Chapter 3: The Money Side of Singapore-China Relations
Chapter 3, written by Sarah Y Tong, is basically the spreadsheet chapter. Tons of tables, percentages, growth rates. But behind all those numbers is a pretty wild story: two countries that didn’t even officially recognize each other kept trading anyway, for decades, because money talks louder than politics.
Let me walk you through the key parts.
Pragmatism Over Politics
Here’s the thing about Singapore and China. They didn’t establish diplomatic relations until 1990. That’s 25 years after Singapore became independent. During the Cold War, China was communist and suspicious of Singapore, and Singapore was cautious about Beijing’s influence on its Chinese-majority population.
But they traded anyway.
Between 1950 and 1966, Singapore’s imports from China grew at over 8% a year. Singapore needed goods. China needed hard currency. Both sides were practical enough to keep the business going even when the political temperature was freezing.
Why did it work? After separating from Malaysia in 1965, Singapore was free to trade with whoever it wanted. As a tiny city-state with zero natural resources, it had no choice but to stay open. Meanwhile, China needed to export food and manufactured goods to earn foreign currency, especially after relations with the Soviet Union went bad.
Singapore was also China’s gateway to the rest of Southeast Asia. In 1970, Singapore was importing food (21.5%), textiles and paper (25.6%), and clothing (12.4%) from China. Not glamorous, but it kept the trade flowing.
Before 1990: Growing Quietly
From 1966 to 1978, bilateral trade grew at about 7% a year. Not spectacular, but steady. Singapore imported way more from China than it exported. The trade deficit was around two-thirds of total trade, partly because Singapore was re-exporting Chinese goods to the rest of Southeast Asia.
Then things picked up. In 1978, Deng Xiaoping launched “reform and opening-up.” In 1979, Singapore and China signed a bilateral trade agreement, giving a legal foundation for economic cooperation even without formal diplomatic ties.
Between 1978 and 1990, total trade grew at 15% annually. More than double the previous pace. Singapore’s exports to China grew at 22% per year, imports from China at 14%. The gap started shrinking.
Worth noting: in 1985, Singapore’s former Deputy PM Goh Keng Swee was asked to advise China on developing its coastal economic zones. Significant trust for two countries without embassies in each other’s capitals.
After 1990: The WTO Boom
Once diplomatic relations were established in 1990, trade took off. From 1990 to 2001, bilateral trade grew from S$5 billion to S$20 billion, about 14% annually. The 1997-98 Asian financial crisis slowed things, but the trend was up.
Then the real accelerator: China joined the WTO in late 2001. In 2003, China signed a free trade agreement with ASEAN, effective by 2005.
The numbers between 2001 and 2007 are wild. Total bilateral trade grew at 26% per year, reaching over S$90 billion. Singapore’s exports to China grew at 29% annually. By this point, the trade balance was almost even, with the deficit dropping below 4% of total trade.
The 2008 global financial crisis hit the brakes. From 2007 to 2014, trade growth slowed to about 4% per year. But something interesting happened: Singapore started running a trade surplus with China. By 2014, that surplus was S$65 billion.
Over the full period from 1966 to 2014, bilateral trade grew at 16% per year on average. That’s nearly five decades of consistent growth through political tensions, financial crises, and a complete reshaping of both economies.
What They Actually Trade
The composition of trade changed dramatically over the decades. In 1993, China’s top exports to Singapore were mineral products, textiles, and machinery. Pretty basic stuff.
By 2005, machinery and electrical equipment alone made up one-third of China’s exports to Singapore. By 2014, it was still the number one category at over 25%, followed by vehicles and transport equipment, metals, and minerals.
The big takeaway: China upgraded. It went from exporting raw materials and cheap textiles to manufactured goods with actual technology in them. A lot of this trade involves parts and components, meaning Singapore and China were plugged into the same regional production networks. Not just buying and selling finished products. Making things together.
Services trade grew even faster. China’s share in Singapore’s service imports jumped from 2.3% in 2000 to 6.1% by 2013. Service exports doubled from 3.2% to 6.6%. Financial services, logistics, consulting. All growing.
Follow the Money: Investment Flows
Trade is one thing. Investment is another level of commitment.
Singapore’s outward investment to China grew massively. Between 1994 and 2013, China’s share of Singapore’s total overseas equity investment went from 5% to over 20%. By 2013, China accounted for 37% of Singapore’s outward equity investment to Asia. That’s more than all of ASEAN combined.
For direct investment, since the mid-1990s China overtook ASEAN as the top destination for Singapore’s outward FDI, taking over two-fifths of the total.
Going the other direction, China’s investment into Singapore jumped from US$165 million in 2003 to US$15 billion by 2013. Singapore became the second most important destination in Asia for Chinese outward investment, after Hong Kong.
From Singapore’s side, China was still a minor FDI source. In 2012, China’s share was about 2%, versus Japan’s 7.9% and ASEAN’s 4.7%. But Japan’s share had dropped from 18% in 1998 to 8% in 2012. China was gaining ground.
Singapore as a Financial Hub for China
This is the part of the chapter that feels most forward-looking. Singapore positioned itself as a key offshore center for China’s currency, the renminbi.
In 2010, the People’s Bank of China and Singapore’s Monetary Authority set up a currency swap arrangement. Originally RMB 150 billion, it doubled to RMB 300 billion by 2013. In 2012, Bank of China and ICBC got full banking licenses in Singapore. In 2013, ICBC Singapore became the renminbi clearing bank.
By April 2014, Singapore had overtaken London as the world’s second-largest clearing center for renminbi. That’s a tiny city-state beating one of the oldest financial capitals on the planet at processing China’s currency.
China also extended its RQFII program to Singapore with a RMB 50 billion quota, letting Singapore-based investors access China’s securities markets. Cross-border renminbi transactions were allowed in the Suzhou Industrial Park and Tianjin Eco-city, two flagship joint projects.
The Road Ahead (and the Speed Bumps)
Tong ends the chapter on a cautiously optimistic note. The relationship has strong foundations: cultural ties, economic complementarity, and pragmatic governments on both sides.
But there are real challenges. As China’s economy gets bigger, the gap with Singapore shrinks. They’re competing more, not just cooperating. Asia still depends on Western consumer markets, limiting intra-regional trade growth. And the big geopolitical question: the US and China increasingly see each other as rivals, with Singapore stuck in the middle.
The chapter was written around 2015, when TPP was being debated and China had just launched Belt and Road and the Asian Infrastructure Investment Bank. We know how this played out. The US pulled out of TPP. Trade wars happened. But the core economic relationship between Singapore and China? It kept growing.
That’s the main message. When two countries genuinely benefit from trading with each other, they find ways to keep doing it. Politicians come and go, crises come and go. Singapore and China proved that for 50 years straight.