I HAVE FINALLY FIGURED OUT THE SIZE OF OUR NATIONAL RESERVES, ALMOST

Diogenes of Sinope was a Greecian philosopher from the Cynic school of thought. He did crazy iconic acts as a way of attacking the materialism and pretentiousness of Athenian society. One of his famous outrageous acts was walking about the streets in the day holding a brightly lit lamp. When asked, he would say he was searching for an honest man, or searching for truths.

If Diogenes were to appear in Singapore, would he be able to find someone who can tell him how much is Singapore's national reserves? Some have proposed estimates based on their own assumptions (Kenneth Jeyaratnam, Leong Munwai etc), most simply take figures they find quoted by various foreign publications without any idea how reliable the data is.

It is strange no one in Singapore academia in the fields of finance, economics and statistics, have shown any curiosity, absolutely none. Anyone with a math or statistics degree who hasn't tried figuring this out ought to be ashamed. I mean, if I were an engineer, I would be fascinated with China's mega projects, or as a technologist I would want to understand AI at the tech level. As a Singaporean I would want to know the size of the national reserves. Why. Because the government created the Brabara Streisand effect.

From army training of decades ago I learnt how triangulation of two data points allow a third to be discovered. Having taken statistics as a subject (which I had to take 3 sittings because back then it was the most boring subject in the world), I understood there are various tools available that can assist in determination of our reserves. I'm mouthing stuff like inferential statistics, regression analysis, Bayesian inference, interpolation and extrapolation, time series analysis. Our government's determination to remain opaque forces on any attempt to estimate the size of the reserves to make certain assumptions which of course impacts accuracy.

There are 3 data points required -  the portfolio size of the sovereign wealth funds + MAS official foreign reserves (OFR), the NIRC (net investment returns contribution), and the interest rate. Knowing 2 of these, one can figure out the third. We all know the size of GIC is a tightly held state secret. And the MOF does not tell us what is the interest rate they use in computing the NIRC.

The math should be quite simple:

NIRC(Total) = NIRC(Temasek) + NIRC(MAS)  + NIRC(GIC)
NIRC(Temasek) = 0.5 x Rate(Temasek) x Portfolio(Temasek)
NIRC(MAS) = 0.5 x Rate(MAS) x Net OFR(MAS)
NIRC(GIC) = 0.5 x Rate(GIC) x Net assets(GIC)

The knowns:
The variables in red are the knowns. The total NIRC is in the fiscal reports of MOF. Temasek's portfolio size is in their financial reports. The size of MAS' OFR is the mosr transparent, in their financial reports and updated in their website. monthly.
The rest are state secrets.

Estimating the total reserves and the GIC portfolio boils down to guessing the interest rates used. The closer one gets to the rate used by the government, the more reliable the estimates. Let's try to understand the NIRC.

It comprises of :
* Up to 50% of the Net Investment Returns (NIR) on the net assets invested by GIC, MAS, and Temasek; and
* Up to 50% of the Net Investment Income (NII) derived from past reserves from the remaining assets.

The NIR is based on 'net assets' which means net of borrowings. In the case of Temasek, we can assume the portfolio as the base. Temasek has some borrowings but it is negligible. In the case of MAS, it's earning assets is basically its official foreign reserves (OFR), but its open market operations are always sanitised by MAS Bills, which are debt that should be deducted to arrive at net OFR. In the case of GIC, its massive gross portfolio is bloated by funds from government securities (debt) which should be deducted to arrive at the net assets.

The NIR return rates are long term 20-year expected real rate. "Expected" means it is a projected rate, not historical. "Real" means it is adjusted for projected inflation. The 'return' includes capital gains, ie unrealised asset appreciation.

The NII is based on "remaining assets", ie, other than GIC, MAS and Temasek. This refers to other assets managed by other entities. The return is based on historical rates and does not include capital gains, in other words, it is based on actual cashflows. This would comprise all the other legacy investments of other government entities, such as rentals of EDB etc.

The fiscal reports do not break down the NIR and NII. However, the NII is expected to contribute only a small number to the NIRC. In our estimates here, NII is ignored.

Deciding on the long term rate of return:
The government has always kept us guessing is it 5, 10, 15 or 20 year long term expected real return rate they use? What is the difference? The lower the years, the more the returns are impacted by economic volatility. Therefore, it is a higher risk to distribute too much of the computed NIRC. On the upper end of the spectrum, the 20-year term returns are more smoothened out so higher amount can be paid out of the computed NIRC. Then again, on the other hand, the further into the future one projects, the more wobbly the figures get. A 20 year long term rate is more aligned with what the government has consistently mentioned, that the NIRC is a methodology for transferring wealth over generational lines.

The exact methodology they use is not publicly disclosed but one can reasonably infer the kinds of models, simulations, and economic assumptions they are likely to use, based on global best practices and what has been publicly shared.

The kinds of models they might use would probably include :
* Strategic Asset Allocation Models - this stimulates expected return distributions for different asset classes (equities, bonds, real estates, etc)
* Monte Carlo Simulations - this method runs thousands of simulations of economic outcomes from factors like interest rates, inflation, GDP growth, equity/bond returns, etc. Use of historical data and economic forecast and probability distribution allows for stress testing worst case scenarios.
* Macroeconomic models - this is a structural macroeconomic model that simulates the interaction of the economic environment - global GDP, real interest rates, CPI, fiscal and monetary policy impacts, etc.
* Forward-looking Capital Market Assumptions (CMAS) - throw in all the above factors mentioned and stress test  for secular stagnation, high inflation, geopolitical shocks.
* Scenario Analysis & Stress Testing - test to see performance under various scenarios  such as global financial crisis, prolonged low-growth periods, tech booms or collapses, etc. This is to ensure expected return is resilient.

Each of the 3 entities submit the return estimates to MOF which reviews and adjusts if necessary. An independent President's Council of Presidential Advisers (CPA) oversees and has access to these assumptions to ensure prudent use of reserves.

Temasek:

Temasek's last financial report shows a 20-year historical nominal Total Shareholder Return (TSR) of 7.5%. Using MAS' average historical inflation of 1.9%, Temasek's 20-year real return rate was 5.6%. We are not interested in the historical rate but the projected 20-year real rate. The international benchmarks for real long term returns on equities or blended portfolios mostly have the 20-year expected real return at 3-4%. For our purpose let's take the mid 3.5%.

