Head of Economics and Government of Bloomberg, Stephanie Flanders (Moderator): We have plenty to discuss. The rise of economic statecraft has been a theme of this forum pretty much since it started because we have started to see more and more in this world of instability, governments using economic tools to achieve geopolitical objectives, often putting geopolitics ahead of economics in a way that we have not seen for decades. I think we are going to see that in lots of the conversations over the next few days, whether it is affecting the way businesses are reviewing, at least, their supply chains, or the way that geopolitics is framing governments’ choices around their paths to net zero. But we are starting this morning, I am delighted to say, by hearing the perspectives from two linchpin economies that in some sense, are caught in the middle of these developments, facing the effects of great power rivalries, but also potentially able to benefit from not picking a side. I think we have plenty to discuss about Saudi Arabia and Singapore, and how they view the world and what it means for the rest of us.

I wanted to start with the relationship, your perspective on the relationship which animates so much of this whole debate – the relationship between the US and China. We have heard from the (China) Vice Premier (Han Zheng) this morning. I think I would say in recent months, maybe just weeks, there is a sort of change of mood music. We have heard Jake Sullivan, the (US) National Security Adviser, we have heard (US Secretary of the Treasury) Janet Yellen emphasise the interdependence of the US and China, maybe more than they had in the past. We have (China) President Xi meeting (US) President Biden next week. I wanted to ask both of you, but perhaps start with your Excellency (Khalid Al Falih). How do you view this? Do you see this as a real move away from this sort of march towards decoupling or more just a change of mood music?

Minister of Investment of the Kingdom of Saudi Arabia, Khalid Al Falih: Thank you, Stephanie. Let me start by acknowledging the great role that Singapore as our host plays globally as a convener of great minds like those that have been gathered here. Also, the role that Michael Bloomberg and the Bloomberg Foundation are doing to bring us together at a very important time, as already said. It is unfortunate that we are meeting at a time of heightened crisis around the world, certainly in the Middle East, where I come from, we are troubled and we are pained by the suffering at the human level, as much as we are pained by the loss of lives on the other side, on October 7. But through this crisis, through the crisis in Europe, through multiple other hotspots around the world, we see through them, hopefully, towards a better future. I think we, in Saudi Arabia, are focusing on our long-term objectives of creating prosperity and creating an example in the Middle East and the broader areas around us. We are focused on the betterment of people. There is a much better alternative than ideological tension and conflicts with one's neighbours.

Going back to the bigger question on the China-US relationship. I agree with you, Stephanie, that pragmatism is surfacing. We heard it from the Vice Premier (Han Zheng) today – a call for collaboration and coexistence between the world's two economic superpowers and geopolitical powers as well. We in Saudi Arabia have traditionally had a very strong relationship with the US going back to the creation of the third Saudi state in the 1930s. Of course, that relationship has grown from strength to strength, through different administrations, different phases of the global geopolitical shifts that have taken place, and we enjoy a very strong relationship today with the United States. Our relationship with China has also been strong and improving over time. China is our biggest trading partner, the biggest importer of Saudi exports, whether it is energy, chemicals and other goods, and at the same time, they are our biggest exporter of industrial goods. That relationship is set to continue to strengthen. We hope we, like Singapore, can play a role in promoting dialogue and cooperation between these two countries.

Flanders: There is a lot there that we will get into, but Minister Balakrishnan on the state of the world right now and US-China relations.

Minister for Foreign Affairs, Dr Vivian Balakrishnan: Let me start by clarifying a point you made. Saudi Arabia is a linchpin of the global economy – Singapore is not. We are a derivative economy. We are the canary in the coal mine. Meaning, if globalisation proceeds, if the world is stable, if China and the US get along, then (we can carry on as) this tiny city state in the heart of Southeast Asia, whose trade is three times our GDP, who has no oil and gas, but is one of the world's major bunkering ports, with a significant refining and petrochemical industry. We are a point in the world where 5% of (global) wafer fab capacity, 10% of (global) semiconductor manufacturing, and 20% of semiconductor equipment manufacturing is. I am laying out all this to say that in Singapore, we view the global developments and instability from a point of great anxiety.

What are the key currents that give us pause? Number one, since the end of the Second World War, there has in effect been a single economic operating system underwritten and envisioned by the United States. The fall of the Berlin Wall and the collapse of the Soviet Union meant the competitor was ended. The opening up of China in 1978, and in particular, its accession to the World Trade Organisation (WTO) meant that an economy with 1.4 billion people booted up into that same operating system was complementary with the United States. In that kind of world, based on the economic paradigm of economies of scale and efficiency, a place like Singapore thrived. America is the largest foreign investor in Singapore. Singapore's largest trading partner is China. But Singapore's largest trading partner in services remains the United States of America. If you ask China, who is the largest source of foreign investments into China, you will find little Singapore somewhere high up on that list.

