Competition from China takes some gloss off the city-state’s performance while its ruling family’s squabbles raise difficult questions

To those who criticised the generous salaries offered to his ministers, Lee Kuan Yew — the politician credited with transforming Singapore from a resource-poor tropical port into one of Asia’s wealthiest nations — had a simple retort. “You know, the cure for all this talk is really a good dose of incompetent government,” Singapore’s founding father remarked in 2007, a reflection of his fear that standards would slip. “You get that alternative and you’ll never put Singapore together again: Humpty Dumpty cannot be put together again.”

Two years after his death, an outbreak of feuding among the Lee children has highlighted faultlines in the gleaming city-state he shaped. In a very public row that has captivated Singaporeans, Lee Hsien Loong, the prime minister and son of the founding leader, has been accused by younger brother Lee Hsien Yang and sister Lee Wei Ling of failing to honour their father’s wishes and harbouring dynastic ambitions for his own son.

The dispute has focused attention on the tight circle of power in Singapore, where the state has become enmeshed with a single family. In a country that prides itself on meritocracy, Lee Kuan Yew’s son is only the third prime minister, and his son’s wife Ho Ching heads Temasek, the sovereign wealth fund. The Lee family drama has come at a time when the city-state was undergoing a crisis of confidence. Since it unexpectedly became an independent state in 1965, Singapore has achieved extraordinary wealth by leveraging its strategic location, specialising in niche industries and promoting itself as a neutral and efficient hub which connects Asia to the rest of the world.

Yet in the era of Donald Trump as US president, Singapore worries how a small nation that has thrived in an era of trade liberalisation and openness will prosper if globalisation starts to go into reverse. And its leaders fret that its advantages are slowly disappearing in the face of competition from a more prosperous and assertive China.

The growing doubts in Singapore about both its leadership and direction were captured in an article by Kishore Mahbubani, an academic and former diplomat for the city-state, who argued that the country needed to behave more humbly because it is a small state that lacks leaders of Lee Kuan Yew’s stature.

“We are now in the post-Lee Kuan Yew era. Sadly, we will probably never again have another globally respected statesman like Mr Lee,” he said. “As a result, we should change our behaviour significantly.” The headline figures do not look too bad for Singapore. The central bank predicts growth in gross domestic product of 3 per cent this year. The unemployment rate for residents remains at 3.2 per cent in the first quarter.

But it has faced a series of alarming indicators about the key components of its economy. Singapore Airlines, once the passenger airline industry’s pacesetter for innovation and standards of luxury, reported an unexpected quarterly loss in May after coming under intensifying pressure from competitors; the Singapore stock exchange has seen only two initial public offerings on its main board this year, the bigger of these raising S$174m ($126m); and container volumes at Singapore’s port — still the world’s second busiest — were flat year on year.

Prime Minister Lee Kuan Yew playing Chinese chess with his family

The rise of China is a common theme behind many of Singapore’s pressure points. The flag carrier has suffered as Chinese tourists take domestic airlines on nonstop flights rather than stop over in Singapore; mainland Chinese companies have preferred Hong Kong to Singapore for their listings; and the port of Shanghai is booming while container traffic through Singapore stagnates.

For many analysts, these setbacks are signs of deeper problems. Manu Bhaskaran, a Singapore-based partner at Centennial Group, an economic consultancy, says: “The single biggest challenge to Singapore is the value proposition, which is a combination of competitiveness — including costs — and how the city has chosen to position itself.”

Pointing to Hong Kong’s capacity to use mainland China as a base for low-cost manufacturing and to stoke demand, he adds: “Rivals such as Bangkok and Hong Kong are gaining economies of scale and scope from their increased integration with dynamic immediate hinterlands, something which we simply do not have.” Singapore is grappling with a confluence of negative trends. The city-state has one of the lowest birth rates in the world, at 1.2 births per woman according to the World Bank, while the flow of migrant labour has been tightened in the face of popular discontent.

The resulting labour crunch has meant that nominal wage growth, at more than 3 per cent annually since 2010, has raced ahead of productivity growth, which has languished at about 0.4 per cent for the past five years, according to research from Maybank.

Full story at https://www.ft.com/content/21dd16a4-5bed-11e7-b553-e2df1b0c3220?mhq5j=e1