Connecting Chongqing and Southeast Asia: Challenges and potential of China-Singapore (Chongqing) Connectivity Initiative

This year marks 30 years of diplomatic relations between China and Singapore, and the fifth anniversary of the China-Singapore (Chongqing) Connectivity Initiative (CCI), the third government-to-government joint project between the two countries and the only one in western China. In November 2015, both countries signed a framework agreement on the CCI, along with other supplementary agreements, signalling its official start.

Singapore-China relations can be traced back to the time of Singapore's late founding Prime Minister Lee Kuan Yew and Chinese leader Deng Xiaoping, and their friendship. Lee was always supportive of China's reform and opening up, and felt that Singapore had to strengthen exchanges with China, and was constantly thinking of ways to get China to see that Singapore could be a useful reference point for its reform and development efforts.

The CCI is another vote of confidence by the Singapore government in China's opening up and development. Using Singapore's experience as a blueprint, the CCI seeks to contribute to China's latest round of opening up and development of its western region. This platform also allows Singapore companies to participate in China's Belt and Road Initiative (BRI) and the development of western China, especially in tapping opportunities in the Chengdu-Chongqing Economic Circle, and expanding overseas hinterlands for Singapore companies.

China's leaders know well that while Singapore is a small city economy, it has unique advantages and can be a trusted partner that will add value to China's development. The partnership between China and Singapore is always moving with the times - currently, the focus is on cooperation in infrastructure development, financial services, and third-party markets and specialist services.

Chongqing was chosen for the connectivity project because of its geographical advantages and administrative framework as a municipality that is directly administered by the central government - it is the only such municipality in western China, which means other cities do not get the same level of political resources and benefits as Chongqing. It is located at the meeting point of the Silk Road Economic Belt and the Maritime Silk Road, and plays an important role in the BRI; it is also on the upper course of the Yangtze River, and connected to the Yangtze River Economic Belt. Chongqing is one of western China's key economic centres, and an important assembly and production base for the world's notebook computers.

The New International Land-Sea Trade Corridor (western corridor) is a major cooperative project under the CCI, and Qinzhou port in Guangxi is a node for land and sea routes. The corridor will link Chongqing and western China to Singapore and the whole of Southeast Asia.

For China, building a convenient trade corridor to bring western China into the global economy is a strategic aim in building the China-Singapore connectivity project and the western corridor. The vast western area of China is the biggest driver of China's latest round of opening up, and also the biggest potential force in building up the new strategy of "dual circulation". For Singapore, building the corridor would help to cement its position as a global maritime trade hub.

Singapore is familiar with Chongqing. For years, Singapore has been Chongqing's largest source of foreign investments. Many Singapore companies are setting up operations in Chongqing and reaching the whole western China market - CapitaLand, Mapletree, Raffles Medical, and BreadTalk have done so, while Singapore banks DBS, UOB, and OCBC also have a presence there.

It is envisaged that having Chongqing as the centre of the connectivity project would promote connections and greater integration between western China and ASEAN countries. Giving Chongqing's economy a boost through connectivity with Singapore would also lead to wider connectivity for the vast western China with Singapore and Southeast Asia. Over the past five years, the CCI has achieved real progress: the trade corridor is attracting more and more provinces and regions in western China, with ten places - Chongqing, Sichuan, Guangxi, Guizhou, Qinghai, Gansu, Xinjiang, Yunnan, Ningxia, and Shaanxi - signing agreements as formal participants.

The connectivity project has Chongqing as its centre of operations, but it is a platform that is open for all to enjoy. The project is not limited to just Chongqing - all 12 of China's western provinces are welcome to join, as are ASEAN partners. Openness is a characteristic of the CCI, and its greatest edge.

The western corridor gives China's western provinces convenient and direct access to sea routes, which is the easiest route to connect western China with the world. On the one hand, it attracts Singapore companies to leverage the western corridor to invest in western China, including Chongqing; on the other hand, it allows companies and products from western China to go into Singapore, ASEAN, and the global market.

While it has been two decades since China first launched its Western Development Strategy, western development remains weak. Not only is its economic development lagging far behind that of the eastern coastal regions, it also lags behind that of the central regions. Although the west occupies 70% of China's land surface and is home to 27% of the population, its economy only accounts for 20% of the country's economy.