NIRC(Temasek) = 0.5 x Rate(Temasek) x Portfolio(Temasek)
NIRC(Temasek) = 0.5 x 3.5% / S$389B
NIRC(Temasek) = S$6.8B

MAS:

As at 31 Mar 2024, the foreign currency reserves was S$517.3B. These foreign reserves are invested in very low yield short-term and liquid assets. In the past, built-up of excess foreign reserves is only transferred to GIC for better investing in longer term assets when the capital reserves of MAS had sufficient balances. However, the foreign reserves was building up at a rate much faster than the capital reserves. In 2022, the RMGS (Reserves Management Govt Securities) was used as a way to move excess foreign reserves out of MAS without having to wait for the capital reserves to build up. The RMGS is a non-marketable security issued by the government. and the balance in 2024 was S$260.2B. The OFR (Official Reserves of MAS) comprises of the foreign reserves, RMGS, and minor sums in gold and IMF special drawing rights. For our purpose here we take the gross investable funds of OFR as the foreign reserves + RMGS, ie $517.5B + $250.2B = $767.7B.

In its open market operations to manage the exchange rate, MAS purchase of foreign currencies are always done on a sanitised basis by issuance of MAS Bills. As at March 2024 MAS Bills outstanding was S$324.5B. Thus the net OFR should be foreign reserves $767.7B less MAS Bills S$324.5B = S$443.2B.

Estimating the return rate for MAS is tricky.  The government pays interest on the RMGS but the rates are state secrets. Its investable assets is basically the foreign reserves. The bulk of the foreign reserves are parked in non-interest bearing accounts with central banks in other countries. A portion of it would be in low yielding liquid bonds. Most analysts estimate these bond yields which are possible based on market data and they apply such rates to MAS. However, this is fundamentally incorrect because MAS is not an investment entity. It is not a for-profit organisation. Therefore it is incorrect to use investing norms to assess MAS returns. Unlike investment houses, MAS does not hedge its activities. Its various positions are left exposed to market risks because hedging those positions would mean undoing their various policy operations. This means MAS returns are extremely volatile, especially with regards to exchange revaluations. Whilst its bond holdings provide a stable return, it's interest revenue is in fact from the repo transactions from its function as a lender of last resort for daily liquidity needs of banks.

MAS' returns are heavily impacted by exchange valuations. Given the trend of SGD appreciation, and government's policy of maintaining a strong currency, I would assume an expected long term real return in a very low range of 50 basis points. This is purely my estimation.

NIRC(MAS) = 0.5 x Rate(MAS) x Net OFR(MAS)
NIRC(MAS) = 0.5 x 0.005 x S$443.3B
NIRC(MAS) = S$1.1B


GIC:

NIRC(Total) = NIRC(Temasek) + NIRC(MAS) + NIRC(GIC)
Therefore:
NIRC(GIC) = NIRC(Total) - NIRC(Temasek) - NIRC(MAS)
NIRC(GIC) = S$24B - S$ 6.88 - S$1.1B
NIRC(GIC) = S$16.1B

It is now left to estimate the long term expected real return of GIC on its net assets. In 2024 GIC's 20-year long term real return was 3.9%, marking a steep drop from 4.6% the previous year. This 3.9% return is however, on it's total assets. If it is based on net assets, the return rate would have been significantly higher.

The Government Statement of Borrowings show a balance of S$1,168.5B as at Mar 2024 for various securities issued (SGS Market Devt, SSGS (for CPF), RMGS, Spore Savings Bonds). The proceeds of all these borrowings cannot be spent. We assume these funds are managed by GIC, that is, it is part of the GIC's AUM (assets under management), or gross assets. 

AUM(GIC) = Debt(GIC) + Net Assets(GIC)

It is more meaningful to estimate the returns of GIC by looking at the Debt and Net Assets separately. Net Assets are funded by land sales, budget surpluses and capital reserves.

I am just making a fair estimate GIC is able to make a 50 basis points spread over their cost-of-funds when investing these borrowings. 

NIRC(GIC-Debt) = 0.5 x Rate(GIC-Debt) x Debt(GIC)
NIRC(GIC-Debt) = 0.5 x 0.005 x $1,168.5B
NIRC(GIC-Debt) = $2.9B

Therefore:
NIRC(GIC-net assets) = NIRC(GIC) - NIRC(GIC-debt)
NIRC(GIC-net assets) = S$16.1B - S$2.9B
NIRC(GIC-net assets) = S$13.2B

GIC has a lower risk profile than Temasek, thus lower 20-year expected real return on its net assets, We estimated this expected return for Temasek at 3.5%. For GIC we put it at comparatively lower 3%.

Net assets(GIC) = NIRC(GIC-net assets) / 0.5 x Rate(GIC-net assets)
Net assets(GIC) = S$13.2B / 0.5 x 0.03
Net assets(GIC) = S$880B

GIC Net Assets Compared:

Several external analysts have estimated the size of GIC portfolio :
Global SWF - (Jul 2024) US$847B (S$1,101B)
Bloomberg - (Mar 2025) US$880B (S$1,144B)
Reuters - (Jul 2024) US$770B (S$1,001B)
Forbes - US$744B (S$967B)

I assume these are net assets and not the AUM (assets under management) or gross assets. These 4 external estimates of GIC net assets put it at a low of S$967B to S$1,144B with an average of S$1,053B. My estimate is $880B, 16% off the average and only 9% off the lowest estimates of Forbes.. It can only reflect I have been less conservative than the external analysts in rate estimation.

What is GIC Net Assets:

The AUM of GIC comes from 4 sources of funds - debt (proceeds of government securities), land sales, budget surpluses and capital reserves. The net assets are funded by land sales, budget surpluses and capital reserves.

One can try to cull all the data possible from archives and wherever to aggregate the land sales and budget surpluses that have been transferred to GIC to manage. But one will still be left with the opaque compounded gains in capital reserves to derive a more accurate figure for GIC's net assets.

How much then is the national reserves:

It depends on definition.

Reserves in the accounting sense refers to funds not available for general expenditure. These funds are represented by a mass of co-mingled assets. Based on this definition, our reserves in 2024 is :

National reserves (Gross) :
= Temasek portfolio + MAS OFR + GIC gross assets
= Temasek S$389B +  MAS S$676.6B + GIC (S$880B + S$1.168.3B)
= Temasek S$389B +  MAS S$676.6B + GIC S$2,048.5B
= S$3,114.1B

Reserves in the sense of sovereign wealth, ie national ownership, free of debt, then our reserves in 2024 is :

National reserves (Net):
= Temasek portfolio + MAS net OFR + GIC net assets
= Temasek S$389B + MAS S$443.3B + GIC S$880B
= S$1,712.3B

I think we can take these figures to the bank with a 90% confidence level.

Conclusion:

Key to getting the reserves figure right is the 20-year expected real return rate. The rate used to compute the NIRC is designed to ensure generational equity, a fair distribution of national wealth across both present and future generations. The government employs a wide array of financial models, simulations and risk assessment methodologies across a wide spectrum of investment products and robustly stress-tested against severe predicted economic scenarios into the future.

On paper the whole process looks extremely elegant and disciplined. But in its opaqueness the public cannot verify how the numbers are derived or how conservative the underlying assumptions are, it makes external benchmarking or critique impossible, there is no parliamentary scrutiny, as the government ultimately influences the assumptions the whole process blurs financial and political lines. 

