INVESTMENTS IN SUZHOU

[Mr Speaker in the Chair]

Mr J. B. Jeyaretnam asked the Deputy Prime Minister what was the total of all Singapore monies, private and public, invested in Suzhou and how much of it represented monies from the taxpayers.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, the Suzhou Industrial Park (SIP) is developed by a Chinese-Singaporean joint venture company called China Singapore Suzhou Industrial Park Development Company (CSSD). The Singapore Consortium, called the Singapore Suzhou Township Development Pte Ltd (SSTD) owns 65% of CSSD. There are 24 shareholders in SSTD. Ten are Government linked companies or statutory boards, whose total investment in SSTD is US$65.5 million. Ten shareholders are Singaporean companies not connected with the Government. Four are non-Singaporean MNCs from Japan, South Korea, Netherlands and the US. Details are in the Annex (Cols. 125-32) which has been distributed. Annex (Cols. 125 - 132)

Since the SSTD shareholders include publicly listed companies and MNCs, the SIP project has to be viable. SSTD's involvement in SIP has to be transparent and tenable. Any losses sustained will be made public and available for scrutiny by the international investment community.

Since SIP is a major infrastructure project, it is not realistic to expect immediate profits. But CSSD believes SIP can become profitable in the medium term, ie, within five to six years from the start.

Both governments are committed to the success of the project. Their strong support has enabled the park to develop rapidly in its first three years. To-date, SIP has attracted 99 projects with investment commitments amounting to US$2.7 billion, of which 80 are industrial projects worth US$2.1 billion. The average size of projects, at US$27 million, is the highest in China. 41 plants have already started production while 22 are under construction. These include major projects from the US, Europe, Japan and other Asian countries.

Unfortunately, SIP's progress is being affected by the aggressive promotion of a rival industrial park by the Suzhou Government, the Suzhou New District (SND). When we started SIP, SND was already in existence. However, Suzhou City and Jiangsu Provincial governments assured us that they would give their whole-hearted support to the SIP because it was a flagship project for both countries. But over the past three years, it has become clear that the Suzhou city government believes that they will get more projects by promoting both parks. They have increasingly stepped up their support for SND against SIP. This culminated in the award of the APEC State Science and Technology Park status for SND in September 1997.

Such aggressive competition within Suzhou must reduce investments to SIP. Investors will stay away rather than be caught in the competition between the two parks.

For a while, we dealt with this basic contradiction on a case-by-case basis. But at a meeting with German business leaders in Hamburg on 4th November last year, a Suzhou Vice-Mayor openly promoted SND and downgraded his own government's commitment to SIP. He disagreed with German investors that SIP had the support of President Jiang Zemin and advised German companies to go directly into China without Singapore. Two days later, in another forum in Cologne, he told investors that all the resources in Jiangsu and Suzhou would be placed behind SND.

International investors are now aware of the serious and fundamental conflict between SIP and SND. They must believe that SND, which is wholly owned by the Suzhou City government, will get priority support, not SIP, which is only one-third owned by the Chinese joint venture partner. To restore confidence, we must resolve the problem openly. Investors must be convinced that the problem has indeed been resolved, and not simply swept under the carpet.

The foreign investors in SSTD, who have staked their money on the success of the SIP project, are also concerned. They expect a reasonable return on their investment, which they made in the belief that they would have fewer problems doing business in China by participating in the Singapore-China project.

The difficulties encountered by SIP, and the way they are resolved, will set a precedent for how foreign investors in the SIP can expect to resolve their own problems. Our difficulties must be settled by rational and logical arguments. We must restructure the arrangements to become a win-win situation for both Suzhou and the Singapore and foreign investors. This will boost investor confidence in SIP. If we gloss over the issues, SIP will become another run-of-the-mill park, creating no special value for its shareholders, its tenants, or China.

Both the Chinese and Singapore governments recognise the importance of the project, and its benefits to both countries. President Jiang Zemin has given his full support to resolving the problem. Singapore too is fully committed to the success of SIP. We are confident that by being open, and tackling the issue directly and completely, we will solve the problems and restore the project to a strong and even footing.

Mr J. B. Jeyaretnam (Non-Constituency Member): Mr Speaker, Sir, may I ask the Deputy Prime Minister whether the Cabinet had received a full report from the Senior Minister after his recent visit to Suzhou and of his misgivings that were reported in the local papers of the project?