Now, particularly with the US and China, I differentiate between climate and weather. Right now, I think the weather is a bit sunnier. They are preparing for the APEC (Asia-Pacific Economic Cooperation) meeting. We all hope that President Xi and President Biden will have a good meeting. So, the weather has improved. But I think the climate, the relationship between the United States and China, is not in such a happy place. Let me give you some data behind that. Probably for the first time in a very long time, within the last one year or so, if you ask China, add up your trade with Latin America, Africa, the Global South, and developing markets in Asia. Then compare it with China's trade with the US, EU and Japan. Which column is higher? And the answer now is, China's trade with Latin America, Africa, Global South and developing markets in Asia exceeds that with United States, EU and Japan. The point is, never mind what politicians say. Just follow the data and follow the money. Bifurcation is already well under way.

Next point, when the United States talks about interdependence, or when China talks about peaceful coexistence, mutual respect and win-win cooperation, the more fundamental deficit is that of strategic trust between the two of them. China’s relationship with the United States was not that of the USSR and the United States, which were trying to operate two rival operating systems. In the case of China and the United States, they were complementary within the same operating system. In fact, that is why for decades, with China manufacturing and then sending all its surpluses back into the United States through purchases of Treasury bills, that is why we have all enjoyed low-cost manufactured goods for decades. That is why in fact, interest rates have been low globally, for a long time, because China was supplying capital, and the United States still has the exorbitant privilege of the world's reserve economy. When that honeymoon ends, and it looks like it is beginning to end, the days of disinflation and low interest rates are over, and you can see that in the data now. So, I think the weather has improved, the climate has not, and that is what we all have to be concerned about. In the case of Singapore, the canary in the coal mine, we worry, and what we are trying to do is survive. If, however, they do arrive at a new modus vivendi, and we hope they do, then we are in business.

Flanders: Excellency, you started rightly also by mentioning the awful crisis unfolding in the Middle East. You rightly also focused on the humanitarian consequences of that conflict, which we are seeing unfolding and are horrific for both sides. But if you will forgive me, I want to focus on the implications for the rest of the world and for the region. For Saudi Arabia, how does this conflict in Gaza affect the way you are looking at Saudi Arabia’s plans for the future and for the region?

Minister Al Falih: From the regional transition to a region of prosperity, I think it reminds us of something that has existed in the Middle East for many, many decades since the 1940s. The Palestinian people have had their basic rights taken away, and the right for statehood and peaceful existence unfulfilled. It is time to use this awful situation now to bring that to the fore and to resolve it. Saudi Arabia has put forward the Arab Peace Plan for a long time, and we remain eager to see that plan coming to fruition through a peaceful process.

You will see this week, in the next few days, Saudi Arabia convening an emergency Arab Summit in Riyadh, you will see Saudi Arabia convening an Africa-Saudi Summit in Riyadh. And in a few days, you will see Saudi Arabia convening an Islamic Summit. In the short-term, the objective of bringing these three summits and other gatherings under the leadership of Saudi Arabia would be to drive towards a peaceful resolution of the conflict. But through this storm, following on the weather analogy, we see what is beyond it. What is beyond it is an imperative for countries in the Middle East to work towards prosperity of their people and their economy. Singapore again, plays a role of a role model, because this part of the world has had its challenges and extensions. If you look, in Asia in general, but certainly in Southeast Asia and say, what is the role model for a country that has focused appropriately on its economic development, and avoided getting embroiled in regional tensions and built prosperity for its people that has also pulled the rest of the region around it? I think Singapore clearly stands out not only in Asia, but in the rest of the world. So, that is what Saudi Arabia is focusing on.

Just a couple of weeks ago, we had the Middle East’s largest and most vibrant Economic Summit. For the FII (Future Investment Initiative) conference, over 6,000 leaders gathered in Riyadh, focusing on economic prosperity, addressing the climate transition, the digital transition with all of the technological changes, healthcare, post-pandemic, and what do we do, how do we invest, ensuring that another pandemic will not happen, and if it happens, will be managed much more effectively through global cooperation, bringing entrepreneurs, young people, educators, to lead for the new economy that this conference is titled on.