There is just a handful of people privy to the information, and fewer still who actually understands them. The President's Council of Presidential Advisers has an overseeing role to help ensure prudent use of our reserves. Do they really understand the whole methodology? They were unable to explain to President Ong Teng Cheong decades ago and the poor chap went away asking for a list of assets that made up the reserves.

Remember the lessons from history from the world of finance. Baring Bros management thought they understood all those risk reports crunched by the system until the day rogue trader Nick Leeson bankrumpted the oldest merchant bank in UK. The 2008 global financial crisis caused by the collapse of the mortgage-backed securities is a clear illustration of the limits of financial modelling, no matter how sophisticated. The crisis was due to a systemic misjudgement of risks, not because the models were mathematically wrong. Despite the presence of highly credentialed risk managers, rating agencies, quants (quantitative analyst specialists) and economists, the system collapsed under risks they thought were under control.

If Wall Street, with all its modeling and talent, failed to see its own crash coming, why should citizens unquestioningly trust opaque assumptions used in sovereign wealth forecasts? This is not a call for panic. It's a call for healthy skepticism, transparency and accountability.

In seeking Truth, Diogenes would have certainly asked: "Can a country claim financial transparency when its most important revenue stream for fiscal spending is built on invisible assumptions?"

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THE ART OF BULLSHIT - A CLUELESS PUBLIC AND CLEVER NARRATIVES IN THE ALLIANZ-INCOME FIASCO

"If Mr. McMurphy doesn't want to take his medication orally, I'm sure we can arrange that he can have it some other way."
Nurse Ratched

This is a cold, manipulative line in the Jack Nicholson movie that shows the exertion of power by coercing patients into compliance in more than one way of taking the medicine. The analogy describes the various different narratives to sell a bullshit and control the game.

I wanted to respect neutrality in the months running up to the general election so I kept my peace on the Allianz-Income deal. Post election I am triggered that the man right smack in the centre of the storm can be elected into parliament to represent a public that he had outrageously, perhaps even criminally, pulled wool over eyes. Ah well, 'twas my first lesson on politics as a little kid some 6 decades ago when my older brother taught me the kind of people have the kind of leaders. It's ironic the constituency is called "Kayu".

It is time at least one Singaporean stand up and be brutally frank to call out all the bullshits and the stupidity in this fiasco.

The deal goes like this :

The Pre-Conditional Voluntary Cash General Offer offer:

Announced on 17 Jul 2024. Allianz to acquire 51% of Income Insurance Limited (IIL) for $2.2 billion.  NTUC Enterprise (NE) holds 72.8 % of shares in IIL and remaining 27.2% held by 16,000 minority shareholders. Depending on how many minority shareholders take up the offer, NE will sell the balance to make up the 51%. In short, Allianz buys 54,667,790 shares at $40.58 each which is at a premium of 37.3% over Net Asset Value of $29.55.
Capital Reduction Plan :

Disclosed on 14 Oct 2024 in ministerial statement in parliament. IIL will return capital of $1.85 billion to shareholders over a period of 3 years.

In the art of bullshitting, word play has great psychological impact. It distracts and influences the unwary. There were two in play throughout the fiasco. 

The one at the fore is "social mission". Professor Tommy Koh and two ex-NTUC CEOs were the first to talk of the sale as a betrayal of the social mission of IIL. The two ex-CEOs may be forgiven as they ran the precursor of IIL, which was NTUC Income, a co-operative with a social mission. They are passionate and mission-driven. Tommy Koh is a good and learned man, but unfortunately displays his naivete once too often. I blogged about him here and here. 

On 1 Sep 2022 NTUC Income corporatised into a public company IIC. It ceased to be a co-operative and became a full-fledged for-profit entity. That is the legal standing. To make it perfectly clear, IIL is now governed by The Companies Act unlike it's precursor NTUC Income which was governed under The Singapore Co-operative Societies Act. IIL's responsibility is no longer to union members but to shareholders of the company. The 'social mission' compact with union members no longer exist.

It's been said IIL/NTUC Income served the public by providing cheaper rates. This is highly questionable. Insurance is an actuarial science driven business with premiums factorised from industry established statistical models and historical data sets to calculate risks. It is unlikely that an insurer can assess the same risk materially different from another as to price it significantly different. Product pricing variance is less from risk assessment differentials but from business strategy, market dynamics, operational costs, and regulatory factors.

Traditionally, insurance was marketed through agencies structured similarly to multi-level marketing. Agents were commission-based and successful agencies with vast downline networks generated substantial earnings, sometimes in the millions, through layered commission. (MAS eventually stepped in to restrict market power of these agencies.) In the early years under CEO Tan Kim Lian, NTUC Income operated under a different marketing model from the industry norm. Tan Kim Lian adopted a different approach by employing direct sales employees on a salaried basis. This structure significantly reduced operating costs, enabling NTUC Income to offer low-value policies, a market segment that traditional insurers found less viable due to their higher cost structures associated with commission-based agency networks. This creates the image for NTUC Income as the insurer for the poor.

NTUC Income thus served a great social purpose -- it brought insurance products to the lower income strata of Singapore. As a co-operative, NTUC Income serves its union members and it was able to do so by offering low value policies. However, insurance business is about the law of averages in risk taking, which means it must have volume and that means selling to non-union members as well. It cannot sell cheap even if it is able to because its responsibility is to benefit members. It therefore sells competitively, making reasonable profits for its members. Talk of NTUC Income selling cheap policies is bullshit. It has branches in Vietnam, Malaysia, and Indonesia. They are certainly not there to serve a social mission.

NTUC Enterprise faced 3 basic challenges which led it to seek alliances with a bigger name:

1. NTUC Income/NII is an established brand in the local personal insurance market such as life, health and motor insurance. It faces tough challenges with the 40 or so big boys in the other sectors - group insurance, institutional contracts, life insurance market share, overseas market. It's brand name is weak when competing in these markets.

2. NTUC Income/IIL is behind the curve in technological advancements compared to other global insurers. It's cost advantage has faced new challenges in recent years. The rise of technology-driven direct-to-consumer (D2C) online sales platforms, and strategic partnerships with banks through bancasurance agreements have introduced more cost-efficient distribution channels. These modern approaches allow insurers to bundle financial products and leverage existing customer relationships of both the insurance companies and their partner banks, thereby reducing acquisition costs and offering competitive pricing, even for low-value products. This is the quandary the co-operative found itself in modern times.

3. Size matters in insurance. But NE envisions difficulties in providing additional capital on their own to scale further.

NE announced the offer from Allianz on 17 Jul 2024 which caused a public outcry, principally centred on betrayal of selling off a Singapore icon and loss of a social service provider. This talk of social mission of selling cheap insurance is a red herring that distracts from the fact the real issue is not mission loss but the lack of financial transparency.

