Beijing Looks to Singapore as Model of Authoritarian Technocracy…

Most near term lead indicators in China are levelling out and improving at the margin from new PMI orders to total social financing. However, the structural challenges I’ve highlighted since 2010 are deep rooted and will require radical reform not only of the capital allocation system, but the role of the party itself and its relationship to the judiciary/state banks etc. Academic researchers concluded after a recent government conference in Beijing that the country was ‘unstable at the grassroots, dejected in the middle strata and out of control at the top’, which is a fair summary of the very brittle nature of Chinese society as the incoming leadership attempts to shore up the party’s legitimacy, undermined by an endless stream of corruption and insider enrichment scandals. While only the urban elite will be aware of the (quickly censored) NYT revelations on the estimated wealth of outgoing Premier Wen’s extended family, every taxi driver in Beijing can recite the excesses of the Ferrari driving third-generation Princelings, who invariably derive their income from private equity and other investment vehicles which thrive parasitically around the edges of the vast and largely unaccountable SOE economy to which they have preferential access by birth.

Achieving a transparent legal and financial separation of state/SOE and party assets would be a good start in renewing reform momentum, but would infuriate the vested interests for whom the current opaque structures offer ample opportunity for corporate looting. Indeed, I’ve often characterised China as a competent kleptocracy (as opposed to the bureaucratically incompetent variants in say Russia or India), but the balance between officials delivering tangible economic progress rather than finding ever more imaginative ways to deliver their burgeoning assets into offshore havens has swung dangerously out of balance. The ‘grassroots and middle strata’ morale problems can’t be addressed until control is demonstrably restored at the top. It’s intriguing that an article in an influential party magazine held up Singapore’s system of ‘managed democracy’ as a possible model for China; this coincides with a 10 part series on the city state set to air on state TV in early 2013.

The magazine in question is published by the Communist Party’s Central Party School, whose president is Xi himself, who is known to have a dialogue with Singapore’s founding father Lee Kuan Yew. If you are looking for a new Asian one-party model, the ever adaptable PAP certainly offers a better record of success than say Japan’s LDP. The sophistication of indirect social control in Singapore is remarkable, ranging from obligatory military service to HDB mortgages, and it’s a country where the military has a huge and lucrative role, with generals retiring at 45 (in case they get restless) to parachute into cabinet or executive roles in local hybrid SOEs, and where senior bureaucrats (typically chosen initially by competitive scholarship, but able to spend periods in the private sector during their careers) earn USD$500k plus to dissuade them from corruption.

I’ve  met  many  superbly  educated  young  Singaporeans  whose  loyalty  to  the  system (brainwashing?) is remarkable, whereas in China cynicism among the same age group is rife. Of course, attempting the micromanagement of every aspect of life seen in Singapore with 5.2m residents (and 3.5m citizens) across China’s vast population looks impossible, but as the party can never again risk a Tiananmen style crisis, the use of more subtle propaganda and social control mechanisms to guarantee loyalty is critical. Alongside a political relaxation, the economic reforms it implies and which are long overdue should help global investor sentiment, as the current status quo is increasingly untenable…expect one of Xi’s first overseas visits to be to this modern day vision of Confucian harmony, but he’ll probably skip the casinos stuffed full of his compatriots.

If there’s one feature that defines Singapore (aside from a brutally competitive educational and working culture and the world’s longest working hours), it is artificially generated paranoia to stoke up imaginary foreign threats and sustain social cohesion. There is little justification for the country’s vast defence budget on any objective assessment of the threat from Malaysia (whose youth based on a recent visit to KL are too busy attacking junk food to try it on with Singapore’s modern Sparta – surging diabetes rates remains a core Asian investment theme) or Indonesia, whose only invasion plans involve Jakarta’s elite racing Maseratis along Orchard Road to meetings with their ultra-discreet wealth managers.  However, Lee Kuan Yew and his successors cleverly realised that fear and even a sense of siege is the best tool for social control, and in that light perhaps the sudden spate of Chinese territorial disputes this year is also no coincidence. It’s conceivable that with a more liberal domestic political and economic environment under Xi we will also see a more assertive regional foreign policy as Singapore style armed to the teeth nationalism replaces the party’s residual Leninist pretensions.