The lack of external connectivity has long been an important factor restricting western development. Pivoting from Chongqing, the CCI could help to bring the western region up to international standards. What it needs most is to further open up and attract foreign investments. The CCI would help to inject vitality to the western region, accelerate the pace of industrialisation and create more job opportunities. It would also give the overall development of the western region a boost.

The CCI focuses on transportation and logistics, financial services, the aviation industry and the field of information and communication. Bilateral cooperation in these areas is making progress. In terms of transportation and logistics, Singapore and Chinese enterprises have jointly established the China-Singapore (Chongqing) Vibrant Pucheng Multimodal Logistics Connectivity Centre to strengthen the external connectivity of Chongqing's logistics industry. In terms of financial services, western provinces, including Chongqing, have received more than US$10 billion in various forms of financing from Singapore, thus boosting the economic development of the western region. In terms of the aviation industry, Singapore's Changi Airport Group is already working with Chinese partners to manage Chongqing Jiangbei International Airport's catering, retail, and advertising services to improve its international service standards. In the field of information and communication, Singapore Press Holdings and Chongqing e-commerce company ZhuBajie Net have established a bilingual e-commerce platform that is already up and running in Singapore.

Although Chongqing is an important economic centre in the western region, it does not have a big economy or a strong regional economic radial effect. In 2019, Chongqing's GDP was 2.36 trillion RMB (roughly S$472 billion), which only accounted for 2.3% of China's total GDP. In terms of foreign economic relations, Chongqing only accounts for 2.4% of China-ASEAN bilateral trade volume.

Not only is Chongqing's economic development seriously lagging behind that of coastal cities and provinces like Shanghai and Zhejiang, it does not have a clear advantage within the western region as well, with an economy that is smaller than that of Sichuan's and Shaanxi's. The supply of goods from Chongqing is also insufficient to support the sustainable development of the western corridor.

The western corridor faces the problem of an insufficient foreign goods supply, especially in the imbalance of southbound and northbound cargo transportation. To achieve economies of scale in the western corridor and thus further reduce operating costs, the corridor must attract the active participation of more western Chinese and ASEAN enterprises. This will help strengthen the developmental momentum of the western corridor, thus achieving sustainable development.

Both China and Singapore are facing the pressing issue of strengthening the internal and external appeal of the western corridor. How can the western corridor become the foremost channel for western provinces to export their goods? How can more goods from ASEAN countries be exported to Chongqing and other regions through the western corridor? Just as the CCI must improve its commercial appeal, the western corridor also needs to further reduce cargo transportation costs, increase operational efficiency, and simplify customs clearance processes.

Attracting more regions in western China to participate is of paramount importance to the development prospects of the CCI and western corridor. However, in terms of the CCI alone, an institutionalised coordination mechanism covering all participating western regions and provinces has not been established yet. The Chinese government has to further demonstrate its leadership capabilities and coordinate the active participation of the western provinces and regions in the CCI and western corridor at the national level.

Chinese local governments are oriented towards economic development; they strengthen external connectivity and international cooperation to promote and advance local interests. Thus, the main impetus for local participation in the CCI is whether or not the project can meet the needs of local economic development.

Externally, massive changes in the global geopolitical landscape, intensifying China-US competition, and the impact of the Covid-19 pandemic on the global economy are likely to hasten the restructuring of global supply and value chains. On the domestic front, China is in the midst of adjusting its development strategy and gradually forming a "dual circulation" growth model consisting of "domestic circulation" and "international circulation" with a focus on the former. These internal and external factors could impact regional logistical transportation and value chain structures, bringing about new variables and uncertainties to the development of the CCI and the western corridor. In the face of external changes, the CCI needs to make timely adjustments to demonstrate its flexibility and resilience.

Related: Reflections by George Yeo: Celebrating 30 years of diplomatic relations between Singapore and China | Chinese ambassador to Singapore Hong Xiaoyong: China-Singapore ties tested and strengthened through the pandemic | Singapore's ambassador to China Lui Tuck Yew: Singapore must stay relevant to China | The road ahead for Chongqing (Part I): What would Raffles say? | The road ahead for Chongqing (Part II): What surprises will Chongqing bring? | Connecting the world: Role of China and Singapore