhou Industrial Park Company) 51–2, 145 CSSD (China–Singapore Suzhou Development) 51–5, 58, 59–61, 74, 75–8, 79, 102, 108, 115, 119, 129, 135, 141–2, 145, 146, 148, 151–7, 168 culture 18; Chinese culture 39–40; corporate culture 16, 18, 19; cultural affinity 18–20, 34, 39–40, 49, 93, 138, 161, 171–2; cultural difference 18, 35, 146–7, 158 Deng Xiaoping 31, 37, 47, 139 development 2–3, 14, 119; in China 31–7, 56, 163–5; dependistas (dependent development) 4; dirigiste (interventionism) 7; in Singapore 21–30, 161–3; strategy 4–13, 37, 42, 49, 120, 122, 130, 146, 153, 154, 167–8, 169–73 developmental effects 2, 3, 7, 9, 11, 22, 29, 31, 36, 104, 116, 120–1 developmental elite 6, 21 developmental state 5–8, 21 diplomatic ties 17, 29, 30, 33, 75, 127, 157–8, 167 disengagement 144, 145–7, 149, 151, 157, 170 Economic Development Zone see Special Economic Zone economic globalization 3, 14, 27, 82, 173 economic growth 4–7, 9, 13, 14 economic nationalism 6 electronics sector 23, 85, 117 embeddedness 6–7 employment generation 2, 7, 9, 12, 19, 22, 26, 29, 31, 104, 116, 119, 120, 122, 125, 130, 165

EPZ see Export Processing Zone ethnicity 18, 19, 34–5, 38, 39–40, 93, 127; see also cultural affinity Evans, P. B. 5, 6, 7, 10, 23, 25 Export Processing Zone (EPZ) 11–12, 29, 32, 165; see also Special Economic Zone (SEZ) face, saving and giving 34, 134, 135–6 factors of production 9, 11, 13–14, 15, 23, 26, 168–9; different endowments 10; primary 10, 20, 27, 31, 32, 126; secondary 10, 20, 23, 28, 30, 82, 92, 163–4, 168–9, 170 Foreign Direct Investment (FDI) 2, 8–13, 15, 20, 21–6, 31, 33, 36–7, 49, 54, 85–6, 104, 115, 120, 143, 144, 155, 156, 157, 163–4, 165, 168, 169–73 Free Trade Zone see Export Processing Zone (EPZ) global industrial production system 12, 13–15, 22, 24, 26–7, 28, 36, 41, 49, 59, 92, 122, 142, 147, 164, 165, 167–8, 169, 171, 172 global manufacturing system 9, 11 global production networks 13 Goh Chok Tong 29, 41, 56, 92, 159 government-linked corporations, Singaporean 29, 53, 60, 82, 101, 157, 161–2, 170 government-to-government relationship 17, 47, 157, 159; support 58, 73, 169 greenfield operations 9, 117 Guangdong 32, 39, 43, 44, 45, 68, 87, 162, 163; Guangzhou 104; see also Shenzhen guanxi 19, 34, 39, 64, 93, 135–6, 160; see also Chinese business system

Index 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 21111

Hamburg incident 128–9 Henderson, J. 4, 10, 13, 116 Hong Kong enterprises 17, 18, 32, 33, 34, 121, 122, 156 housing, public: Singapore 23, 26, 37, 38; Suzhou 67, 71–2, 154, 164 industrial estate 11–12, 24, 29, 42, 47, 53, 58, 62, 63, 75, 81, 87, 107, 111, 115, 138, 139, 161 industrial transnational corporations 2, 8–11, 13–15, 19–20, 22–5, 27–8, 29, 35–6, 41, 54–5, 59, 63, 67, 70, 71, 75–6, 79, 86, 92, 98, 104, 116–17, 119–20, 126, 156, 168, 169–70, 172, 173 industrialization 4, 7–8, 15; early 4; FDI-led 8–13, 171, 172–3; late 4–5 infrastructure, industrial 10, 19, 22, 25, 30, 54, 59, 61–2, 75, 87–90, 127, 132, 147 Ireland 11, 12, 24 Japanese enterprises 45, 81 Jiangsu province 44–5, 46, 51, 55, 159 Jiang Zemin 73, 96, 128, 129–31, 159 Johnson, C. 5–6 Joint Steering Council see Suzhou Industrial Park Joint Working Committee see Suzhou Industrial Park joint ventures 1, 15–19, 29, 33, 36, 49, 51, 85, 123, 127, 135, 152, 154, 156, 165, 169, 173; see also collaboration Jurong Town Corporation (JTC) 23–4, 62 Jurong Town Corporation International (JTCI) 52, 62