On 14 Oct 2024 Edwin Tong, Minister of Culture, Community and Youth (MCCY), gave a ministerial statement which clarified a lot of things, but it also raised several questions. MCCY had commenced a study into the matter sometime in August.

One point Tong revealed in parliament caused a public uproar which has been commented on by just about anybody with a cellphone. There was an undisclosed plan for a "capital reduction" to return $1.85b by IIL to shareholders within 3 years of the sale. Tong specifically called it a "capital reduction" but in the ministerial statement he referred at other times to "capital extraction". Every kaypoh in town had something to say and they all used "capital reduction" and "capital extraction" interchangeably. The two terms are different in purpose, legal complexity, accounting impact and methods with different ramifications. We need to be clear what we are talking about.

Capital reduction:
* Purpose - It is a restructuring of share capital to improve the financial health. Decreased share capital enhances its financial ratios.
* Legal complexity - Court and shareholder approval often needed.
* Accounting impact - reduces the share capital account and/or share premium account.
* Method - Share cancellation or reduction of par value.

Capital extraction:
* Purpose - To distribute surplus funds to shareholders.
* Legal complexity - Just board resolution or shareholder vote.
* Accounting impact - Reduces retained earnings or reserves.
* Method - Dividends, share buybacks, liquidation payouts.

Let's call this the "backdoor refund" at this stage since we do not know whether it is capital reduction or capital extraction.  A sales transaction with a "backdoor refund" almost always smells fishy, but in this case, let's be clear. There is no suggestion of corruption since the cash flows back to NTUC Enterprise and other minority shareholders who didn't accept the offer.

In the ministerial statement, Tong explained that right up to the parliamentary debate in August 2024, MCCY, was unaware of this backdoor refund. Tong said as MCCY was studying into the matter, the MAS shared with them additional information. Allianz, IIL, and NTUC Enterprise had approached MAS (after August, I assume) to discuss on their future plans on how to optimise the capital structure of IIL. According to Tong, MCCY then learnt about the $1.85b backdoor refund over a period of 3 years after Allianz acquisition of IIL. Tong explained MAS had no objection as they were only concerned with ownership and the viability of IIL under Allianz. MAS, however, felt MCCY might hold some different views and that's why the information was shared to the ministry.

Tong presented with great clarity their concerns for this backdoor refund. When NTUC Enterprise corporatised in 2022, there was a surplus of $2b which had to be transferred to Union's  Co-operative Societies Liquidation Account (CSLA) in compliance with the Co-operative Societies Act Section 88. The CSLA is to be used for the general benefit of the co-operative movement in Singapore. MCCY has the authority to grant exemption to this requirement. An exemption was requested and granted, and the $2b surplus was carried into IIL, presumably predicated on the assumption it will be similarly utilised for benefit of the co-operative movement. Tong said he could not see clarity in IIL how this surplus was to be used. The backdoor refund runs counter to the principle on which the Section 88 exemption was granted. This, and the loss of social mission, was the basis for MCCY to disapprove the deal.

Tong's ministerial statement is extremely damaging, perhaps even criminally, to NTUC. Mr Desmond Tan, who is senior minister of state in the Prime Minister's Office, is also a Deputy Secretary General of NTUC, had the opportunity to clarify in parliament following Tong's statement. He said this was the first time he has heard of the capital reduction plan and that the NTUC Central Executive Committee is not in the loop in this development. Thus the Secretary General of NTUC, now the MP for the Jalan Kayu constituency, Mr Ng Chee Meng, can say he too is in the dark. We don't know if Desmond Tan was speaking on behalf of the Prime Minister, of NTUC, or as a concerned MP.  I asked Bozo my pet chimpanzee what he thinks of all this and he scratched his head.

The MCCY has said they are not against the deal from a commercial perspective, they are only against the structure of the deal in its present form. This leaves the field open for Allianz, or any other potential insurers, to make proposals to NTUC Enterprise in the future.

Now that the government has scuttled the deal, should every thing just go away?  That depends on whether you believe in all the bullshit. The mission loss, all the dust swirled up by the talk of capital reduction or capital extraction and the breach of exemption of Section 88 Co-Operative Societies Act, is a clusterfuck discombobulation of the whole saga that distracts from the real issue -- transparency of the deal. It also depends on whether you believe nobody is above the law.

The fact that the back door refund plan was not publicised in the Offer document means willful concealment which could mean misrepresentation and conspiracy to defraud. This is a big problem and many state agencies ought to be looking into this. Before I explain the legal ramifications, let's look at some real numbers.

IIL financial statement y/e 31. Dec 2023 (2024 statement is unavailable) has share capital account showing $3,203,821,000. Total shares issued is 107,191,745 with nominal value of $10 each. That means there is a premia of $2,131,903,528 in the share capital account.

NTUC Income financial statement y/e 2021 Notes 28 to the Account says of the surplus of $2,651, 927,000, only $952, 089,000 is distributable. $1,697,840,000 is non-distributable in compliance with regulatory capital adequacy guidelines and statutory requirements. 

It does look like Tong is correct in that it would be capital reduction. The $1.85b is likely to come from the capital account. But MAS needs to explain why when the 2021 account says $1,697, 840,000 is non-distributable, they find no problem with the capital reduction plan.

When the time comes for IIL to release the cash outflow from capital account to shareholders, and there is insufficient cash balance, IIL would have to monetise some assets.  Actually NCMP Leong Mun Wai had enquired if there was "asset stripping" but was shut down by Tong who said "No" but did not explain how the cashflow is to be funded. To that extent, Leong Munwai is correct that there may be asset stripping.

Back door refunds are troublesome because it hides the true cost of an acquisition.  The capital reduction means of the $1.85b,  51% ($943,500,000) will go to Allianz, 49% ($906,500,000) will go to NTUC Enterprise/minority shareholders. This means Allianz's acquisition cost only $1,256,600,000 and not $2,200,000,000 as stated in the Offer document. That effectively means Allianz acquisition of 54,667,790 shares was priced at only $22.99, not $40.58 as stated in the Offer document. The actual price of $22.99 is very close to the NAV (net asset value) of $22.55. There is thus no premium of 37.5% over NAV as declared in the Offer doc.

A Leveraged Buy Out (LBO) is where the buyer makes use of the assets of target company to help finance the acquisition. For example the 2005 GBP790m acquisition of Manchester United FC by the Glazer family with very little of their own money with the deal financed by loans secured against the club's assets. Is the Allianz-Income deal an LBO? If Allianz intended to use IIL's own reserves (thus liquid assets) to finance the acquisition or subsequent returns, it resembles an LBO. The concern is whether the capital reduction structured to benefit Allianz is at the expense of Income's stability. MAS holds the view IIL's capital adequacy won't be affected.

