Suzhou project: wounded pride

By Ben Dolven,
Far Eastern Economic Review
July 8, 1999

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Troubled Suzhou project proves a lesson for Singapore

On June 28, Singapore and Chinese officials struggled before an audience to explain an agreement that transferred majority ownership of a huge industrial park in China to state-owned mainland developers. A Singapore investor with operations in the park stood up and asked a basic question. When he didn't get an answer that satisfied him, he doggedly asked it again: "What happened? What happened in Suzhou?"

The question wasn't superfluous. The Singapore government has been sparring publicly with Suzhou municipal authorities for a year and a half about the troubled project, known as the Suzhou Industrial Park. But Singaporeans remain unclear how the development, conceived in the early 1990s as a model in which Singapore would show China how to take care of international investors, instead became a lesson in how not to get things done in the mainland. It ran into delays in getting infrastructure built, but what really hurt most was competition from a locally operated industrial park across town. The fallout from the public battle could hurt Singapore investment in China. It has also shown the limits of Singapore as a model for economic development elsewhere.

The project could hardly have had a higher profile. It was the brainchild of the island-state's senior minister Lee Kwan Yew, who had taken a personal interest in seeing it through. For Singaporeans the project is well-known: An afternoon tabloid recently devoted a two-page spread to a cartoon history of the debacle.

The debate as to what happened still rages: Singapore officials talk of how Suzhou municipal officials ignored agreements made with Beijing and instead marketed the rival park, called the Suzhou New District. Singaporeans admit that their highly centralized government expected the Chinese system would work in the same way it did. "We thought that an agreement with the top would go all the way through the system like a lightning bolt, but it's not the way things work," says one businessman who was involved in the project.

It would seem Suzhou mayor Chen Deming agrees. "When you or your joint-venture partner decide to invest in China you must take into account our cultural differences," he told the June 28 meeting. For Singaporeans, the comment might rankle. Chinese traditions, after all, would hardly account for the efforts of a Suzhou vice-mayor in 1997 to encourage investment in the rival park during a trip to Germany.

What the vice-mayor was engaged in, of course, was old-fashioned competition. The cross-town industrial park had existed for three years before the Suzhou Industrial Park was started, and even after the Singapore park was running, the Suzhou New District's marketing staff proved nimble in pulling in multinationals, including Motorola, Sony Chemicals and Philips Electronics. The New District offered investors lower rental prices, and even paid for advertisements on some Air China flights. "One issue, certainly, which we should have given a lot more weight to was the question of the Suzhou New District," Deputy Prime Minister Lee Hsien Loong acknowledged to the REVIEW shortly before the agreement. "In fact, one senior Chinese official told us that, had he known that there was a Suzhou New District in Suzhou, he would not have recommended that we go to Suzhou."

The agreement to transfer ownership looks like a partial exit strategy. The Singapore consortium, made up of 12 companies, many government-linked, will lower its share of the project to 35 percent on January 1, 2001, from the current 65 percent. It will sell facilities like power and water-treatment plants to the Chinese partners. Over the next 18 months it will lead the development of eight square kilometres, not the 70 square kilometres it had originally planned, and then let the Chinese side lead whatever comes next. Developers from the rival park will be brought in to build dormitories for workers.

New District officials say they're still unclear on what the agreement means for them. In the pact, the Suzhou municipal government said it would "avoid disorderly competition between both parks for the same project" and "give priority by recommending all suitable projects to Suzhou Industrial Park." But the New District has been offering cheaper land and picking up investors who are confident in its ability to provide services. If investors were to lose the cost advantage, instead of the Singapore park they might look to facilities elsewhere in China.

Although the Singapore-developed park's performance has been disappointing, nobody appears ready to go broke over it. The Singapore government, and Singaporean companies, have invested $131 million and they say they'll guarantee an additional $65 million in loans that the joint venture needs for developments between now and the 2001 handover. Rent from the 91 tenants doesn't cover costs, but the loss isn't debilitating.

The cost is more to Singapore's pride--and perhaps to its willingness to invest in China in the future. "It's a blow to the ego," says Chia Shi Teck, a local garment maker. "I think our ego had been overblown when Deng Xiaoping had said in the 1980s to use Singapore as a model."

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