SUZHOU PROJECT

Mr J. B. Jeyaretnam asked the Deputy Prime Minister whether the Government is still hopeful of recovering all monies invested in the Suzhou project.

BG Lee Hsien Loong: Mr Speaker, Sir, Mr Jeyaretnam last asked about investment of public monies in Suzhou Industrial Park (SIP) in January 1998. In my reply, I explained the composition of SSTD, that is, the Singapore consortium participating in the SIP project. I also provided the amounts its shareholders had invested. I pointed out that as the shareholders include publicly listed companies and MNCs, the SIP project had to be viable. Any losses sustained would have to be made public and available for scrutiny by the international investment community.

I also explained the problems faced by the SIP as a result of aggressive promotion by the Suzhou Government of a rival industrial park next door, the Suzhou New District (SND).

Since January 1998, both sides have carried out extensive consultations to resolve the problems. They thoroughly evaluated the progress of the SIP and the experience gained so far, and sought to work out jointly the best way to advance the project, given the circumstances. The discussions were successful, and resulted in a memorandum of understanding (MOU) signed by the two sides in Singapore on 28th June 1999, and published.

Initially the Singapore side suggested that SND, that is, the rival, suspended its marketing for five years, so that full attention could be given to accelerate SIP's development. The Chinese side explained why they could not suspend SND, but expressed their commitment to SIP's priority status by offering to coordinate the marketing of the two parks. The Singapore side accepted the Chinese explanation of their constraints. Hence, the need for a fundamental review.

The MOU is a comprehensive package redefining the objectives and structure of the project, and resolving many long outstanding problems. Its main points include:

a) Refocusing the SIP project on completing the first 8 sq km by 1st January 2001.

b) Transferring majority ownership and management control of CSSD, the joint venture company from Singapore to China on 1st January 2001.

c) The Suzhou Government and the joint venture company to continue to look after the interests of SIP tenants and investors. They guarantee that the changes to the project will not affect their commitments to these tenants and investors.

d) The Suzhou Government will respect SIP's priority status by recommending all suitable projects to the SIP, encouraging investors to choose SIP, and taking concrete measures to pre-empt disorderly competition between SIP and SND.

e) The Suzhou Government will encourage population from Suzhou old city to move to SIP so as to accelerate SIP's development and growth.

f) Both sides will accelerate the adaptation of Singapore's experience. Beyond 1st January 2001, software transfer will continue through attachments and training of Chinese officials in Singapore.

g) Both sides have also settled all the outstanding commercial issues, to enable the project to go forward with a clean slate and the best chance of success.

h) Both sides will jointly assist CSSD to enhance its financial performance and to enable CSSD's early listing.

These measures will put the SIP project on a workable track and improve the joint venture company's financial viability. The Chinese side have assured us that they will do their utmost over the next 18 months to implement the agreements and make the 8 sq km area a success. The Singapore side remains committed to the project and will do all it can to achieve a positive outcome.

The shareholders in the Singapore consortium have fully endorsed the MOU. They include American, Japanese, Dutch and Korean corporations. The consortium has slightly increased its investments in the joint venture companies since January last year. I have circulated an updated list of investments (Cols. 1867-1870) by consortium members and other Government-linked companies in the SIP project. Members should have it on their seats. The total amount invested by statutory boards and GLCs in the project so far is US$147 million. In addition, as part of the package deal in the MOU, Temasek has agreed to guarantee a loan of up to US$65 million to the project, for a fixed period up to 31st December 2003, in return for a commercial fee from the members of the Singapore consortium. Beyond these commitments, the Singapore consortium does not expect to inject further amounts into the SIP project. LIST - SSTD SHAREHOLDERS (Cols. 1867-1870)

The strategic objective of the SIP project was not just to earn a profit for the joint venture, but to be a vehicle for software transfer. But shareholders in the Singapore consortium decided to invest in CSSD based strictly on commercial considerations. They have always emphasised that the project must be commercially viable. Unless it can earn a reasonable return, the consortium cannot justify its investment, and SIP cannot support the software transfer.

The shareholders in the Singapore consortium evaluated the viability of the project critically before committing themselves. But like any other project, it was subject to normal commercial risks. There could not be any certainty of profit.

