SINGAPORE -- Singaporean Prime Minister Lee Hsien Loong recently sat down for an exclusive interview ahead of an appearance at Nikkei's annual Future of Asia conference in Tokyo.
Speaking with Nikkei Editor-in-Chief Tetsuya Iguchi, the city-state's leader shared his thoughts on everything from the impact of the Ukraine conflict and inflation to trade pacts and the rise of China.
The following is a transcript of their conversation, lightly edited for clarity.
Q: Let us start with the world situation right now, and particularly in global politics. It seems that the confrontation between democratic countries and so-called authoritarian countries has become sharper than ever, particularly since Russia's invasion of Ukraine. What is your view on this?
A: I think it's very worrying. And I think between Russia and the rest of the world, the invasion of Ukraine has caused a lot of tensions and anxiety, and righteous indignation that they have violated the international order, they have violated the sovereignty and territorial integrity of another independent state. And that this is not something which we can just -- countries can just allow to pass. So that's a very serious, ongoing problem.
The war in Ukraine is continuing. The longer it continues, I think the greater the risk there is of complications arising and escalation. And that has implications not just in Europe, but all over the world.
Separately, U.S.-China relations have been tense for some time now, from the previous administration, and even before that, but continuing. That's a separate matter, but it can be aggravated by ... the war on Ukraine.
I would not put this as an issue between democracies and autocracies. Because what is at stake in Ukraine is the international rule of law, the U.N. Charter, and that's why Singapore is standing. If you frame this as democracies versus autocracies, you're setting yourself up for an unending war of good against evil. And I don't think that is a wise step to take.
Q: What measures do you think should be taken in order to maintain the rules-based order?
A: Well, first of all, the fact that the U.N. General Assembly voted overwhelmingly to condemn the invasion of Ukraine is a good sign. That's a sign that the countries in the world stand up for the international order. But beyond those gestures, which are important, I think it's also important for countries to uphold the international frameworks which exist, the supranational institutions like the U.N. as well as the WTO, IMF, World Bank. These are frameworks which enable all countries to work together even if we have differences and disagreements and even conflicts with one another.
If you remove that, or you undermine that, then you're in the law of the jungle. And in the law of the jungle, it's not only the weak who will suffer. Even the strong will have a rough time because you will be spending all your time fighting one another and dissipating valuable energies.
Secondly, it's unrelated to this, but countries have to abide by international rules of law -- the U.N. Charter, for example, the U.N. Convention on the Law of the Sea. These are rules which apply to everybody. And it's important that countries big and small abide by them. I know that big countries prefer to have freedom of action and are very reluctant to bind themselves. And the Russians violate the rules in Ukraine, but other big powers too are often reluctant to allow these supranational bodies to have authority over them. I can understand that, but it's regrettable. So that's the second thing.
The third point is, I think, we have to recognize that this is a real world. It is not an ideal world where we all bow to a superior virtue. And therefore you depend not just on rules, but also on a balance of power on different forces. ... They have some areas where they cooperate together, but other areas where they will balance each other off. And in that balance, it is possible for many other countries to find a perch and to be able to work with multiple partners.
Q: Some people say that the situation is getting quite similar to that in the 1930s. Some people even talk about a third world war.
A: Well, the difference is this time there are nuclear powers. And so, it's not the same. If you reached such a position, you will be in completely uncharted waters. And I think everybody is very conscious of the dangers. But it will take a lot of wisdom, and a lot of restraint and ability to overcome political pressures, and to look beyond the immediate in order to head off long-term dangers.
Q: Do you think we can avoid a catastrophe?
A: We have to do our best.
Q: Talking about the economy, the only difference between the present situation and the situation in the 1930s is that the global economy is in better shape. But the reality is that global economic growth has been sustained by the expansion of debt and also loose monetary policy for the last 15 years. So the situation is not as good as it looks on the surface. Now, inflation is going up and the central banks are forced to tighten their monetary policy. It might shake the financial markets and also stifle economic growth. What do you think?
A: Inflation is a problem. I think the global economy recovered faster than anybody expected from COVID. The stimulus measures helped. However, the stimulus measures continue to be applied very generously, I think for political reasons, even as the economy was already visibly recovering, in the U.S. certainly, and also in Europe. And therefore, [this] has contributed to a spike in inflation even before Ukraine.