Fraudulent conveyancing happens when assets are disposed to some preferred parties at the expense of creditors. This is a felony that usually happens in a corporate liquidation scenario. In the Allianz-Income deal, the capital reduction plan was not disclosed to minority shareholders. Those that take up the offer are disadvantaged as they do not benefit from the refund. Although they are shareholders, they are similarly situated as creditors in losses similar in a fraudulent conveyancing situation.

The question Singaporeans ought to be asking is, is there anything actionable by regulators?  Since the deal has been blocked, regulatory action would depend on whether there was misconduct or regulatory breach during the process. There seems to be prima facie evidence of concealment of intent, misinformation, breach of fiduciary duties, and conspiracy to defraud. These are the various regulatory agencies who should be concerned:

MAS:
Their jurisdiction is financial stability and integrity. According to Tong, MAS was satisfied with capital adequacy part of things. However it should investigate if misleading information was circulated or material facts were deliberately omitted and compliance with securities laws (Securities and Futures Act.

ACRA:
Its jurisdiction is corporate governance and compliance with Companies Act.  It should investigate director misconduct or breach of fiduciary duties, It should scrutinise whether there was improper motive behind capital reduction plans, whether company officers acted in a way that disadvantaged certain shareholders.

Securities Industry Council:
Its jurisdiction is regulation of takeovers and mergers. It should investigate whether the takeover rules were breached, including non disclosure of critical elements, misinformation, or unfair treatment of minority shareholders. It should examine whether the offer terms were fair and transparent.

Commercial Affairs Dept:
Its jurisdiction is financial crimes and serious fraud. It should investigate criminal conspiracy if there was intent to deceive or defraud shareholders or the public. It should review whether the backdoor refund involved fraudulent intent.

In the hustle and bustle of the election rallies, Mr. Lee Hsien Loong made a statement to the effect the PAP government blocked the Allianz-Income deal to protect the social mission of Income Insurance. He was basically gloating we the PAP did it, protected the interest of Singaporeans! Lee took all credit for PAP and ignored the public outcry, particularly the protests of the two ex-CEOs of NTUC Income, without which, the deal would have gone unchallenged. I asked Bozo my pet chimpanzee if this was fair and he pointed to his skin. I think he was trying to say it's pachydermic.

Lee further reiterated "If it had been left to the Worker's Party as government, the deal would have gone through because they didn't oppose it, right?" This is an underhand comment -
* The Union would never have gone into the deal with Allianz without prior greenlight from the government.
* The government was forced to re-assess under intense public pressure.
* The attack on Worker's Party and Pritam was meant to manipulate public perception by implying guilt or poor judgement without concrete evidence. This is called a counterfactual criticism. It is criticising on a "what would have happened if" scenario. It shifts the focus from the government/union actual decisions and accountability to "what-ifs" onto another party making the accused unable to defend against speculation. This is a common dirty trick in debates.

The whole fiasco boils down to one question - why should the deal makers conceal the capital reduction plan? It is obvious the scheme is in conflict with their concern for future capitalisation needs of IIL. It is a paradoxical reasoning to ensure more capital, go for a capital reduction. Of course they knew the deal cannot pass scrutiny if the capital reduction plan was disclosed. No one can accept this bullshit.

The movie One Flew Over The Cuckoo's Nest explores themes of individuality, authority, and the oppressive nature of institutional systems. Should Singaporeans be like institutionalised cuckoos and accept everything without exercising critical thinking. This episode has demonstrated that when the situation requires it, one should speak out. Without the public outcry, this one would have flown over the cuckoo's nest.

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THE COLD FACTS AND 2025 Q1 DATA POINT TO A WINNER IN THE US-CHINA TARIFF WAR

“This isn’t just a trade war—it’s a stress test for two very different systems: one democratic and open but politically fractured, the other authoritarian and cohesive but brittle under pressure.”
Kevin Rudd, former Australian PM

As the US-China tariff war intensifies, the battlefield is no longer just economics, it’s psychological and political. This conflict has morphed into a test of which society can better endure internal strain: American consumers facing inflation or the Chinese populace grappling with rising unemployment. At stake is not only economic leverage but political stability.

For the United States, the burden of tariffs manifests through price hikes. With steep duties imposed on Chinese imports, consumers are now paying more for essentials like electronics, furniture, and household goods. This inflation comes at a precarious moment when American households are already strained by high borrowing costs and stagnant real wage growth. The central question is, can U.S. consumers continue to absorb this financial pressure?

Yet the economic question cannot be separated from the political one. The US is entering an election cycle where domestic polarization is at a breaking point. President Trump’s tariff escalation is as much a political statement as an economic tactic. Meanwhile, the Democrat opposition appears prepared to adopt a scorched-earth approach to stop him, willing to amplify each and every economic grievance or weaponize policy fallout to undermine the administration. Liberal judges dropped all pretense of non-partisanship to frustrate the Executive at every turn with judicial overreach never seen before in their history; media continues with lies to try to normalise massive public discontent when all indications are the majority of the public are happy with the Trump admin delivering on campaign promises; anti-Trump globalists and dark money pouring into NGOs to fund leftists groups organise paid-protests to present a façade of full scale national social discontent; and Democrat lawmakers publicly calling out for violence to stop Trump. In this environment, inflation isn’t just a burden, it’s a political powder keg which the Left will gladly ignite.

The pain of inflation always works against the incumbent admin. In the 2024 campaign, Conservatives milked the economic pain dry to bury the Democrats for the inflation during the Biden admin. The Democrats now turn the tables on the current admin. Trump is well aware the tariff will bring short term hardship before his vision of reshoring manufacturing can turn the country around. Retail prices will inevitably rise and Democrats will capitalise on this to instigate a groundswell of anger into a national social uprising. But unlike the Chinese, Trump has a mountain of cash to ride this out. The tariffs are bringing in hundreds of billions of dollars which can fund financial aid packages for both industry and the public. In Trump tariff 1.0, China banned US grains and American farmers were hit hard. Tariff dollars went to subsidising the farmers. This time, the admin is considering doing away with federal income taxes.

For US, it is a question of whether the admin has sufficient tariff revenue to provide subsidies or cut taxes to ride over the increased cost of living and disruptions in the supply chain in the short term to prevent Democrats from doing political damage.

In contrast, China faces a different kind of vulnerability. Although inflation is more contained, economic distress is mounting, particularly through rising unemployment, especially among the youths. Each year 12 million Chinese graduates join the workforce. China faces a perfect storm of unemployment pressure from 3 directions. Firstly, the lockdowns during the pandemic caused many business closures and severely stressed the manufacturing sector from which they have still not fully recovered. Secondly, many sectors in manufacturing have been under pressure from over production. For example, China's steel industry has collapsed due to over production. Thirdly, the relocation of US companies out of China, together with massive numbers of their supply chain.