For a combination of reasons, it has proved more difficult for SIP to become profitable than the Singapore consortium initially expected. However, with the package of solutions now agreed upon by both parties, and the assurances given by the Chinese, the SIP project has a reasonable opportunity to turn around and become profitable in the medium term, provided the external investment climate does not deteriorate.

Mr J. B. Jeyaretnam (Non-Constituency Member): May I ask the Deputy Prime Minister why has the Memorandum of Understanding not been made public? I understand from the librarian that it was not presented to Parliament. May we know why?

BG Lee Hsien Loong: Mr Speaker, Sir, the Memorandum of Understanding is a commercial document which was published when it was signed, and it was all over the newspapers.

Mr Leong Horn Kee: Mr Speaker, Sir, I would like to ask the Deputy Prime Minister whether it is true that the Suzhou project costs the Government more than $30 billion of public funds, and this was apparently alleged by Dr Chee Soon Juan in a speech he made at Raffles Place in December last year.

BG Lee Hsien Loong: Mr Speaker, Sir, there is no truth at all. I had already given Parliament a full update on the status of SIP in January 1998, giving figures similar to what I have just stated again, which is $147 million. Dr Chee Soon Juan made a speech last year at Raffles Place where he said that if we continued talking about Suzhou, we were bailing out $30 billion of public funds, not "his" money ("his" meaning Mr Lee Kuan Yew) but $30 billion of taxpayers' money. I do not know where he got his figure from, but Members will know that this is Dr Chee Soon Juan's statement and, with him, accuracy and facts are matters of taste rather than morals.

Mr Jeyaretnam: Mr Speaker, Sir, I do not know whether it is reassuring to hear from the Deputy Prime Minister that the Government hopes that it will show returns. What I want to know from the Deputy Prime Minister is: is this a pious hope or are there any realistic expectations and, if so, when do we expect any returns?

BG Lee Hsien Loong: Mr Speaker, Sir, these are commercial propositions. There is a commercial consortium. They have spent 19 months negotiating the MOU, which they have signed. It is still not guaranteed that the project will become profitable. But they have to make the best of the project in the circumstances, and we will have to see in due course what happens. I think it is too early to speculate.

Mr Low Thia Khiang: Sir, I do not know whether the Government has sufficiently considered the Suzhou New District before committing its investment which has resulted in today's position. I understand that the Suzhou New District had been in existence before the Government decided to make an investment. Was it prudent for the Government to make the investment and pulling in the commercial establishments which are now suffering losses and facing an uncertain future?

BG Lee Hsien Loong: Sir, in retrospect, obviously, we did not pay enough attention to it. But there was a reason. We were aware of it but there was a reason why we started on a different area, and that is because we were not just building an industrial estate, but building a township complete with schools, houses, infrastructure, industrial park, utilities, everything. Therefore the idea was to look for a fresh piece of ground and start in order to have a clean slate. We believed that the Suzhou authorities would give clear priority to the SIP project over SND and indeed this was so for the first few years of the project. But as time went on, the competition and rivalry became a problem and finally came to a head.

As Members know, I think in November 1997, one of the Vice Mayors of Suzhou went to Germany to promote SND, the rival, and told the German investors that they should come to SND because Jiang Zemin did not support SIP, to the amazement of Chancellor Helmut Kohl's special representative, who was in charge of encouraging German businessmen to go to China together with Singapore. And that is what brought the matter to a head. We have been discussing it over these last 20 months and it has been finally settled.

I should quote to the Member what one very senior Chinese official told us. He said that if he had been aware of SND, he would not have advised us to go to Suzhou. Therefore, this was a problem which we did not fully appreciate and their top leaders were not aware of either.

Mr Low Thia Khiang: Clarification, Sir. Is the Deputy Prime Minister saying that even the adviser to the Singapore Government from China was not aware of the existence of the Suzhou New District at the point in time, and was the Singapore Government aware of the Suzhou New District at the point in time?

BG Lee Hsien Loong: Mr Speaker, Sir, I did not say the adviser to the Singapore Government. I said a senior Chinese leader who gave us advice told us that he would have given us different advice had he been aware of SND. We were aware that SND existed. We did not know how big a problem it would pose and we believe the problem was manageable, and we were mistaken.

