When Xi meets Lee: What Singapore has in store for China’s leader

Singapore's Prime Minister Lee Hsien Loong (L) meets with Chinese President Xi Jinping (R) in late 2014 in Beijing, China.
Feng Li | Getty Images
Singapore's Prime Minister Lee Hsien Loong (L) meets with Chinese President Xi Jinping (R) in late 2014 in Beijing, China.

China's President Xi Jinping is dropping into Singapore Friday for a two-day state visit with Singapore's Prime Minister Lee Hsien Loong.

In addition to marking the 25th anniversary of the two nations establishing diplomatic relations, here are items likely to top the agenda.

Trade

China and Singapore will start negotiations on upgrading their free-trade agreement (FTA), Singapore's Ministry of Foreign Affairs said.

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Singapore's services sector is likely to be among the potential beneficiaries of an FTA upgrade, as the city-state's manufacturing exports to China already enjoy low tariffs, Credit Suisse said in a note Wednesday, adding that any deal may be a "testbed" for China on whether to join more comprehensive regional trade deals, such as the Trans-Pacific Partnership (TPP).

It's certainly a big deal for the tiny city-state: China is Singapore's largest trading partner and accounts for 5.9 percent of Singapore's gross domestic product (GDP), Credit Suisse noted.

Liberalizing China's currency

More initiatives to liberalize China's currency, the renminbi, will likely be on the cards, Credit Suisse said.

"Outside of Hong Kong, Singapore has been a major anchor for offshore renminbi activities, which is likely to continue to expand going forward," the bank said.

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It expects the city-state's banks to benefit, both from more renminbi-based trade and capital markets activity coming through Singapore. The banks are also likely to benefit from providing infrastructure funding under China's "One Belt, One Road" development strategy. That's aimed at recreating the Silk Road land and maritime trade routes, and China has already committed around $40 billion to the related infrastructure needs.

During the summit, Bank of China, a Chinese commercial bank, signed an agreement with International Enterprise (IE) Singapore, a Singaporean export agency, to launch two businesses in the city-state that will provide financial services to commodity companies, including those using the renminbi.

Development projects in China

The two nations will discuss a third government-to-government development project in Western China, Singapore's foreign ministry said. Education cooperation and urban management will also be on the agenda, the ministry said. Singapore is well recognized for its efficient management of government services - it's topped the World Bank's ease of doing business survey for a decade - and the city-state often exports its know-how to regional nations.

Credit Suisse expects the third government-to-government project will be in Chongqing, noting that the previous projects were the Suzhou Industrial Park, from 1994, and the Tianjin Eco-City, from 2008. Tianjin Eco-City is a 30-square-kilometer urban project 40km from the Tianjin city center; it's expected to eventually have a population of 350,000, with the development expected to take 10-15 years. The site previously was mainly barren land and polluted water bodies, according to its website.

The nearly nearly 300-square-kilometer Suzhou Industrial Park, located near Shanghai's financial area, hosts operations for several multi-national corporations, including Samsung, contributing around 15 percent of the city's economy as well as housing around 5.2 percent of Shanghai's population, according to at Straits Times report.

An agreement on the third project could expedite a joint-venture deal between Singapore's Sembcorp Industries and Chongqing Energy Investment to acquire an existing coal-fired power plant there and jointly develop an adjacent one, Credit Suisse said.

Acting as the Switzerland of Southeast Asia

Singapore is brokering a historic meeting between China's Xi and Taiwan's President Ma Ying-jeou, marking the first talks between leaders of the neighboring nations in more than six decades.

China views Taiwan as a renegade province that it could reclaim by force if necessary. In 1949, after a long civil war, Chiang Kai-shek's Republic of China government lost control of the mainland to the communist party and fled to Taiwan, to rule the island as a government in exile.

China and Taiwan both requested that Singapore host the cross-strait talks, Singapore's Ministry of Foreign Affairs said in a statement Wednesday, noting that the city-state had also hosted the 1993 Wang-Koo talks. Those talks between two non-governmental organizations were the highest-level cross-straits meetings since 1949, with agreements signed to promote trade and other exchanges.

Security

The talks may break some new ground in security cooperation.

"Security cooperation has been a weak area between Singapore and China," Li Mingjiang, an associate professor and coordinator of the China program at the National University of Singapore (NUS) said. "Probably the two countries may want to find some areas to further their defense and security interactions in the future."

Additionally, Li noted that earlier this year Singapore became the chair of Asean-China relations for the Asean group. Asean, or the Association of Southeast Asian Nations, comprises 10 countries and promotes development, trade and political cooperation in the region.

"Singapore can play an active, useful role in improving China relations," Li said, noting that a host of new issues have arisen in the region, including an intensified China-U.S. strategic rivalry.

"There's a more assertive China in really all areas - economic, maritime disputes and also in diplomacy. China is becoming more confident, more active and more assertive," he said. "It's a new context in which Singapore may need to think more carefully."

But Singapore may not be too active in its approach.

"On the security front, Singapore will likely shy away from taking a leadership role, except perhaps as a broker for regional discussions," said David Yang, an analyst at IHS.

"To be effective as a broker, Singapore must endeavor to maintain a carefully-balanced approach toward all sides. If Singapore were to take on a more activist role, it would risk damaging its credibility with one side or the other, and quite possibly both," Yang said.

However, one big sticky wicket in regional relations - tensions in the South China Sea - may go entirely unmentioned in the talks between Singapore's Lee and China's Xi, NUS' Li said.

China has been dredging to create man-made islands in the South China Sea, claiming both the islands and surrounding waters as its territory despite their location far from its borders, as well as building military infrastructure on the islands.

The islands in question are also claimed in part by several countries, including the Philippines and Vietnam. The U.S. and its Asian allies have expressed worries that Chinese may ultimately seek to restrict or even bar free naval passage in the area. Tensions were heightened in late October when a U.S. destroyer sailed near one of the islands, with a Chinese naval commander warning that such moves could spark a war there, and the U.S. reasserting its right to sail in the area unimpeded.

"If they talk about it at all, it will probably repeat a lot of the usual positions," Li said. "Singapore understands that trying to put pressure on China in a summit meeting may not be a good idea. Singapore may be able to try to explain to China some of the issues with respect to the South China Sea, such as law and how regional countries view this issue."

Earlier this week, a meeting of Asean defense chiefs in Malaysia dropped plans to issue a ceremonial joint statement after the tiff between the U.S. and China, Reuters reported. A senior U.S. defense official had claimed China was lobbying Asean to drop any reference to the South China Sea in the statement, but China's defense ministry claimed "certain countries" outside the region tried to "forcefully stuff in content," Reuters said.

The orchids

Continuing one of the island nation's long-standing traditions, Xi and his wife, Peng Liyuan, will have an orchid hybrid named for them. Singapore is the world's largest exporter of orchids.

-Huileng Tan, Everett Rosenfeld, Alex Rosenberg and John W. Schoen contributed to this article.