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Monday, November 28, 2016

Sino - Singapore Relationship - Geopolitical Minefield

Last week, my eyes caught some news about a shipment of armoured personnel carriers from Taiwan to Singapore being seized by Hong Kong Port authority, Hong Kong Maritime and Port Board (HKMPB).  At first, the news did not trigger much of my attention as I am in midst of preparing for exam.

Terrex. Photo credit - Singapore MINDEF

As it is, this is not the first time that military combat equipment had been seized by port authorities worldwide.  Case in point is the seizure of ageing Cuban Air Force jets by Panama in 2013.  The jets were said to be bound for North Korea for repairs.

But with further revelation that the APC were in fact, Singapore Armed Forces much vaunted Terrex armoured vehicle, which were on the way back from Taiwan after a military exercise, only then I realised the enormity of this situation.

People's Republic of China, which is China's official name, is the defacto China today.  But way back in 1950's, China actually meant Republic of China (ROC).

The shooting war of Chinese Civil War which ended when the Kuomintang-led government evacuated Mainland China to Taiwan in 1949 did not end just end with the evacuation of Kuomintang forces to Taiwan.

For years, ROC held onto the coveted title as inheritor to the Chinese government and one of the 5 United Nations Security Council permanent seat (other members are United States, Britain, France, and Russia, all being the victors of World War 2).

It was until after US President Ronald Reagan visited Beijing in what is known as ping pong diplomacy that Sino - US relationship was normalised.  But the price to the normalisation is that Washington had to recognise only 1 China.

Due to Russia being seen as a larger threat to US, US relented and accorded to China the recognition.

This move in turn resulted in Taipei being stripped of the UN membership and the role given to China instead.

Singapore's recognition of Taiwan too were affected and this was switched to Beijing in the 90's, which is much later than Kuala Lumpur's recognition of Beijing's authority to the successor title of China.

Despite switching recognition, Singapore continued to dally on with Taiwan via military exercises.  This was despite China managing to secure Singapore's promise to end military cooperation with Taipei.

In short, Singapore sees Taipei as a kindred spirit, being surrounded by far larger countries that could easily overwhelm them.

This would not have been a problem if China did not get economically important.  With China now becoming global economic powerhouse, China has managed to afford itself a voice much stronger than the military might it had once sought to have.

Despite all of these, Singapore had continued to antagonise China, especially with matters pertaining to South China Sea even though Singapore itself is not a claimant.

Singapore's mistake was tri-fold.

Selling off of Singapore's Civilian Transport Company
First, Singapore's state-own civilian transport company, Neptune Orient Line Limited had just been sold off this year.  Mounting loss had forced Singapore Government via Temasek Berhad to sell off the strategic company to French CMA CGM.

Had Singapore still have their own state-own civilian transportation services, it could have been utilised to transport the vehicles back to Singapore without much hassle.

This in turn resulted in Singapore being forced to hire civilian transport.

Hiring civilian transport company would not have been a problem if the ship did not berth in Hong Kong.  However, they hired a ship that would go to Hong Kong first before returning to Singapore.  Economically, this looks as a smart move as the cost is cheaper.  But cheap doesn't mean secure.

The planners had omitted the fact that Hong Kong is part of China since 1997, albeit an autonomous region.

Some readers and friends asked why can't Singapore use RSN ships to transport the vehicles back to Singapore.  They can't as the presence of the ships in Taiwan itself would result in an equally strong rebuke from China.  Using the ships also mean that Singapore is indirectly recognising 2 Chinas.

China's Growing International Role & US' Impending Reclusivity
With China's role in international trade growing, Singapore will find it harder to ignore China.

Strong Chinese investment into Malaysia, which includes an electrified double tracking railway from West Coast to East Coast Peninsular Malaysia and a deep water port off Malacca may see more Malaysian traders to forgo Singapore Port.

This does not spell good economically to Singapore as the recent quarterly GDP announcement had suggested.  Singapore recently had declared their economy had contracted by 4.1% during the 3rd quarter.  Their manufacturing had suffered the worst hit, with a contraction of 17.4%.

UN Security Council Urging and FATF 
Singapore had overlooked the fact that United Nations and Financial Action Task Force (FATF) had urged nations to criminalise exports and transhipment of strategic weapons.  Please note that Malaysia too have passed an act called Strategic Trade Act in view of this urging last year.

By and large, defining Terrex APC as a strategic weapon is a stretch.  But each country is allowed to enhance the proposed legislation within its own jurisdiction.  So technically, Hong Kong and China is within their respective authority to seize the shipment.

China understands the implications of negative image associated with transportation of weapons system.  Chinese-made weapons had been found in the hands of guerilla fighters and militant groups worldwide.

