OBOR Initiative: Implications For The Economy Of Singapore

OBOR: Implications and Expectations

In the contemporary economic world, several countries have emerged as economic leaders, with immense amount of economic activities and overall progress and development. China is one such leading global economy, dominating the international economic scenario for the last few decades. With immense economic progress and manufacturing expertise, the country now holds capacity to influence the international commercial scenario with their strategies and economic actions (Palan 2013).

In the recent years, one of the initiative of the country which has been under huge speculation is the project of One Belt One Road or the OBOR Project, which emphasizes on facilitating better connectivity and mobility among the different countries in Asia, Africa, Europe and China itself. Referred to as the new Maritime Silk Road, the OBOR is expected to connect China with Europe through the Indian Ocean and also the Sea of South China (Zhu 2015). Officially announced in 2013, the route connects 65 countries, thereby influencing nearly 60% of the total global population and 33% of the international GDP. Under this initiative, various projects are in pipeline, both in the Chinese economy as well as the other economies falling on this route (Yunling 2015).

One of the primary countries, which are expected to be highly influenced by the operations of the OBOR Initiative by the Chinese government, is the economy of Singapore. Over the years, the economy of Singapore emerged as the most open economy in the global framework, with its pro-business, least corrupt and highly industrial environment. Having third largest Gross Domestic Product in the world, the country is one of the youngest economies showing immense potential to emerge as one of the dominant players in the global economy (Minghao 2015).

In this context, the successful implementations and operations of the OBOR Project is expected to play considerable role in the economic and industrial dynamics of the economy of Singapore. While there are several opportunities of economic prosperity for the country attributed to this route, there are several expected risks too (Lin 2015). The report tries to take into both the opportunities as well as the challenges, which are expected to be faced by the economy of Singapore, as implications of the operations of the OBOR in the contemporary periods.

The One Belt One Road project, connecting almost all the dominant economies in this region has given rise to future planning of many projects and commercial initiatives by the concerned countries. This can be clearly explained with the help of the following figure:

Opportunities to Capture Benefits of OBOR: Case Study of the Economy of Singapore

 

Figure 1: The expansion of the One Belt One Road Project by China

(Source: Asiantradecentre.org, 2017)

As can be seen from the above figure, the Silk Road as well as the New Maritime Road together connects all the robust and industrial zones and is spread across a vast geographical domain. Together these roads, maritime trails, railways and the oil and gas pipelines are expected to create a network connecting all the key markets in the region of operation, which also includes Singapore. The initiative has already started showing positive implications on the economy of China, as can be seen from the increase in the GDP of the same, the global share of which increased from 2.7% in 1980s to almost 16% in the contemporary periods (Lo 2015).

In general, the South East Asian zone has been gaining attention in the global economic scenario over the years. Gaining impetus from the technological advancements and spill over of the same, the countries in these regions are taking gradual steps towards development and emergence as developed countries (Krishnan and Sriganesh 2017). However, there remains several bottlenecks and hindrance towards the path of unrestricted development of the same. With the implementation of the OBOR, it has become immensely important for these countries to develop their infrastructure to reap the benefits of the extensive semi-global business route.

One of the countries which are expected to have immense benefits from this OBOR Initiative by the Chinese economy, is that of the economy of Singapore. Being a part of the South East Asian countries falling in the domain of the One Belt One Road Initiative of the Chinese economy, the country is currently the most advanced economy in the South East Asian zone (Callens and Cherfi 2015). Apart from being the dominant economy in this region, Singapore also has several other added advantages, which may be beneficial for the same, in the aspect of reaping the benefits of the OBOR Initiative, which are elaborated in the following sections:

1. a)One of the strategic advantages of the economy of Singapore, which may prove to be extremely beneficial for the country in the aspect of reaping the benefits from the OBOR Project, is the geographical location of the country. Situated near the sea routes as can be seen from the above figure, the country is expected to emerge as one of the most important points of concentration under the domain of the OBOR Initiative.
2. b)The trade route being designed with the objective of maximizing the industrial and economic activities across the entire region and of increasing the mobility of goods and services as well as the factors of production across, the economy of Singapore can play the position of the most important trade hub across the region. The country, already having Chinese operational bases and ports with Chinese engagements, has immense scope of emerging as the most important industrial hub for trade and commerce of manufactured products, productive resources as well as oil across the zones falling under this region. This is turn may bring in huge foreign investments in the concerned economy from other parts of South East Asia, China and also some portions of Europe, thereby creating economic facilities for the economy of Singapore.
3. c)Another important aspect of Singapore, which has also significantly contributed to its impressive economic development in the recent years is the robust technological base and the infrastructural developments of the same of the country. Singapore, in the recent periods, have achieved immense technological and industrial mobility, along with the robust capital investment coming in these sectors, both within the domestic territory as well as from other countries. The impressive world-class infrastructural framework of the country, which includes transport, educational and training facilities and technological bases, can help the country to become the central hub for shipping and aviation across the routes. One trade route has also been suggested from Singapore to other parts in the plans of OBOR by the Chinese governing authorities as is evident from the above figure.
4. d)Apart from the geographical location and the conducive economic and commercial environment of the country, there are several other attributes of this already developed and economically advanced country. The overall environment of Singapore is free from avid corruptions and has a strong legal framework, highly developed financial system and financial and economic prosperity. There also exit social and political stability in the country, which clubbed with the above attributes, are expected to help the economy of the country to take advantage of the opportunities of reaping the economic and industrial benefits of the OBOR Initiative.