The fact is China's exuberant growth had already began petering off by 2010 when it's economy matured. It faced the same eventual problems of all developed countries -- rising wage levels. China's competitiveness driven by cheap labour faced challenges from Vietnam and India. It took the familiar course of action by pushing for productivity and going into higher value tech industries. Many factories have already shuttered even before Trump's tariffs and more so were tottering on bankruptcy and unable to pay wages for months.

China’s middle class is squeezed by a deflating property market, shrinking private sector opportunities, and weakening consumer confidence. The real estate sector had been in the doldrums for decades due to over-building and excessive debt. The Evergrande Group's insolvency publicised in 2021 marked the official collapse of the property market. China has never been a real open economy. It is still tightly controlled by central planning which has allowed very little opportunity for the working class to grow wealth. The only path was property investment. As a result, for the last several decades, a growing middle class had poured all savings into property, buying their first, second or third condominiums. This led to a property boom and over-building. Too many condominiums but no tenants. With developers going burst, the middle class are caught with mortgage debts, no assets, no tenants. With all savings sunk into properties and jobs terminated, the cries are getting more desperate by the day.

Since the pandemic, the CCP has tried to revive the economy with several rounds of financial stimulus. All these failed due to the overhang of US$44 trillion domestic debt by local government units, banks, and real estate developers, coupled with weak consumer and business confidence. China is not facing cyclical issues, but a deep structural problem - rising wages, weakening export model, and inability to booster domestic consumption.

Behind the scenes, the Chinese Communist Party is far from monolithic. President Xi Jinping, having consolidated significant power, now faces internal friction. The old guard, consisting of princelings and entrenched economic elites within the Party, are increasingly diverging in vision and influence. Some favor more liberal reforms to rescue economic momentum; others demand ideological purity and state control, yet other factions want to move away from a dominant individual to a group leadership of party elders. It is becoming clear Xi has lost considerable power with many of his hand-picked apparatchiks being sidelined and purged, especially military commanders loyal to him. These palace intrigues, though less visible, may prove just as destabilizing as open political opposition in a democracy.

"When there is not enough to eat, people will eat bark and root."
Mao Tse Tung

There have been calls by the leadership to embrace tough times, an exhortation to bare the hardships as in the days of the past. The old Communist mindset exists in the CCP. Once under pressure, they revert to old communist survival doctrines. Exert more control, smash dissent, take the "China has thousand years history' long term stand, shut down unfavourable news, political propagandists take over. In recent history there were the 1989 Tiananmen Square massacre, Falun Gong suppression, and the Hongkong protests, all violently taken down. However, these were not nation-wide protests, easily put down violently. This time, the undercurrent for dissent arising from angry and frustrated property investors, workers with unpaid wage claims, and massive unemployment, is taking on a national scale. It has the potential to break into uncontrollable instability spilling into outright revolution for complete political reform.

Tough times breed tough folks. Today's Chinese never marched in the thousand miles trek. As Lee Kuan Yew once said of the new generation Chinese - "The Chinese people today are not going to allow a repeat of the Cultural Revolution or the days of Mao's total control. They have tasted success and comfort."

What makes this tariff standoff unique is that both sides are now fighting battles not just with each other, but within their own borders. For the U.S., it’s a question of whether its deeply divided political system can absorb economic pressure without imploding into dysfunction. For China, it’s whether a tightly controlled system can continue to mask or contain internal divisions amid deepening economic strain.

It's still early days, but Q1 economic data provides hints on the status quo of the two warring states.

US:
US saw a contraction by 0.3% in GDP which is the first quarterly decline since 2022. Trump haters gloated at the failure of his tariff policy. The goons do not understand the contraction was due to 2 factors -- (1) Imports surged by 41.3% annualized, as businesses front-loaded goods ahead of impending tariffs. Increase in imports drags down and distorts GDP numbers. (2) Government spending declined in line with the admin's objective of cutting expenditure.

Contributing to GDP growth were (1) consumer spending grew by 1.8%, possibly due to rising prices; (2) Private investments increased by 22%, notably in computer equipment, possibly due to AI-related demand and pre-tariff stockpiling.

US inflation eases amid trade policy shifts. The CPI in March rose by 2.4% year-over-year, but is a reduction from 2.8% in February. Core inflation (excluding food and energy) increased by 2.8% over the same period, marking a the smallest 12-month rise since March 2021.

Clearly the expected cost of tariffs has no impact yet. It's a healthy report for the US.

China:
The target annual growth is 5% but has been revised down to 3.5% in view of tariffs. In Q1 the year-on-year GDP was 5.4%. This was achieved on the back of increased exports due to export surge driven by buyers trying to beat the tariff. Exports jumped by 13.5% in March as shippers expedited shipments.

China's CPI turned negative in March 2025 registering at -0.1% year-over-year, down from 0.5% in January. With inflation contracting into negative territory, China is now having deflation, which is not a good sign. Deflation means the general price level of goods and services is falling over time. This signals weak demand, a lack of consumer and business confidence. The situation gets worse because consumers will delay spending, causing further price level decreases. Debt becomes more burdensome and downward pressure on wages is the norm as employers cut or freeze hiring.

Deflation is not good news for China. It leads to a downward spiral of the economy. The signs are all there - weak consumer confidence, falling domestic demand, and lingering structural issues like over capacity and property market distress.

Conclusion:

The outcome of this war won’t be decided by who blinks first at the negotiating table, but by which society proves more resilient under stress. The United States bets that its consumers can stomach inflation longer than China can maintain social stability with joblessness on the rise. China, meanwhile, is gambling that its managed state apparatus can outlast the volatility of American democracy.

But resilience has its limits. For the U.S., prolonged inflation risks both economic slowdown and political upheaval. For China, the erosion of growth and confidence could catalyze deeper fractures within the Party itself. In the end, this is not merely a trade war—it’s a test of which political and economic system cracks first under pressure.

In the final analysis, my money is on US. However chaotic democracy is, American system has shown time and again they can ride out their political strife. The US will accumulate a hoard of tariff revenue which is a buffer to subsidise consumers and business to tie over financial challenges of short term rising prices. More importantly, Trump's the tariff policy has the objective of reshoring manufacturing, there is a game plan. China, on the other hand, has President Xi facing palace intrigues. Chinese history has shown time and again, dynasties get destroyed by such games of thrones. Rising discontent by unemployed youths, angry middle income investors cheated by property developers, and unpaid employees, are headed for nation wide dissent as solutions are not in sight. China is in deflation in Q1 and has no financial means to stimulate domestic consumption to turn the economy around.  

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THE REAL REASON WHY PAP WiNS ELECTION AFTER ELECTION

Well, General Election 2025 is over and the PAP has won 65.57% of the popular vote. This is a surprisingly stronger mandate against 61.23% win in 2020 GE. Congratulations to Lawrence Wong and his team. Pundits one and all have their reasons for the PAP win which includes gerrymandering, usual bogeyman fearmongering by the lighting bolt, Trump effect, Singaporeans bought by CDC vouchers, etc.

