INTERNATIONAL
Hong Kong and Singapore: new trade role Southeast Asia city-states attract increasing interest as chemical markets, manufacturing bases, and management centers In their efforts to modernize, most Southeast Asian nations face the same geographical predicament. Large populations are spread across expanses of countryside where cities are few and transportation and other facilities needed for industrial growth are sparse. But for the British crown colony of Hong Kong and the Republic of Singapore, the problem is reversed: Both are cities without countries, and are without the natural resources and domestic markets that countries usually provide. They're alike in other ways. Botli were built up by the British as marketing centers and transshipment ports for trade between Europe and East Asia. And as changed conditions in Asia have made their original roles inadequate for survival, both are becoming manufacturing centers for the world market. But Hong Kong and Singapore are not twin cities, and the reasons for the increasing at-
This is the third article in a series on the chemical industry in Southeast Asia. The series has already treated Thailand (Feb. 23, page 28) and the possibility of petrochemical cooperation in Southeast Asia (March 2, page 18). A fourth article will deal with Taiwan.
tention and investment each is drawing from chemical industry abroad are often quite different. Hong Kong's industrialization began 20 years ago, after its position as the commercial front door to China had been sharply altered by Mao Tse-Tung's accession. The influx of refugees from China, which swelled the colony's population by 40% during 1949-50, along with the
industrial experience some of the refugees brought with them, showed the way—labor-intensive industries, producing for export. Fabric weaving was the first of these to take root in Hong Kong, and textile products is still its largest industry by far. Garments and fabrics make up almost half of the colony's domestic exports, and the mills employ more than a third of the industrial labor force. Plastics processing, too, is laborintensive, and even small-scale plants can be profitable. That fits well into Hong Kong's Chinese pattern of family-financed and -managed enterprises, and plastic products have moved into second place among Hong Kong industries. An estimated 2000 factories are turning out plastic flowers, toys, household wares, industrial components, and the like. They shipped more than $175 million (U.S.) worth of products abroad last year.
Century-old Singapore remains Malaysia's largest supplier and customer
A deepwater harbor on the shortest sea route from Europe to the Pacific: 0 a natural to become Southeast Asia's | greatest port. Founded as a company I town more than a century ago, on land | ceded to British East India Co., Singa- # pore was for much of its history a | British colony and major military base, o Its close links with Malaya-especiaSly after Malaya too came under British rule-made Singapore broker to the Malayan tin and rubber trade. After gaining independence, it joined the Federation of Malaysia in the early 1960's. Withdrawal came after two years over friction between Singapore's predominately Chinese population ( 7 5 % of its 2 million people) and Malaysia's Malays, who in Malaya (West Malaysia) itself hold a slim majority over-and an uneasy truce with-Chinese in the 9 million population. Malaysia remains Singapore's biggest supplier and customer. Malaysia dollars and Singapore dollars are interchangeable and circulate freely in both countries. Beyond that, however, progress in economic cooperation has been slow. Tariff nego26 C&EN MARCH 23, 1970
tiations between the two are bogged down, and unofficial talks about a joint polyethylene operation (resin to be made in Singapore to supply fabricating plants in Malaysia) have been inconclusive. Singapore, meanwhile, boasts the highest per capita income in Asia after Japan, and the government aims to raise it higher through a comprehensive new program of technical education. The emphasis accordingly is starting to shift away from labor-intensive industries like textiles and electronic components toward capital-intensive production of more sophisticated items with a higher value-added factor-and a bigger boost to Singapore's national income.
As a result, Hong Kong has, despite its small size, become Asia's largest importer of polyethylene resin, its purchases topping 75 million tons in 1968. Polystyrene imports reached 46 million tons the same year and polyvinyl chloride resins and compounds 40 million tons. Plasticizer imports are probably about $5 million (U.S.) a year. Textiles, meanwhile, create a demand for more than $25 million worth of synthetic dyes and auxiliary compounds, and imports of synthetic and cellulosic fabrics are around the $100 million (U.S.) a year mark. (There is no production of resins, fibers, or dyes in Hong Kong, one reason being the absence of import duties on these, as well as almost all other, commodities.) Japan gets most Hong Kong orders for synthetic fabrics, although Switzerland and West Germany supply most of its textile chemicals. In the thermoplastics market, Japan again has top position, currently filling about 60% of the orders for polyethylene and about half those for polystyrene and PVC. Changing market. A great many customers, mostly small. That is and will continue to be the market pattern for plastics and chemicals generally in Hong Kong. What is changing is market sophistication. Most processors have been making about the same, uncomplicated products, and a small number of resin specifications covered their requirements. "But now," one marketing director told C&EN's Mike McAbee in Hong Kong, "you name any U.S. electronics firm of any size, and it has some financial interest in plastics fabricating here for its components supply. The U.S. firm sets the specs. And even the bigger toy makers, such as Mattel, are defining their specs more sharply." Quality control is spreading even farther. Shops making products for U.S. clients often use the same equipment and specifications in their output for sale locally or elsewhere in Asia. Competitors tend to follow suit. "The day is gone," one Hong Kong observer notes, "when you can sell any kind of plastic spec to Hong Kong, and it's fading in the rest of Asia as well." As Hong Kong's industries have grown, meanwhile, the colony's usefulness as a transshipping center hasn't changed. It's a free port, and goods on consignment can move freely in and out and be repackaged on the strength of simple import and export declarations. Union Carbide, for example, operates its own tank farm on the harbor, using the colony as a redistribution center for some of its products to Southeast Asia.