The most high profile use of Chinese-made weapons would be in Syria where a Chinese-made FN6 anti-aircraft VSHORAD had been used successfully to shoot down Syrian Air Force helicopters and in Yemen where Houthi rebels had managed to sink a United Arab Emirates logistics ship using a Chinese-made anti-ship C-802.

Therefore, the seizure could be made to be seen as if Hong Kong, and to an extent China is playing it's role in the global community to prevent international illegal arms trade.

This itself is a diplomatic coup for China.  And Singapore can't say that China is targeting Singapore.  Last year, China had even stopped a North Korean-flagged ship from berthing on suspicion of involvement in international arms trade.

Implications to Singapore
Implications to Singapore comes in two-fold; diplomatically and economically.

Diplomatically, Singapore may be forced to fully abandon Taiwan.  I will not rule out China implementing some kind of sanctions against Singapore.

Technically, such sanctions might not be effective.  But China being able to hold sway to many developing and third world countries via its relatively cheap funding, China may be found using this same tool to convince these countries to forgoe business relation with Singapore.

This would not have worked if China is still being the backwaters of Hong Kong.  But today, being an economic and technological powerhub, it would not be difficult for China to influence these countries that they (China) are a better replacement to Singapore.

In a way, what China is undergoing today is similar to Japan had undergone in the 1980's, only China's growth is like that of super steroid-induced growth.

While the above do discussed about how China can economically out-muscle Singapore into diplomatic submission, Singapore's own economy may be affected, even if China do not take the abovementioned actions.

Currency Pegging
Despite conventional thought, Singapore's currency, the Singapore Dollar is not a publicly traded currency.  It is pegged to a basket of currencies, with USD, RM and Chinese Renminbi are part of the currencies.

The currency is believed to give a heavier weight to USD given that Singapore is a trading nation.  However, the heavier weight to USD has now slowly become a disadvantage to Singapore.

This has led to Singaporean products becoming more expensive in the global market.  This is not helped by fact that quite a number of products exported by Singapore are actually Malaysian-made products reexported via Singapore (this is implied in the Global Financial Integrity study which revealed much of the outflow from Malaysia had gone out via trade channel with Singapore.)

For the time being, Singaporean exporters still have a sway over international markets.  But with Singapore Dollar gaining strength with RM further weakened, international purchasers may find it cheaper to source directly from Malaysia.

Singapore Armed Forces being the key user of Terrex will be very much affected by the seizure.  The seizure means any potential weakness in Terrex will now very much likely to be known by China.

What most Singapore infantrymen would be hoping now is that when they shipped the Terrex, they did remember to remove all computerised equipment.  Key to this is the Battle Management System, which would determine how Singapore Armed Forces personnel will fight their war.

If this is not removed, the best word to describe this is jialat (FUBAR).  It would mean that China will be able to eavesdrop in any communications by Singapore Armed Forces.

Terrex - Other Potential Losses
In all of these, Singapore Technology Kinetics would be the worst affected.  While delivery to Singapore Armed Forces has already been largely fulfilled, the Terrex is supposed to be Singapore's best success story in defence technology.

Terrex Armoured Vehicle is one of the top 10 armoured vehicles that had been predicted by military-today website to change the future of ground warfare in the next 20 years.  With focus on crew survivability and comfort, with modularity to be fitted with any type of turret, it is touted as a success story in Singapore's involvement in defence technology.

It is also one of the two finalists in US Marine Corp's future replacement to their armoured amphibious combat vehicle.  The contract, if successful would see a total of USD1.1 billion value for 204 vehicles.

Currently, USMC had already contracted for 16 units of the vehicles worth USD121.5 million.

It would be too much a wish that Chinese MSS would not have taken advantage of this situation to inspect the vehicles.

Therefore, it is plausible that USMC may decide not to pursue the contract with ST Kinetics.

If this path is taken, ST Kinetics stand to lose out the USD1.1 billion contract.

While this is only less than 0.4% of Singapore's 2015 GDP (Singapore GDP for 2015 stood at USD292 billion), the effect may be manifold as building and selling of armoured combat vehicle is considered an upper middle-stream industry.  Therefore, the repercussions could include the loss of businesses in lower stream production which could not be easily quantified.

With the potential repercussions taken into account and with Singapore's economy now possibly in contraction, this will indeed be a very painful lesson for Singapore.

Like it or not, the damage has been done.  Undoubtedly, heads will roll.  But the lessons learnt here is not only applicable for Singapore but also Malaysia with our own nascent defence industry.

Malaysia Airlines - A strategic asse

MISC is another strategic asset that should not be sold off.

Another key lesson for Malaysia is to not let go off both Malaysia Airlines and MISC.  Both companies are key strategic assets which could be used to further Malaysian interest overseas.  This I will not further elaborate as it itself is a sensitive issue.

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