Given our low population and new citizenships granted each year which average about 21,000 annually, the impact on the general elections of Singapore is likely to be significant. Singapore's immigration policy is to augment the working population, so it makes sense citizenship is granted to mostly working adults. For our purpose here, two assumptions are made:

(1) The voting age is 21 years, but immigration data available show age distribution with lowest age band of 20 years and below. Let's simply accept the cut off at age 20. The error probably has insignaficant statistical relevance.
(2) New citizens are likely beholden to the ruling party. This 'Beholden Factor' is assumed 100% votes for PAP in the first election, 50% in second election cycle, and 25% in the third election cycle.

In GE 2025 the popular vote garnered by PAP was 1,564,770 compared to 2020 of 1,527,491. The increase in the number of votes was merely 37,279.

Now let's take a look at the ICA faucet for new citizens of voting age granted citizenship in:
2024 - 15,000 (estimated)
2023 - 15,056
2022 - 15,840
2021 - 13,805
2020 - 13,262
Total new voting citizens in 1st GE (2020-2024) 72,963 x 100% for PAP.
Total new voting citizens in 2nd GE (2015-2019 see below) 68,559 x 50% = 34,280 for PAP.
Total new voting citizens in 3rd GE (2009-2014 see below) 59,134 x 25% = 14,784 for PAP.
Total new citizens impact on 2025 GE was 122,027.
Without factoring in these new voters means that for GE 2025, the PAP actually lost 84,749 votes (122,028-37,279) over the previous GE.

Is the immigration data just a fluke shot to explain GE 2025? Alright, let's take a look at GE 2020.

Again, ICA turned on the faucet for new voting citizens in:
2019 - 14,378
2018 - 14,026
2017 - 13,775
2016 - 13,662
2015 - 12,718
Total of new voting citizens in 1st GE (2015-2019) 68,559 x 100% for PAP.
Total of new voting citizens in 2nd GE (2010-2014 see below) 59,134 x 50% = 29,567 for PAP.
Total of new voting citizens in 3rd GE (2005-2009 see below) 40,723 x 25% = 10,181 for PAP.
Total new citizen impact on 2020 GE was 108,307. 

For GE 2020 PAP won 1,527,491 (61.24%) of the votes compared to GE 2015 when they won 1,579,183 (69.86%). Thus in GE 2020 PAP saw a lost of 51,692 over previous GE. Everyone with 2 cents worth said the significant lost was due to the fact the previous GE 2015 was exceptional as PAP benefitted from sympathy votes from the death of Lee Kuan Yew. In reality, the PAP lost was a massive 159,999 (108,307 + 51,692) votes in GE 2020 over the previous GE had it not been for the new citizens.

Let's now put the new citizenship factor to the test. Did it play a role in the PAP landslide victory in GE 2015 where LKY's death generated substantial sympathy votes. In GE 2015 PAP won 1,579.183 (69.86%) of the votes, compared to GE 2000 when it won 1,213,102 (60.14%), a gain of 366,081.

Hey ICA, how many new voting citizens were minted from 2010 to 2014?
2014 - 12,718
2013 - 12,096
2012 - 12,908
2011 -   9,782*
2010 - 11,630*
* Estimated 38% below voting age. 

Total of new voting citizens in 1st GE (2010-2014 see below) 59,134 x 100% for PAP. 

Total of new voting citizens in 2nd GE (2005-2009 see below) 40,723 x 50% = 24,361 for PAP.

Total of new voting citizens in 3rd GE (2000-2004 see below) 21,170 x 25% = 5,293 for PAP. 

Number of new voting citizens added were 88,788. Without these new citizens the gains were 277,293 (366,081-88,788). So yes, sympathy votes were indeed substantial even when new citizen votes are discounted.

The number of new voting citizens for 2000-2009 were:
2009 - 12,355*
2008 - 12,721*
2007 - 10,748*
2006 -   5,016*
2005 -   4,902*
2004 -   4,712*
2003 -   4,216*
2002 -   4,712*
2001 -   4,030*
2000 -   3,500 (estimated)
* Estimated 38% below voting age. 

Total new voting citizens in 1st GE (2005-2009) 40,723.
Total new voting citizens in 1st GE (2000-2004) 21,170.

The "Beholden Factor" assumed at 50% for 2nd GE and 25% for 3rd GE cycle voting in favour of PAP is in fact very conservative. It could possibly be 100% for 3 GE cycles running. In other words, PAP winning on the low side of 60% is not landslide victory. Without new citizens voting, PAP could have lost possibly 3 or 4 elections ago.

What the data demonstrates is the opposition have missed the forest for the trees in the last few elections. They should have spent 90% of their time attacking the dominant factor that favoured the PAP. All other issues including inflation pale into insignifance.

Lee Kuan Yew once famously mentioned he foresee a day may come when citizens get disenchanted with the PAP and give their votes to the opposition. Well, he was wrong. The PAP, either by chance, or by design, has found a way where the votes will be locked in their favour perpetually.

 

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IN THE TARIFF WAR, SINGAPORE MUST STRATEGISE AS A PRICE TAKER AND DEAL WITH CHINA'S MISTRUST

Singapore does not possess natural resources such as oil, iron, or agricultural surplus, nor do we have technological ownership nor manufacturing capacity, to control prices. Even though Singapore is wealthy and strategically positioned, we do not produce enough volume in goods or commodities to push global prices. Singapore is a price taker. We simply buy and sell at world market prices, adjusting to currency, supply, and global demand shifts.

Singapore is small in population and market size and dependent on global shipping, finance, and raw material imports. We can only thrive by plugging into an open and globalised world economy. Very unfortunately, that has meant hitching on an unnerving ride on the same tiger of the globalist elites, and assimilating some ideological policies, such as environmental sustainability and open borders camouflaged in unfair FTAs such as CECA.

To get an idea of how dependent Singapore is on world trade, just look at this one metric called trade-to-GDP ratio. The five countries with the highest index, in their order, are Luxembourg, Hongkong, Djibouti, Malta, and Singapore. All these 5 are small entities having trade volume that is 3 times the size of their GDP. Based on 2023 data, Luxembourg is at 394%, Singapore is 311%. What they have in common is small physical size and dependence on open economy.

For comparison, the US index is 27% and China is 65%. This reflects the US having less dependence on trade and has a higher domestic consumption. China is more balanced, a higher dependence on trade and lower domestic consumption.

As a Price Taker in a US-China Tariff War — How Should Singapore Play?

Stay Neutral, Stay Open

As a price taker, Singapore cannot control global prices, but it can control how it positions itself as : 
* a trusted hub,
* a flexible re-exporter, and
* a risk-mitigator for multinational companies caught between U.S. and China.