And now Ukraine has made it worse because it has disrupted energy supplies, with Russian energy now being blocked from world markets. And it's disrupted food supplies, grain, certainly. And that has added a supply-side inflationary shock as well.
A year ago, the central banks were quite relaxed about the prospects of inflation being kept under control. In fact, they worried about deflation, and they wanted to bring it up to a certain level, 2%, and then on average, and so forth. But I think they were too complacent, even then.
Now it's quite clear that they have to change their stance and I believe that they are doing so. The difficulty is that now that inflation is quite high. You need quite drastic measures in order to bring it back down and to prevent inflationary expectations from taking root. And it is very difficult to do that, and have a soft landing.
There is a considerable risk of your doing what you need to do but the result is provoking a recession. It's happened repeatedly in the 60s, 70s, 80s, 90s. So that is a risk which we have to anticipate and watch out for. But ... you have to take that risk because if you do not act against inflation that will become a very serious problem for the world.
Q: But do you think we can overcome the economic difficulty we see right now?
A: Life will go on. Japan has had economic difficulties since about 1990. And life goes on. Japan continues to exist.
Q: In order to overcome the economic difficulty, we need global cooperation. But right now we are not in circumstances where major economic powers are cooperating.
A: That is true. That is true. And that is a problem ... not just for the global economy, but for other global issues, pandemics for example, or climate change, global warming. Because without international cooperation, you cannot deal with these common problems facing humanity.
Q: How do you see the economy of Asia, particularly emerging Asia? They expanded their external debt for the last 10 or 20 years and now the U.S. dollar is going up and their debt is increasing?
A: Generally speaking, the debt is not as severe a problem as it was before the Asian financial crisis in '97, '98. And a lot of the debt is denominated in domestic currency, unlike last time when it was ... denominated in U.S. dollars. So that is, generally speaking, not so much of a problem.
I think that the food and fuel prices will cause them inflation as well as hardship. That is a problem. In some countries, they have a crisis, for example in Sri Lanka, but there are special situations -- specific problems there. I think that they will have economic hardship in their societies. But ... the judgment is that you probably won't have an emerging markets financial crisis.
Q: For the last 10 years we have seen the economic and military balance in the Asia-Pacific region tilt much toward China. I must ask how you see the situation and also what kind of role are you expecting the United States and Japan to play in order to have a better balance in the region?
A: I think as China's economy has grown, as they have developed, as their influence has grown, their impact on the regional economy has certainly become considerable. They are the biggest trading partner of nearly every country in Asia, including Japan and Singapore. It is natural, and it is something which the regional countries generally welcome, because it creates opportunities for cooperation, trade, prosperity, and many countries want to take advantage of the opportunities presented by China's growth.
And China has also been engaging the region systematically. They have the Belt and Road Initiative. They've got the Global Development Initiative now. And Singapore supports these. We are also a member of the group of friends of the GDI. We think that this is positive, because it's far better that China is prospering and engaged in the region than that it be operating on its own outside the rules which apply to everybody else, and not properly integrated and coordinated with the rest of the region, or that it is unsuccessful and poor and troubled, and that can cause a lot of difficulty for the region too.
So I think that is a positive development. But at the same time, the countries in the region all want to maintain their very important ties with other powers, other economies, with America, with Europe, and for the smaller countries in Asia, we want to do a lot of business with Japan. Because Japan is -- you compare yourself with China, but compared to ... every other economy in Asia, you're the biggest by far. And therefore we want to nurture these links, and maintain a balance, so that we have resilience and we're not overly dependent on any single party. And overall, we can prosper together and enjoy the interdependence and the incentive for us to keep the region peaceful and stable and secure.
The Americans have a big stake in the region. Their investments are substantial. Their investments in terms of impact -- FDI ... must be much bigger than China still, although China is doing much more outbound investment now.
Trade-wise America is not such a big partner as China, but actually a lot of the trade with China ultimately goes to America, [through] intermediate goods. So therefore the economic ties are very important. Under President [Barack] Obama, America pursued the TPP. Unfortunately, it was not possible for them eventually to join. But [under] the Japanese leadership we had the rest of the parties continue with the CPTPP. Now with President [Joe] Biden ideally they will come back to the TPP, but I think politically it's not possible.
So they have now come up with a proposal for the Indo-Pacific Economic Framework, which they are planning to launch next week. And I think Japan is planning to join, and Singapore is planning to join also. It is not quite a substitute, but it is a forward-looking agenda. And we encourage it. It is a ... valuable sign that the Biden administration understands the importance of economic diplomacy in Asia and so we should support them and hang in. And we hope one day that the political situation in America will enable them to resume talking about an FTA in some form, and talk about market access. But it may be some time.