Mr Inderjit Singh (Ang Mo Kio): Sir, I would like to ask the Deputy Prime Minister that having learnt a lesson of the problems that we face in Suzhou with the Chinese officials, are we applying this lesson learnt in the other deals that we have in the other industrial parks? Are we facing any problems in the other parks that we have in China, for example, the Wuxi industrial park?

BG Lee Hsien Loong: I am not aware of the details of the Wuxi industrial Park. There is no G-to-G element in that. That is purely a commercial proposition. It is much less ambitious. They are not talking about 70 sq km with 8 sq km in phase I. They are going one sq km by one sq km, advancing as the project develops. From my not very up-to-date knowledge, I believe that they are also having some difficulties, not because of the Chinese partners but because investments into China generally are down this year and therefore they are finding it difficult to get tenants.

But certainly, from the lessons from SIP, we would have to do a full post mortem and derive the full benefits from them. And it is not just us who will do the post mortem but I am sure Harvard Business School will take a very close interest and so will the Europeans, Insead, and the others. And they will write it up because here was a very important project, given very high level support from both sides, including the Chinese side. It is not a laughing matter, when the President of the People's Republic of China goes and provides calligraphy for a park. And yet, there were these difficulties which finally could not be properly overcome and we have had to re-adjust our project in order to accept these limitations. It will be very carefully scrutinised and the lessons documented so that everybody who goes to China will have it available. It will be made into case studies. Therefore, we are trying our best to make sure that it becomes as much of a success as possible.

Mr Jeyaretnam: May I ask the Deputy Prime Minister whether a comprehensive agreement was drawn up between the Chinese Government and the Singapore Government before we embarked on this Suzhou project, and if there was, whether any provisions were made for the resolution of any disputes that may arise by reference to arbitration or to any other international tribunal?

BG Lee Hsien Loong: Of course there were agreements. There was a G-to-G agreement which governed the software transfer and there was a commercial agreement which governed their commercial development. And some of the items in the agreement were issues which were long in dispute and have taken us this long time to settle. The commercial agreement would have been subject to the investment guarantee agreement signed between Singapore and China which provides that, in case of dispute, the matter would be referred to arbitration. And that was one of the options which was considered seriously, but fortunately, the two parties were able to resolve their difficulties without having to refer to arbitration.

Mr Zulkifli bin Baharudin (Nominated Member): Sir, I would like to ask the Deputy Prime Minister, in view of our reduced role and stake in Suzhou, whether we would be able to provide the same support and service level to these companies, many of whom have invested in Suzhou simply because of our involvement and reputation and credibility there.

BG Lee Hsien Loong: Sir, that is one of our major concerns in negotiating the MOU, which is to make sure that we do our best to safeguard the interest of the tenants who have gone in, because we have encouraged them. They went in because we gave them comfort. We persuaded them. They went in expecting our help and support in navigating any unexpected bumps in the night. Now, we will still be there but in a much lesser role. We have taken some pains in making this agreement to get the Chinese side to commit, which they have done so publicly, that anything which has been settled with the tenants before this will remain in force after this and will not be changed by the signing. At the same time, we have gone round and explained to the tenants and reassured them what the agreement consists of and what the arrangements are which we are making over the next two years.

There is a transition period of two years to the 1st of January 2001 before the shareholding structure changes and by that time, Suzhou Industrial Park will be nearly seven years in existence. It would have been in existence for a considerable length of time and companies which are tenants in our park would have been able to establish themselves. We could not have expected this project to continue indefinitely. At some stage, it must complete and the experiment must be declared either a success or not. There must be a graduation and then probably, if it is of a commercial success, there should be a public listing of the company and the original shareholders would exit or partially exit, and the structure will change. So, when you go in, it is for a reasonable expectation, but not indefinitely. And that we have tried to explain to the investors. Naturally they are still concerned but we would do our best to hold their hands.

Mr Low Thia Khiang: Is the Government satisfied that the senior government official from China was honest when he said that he was not aware of the existence of the Suzhou New District when he advised the Singapore Government about investing in Suzhou?

BG Lee Hsien Loong: Sir, I have no reason whatsoever to doubt that.

Mr Yeo Guat Kwang (Cheng San): Question No. 10, Sir.

Mr Jeyaretnam: I have another supplementary question, Mr Speaker, Sir.

Mr Speaker: File another question for the next sitting. We have a long list of questions today.