j Colony of Hong Kong is J one of Asia's major markets I for plastics and fibers I Behind the cameras and quick-tailored I suits that make Hong Kong a major 1 station on the Asian tourist route lies I a growing local industry that has beI come one of Asia's major markets for I plastics and synthetic fibers. It's a I patchwork market, and a shifting one1 the hundreds of mostly small, familyI owned factories must often move into I new product lines to keep ahead of yet I lower-cost producers who move into § mass producing what the small facI tories are making. The government I has no program of investment incenI tives. Its laissez-faire attitude to} ward business-retaining much of the I spirit of the English laws of 1843, upon I which Hong Kong's legal system is I based-and a flat 1 5 % tax rate, howI ever, have themselves provided a 1 strong incentive to the investors, I mostly Chinese, who manufacture I Hong Kong's exports. The colony is I financially self-supporting except for I defense, which is provided by the Brit§ ish government. Education is neither I free nor compulsory, though the gov1 ernment estimated in 1968 that public § or public-aided primary schools were § training about 7 0 % of the children deI siring such education. While public 1 spending for education has increased
since Hong Kong's 1967 rioting, the government's biggest social involvement has become housing. Its resettlement program has built low-cost housing for more than a million people to date, and by 1972 expects to house 600,000 more. Private building typically aims for a high rate of returnfive years for an office building-because of the colony's uncertain relationship with its own landlord, the People's Republic of China.
The network of banking, communications, and service industries that grew up around Hong Kong's traders—and made the city one of the most modern in Asia—has begun to attract another sort of business. U.S. and European companies, when expanding their operations into Asia, often look at Hong Kong as a regional headquarters location. And they often stay. Allied Chemical, American Cyanamid, Dow Chemical, Esso Eastern Chemicals, Monsanto, Pfizer, and Union Carbide are among them. These operations vary somewhat in their coverage. Dow Chemical, with more than 30 expatriate executives, operates the largest regional office among the U.S. chemical firms in Hong Kong, and perhaps the most autonomous. It supervises Dow production and marketing throughout Asia. Union Carbide Eastern manages Southeast and part of South Asian territories from Hong Kong, with a similar office in Tokyo covering Northeast Asia. Allied Chemical maintains only a regional sales office in the colony. (Du Pont has no regional office as such in Asia, and
covers the Hong Kong market from a sales office in Taiwan.) Some of Hong Kong's advantages for a regional manager and his staff are obvious. It's centrally located in the arc from Japan around Southeast Asia to India, and it's a link in Asia's busiest airline route (Tokyo-Hong Kong-Bangkok-Europe). Capital and people can move in and out with few restrictions, and the government's hands-off policy makes it simple to set up and operate a foreign company there. For Americans, being in an English-speaking community makes life simpler. Other reasons for picking Hong Kong emerge when you discuss the usual alternatives with regional managers. Tokyo, for example. It's in the middle of Asia's biggest economy, with air transportation and communications second to none in the Orient. "It's also plain, bloody expensive," said one executive, accurately summarizing the consensus. (Tokyo is high up on the State Department's cost of living index for major world cities.) There is close government regulation of most foreign M A R C H 23, 1970 C & E N
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business, and movement of capital and currency exchange are restricted. A more subjective point is compatibility of western businessmen and their families with Japan. "Three quarters of our people were unhappy in Japan," said a manager whose firm's regional staff has moved from Tokyo to Hong Kong. "It's hard to find a sizable group who wants to live there." Another reason is simply that so many regional management offices already are there. "Rubbing shoulders on a professional basis and the ability to compare notes with a dozen other U.S. regional offices," one manager puts it, "is a decided plus." Hong Kong itself is undergoing a steep upward turn in living costs. Housing has become scarce, mainly as a result of the virtual halt in construction during 1967's period of riots, combined with a steady inflow of European and American families since that time. Last autumn, for example, housing leases renewed by Dow executives in Hong Kong averaged a 45 to 50% hike in rental. Smaller area. Singapore shares some of Hong Kong's advantages as an administrative center, particularly in transportation and communications. Situated on a 224-square-mile island off the southern tip of Malaya, the republic has roughly half the area and half the population of Hong Kong. But the island lacks the steep, rugged hills that cover much of Hong Kong's territory, and scarcity of usable land is less of a problem. Both office space and western-style housing are in short supply. It's almost impossible to find a three- or four-bedroom "executive-style" house for less than $600, a U.S. embassy source tells C&EN, or an apartment for less than $499 (U.S.) a month. But Singapore is in the midst of a building boom that's expected to relieve both problems within two years' time. The Development Bank of Singapore is pushing plans for a 50-story office tower, for example, and besides new housing more than 30 hotels are being built for an anticipated tourist boom in the seventies. Singapore's main thrust, though, is in manufacturing. In contrast to Hong Kong's government, which offers few restraints to business but no incentives either, Singapore's Economic Development Board worked through the sixties to attract large-scale industrial investment. One tack was to offer a list of incentives, such as tax holidays for up to five years, accelerated depreciation, and duty-free equipment imports, similar to that given foreign investors by several other countries in the region. Singapore's standard corporate tax rate is 40%. 28 C&EN MARCH 23, 1970