Singapore should pursue the following policy steps :
* Avoid taking sides — maintain strong relations with both the U.S. and China.
* Push for multilateral trade agreements (like RCEP, CPTPP) to diversify partners.
* Strengthen Position as a Hub - for world-class logistics, legal, and financial systems to offer companies a stable base as others fight tariff wars.
* Strengthen port, tech, and arbitration services.
* Boost Value-Add, Not Volume - Shift focus from mass trade to services, research, fintech, AI, and logistics orchestration.
* Price takers avoid competing on raw cost — they compete on quality and niche innovation.
* Hedge the Risks - Singapore’s role as a global port and finance hub means it sits at the mercy of global flows, even if it’s not the target. Hedging is less about "winning" — it’s about surviving volatility until the dust settles. In a tariff war, Singapore isn’t hedging against the war itself — it’s hedging against:
Hedge Currency Volatility - Tariffs disrupt trade flows, causing sharp swings in USD, RMB, SGD rates and unstable forex hits costs and profits. Tools - FX derivatives: forwards, swaps, options. Natural hedging via balanced invoicing.
Commodity Price Swings - Trade disruptions push up prices for oil, food, metals, semiconductors. Tools - Commodity futures contracts, supplier diversification.
Supply Chain Disruptions - Tariffs can reroute manufacturing and delay shipments. Singapore re-exports a lot of semi-finished goods delays = lost business. Tools -Inventory buffering, supplier diversification, flexibility in contracts.
Capital Flow Volatility - Uncertainty makes global investors pull out funds or rush into “safe havens” like USD or gold, hurting SGD stability. Tools - MAS to maintain liquidity, Portfolio diversification in sovereign wealth funds (Temasek, GIC).
Policy and Regulatory Shifts - Companies may change rules to avoid tariffs (set up front companies, reroute trade through Singapore) — this creates legal and compliance risk. Tools - Legal risk insurance, due diligence protocols, robust compliance frameworks.

In my 4 July 20220 blog on Vivian Balakrishnan's swift sanction of Russia I said it may come back to haunt Singapore.

Singapore's swift decision to impose sanctions on Russia over the Ukraine invasion could be viewed with some unease or skepticism by China, especially in the context of broader U.S.-China rivalry and tariff strategies.

China might view Singapore's actions as aligned with the West. By joining Western sanctions on Russia which is a strategic partner of China, Singapore signaled its willingness to take principled stands that align with US and European positions. China could interpret this as Singapore leaning closer to the US-led liberal order, even if Singapore asserts its neutrality.

Singapore's trust factor could be in jeopardy in any strategic dialogue. In the context of ASEAN economic cooperation, Beijing might question whether Singapore can be fully relied upon to support regional neutrality in future U.S.-China frictions. This could temper the depth of China's tariff or supply chain cooperation with Singapore, particularly in sensitive sectors like semiconductors, logistics, or high-tech services.

On the other hand, China could respect Singapore’s autonomy and pragmatism, and understand Singapore’s emphasis on rules-based international order which is a concept Beijing often contests but grudgingly respects when dealing with global trade.

Singapore is also not seen as overtly hostile to China, unlike US treaty allies like Japan or Australia. So Beijing may differentiate Singapore's actions from those of more explicitly anti-China states.

How might this influence Singapore’s future trade diplomacy posture with China?

Singapore’s principled stand to sanction Russia following the Ukraine invasion, while rooted in respect for sovereignty and international law, could shape China's perception of Singapore in ways that impact future trade diplomacy.

 
Perception of Alignment with the West
China may perceive Singapore as more aligned with U.S. and Western strategic interests. This could result in reduced trust in Singapore’s role as a neutral mediator or regional balancing point. The implication is China may become more cautious in deepening sensitive technological or strategic cooperation with Singapore.
Singapore’s role in regional initiatives like RCEP or Belt and Road may be watched more closely by Beijing for signs of “Western influence.”

Strategic Hedge by Singapore
Singapore is seen as a small state navigating a volatile global order by hedging across power centers. Sanctioning Russia signals a values-based foreign policy, but one that must also maintain strategic autonomy. Singapore may need to redouble efforts to reassure China of its neutrality and long-standing constructive engagement.
It may leverage economic diplomacy via trade, investment cooperation, or tech to rebuild or reinforce ties. The implication here is the sovereign wealth entities GIC and Temasek may find political constraints in its way should they feel a strategic rebalancing of their Chinese portfolio is necessary in view of heightened risks.

Economic Interdependence as Buffer
Despite geopolitical tensions, both countries benefit economically. Singapore remains a major hub for Chinese outbound investment and trade finance. Singapore may focus on deepening its role as a “connector” in supply chains, especially in ASEAN, as China faces Western decoupling.
Areas like green finance, logistics, digital trade, and RMB internationalization could be promoted as “safe zones” of bilateral cooperation.

Reputational Capital in ASEAN
Singapore’s principled stance may enhance its credibility among smaller ASEAN states that fear coercion. China may recalibrate by engaging Singapore more in multilateral settings rather than one-on-one dialogues.
Singapore could use this to maintain influence without appearing confrontational.

President Xi Jinping recently visited Thailand, Malaysia and Vietnam in his Southeast Asia tour. These 3 countries are direct beneficiaries of supply chain relocations from China, especially in electronics, semiconductors, and low to mid-end manufacturing. Xi’s visit signals Beijing’s desire to lock in friendlier industrial bases, counterbalance Western attempts to shift supply chains out of China, and promote yuan-denominated trade settlements in these countries.

Singapore and Indonesia were left out despite their strategic importance. This likely carries diplomatic signals relevant to the evolving US-China tariff and technology rivalry. China may be indicating that active cooperation in trade diversification and real economy projects (rather than financial intermediation) is now a higher priority.

One could read a subtle disapproval or strategic hold on Singapore’s positioning with regards to the quick sanctioning of Russia and perceived alignment with the West, especially on technology controls. The non-visit can be a quiet signal of dissatisfaction, without overt confrontation.

In the case of Indonesia, while economically important, it has shown interest in diversifying partnerships, including with the U.S. and Japan. Skipping Indonesia may suggest that Beijing is waiting to see a clearer stance on issues like rare earths, digital trade, and defense.

China's visit of Thailand, Malaysia and Vietnam may be a strategic re-anchoring of ties with mainland-leaning or neutral states of Asean first before engaging with more globally integrated ASEAN powers of Singapore and Indonesia. This phased approach also gives China more leverage—allowing it to demonstrate goodwill selectively and signal to others what kind of cooperation it favors.

China by-passing Singapore and Indonesia is not a break, but a pause. It is more likely a temporary message, not a long-term severing of engagement. China and Singapore maintain deep economic, financial, and educational ties. Similarly, China and Indonesia have major BRI projects (e.g. Jakarta-Bandung high-speed rail).



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