VZCZCXRO5636
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #2978/01 2610741
ZNR UUUUU ZZH
R 180741Z SEP 06
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 1258
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2300
RUEHBY/AMEMBASSY CANBERRA 1741
RUEHNE/AMEMBASSY NEW DELHI 1588
RUEHHK/AMCONSUL HONG KONG 6087
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHIN/AIT TAIPEI 6373
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 002978 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO FEDERAL RESERVE BOARD KJOHNSON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV PREL IMF IBRD SN
SUBJECT: FED CHAIRMAN BERNANKE MEETS WITH SINGAPORE 
LEADERSHIP 
 
¶1.  (SBU) Summary: China's economic development and its 
economic relationship with the United States figured 
prominently in separate meetings between Chairman of the 
Federal Reserve Board Ben Bernanke and Prime Minister (PM) 
Lee Hsien Loong and Minister Mentor (MM) Lee Kuan Yew.  Both 
the PM and MM emphasized that Singapore must continue to 
innovate in order to remain competitive with China and India. 
 PM Lee speculated that an "ASEAN plus three" Free Trade 
Agreement (FTA) could be forthcoming.  End summary 
 
U.S.-China 
---------- 
 
¶2.  (SBU) During September 15 discussions with GOS leadership 
prior to G-7 and IMF/World Bank meetings, Chairman Bernanke 
noted Treasury Secretary Paulson's recent comment that the 
United States needed to engage China on a broader range of 
economic issues beyond exchange rates.  Bernanke added the 
external deficit was not a problem the United States could 
solve alone.  The PM and MM agreed, suggesting that the 
United States begin a high-level dialogue with the Chinese 
focusing on long-term solutions and avoiding more "granular" 
stumbling blocks.  MM Lee said that the United States must 
realize that the Chinese prefer to deal with trusted 
interlocutors and that they would only make adjustments at a 
cautious pace that allowed them to avoid disturbing social 
stability.  With this in mind, the MM suggested developing 
relationships with the Chinese that were not subject to 
changing administrations. 
 
¶3.  (SBU) According to MM Lee, one problem was that the 
Chinese, having suffered through terrible deprivations, were 
habitually worried about financial security, hence their high 
savings rate.  This mindset was gradually changing, he 
continued, and wealthy and even middle-income Chinese were 
starting to spend more, especially when traveling outside the 
country, where the quality and availability of goods was 
still better than in China.  MM Lee said that the Chinese 
government understood the need to make economic changes and 
that China now had a large number of foreign-trained experts 
in the public and private sectors who had the desire and 
ability to carry out the changes.  In his meeting, PM Lee 
offered that, while China was generally moving in the right 
direction, the government now needed to do more to stimulate 
domestic spending.  Both the MM and PM told Chairman Bernanke 
that the Chinese government understood the need for a strong 
U.S. economy and would not risk harming the relationship. 
 
Singapore-China 
--------------- 
 
¶4.  (SBU) Responding to Chairman Bernanke's question about 
the size of Singapore's investments in China, PM Lee 
described the investments as large taken on per capita basis, 
and he also highlighted that more than 2,000 Chinese 
companies operated in Singapore.  Singaporeans and Chinese 
had different methods of conducting business, so working in 
China had proven more difficult than many people expected. 
He said smaller Singaporean companies continued to be 
competitive in the China market, however. 
 
Singapore's Future 
------------------ 
 
¶5.  (SBU) Both the PM and MM told Chairman Bernanke that, 
although Singapore's economy was doing well, the country 
needed to innovate to sustain its growth.  For now this meant 
focusing on areas where India and China could not yet offer 
strong competition, such as systems, research and 
development, creative media, and IPR-intensive businesses. 
As China and India strengthened their laws and improved their 
infrastructure, they will pose an even greater economic 
threat to Singapore, cautioned MM Lee.  Looking ahead, MM Lee 
said the government was encouraging its Muslim population to 
learn Arabic in the hope that Singapore could act as an entry 
point for Middle Eastern investments in China. 
 
Rising Energy Costs 
------------------- 
 
¶6.  (SBU) In reply to Chairman Bernanke's observation that 
 
SINGAPORE 00002978  002 OF 002 
 
 
Singapore seemed unaffected by recent increases in oil 
prices, PM Lee said that Singapore's proximity to Malaysia 
and Indonesia had helped soften the blow.  Both countries had 
benefited from the price rise, he continued, which translated 
into increased tourism for Singapore; Singapore's oil rig 
construction industry had also benefited from the increase. 
PM Lee noted that because Singapore did not subsidize energy, 
domestic consumers had been hardest hit, with electricity 
costs rising 30 percent. 
 
East Asia FTA? 
-------------- 
 
¶7.  (SBU) Turning to regional issues, Chairman Bernanke asked 
PM Lee about the possibility of an East Asia FTA.  The PM 
said that ASEAN is currently negotiating FTAs with Japan and 
Korea, and that China supported this framework.  PM Lee said 
he suspected an "ASEAN plus three" (China, Japan, and Korea) 
FTA might be possible in the future. 
 
¶8.  (U) A Federal Reserve official cleared this message. 
HERBOLD