187

kinship 19, 33, 34, 39; see also guanxi Kunshan 100, 143, 156 labour 10–11, 13, 22–3, 26, 32, 33, 69–71; costs 27, 28, 30; unemployment 122 Lee Hsien Loong 1, 58, 104, 123, 128, 129, 139, 142, 146, 148–9, 157, 158, 159, 160, 170 Lee Kuan Yew 1, 21, 29, 39, 40, 41–2, 46–7, 79, 82, 124, 129–30, 149, 159, 160–1 Li Lanqing 1, 58, 73, 74, 96, 159, 170 Li Peng 37, 159 mutual benefit 1, 7, 15, 19, 30, 37, 41, 42, 49, 120, 167, 171–2, 173 national economic development strategies 3, 4, 8, 12, 14, 15, 20, 21, 25, 27, 31, 37, 49, 83, 159–60, 161, 163–4, 167, 171–3 niches, global economic 6, 29, 140, 167, 168 overseas Chinese 19, 33–5, 39–40, 122 pharmaceutical sector 85, 89 political support 19, 73, 76, 86, 94–8, 105, 163 portfolio investments 8, 27 Provident Fund: Singapore 23, 38, 70; Suzhou 66, 70–1, 72, 164 Pudong New Area 44, 73, 88, 99, 103, 111, 125; see also Shanghai city ready-built factories (RBFs) 24, 61–2, 79, 81, 85, 86, 89–90, 111 regional industrial parks programme 28–30, 40–2, 46, 47, 48, 62, 78, 82, 161–2, 167–8 regionalization 28, 40, 161, 173

188 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 21111

Index

semiconductors sector 89, 117–18, 155 SEZ see Special Economic Zone Shanghai city 43–4, 45, 46, 86, 88, 98–100, 103, 111, 122, 139, 143, 152, 163; airport 43, 99; see also Pudong New Area Shenzhen 12, 32, 44, 68, 111; see also Guangzhou; Guangdong Singapore 21–30; competitive advantage 22, 45, 89; economic growth 26; ethnic Chinese 19, 38–40; industrial restructuring 27–30; industrial transformation 21–7; private enterprises 39, 60, 101, 157; pro-business environment 23; see also regionalization Singapore Economic Development Board (SEDB) 22, 24–5, 28, 29, 30, 46, 53, 76, 78, 79, 101–2 Singapore Software Project Office 1, 65; see also software transfer Singaporean operating system see software transfer SIP see Suzhou Industrial Park SIPAC (Suzhou Industrial Park Administrative Committee) 51, 53, 55–7, 58, 64–9, 71–2, 74–5, 79, 105–10, 119, 135, 146, 149, 163, 164 Sklair, L. 3, 7, 9, 11, 13, 27, 31 socialism 17, 31, 68, 72, 139; socialist industrialization 5 software transfer 1, 47, 56–7, 63–7, 71–2, 91–2, 94, 105, 109, 110, 123, 130, 136, 145, 149, 152, 163–4, 167, 170–1 Special Economic Zone (SEZ) 1, 12, 41, 48–9, 55, 56, 58, 59, 64, 73, 85, 111, 122, 132, 166, 169, 171; see also Export Processing Zone SSTD (Singapore Suzhou Township Development) 51–2, 76, 145 state intervention 4–5, 7, 173

Suzhou city 45, 46–8; competitive advantage 47; floods 61, 134 Suzhou Industrial Park (SIP) 1; competitive advantage 19–20, 55, 56–8, 60, 67, 72, 73, 82, 89, 94, 102–3, 110, 112, 149, 169, 171; debts and losses 2, 142, 146, 151–2, 153, 156; Joint Steering Committee 58, 72, 74, 170; Joint Steering Council, 58, 72, 104; masterplan 119, 145; Phase One 53, 61–3, 71, 104, 115, 119, 145; pro-business environment 23, 25, 55, 64, 65, 70, 71; shareholding 2, 51–2, 130, 142, 144, 145, 149, 152, 168, 170; site selection 42–9 Suzhou Mayor 46, 58, 130, 134, 142–3, 146–7, 156 Suzhou Municipal Authority, 48, 121–2, 123, 124, 130, 133, 134–5, 136–8, 140, 142–3, 144, 146, 152, 155, 159, 166, 169, 170; see also Suzhou Mayor Suzhou New District (SND) 48, 68, 100, 111, 120–4, 129, 132, 137–8, 139, 142–3, 144, 146, 153, 155, 156, 163, 164, 169; competitive advantage 122 Taiwanese enterprises 18, 32, 33, 45, 121, 122, 156, 168 taxation 9, 10, 12, 19, 23, 27–8, 30, 32, 33, 36, 121, 132, 143, 144 techno-bureaucratic elite 6 technology transfer 2, 3, 7, 22, 29, 32, 116, 120, 121, 165 telecommunications sector 85, 89 Thai–Singapore 21st Century Industrial Park (TS 21) 161–2 traditional Chinese business practices see Chinese business system; guanxi training programmes see software transfer

Index 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 21111

transaction costs 14, 16, 18, 74–5 trust 10–11, 14, 16, 19, 23–4, 25, 26, 34, 55, 74, 79, 81, 82, 88, 93, 102, 159 UNESCO World Heritage Site 45, 121 urban development 7, 36, 42, 68, 70 Wade, R. 4, 6, 8, 116 Wang Jinhua 127–8, 146, 152, 153, 155; see also Suzhou Municipal Authority

189

welfare 31, 38, 67, 71; and social security 70–1; see also Provident Fund World Bank 7, 10, 11, 23 World Trade Organization (WTO) 95, 165, 171 Wuxi 46, 48, 143; Industrial Park 58, 91, 161, 162 Xinhua news agency 131 Xinsu industrial estate 61–3, 79, 80–1, 89 Zhu Rongji 47, 73, 96, 131