BG Lee Hsien Loong: Mr Speaker, Sir, Mr Jeyaretnam can assume that the Cabinet is aware of the Senior Minister's views.

Mr Jeyaretnam: Mr Speaker, Sir, may I have a direct answer to my question, which is, have they received a full report from the Senior Minister?

BG Lee Hsien Loong: The matter has been discussed and all Ministers are aware of the problem.

Mr Jeyaretnam: Another question, Sir. The Deputy Prime Minister talks about US$65 million investment of public monies in this project. This, as we understand from him, was after assurances by the local authorities that SIP would be given the highest priority. In view of this change in the attitude, has the Singapore Government taken up this matter at the highest level with the Chinese government?

BG Lee Hsien Loong: Has the Member forgotten how he became aware of this problem? It is because the Senior Minister raised it at a high level and brought it out into the press.

Mr Jeyaretnam: May I ask what representation has the Singapore Government made to President Jiang?

BG Lee Hsien Loong: The Senior Minister has raised the matter with President Jiang Zemin and has received the assurances from President Jiang Zemin that the project has the full support of the Chinese government and his meeting with President Jiang was prominently reported in all the major newspapers in the PRC, both national and local.

Mr Jeyaretnam: May I ask whether the Government has made any government-to-government representations?

BG Lee Hsien Loong: Mr Speaker, Sir, Mr Jeyaretnam may not be aware, but the Senior Minister is a member of the Cabinet and he speaks for the Government.

Mr Chiam See Tong (Potong Pasir): Sir, at the time of starting the Suzhou Industrial Park, was the Suzhou municipal government also a party to the arrangement?

BG Lee Hsien Loong: We discussed it with the Suzhou municipal authorities. We negotiated the agreement with the central government in Beijing and we are aware that the central government made extensive consultations before they committed, and the agreement was signed between the Senior Minister and Vice-Premier Li Lanqing.

Mr Chiam See Tong: So is the Suzhou municipal government in fact reneging on their promises or agreement?

BG Lee Hsien Loong: I would not use the phrase which Mr Chiam has used but I would say that the expectations on which we went into the project have not been fulfilled the way we expected them to, and that is why we are discussing the matter now.

Mr Chiam See Tong: What does the Suzhou municipal government expect of the Singapore Government's stand if they are not willing to cooperate?

BG Lee Hsien Loong: Mr Speaker, Sir, I did not say that they are not willing to cooperate. I said that we went in on certain expectations which have not been entirely fulfilled. So we will be discussing the matter with the Chinese government at the highest level and also at the municipal level and we will work out a fair, rational and transparent solution to this problem.

Mr Chiam See Tong: Is that not non-cooperation on the part of the Suzhou municipal government?

Mr Low Thia Khiang (Hougang): Is the Deputy Prime Minister aware that when the Prime Minister visited Suzhou some time in September last year he was reported to have said that he was satisfied with the progress of the park. But three months later, some time in December, when the Senior Minister visited Suzhou he gave a different story. Would he explain the discrepancy in the assessment of the progress of the park?

BG Lee Hsien Loong: Mr Speaker, Sir, these are issues which built up over a period of time. As I explained in my answer, the park has indeed made significant progress, physically on the ground, in terms of attracting investments, in terms of getting the type of investors in and the quality of the projects, they have done very well. There have been certain problems, which I have highlighted, to do with the priority given to the park and the diversion of effort and the conflict of interest between Suzhou New District and SIP, which we have been discussing with the Chinese authorities for some time and which have now become a public matter as a result of what the Suzhou Vice-Mayor said when he was in Germany last November.

When you have a joint venture with a partner, there will always be issues to be discussed, whether it is a Chinese partner, a Singaporean partner or an American partner. Depending on how the matters are resolved, these problems can either be ironed out or, if they cannot, they have to be raised to a higher level and discuss with greater seriousness, and that is what we have done in this case.

Mr Low Thia Khiang: Did the Singapore Government foresee such problems with the development of SIP and whether or not there were certain safeguards in the initial negotiations of going into the project?