Q: Before we talk about the Indo-Pacific Economic Framework initiative, how do you see trade with China? The proportion of trade with China, for most of the Asian countries, has become much bigger than 10 years ago. And I am afraid that many countries in Asia rely too much on trade with China. So if China stops importing from Asian countries, the effect could be devastating.
A: Well, you cannot afford not to do business with China. The opportunities are there. The markets are there. And you want to trade with them and soon many countries will be welcoming their investments as well. But at the same time you would like to grow your trade, your links with the rest of the world, with the EU, with America, even Africa and Latin America -- maybe these are new markets, but we have to look for potential all around the world, and we have to keep a balance.
But that China is now a bigger party in the world, and therefore proportionately you would expect more of your trade to go with China -- I think that's a normal situation. If you say China is a big party, but I don't want to trade with them, well, it will not only be very costly, but I think you're setting up for more friction and less chances of maintaining the peace.
Q: Singapore is this year's chair of the CPTPP. China and Taiwan have both applied for membership. How are you going to deal with those applications?
A: Well, we are the chair. We don't decide. We are the traffic police.
Q: Still, I'd like to ask for your thoughts.
A: So we have to handle this in accordance with the rules of the TPP. It's an open grouping. Economies can join. They have to meet the standards which are quite high and its decision is made by consensus. That means the chair will consult with the member countries and the member countries will have their views. And if there is a consensus to start negotiations, and start the accession process, it will begin.
I think the process, the consultation, will take a while. Individual countries will have different views and they may have different, their own, separate discussions with the countries applying or the economies applying, before telling the chair what their stand is. So we look forward to hearing their views and seeing if there is a consensus.
And I think I would say when they make these decisions, the countries, they will look at the economics of it and the trade and the investment aspects of the question, but I'm quite sure they will also have in mind the strategic and broader perspectives at the back of their mind.
Q: But when you think about having China as a member of the CPTPP, Japan's idea for the pact was to have some sort of counterbalance to China's economic power. Because if you have a dominant economic power in the region, that country will dictate the trade rules. So we need some kind of collective bargaining power.
A: Ideally, ideally, you would have had the TPP. America would have been there. And then at some stage the Chinese may well have thought about whether they would like also to join the TPP, and then you have a balance. Now, unfortunately, America is for the time being not at the table. So that is something which I'm sure Japan will take into consideration and when we consult Japan as chairman ... you will give us your views. Last year Japan was the chairman.
Q: Getting back to the military balance in the region, they have NATO in Europe in order to match up against Russia, but the problem in Asia is that we do not have a collective security framework. Do you think it is necessary?
A: I think the history is different. In Europe, NATO came into being between the Western countries and the Warsaw Pact countries, the Soviet bloc. After the Soviet bloc collapsed, and the Soviet Union broke up, NATO continued in existence, and it has now become de facto a group which is dealing with a perceived threat from Russia, which is very similar but not quite the same situation as during the Cold War.
In Asia, the history is different. There was never a coalition in Asia or a grouping in Asia, the equivalent of NATO. And countries in Asia, many of them have good ties with China as well as with the U.S. and the U.S.'s treaty allies. Some are treaty allies like Japan, like Korea, like Australia. Many are not but are friends of the U.S., like Singapore -- they are security cooperation partners. But even many of [the West's] allies maintain important relations with China and trade and other ties with China.
So I think that is a better configuration than one where you've got countries divided along a line and that we have one bloc confronting another group. I mean, there is a history in Europe, but it has not been a history in Asia, and I think it's better that it is not and remains not.
Q: And also talking about the Indo-Pacific Economic Framework, initiated by the United States, your view is positive?
A: Yes, we are positive. ... Ideally, you want the U.S. and an FTA arrangement with Asian countries, but they could not do it. So this is an alternative which is not an FTA but a framework which reflects their intent to cooperate on items which are relevant to the region. ... They talk about supply chains, they talk about digital economy, there is some possibility of the content containing a green economy cooperation -- these are positive things which are of interest to countries in the region and it keeps the U.S. engaged. Therefore we support it.
Q: I see. But also the details are still unclear. What kind of outcome would you like to see?
