IDR - Update

LKY has stirred interest in IDR thanks to his comments that Singapore companies cannot expect priviledged treatment from Malaysia like the "generous treatment" accorded by China to investors from HK in Shenzhen. Rebuttal - err Ah Yew aahh, the property restrictions being lifted and the other taxes being lifted, lesser bureaucracy, plus the more open capital and forex rules are what then??? You mean you want the "generous treatment" like the way many Singapore companies went building "special trade zones" in China and failing miserably in the 90s, I am sure they gave you "special treatment".

Overall, LKY is basically warning Singaporean companies, probably as a caveat due to the messy experience of building trading/economic zones in China. LKY was obviously using a very basic "reverse-psychology" on his Malaysian counterparts, so that Singapore firms are accorded "good and reasonable treatment". Its a cynical view but when you examine LKY's words, you have to be more cynical than him.

LKY's views on HK losing jobs to Shenzhen esp in manufacturing were especially shallow. With or without Shenzhen, HK will lose those jobs. The way outsourcing has taken over the world over the last 10 years, its an inevitable progression, you cannot stop it. "If Singapore loses many industries to IDR, we will face serious unemployment problem as not all factory workers can find jobs in the service sector," he said. If Singapore cannot compete, they do not need to have those industries in Singapore. These type of developments will lead to structural unemployment, which had been faced before by HK and Singapore the few years following the 97 financial crisis - the jobs are no longer there because certain industries are no longer there. To grow and develop in a globalised world, structural unemployment is not only inevitable but a necessity. Competitive economies will have to deal with it and plan better ahead, not bitch about it like a less-developed nation.

IDR is a lot like Shenzhen of the past. The city of Shenzhen, next to Hong Kong, offers a glimpse of the vast amounts of investment dollars that could flow into the IDR if it lives up to its potential. The Shenzhen special economic zone (SEZ) is 2,020 sq km, slightly smaller than the IDR, and it managed to attract over US$30 billion in the past two decades, helping create GDP of nearly 493 billion renminbi (RM210 billion) in 2005. Shenzhen was declared China's first SEZ in 1980, and the central government ensured the province was governed by special policies. Flexible measures aimed at securing foreign investment involved incentives and relaxed rules on international trade. Shenzhen has since amply demonstrated the advantages of being an SEZ, especially one integrated with Hong Kong's economy. It has been China's fastest growing city for nearly three decades and, from 2001 to 2005, saw an economic expansion that averaged 16 per cent. Its frenetic economic boom has drawn Chinese people from all over the interior - a point Malaysia wants to replicate with the IDR to divert congestion from its main commercial centre, the Klang Valley.

The sectors selected for emphasis in IDR looked a bit "stylised and over ambitious": creative industries, educational, financial advisory and consulting, health care, logistics and tourism - will be offered privileges such as 10 years of corporate tax exemption, freedom to get foreign employees and global capital, as well as exemption from Foreign Investment Committee rules. The sectors selected, especially those that currently compete with Singapore may find the going tough (education and financial advisory in particular.) The leaders have to be a bit more realistic, its manufacturing which will drive interest in IDR, the rest pales into insignificance. Only after creating sufficient critical mass in population and industries, can you scale up in the other desirable high-value add sectors.