BG Lee Hsien Loong: Mr Speaker, Sir, when we embark on a project of this scope and nature, we do expect problems to arise. If it were not an ambitious project, it would not have been worth doing. This particular form in which it has become acute we could not have foreseen, and we were astonished to learn that the Vice-Mayor had gone to Germany and spoken twice, once in Hamburg, to the Special Commissioner for Chancellor Kohl, whose responsibility is to do German-Singapore-China joint projects. And this Vice-Mayor had told him that, "You should not go in with Singapore. Come in alone. We don't need Singapore. And President Jiang Zemin does not support Suzhou Industrial Park." There was no reason whatsoever for us to anticipate such a startling statement from such a senior official.

As for provisions within the agreement, there are always provisions for discussing and resolving problems, but it depends on goodwill and coincidence of interests on both sides. In this case, it is not just a government-to-government agreement, which has to do with the software transfer. It is also a commercial agreement with commercial parties involved: on the Singapore side, a consortium of Singaporeans, GLCs, statutory boards, private companies and also MNC participants; on the Chinese side, also a Chinese consortium. So the shareholders expect their investments to be safeguarded. There is no such thing as a risk-free investment. If there were, you would earn 3% interest, which is what you can get for leaving your money in the bank. So there will always be a risk, but at the same time the shareholders expect to be fairly treated and expect their investments to be given a fair chance to succeed. And I think that is a significant safeguard for all those who have put money into the project.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, since the statement by President Jiang Zemin about the central government's support for the project, has this instruction been filtered down now to the municipal government in the sense that in your later contacts with them, have there been meetings or exchanges where it shows that they are now toeing the central government's line?

BG Lee Hsien Loong: We are in contact with them. 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 would convey to the Chinese side as our view of how to deal with this problem, and we expect the Chinese side will study that and give us their response in due course.

Mr Inderjit Singh (Ang Mo Kio): I would like to ask the Deputy Prime Minister, in the Government's assessment, in the long-term, will the problem be solved? If the problem cannot be solved and the current situation remains, what will be the next step for us to take?

BG Lee Hsien Loong: Mr Speaker, Sir, perhaps it is best if I just re-read the last paragraph of my answer: Both the Chinese and Singapore governments recognise the importance of the project, and its benefits to both countries. President Jiang Zemin has given his full support to resolving the problem. Singapore too is fully committed to the success of SIP. We are confident that by being open, and tackling the issue directly and completely, we will solve the problems and restore the project to a strong and even footing.

Mr Jeyaretnam: Mr Speaker, Sir, following the Party Member's question to the Deputy Prime Minister, is the Deputy Prime Minister saying then that all these problems arose after the Prime Minister's visit in September, that until September everything was wonderful in the garden?

BG Lee Hsien Loong: Mr Speaker, Sir, I did not say that. I explained that when you have a joint venture, you have many issues to be discussed and some become more complicated and some become simplified and resolved, and this issue could not be resolved and eventually had to be brought out in the open.

Mr Chiam See Tong: Can the Deputy Prime Minister say who are our partners in this SIP? Is it the central government? We seem to be negotiating with the central government but the municipal government is the one that is giving us problems.

BG Lee Hsien Loong: Mr Speaker, Sir, Mr Chiam will know, having visited China, that there are many levels of government and authority in that country and all of them have influence and we require cooperation from all levels in order for our project to succeed. So this is the problem which has to involve many levels and we are starting, including at the top. Of course, it will require the cooperation of the provincial authorities and also the city authorities, but I do not think it is a problem which can be resolved by them alone. That is why we have raised the matter not only in Suzhou but also with the provincial authorities and in Beijing. In fact, the Senior Minister, when he was on his trip in December, raised it with President Jiang Zemin and Vice-Premier Li Lanqing. He raised it with the Party Secretary of the province, Chen Huanyou. He raised it with the Governor of the province, Zheng Silin, and he had raised it also with the Party Secretary of Suzhou city, Yang Xiaotang. So we have covered all bases.

Mr Low Thia Khiang rose ---

Mr Speaker: Mr Low, I will allow one last question.

Mr Low Thia Khiang: Sir, would the Deputy Prime Minister rate the risk of the investment in SIP in mid-term and long-term, in the scale of 1 to 10?

BG Lee Hsien Loong: Mr Speaker, Sir, I am neither Moody's nor Standard and Poors.