Here’s a very intelligent article on Singapore’s recent history and possible future. It looks at how Singapore rose to be a regional giant, how it then lost much of its lustre under the great shadow of China, and how in the wake of this it is now reshaping itself to once again attain its place in the sun.

In some ways, Singapore’s demise was beyond its control and inevitable:

Truth is, nothing that Singapore did was ill conceived, just that rest of Asia has caught up with them. Today global companies wanting to set up in Asia ex-Japan, be it a representative, sales or manufacturing entity, has a choice. It could be Malaysia, Thailand, Indonesia (maybe) or Singapore in South East Asia or Hong Kong, Taiwan, Korea and the inevitable China in North Asia. They all now offer an acceptable set of infrastructure and a reasonable enabling environment, which for many years was almost a monopoly of Singapore.

When cost becomes an overriding consideration, China wins hands down. China is responsible, for hollowing out a large proportion of existing manufacturing operations of global companies from other Asian countries. The shift of manufacturing from Singapore to China has been relentless and is partly responsible for the current high unemployment and low growth. But all is not lost. When it comes to a decision of spreading the risk that is not putting all your eggs in one basket, in this case China, Singapore features well.

Despite huge advances in China, it still remains unpredictable, multinationals prefer to cover this risk by considering stable Singapore as a regional headquarter or sometime even establish a manufacturing unit irrespective of its high cost base. High productivity also favours Singapore compared to China. Notwithstanding, Singapore has suffered badly from the advent of China as a global manufacturing base.

The one point I have to disagree with, very sadly, is Singapore’s lingering appeal as a regional headquarters. That was true some years ago, when the SE Asian “tigers” were still hot and it looked like Malaysia would arise as the great high-tech manufacturing hub.

Now, I am afraid that Hong Kong is a smarter choice for the Western firm seeking entree to China. Just look at a map and you’ll see why. And, sadly for both HK and Singapore, many of these Western firms are simply skipping the traditional “stepping stone” and setting up headquarters right in Shanghai.

Meanwhile, Singapore is now in a frenzy to position itself as a regional hub for all kinds of industries. From biotech to semiconductors to nanotechnology, Singapore is claiming this is where it is all happening:

Singapore has accepted that it can no longer be a serious contender for manufacturing. It now wants to be a knowledge based society. So at the high end they are building infrastructure and an enabling environment for creating a hub for research and design. Biotech and Infocom are a major focus.

As before, the state is providing the initial impetus by investing in physical infrastructure and seeding some of these projects. Multinationals have gradually begun to follow in its footsteps. Business cost has been reduced, through tax breaks, reduction in mandatory pension contributions and depressed market condition has also seen to a fall in office rentals.

It sounds good, but I can safely say that so far there has been little measurable response.

It is an eerie time in Singapore, a time of anxiety and confusion. We all hear the government’s grandiose intentions, the talk of turning the city-state into “a hub,” but there have been no results. Obviously that will take time, but they’ve been at it now for years.

The article ends on a note of cautious optimism based on the government’s efforts to encourage entrepreneurship and to get out of the people’s way. But many in Singapore right now are worried as the comforts and security they had taken for granted are being whittled away. As in every other country in the region, many businesses are turning to China, hoping that some of its prosperity will rub off on them.

That’s definitely a gamble, but what’s the choice? With every other economy flat, where else is there to turn? As some may know, I’m a bit pessimistic about this strategy, at least in the long term, but I completely understand it. Let’s hope it keeps Singapore afloat, at least until the country gets back on its feet and actually becomes the hub city the government wants it to be.

This is going to be a difficult and painful transition, but at the moment it seems to be Singapore’s only hope.