Flanders: I wanted to just follow up with a couple of short questions. You talk about the path to prosperity and peace in the region that we have to try and find out of this. Is normalisation of relations with Israel now off the table for Saudi Arabia? Obviously not this week.

Minister Al Falih: You know, when those discussions were taking place, His Royal Highness the Crown Prince (Mohammed bin Salman) was clear that it is contingent on a pathway to peaceful resolution of the Palestinian conflict. That was on the table, that remains on the table. Obviously, the setback over the last month has clarified why Saudi Arabia was so adamant that resolution of the Palestinian conflict had to be part of a broader normalisation in the Middle East. This again goes back to the Arab Peace Plan that was put forward by Saudi Arabia decades ago that saw a way forward for a normal Middle East – where all countries in the Middle East would have normal relationships and would be focusing on economic prosperity, which is the common theme today.

Flanders: This is a panel on economic statecraft. We talk about using economic tools for geopolitical objectives. Would you consider using economic tools, the oil price, for example, to achieve a ceasefire?

Minister Al Falih: First of all, that is not my mandate. That is not my mandate today. I can tell you that that is not on the table today. Saudi Arabia is trying to find peace through peaceful discussions.

Flanders: Okay. So, Singapore, the bellwether, not the linchpin, but the connector, the ‘everything-to-all-people’ country – you are watching this from afar.

Minister Balakrishnan: We see this from afar, but we are good friends with both the Palestinians and Israel. I think we are one of the few countries that regularly visit both Tel Aviv and Ramallah. First, it is an absolute humanitarian disaster. There is no other way of describing it. It is a crisis. A truce is needed. People need help. But if you zoom out, what this illustrates is that you cannot have economics without the political questions resolved first. I think in the initial euphoria of the Abraham Accords, there was that sense of, “Well, let's just focus on economic development and bringing prosperity. Maybe somehow, wishfully, magically, the unresolved political questions will disappear.” I think the events in Gaza have illustrated that you do need to resolve the Palestinian issue, right up front, in centre. From where we sit, we think there is no viable alternative, except for a two-state solution.

Part of the problem is that (amongst) both the Palestinian people and the Israelis, domestic support for a two-state solution has been falling in recent decades. The problem is that if you have an ascendancy of ‘one-state thinking’ on both sides, if you think carefully about it, ‘one-state’ must mean by definition the violent elimination of the ‘other people’. If we assume that that is not possible, then you do need cool-headed people in the middle of the political milieu on both the Palestinian and the Israeli sides to get together and say, “Look, how are we going to live and let live.” Gaza is half the size of Singapore and has only one-third the population of Singapore. So yes, Gaza is densely populated, but Singapore is even more densely populated. The point is that if Singapore did not exist in a global system where there has generally been peace, where we could find our place in the global value chain, and generate jobs and a living for people, we would be in a very, very tough spot. So, you do need to resolve the two-state solution.

But let me tell you why I worry beyond the Middle East. Right now, you have a hot war in Europe in Ukraine, you have a war in Gaza. The problem is whether we are going to get a regional conflagration. I know you (Flanders) put him (Minister Al Falih) on the spot with the question on the oil price. The real issue is that if you have a regional conflagration and in particular, if Iran gets into the act, I think you can easily imagine the impact on global oil supplies, and therefore the price and the impact on all the rest of us.

There is one more sub-factor worth remembering. The difference between 1973 and 2023, is that the United States is now a net energy exporter. This is very different from the situation in 1973, and you need to parse the implications of that. Going beyond the Middle East, and now on the world stage – hot war in Europe, war in the Middle East with possible regional conflagration, and tripwires in the Asia-Pacific – Taiwan and the South China Sea. If you tote up on a ledger the countries aligned on either side of these conflicts or tripwires all around the world, I am very uncomfortable that it is the same cast of characters on either side of those lines. I do not want to be excessively alarmist, but the last time that happened globally was the First World War. So, this is a moment of danger. I would not say it is highly likely. It is less likely but the probability is not zero, and it has got profound implications on peace and prosperity.

Flanders: I am interested for Singapore – you mentioned quite rightly, that we now have not one but two hot wars that the US is facing.

Minister Balakrishnan: And tripwires in the Asia-Pacific.

Flanders: Yes, there are quite a lot of tripwires as well. This is the interesting question. Is it good or bad news for Singapore and for relations in Asia if the US is now preoccupied with these two hot wars?

Minister Balakrishnan: No, it is never good news for there to be wars. It is never good news for the world's preeminent superpower to be distracted or caught in a quagmire.

