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China threatens Singapore after ministerial visit

"His visit has dampened the mood to negotiate the free trade area between the two countries."

An unidentified official from China's commerce ministry

China may delay talks on a free trade deal with Singapore in retaliation for a visit by Singapore's future prime minister to Taiwan, Chinese media said yesterday, escalating a diplomatic spat.

The threat is the latest fallout from a visit last month by prime minister-designate Lee Hsien Loong (李顯龍) that was described as private.

"His visit has dampened the mood to negotiate the free trade area between the two countries," the China Daily quoted an unidentified commerce ministry official as saying.

Economists in Singapore voiced doubts that a delay in talks would damage the wealthy city-state's US$93 billion economy but said it could hurt in more subtle ways, casting a shadow over business deals between the Asian dynamos.

A delay in free-trade talks could be seen as a blow to trade-reliant Singapore and a personal snub to Lee, who had announced plans for the November trade talks after meeting with Chinese Premier Wen Jiabao (溫家寶) in Beijing in May.

Economists said assessing the impact was difficult until it became clear how much China wanted to punish Singapore for Lee's July 10-12 visit, which the Singapore government has defended as unofficial and within its sovereign right.

"It is a political issue, so whether there is a longer-term impact on trade will depend on your reading of the politics," said Manu Bhaskaran, head of economic research and partner of the Washington-based consultants Centennial Group in Singapore.

"The hope is that after making a point, relations eventually get back to normal," he said.

If China chooses to press Singapore to change its policy on relations with Taiwan, potential existed for an impact on trade, he said.

Singapore maintains a "one China" policy. Lee has said his visit did not change or contradict the policy.

Sailesh Jha, senior economist at Credit Suisse First Boston in Singapore, said Singapore was part of a global supply chain that feeds China's exports and economic growth and this would eventually restore normal ties between the two nations.

"It's a delay, sure. But I don't see it as a big deal," he said.

Trade pacts are usually lengthy processes and can take at least 12 to 24 months to seal even once an agreement is reached.

Singapore had been pushing for talks on establishing a free-trade zone with China. Beijing has been focused on striking a blanket deal to cover all 10 members of ASEAN by 2010.

Trade pacts are a cornerstone of Singapore's economic policy and few countries are more critical than China, whose trade with Singapore doubled in five years to reach US$40 billion last year, making it Singapore's second-largest trading partner.

A multi-million dollar deal by a Singapore-based company to buy 30 percent of China's largest ship repair company, Cosco Shipyard, sailed through last month without a hitch. Some analysts, however, say new deals could suffer if the row persists.
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