Given the above discussion, it is evident that there are huge scopes for gaining economic prosperity and commercial sustainability on part of the economy of Singapore, from this Chinese initiative of OBOR Project. There are several specific sectors in the economy of Singapore, which are expected to take advantages of the opportunities of this huge commercial initiative taken up by the Chinese government. These are discussed as follows:

Logistics industry and infrastructure- Being positioned at the heart of the South East Asian zone, the country is already the infrastructural hub of that region, with the ports of the country being the busiest of all the ports in world. The country has a connection of 200 lines of shipping across 120 countries globally, which prominently includes China. The initiative of Chinese government to operate a revamped Silk Route can add to the advantages of these already economically active ports.

Tourism Industry- One of the industries which is going to get huge benefits from the OBOR initiative by China, is the tourism industry as a whole. Travel across this zone is expected to increase both in terms of business and pleasure purposes. Tourism, in this context, is already a booming industry in Singapore, as more people tend to visit this place with time. Given the initiation of the OBOR project, more and more people are expected to visit this growing hub for its strategically positioned location of the country. Thus, the tourism industry of the country is expected to gain impetus in the country itself.

Financial Services- With the increase in the business prospects in the economy of Singapore, especially after the initiation of the operations of the one road project by the Chinese economy, the economy is expected to gain benefits from the same. The financial and professional service companies of the country are especially expected to play the vital role of assisting the Singapore based enterprises as well as the foreign enterprises, which are getting interested to venture in the different proposed projects under the OBOR initiative. These institutions are expected to gain enough activities and prospects by financing the initiatives of the different companies. With the already consistent, strong and well-regulated capital sector and banking framework, the country can efficiently do the same.

Foreign Investment- The economy of Singapore is already enjoying a transparent and regulated efficient legal framework. The economy showing immense potential of growth is expected to incorporate even greater economic and commercial activities with the revamped commercial route in action. The country, which is already an attractive place of alterative locations for the different multi-national companies, is expected to attract even more foreign investments in the near future with more and more companies getting attracted to get the benefits of the OBOR Project (Du and Zhang 2017).

Thus, from the above discussion, it is evident that with the increased operations of the OBOR trail as has been designed and implemented by the governing authorities of China, the already economically progressing country, Singapore, is evident to achieve multi-lateral benefits from the same. This is to be accrued to the economy, provided the country efficiently utilizes the scopes of improvisations and improvements. However, the path of progress is not entirely smooth for the country, as there are several hurdles also, which are expected to be experienced by the economy of Singapore under the domain of operations of the OBOR project. The country, along with the expected prospects and benefits, also faces several challenges, which were not present before the implementation of the revamped Silk and Maritime route by the Chinese government.

While the single comprehensive network of commercial trails is expected to bring economic activities to the country, there are several grounds on the basis of which Singapore can also face hurdles and competitions from the other growing and economically active countries in this region, which are elaborated in the following sections.

1. a) Threats of other Port Developments-Of the several issues of concerns, which pose as threats to the economic prosperity of the economy of Singapore, under the domain of operations of the OBOR initiative, the first and primary issue of concern is the threat of Singapore losing its current status of the largest transshipment port in the world. In the current situations, the country facilitates commercial trade traffic of valuation of almost 5 trillion dollars per year and is currently one of the Asian oil nodes. The strategic location of the country and its port activities help in shipping oil in bulk across the globe with the value of the same exceeding almost 600 million USD annually (EMBONG, EVERS and RAMLI 2017).

However, with the initiative of OBOR, there are chances of several other ports coming into operations, which if true, are expected to curb the importance of the concerned country as the only significant port. The primary competitive ports, which are expected to emerge as potential threat to the sea-line trade prospects of the economy of Singapore, are the construction of the Malaccan deep-sea port and the new extension of the Klang port. In the recent period, speculating the increased economic activities, which are expected to be hiked due to the OBOR project, around 10 billion USD has been allotted for the development of the port in Malacca.