Terrorists do not have a solution for the world. They do not have a new technology, a new way of organising society, a new way of optimising the economy and bringing us new wealth, but they will cost us a lot of blood and a lot of pain. The real developmental opportunities for the world right now is what we are going to do in AI, in quantum computing, semiconductors, the opportunities in biotechnology and the global energy transformation. We need the world – the scientists, the politicians and economists and companies in the private sector – to be focused on the opportunities in these new frontiers. If we get a world that is caught up in war and distracted in ultimate strategic dead-ends, it is going to be a world which is unstable, hyper-inflationary, disrupted, and war will be a defining feature. If we can avoid that, take a deep breath and somehow get through the next six months to a year avoiding that disaster, then actually I see glimmers of hope. As a diplomat, I have to be optimistic.

Flanders: Now he says he’s optimistic! [laughter] It took a while to get to the optimism.

I mentioned at the start that you are both economies who could be described as being from the ‘have-your-cake-and-eat-it school’ in this world of divisions. Is it sustainable to not pick a side? Minister (Balakrishnan) has mentioned that it is the same players behind many of these tripwires and these disputes on each side. So, to both of you (Minister Balakrishnan and Minister Al Falih), can you continue increasing your very strong investment relations with China? Can you maintain your partnership with the US?

Minister Al Falih: That is the intent. We will continue to grow our economic relationships with any and all countries that have common interests with us. The Kingdom of Saudi Arabia has many cards that we are playing to our advantage – our location, our great energy endowment in conventional fossil fuels, but (also) increasingly renewables. We are today the undisputed leader in developing green and blue hydrogen and ammonia from that, and we are starting to export to economies in Europe and the far east. We are connecting, not only to countries in the Middle East, but also India and Europe, through data cables, through energy linkages, and through ports. You would have seen the IMEC Agreement on the sidelines of the G20. We are also strongly economically interconnected with China. Riyadh is a financial hub growing in significance. We are drawing capital in as much as we have been exporting capital over many, many decades. We are actively engaged with all of these global economic centres. Southeast Asia, centred around Singapore, is a very important economic connectivity point that is already strong, and we are building out.

Like I said in the beginning, I am a believer that wisdom on both sides in China and the US will cool down the rhetoric about natural strategic competition as China approaches the US in terms of economics. I think ultimately, there will be peaceful coexistence between these two superpowers, and Saudi Arabia will thrive by playing to our strengths with all of them.

Minister Balakrishnan: We do not pick sides, we uphold principles. We believe in an open, inclusive world. We believe in being honest brokers and in being a ‘safe deposit box’. We have been good for our word and a rules-based system. I do not have the luxury of whispering sweet nothings to Beijing on the one hand, and then going to Washington. I have to have the exact same message (to both), and it means that sometimes I have to say no. They have to understand that when Singapore says no, it is because of our own enlightened long-term national interests, and not because we are someone else's cat’s paw, proxy, or stalking horse. So far, we have been able to maintain a good, honest, close relationship with both sides on the basis of honesty, transparency and consistency. So, we get by.

Flanders: Final question. We started at the beginning by talking about the current state of affairs, particularly with the US and China. In a year's time, we may be sitting here and – I think the bookmakers would say – there is a decent chance that President Donald Trump will have been re-elected. How does that affect the world that we have been talking about?

Minister Balakrishnan: I think President Trump and President Biden are two completely contrasting personalities.

The hypothesis I want to make however, is that, if you look at economic policy from Washington, under both President Trump and President Biden, what have you seen? There has been bifurcation from China, there has been a focus on trying to rebuild industrial capacity within the United States, there is greater scepticism about globalisation, global supply chains, and free trade. There is – I hope, even if President Trump comes back – a sense that climate change is real, and that there are opportunities in renewable energy. So, I focus on what is consistent and what seems to be bipartisan. My point today is, distinguish between weather and climate. I think the political climate in the United States has changed. Yes, it does make a difference who is President, but some things are not going to change at a strategic level.

Flanders: Trump 2.0 – you (Minister Al Falih) get the final word.

Minister Al Falih: I talked about our relationship with the US since the 1940s. I think it will evolve, but it will continue to grow stronger and stronger, no matter who is leaving and which party is in office.

Flanders: I think the audience can debate whether that directly follows from some of the previous things that we have discussed. Thank you very much to both of you.

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Photo caption: Minister for Foreign Affairs Dr Vivian Balakrishnan at the Bloomberg New Economy Forum Opening Panel ‘The Rise of Economic Statecraft’, 8 November 2023

Photo credit: Ministry of Foreign Affairs, Singapore