Another was to build a system of industrial sites, roads, and service facilities adequate for the industries it hoped to draw. Its biggest project has been the Jurong Industrial Estate, which when completed will be a self-contained manufacturing community of 17,000 acres in the island's southwest corner next to the harbor. More than a fifth of this area has been prepared, at a cost to the government of more than $30 million, and plants are in operation. Meanwhile, the first section of a terminal for container ships—the first such terminal in Southeast Asia—is nearing completion, and the Port of Singapore Authority has committed more than $50 million to improve its existing facilities through 1975. The harbor—Singapore is the world's fourth largest port—itself was responsible for the first wave of foreign investment. Typical is Caterpillar Far East, Ltd.'s computerized parts distribution center for Asia, built at Jurong, and a similar one being built for Allis-Chalmers. International Minerals and Chemical is packaging fertilizers for Southeast Asian distribution, and Japan's Mitsui Toatsu is planning a urea distribution center in Singapore. Plants coming. Manufacturing ventures are beginning to follow. Last summer Singapore Textile Industries, the island's first fully integrated textile mill, began operation. It's a joint venture of the Economic Development Board, local private interests, and Japan's Teijin, Ltd. More than 20 electronics manufacturing and assembly firms are now in operation or planning to begin, with eight U.S. firms employing about 80% of the 4000 workers now in this field. Plastic foam, PVC, and glass fiber products are in production at Jurong, and construction will begin this month on a 12 million pound-a-year plastics fabrication plant by Singapore Gulf Plastics Pte., Ltd., wholly owned by Gulf Oil. The plant, Gulf says, represents an outlay equal to present total capital investment in Singapore's plastics industry. It will turn out PVC sheet, woven flat-tape bags, and shrink film, using PVC resins from the U.S. Proposals for two plants, each for nylon and polyester fiber making, have gotten government approval, meanwhile. To be built with Hong Kong capital, they will use imported monomers. Three plants to make polypropylene bags, for uses such as fertilizer bagging, are also in the pipeline. So far there's been no move to begin basic petrochemical production in Singapore, though feedstocks are available in abundance. With four refineries and a fifth planned, the is-
land is already Southeast Asia's largest refining, blending, and oil distribution center. Total refining capacity will reach 500,000 barrels a day of crude in about two years' time. Naphtha is available at about $17 (U.S.) a metric ton, underscoring Singapore's petrochemical potential. Cheng Hong Kok, chief of the Economic Development Board's projects division, tells C&EN that the government would like to see a naphtha cracker built. It's certainly possible, he adds, that the government might take an equity interest in such a venture. Aside from some demand for olefins for plastic resin making, Mr. Cheng sees a local demand for 30 to 40 metric tons a day of methanol, mainly for making glues to supply Singapore's existing plywood industry. Locally produced elastomers would permit masterbatching operations, blending synthetics with the natural rubber for which Singapore is already a major broker. The board seems to be under no illusions, however, that cheap naphtha by itself means a profitable naphthacracking operation. A feasible project in the government's eyes, Mr. Cheng emphasizes, must produce ethylene at a price such that downstream products will be competitive without tariff protection. The board made a brief feasibility study of naphtha-cracking in 1968, based on 100,000 metric tons a year of ethylene. The result was 3.175 cent-a-pound ethylene. The United Nations Commission for Asia and the Far East ( E C A F E ) , in a separate appraisal, later put a 3.3-cent ethylene price on the same size unit at Singapore with a five-year payout (C&EN, March 2, page 18). Singapore's government has made no further studies, however, and isn't actively promoting a naphtha center. ECAFE's own recommendation—that such a center be built cooperatively in Singapore by Indonesia, Singapore, and the Philippines—has been received rather coldly, since the plan would likely require export subsidies by Singapore on products going to its partners in the project. Lack of a home market, while its larger neighbors may be eyeing a naphtha center as a prestige project, is a brake on the island's petrochemical prospects. Downstream units, though, are a different story, as Gulf Oil's move indicates. Singapore holds out the prospect of a politically stable industrial base conveniently located for shipping to regional markets. It's becoming, in fact, to Indonesia what Hong Kong once was to China—a commercial front door. Connections with a potential market of 100 million people is a good selling point.