The developments of these two ports pose serious threats to the economic prosperity of Singapore, especially in two ways:

1. i)If the concerned ports get into action with their full capacity, then due to their strategic location, just to the north of Singapore, the trade traffic expected to pass through the ports of the latter is speculated to decrease considerably, thereby posing a serious threat to the overall commercial, industrial and economic prosperity of the region.
2. ii)In the previous periods, these ports did not have the capacity to pose as serious rivals to the highly developed port of the economy of Singapore. However, with the generous fiscal support from the current investors of China, these deep-sea ports are expected to cater to bulk cargos as well as containerized ones, which may curb the importance of the ports of Singapore (Yoshikawa 2016).
3. b) Newly designed rail routes-Apart from the threats of competition from the rival ports, there also exit the threat of transfer of trade traffic through the East Coast Rail Link, which is expected to form a comprehensive and inclusive network, when it comes to operation in its full capacity. This can be further explained with the help of the following figure showing the route of this proposed rail route:

 

Figure 2: East Coast Rail Link

(Source: Asiantradecentre.org, 2017)

 As can be seen from the above figure, with the full operations of the proposed rail link, falling under the OBOR initiative, and the ports of the Eastern peninsula of the concerned region will get linked to those in the Western peninsular portion, through an extensive networks of the railways. The busy trade traffic of Singapore, which is highly attributed to the huge trade dynamics in the Malaccan straits and those of the South China Sea, is expected to get diverted from the Singaporean region, as the same can be done much easily with the help of the freight trains (Saravanamuttu 2017).

1. c) Technological progress-With the OBOR project coming into action, more and more economies in the South East Asian region are getting much global and Chinese attention. Thus, the technological progress, which was initially solely enjoyed by the economy of Singapore, is no longer expected to be constrained to the economy itself. Thus, with the other countries becoming technologically efficient, the primary challenge for the economy of Singapore is to stay constantly updated and participating in the innovations to take advantage of the cutting edge technologies (Kaplan 2017).

Given the above discussion, it becomes immensely important for the government of the country to play the following roles:

1. a) Political and social stability- The overall social and political framework of the country are also required to be maintained at a stable situation to reap the benefits of the huge upsurge in the commercial and economic activities which are expected to be increasing with the OBOR coming into operation fully.
2. b) Financial tools-To reap the economic benefits of the OBOR initiative it is of utmost importance for Singapore to have a consistently and efficiently working banking and financial system, which is to be monitored by the government itself (Cheong 2017).
3. c) Technological support-The ports of the country also needs to be revamped to make them working at par with the newly developing and higher-capacity ports, for which proper technologies have to be incorporated which has to be done by the governing authorities of the country.

 Conclusion 

The above discussion, it can be asserted that with the initiation of the OBOR initiative, there remains immense scope for the economy of Singapore to reap the benefits of the same, through innovative technologies, already robust financial systems and its strategic location. However, the economy also faces several challenges in terms of increased competitiveness of the other South East Asian countries, alternative and more efficient commercial routes and flowing investments to other potentially progressing economies lying under the domain of operations of the OBOR Project.

References 

Asiantradecentre.org (2017). One Belt, One Road: Opportunities and Risks for Singapore (Part 1). [online] Asian Trade Centre. Available at: https://www.asiantradecentre.org/talkingtrade//one-belt-one-road-opportunities-and-risks-for-singapore-part-1 [Accessed 28 Dec. 2017].

Callens, S. and Cherfi, S., 2015. THE INTENSIVE EXCHANGES FLOWS. About a “New Regionalism”: OBOR («One Belt, One Road»). In Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE (Vol. 9, No. 1, pp. 496-505). Faculty of Management, Academy of Economic Studies, Bucharest, Romania.

Cheong, I., 2017. Assessment of the Economic Background of the OBOR. Journal of International Logistics and Trade, 15(2), pp.72-82.

Du, J. and Zhang, Y., 2017. Does One Belt One Road initiative promote Chinese overseas direct investment?. China Economic Review.

EMBONG, A.R., EVERS, H.D. and RAMLI, R., 2017. ONE BELT ONE ROAD (OBOR) AND MALAYSIA: A LONG-TERM GEOPOLITICAL PERSPECTIVE.

Kaplan, Y., 2017. China’s OBOR as a Geo-Functional Institutionalist Project. Baltic Journal of European Studies, 7(1), pp.7-23.

Krishnan, R. and Sriganesh, B., 2017. One Belt One Road–Opportunities and Risks for Singapore.

Lin, J.Y., 2015. “One Belt and One Road” and Free Trade Zones—China’s New Opening-up Initiatives. Frontiers of Economics in China, 10(4), pp.585-590.

Lo, C., 2015. China’s Silk Road strategy. The International Economy, 29(4), p.54.

Minghao, Z., 2015. China’s new Silk Road initiative. Istituto Affari Internazionali, Rome.

Palan, R. ed., 2013. Global political economy: contemporary theories. Routledge.

Saravanamuttu, J., 2017. Malaysia’s East Coast Rail Link: Bane or Gain?.

Yoshikawa, S., 2016. China’s Maritime Silk Road Initiative and Local Government. Journal of Contemporary East Asia Studies, 5(2), pp.79-89.

Yunling, Z., 2015. One Belt, One Road. Global Asia, 10(3), pp.8-12.

Zhu, Z., 2015. China’s AIIB and OBOR: Ambitions and Challenges. The Diplomat.