A: No, the details have not been negotiated. The headings have been identified. And so we will go in and we will try and work out something as substantive and mutually beneficial as we can.
Q: But how do you expect the initiative could benefit your country?
A: They've got the four things listed ... trade, supply chains, clean energy, decarbonization and then tax and anti-corruption. So these are broad areas. But I said from our point of view, we are interested in talking about digital economy. We're interested in talking about green economy cooperation, sustainable energy, sustainable finance, many possibilities, making carbon trading rules.
So we see the opportunity to come to an agreement and we would like to start talking.
Q: I would like to ask you about cooperation between Singapore and Japan. We know we already have a good relationship, but do you find any specific area where we can improve our relations?
A: Well, the digital economy is one of them. We have our Smart Nation Initiative. You have what you call the Digital Garden City Nation Vision which I think was initiated by Prime Minister [Fumio] Kishida, and I think we can learn from one another to develop smart cities and how to do digital governance, government. Every country in the world is trying to do this. Some like Estonia have gone very far. In Singapore we have several initiatives. Some are further advanced than others but we continue to learn from one another. So that's one.
I talked about green economy just now. That's also an area where we can cooperate on alternative energy and developing sustainable economies. Then separately there are items on the agenda which have been there for some time but have not moved, but we hope it's possible in this environment coming up from COVID to start moving.
For example, we have the Japan-Singapore Economic Partnership Agreement. It's there, we established in 2002. We had one update, but it really needs to be updated again. And Japan has not been able to do this because you have to, you were preoccupied negotiating the TPP and [Regional Comprehensive Economic Partnership]. But those are now settled. So I hope that it will now be possible for us to open this subject and discuss upgrading.
Q: What would you like to negotiate?
A: There is no negotiation. We would like to bring the JSEPA up to date. The other area which is also long-standing is civil aviation, and in particular air rights. We'd like to strengthen air links between Singapore and especially flights to Haneda [airport in Tokyo].
Q: You would want to increase the number of flights?
A: Yes of course. And the demand is there. Japan is still now restricting travel but very soon you will change your rules and I think we should prepare for that.
Q: We had an opportunity to interview you three years ago, and regarding the TPP, you said Singapore's view was that you welcomed China to join. Now as China applies for membership in the CPTPP, are your views unchanged, and do you think this would bring more advantages than disadvantages to member countries?
A: Yeah, we welcome China to join. I have said so publicly. ... Now, of course, they have to meet the standards. They say that they will do that. It's something which will have to be discussed in detail. But in the end, the decision is made by the consensus of the members, and the other members may well have different views. We will have to hear them. We are the chair but we don't decide.
Q: How do you think Russia's invasion of Ukraine may impact China's approach in the Asia-Pacific region, including the South China Sea and Taiwan Strait?
A: I think certainly it will have an impact on our region because it affects the global order, as it weakens the global order and that worries a lot of countries in this region.
And therefore the countries will now be making their own assessments of their defense posture and spending and strategy, and also the path forward for the region collectively -- how to move forward and avoid the missteps which led to war in Ukraine, in Europe.
That's a question which needs to be examined not by us, not just by small countries, but also by the big countries. Because when you end up in a conflict, it's very seldom only one side which has caused the problem. Now as for the specific situations in the South China Sea, I don't think that their impact is considerable, because in the South China Sea, there is a process going on to discuss a Code of Conduct between ASEAN and China and the claimant states are all involved. That's in process although I think it is going to take some time and it will be a difficult negotiation, but it is in process. And I think the countries understand this. Sometimes you can have incidents, but I think generally the countries do not want to have a clash, a physical clash in the South China Sea.
Taiwan is a very complex issue on its own. I'm sure the Chinese are studying carefully the lessons of the war in Ukraine. I'm sure on the other side of the straits, Taiwan is also studying carefully the lessons of the war in Ukraine. And I hope that they will draw conclusions which will help them to manage the issue wisely.
I would say that one conclusion which many of us, looking at the Ukrainian situation, will assess is that when you have a conflict, it's easy to start. It's very difficult to tell how it will end. And you have to assess not just what happens in the direct conflict but the broader consequences internationally, how other countries will react, how it affects your standing internationally and also the price of the war and bloodshed.
The only thing worse than a battle won is a battle lost. So even if you win the war, whoever declares that they have won the war in Ukraine, he would have paid a very heavy price. And I hope that in the Taiwan Straits, these lessons will be thought about and we will be able to manage it in a peaceful way.