I was back at home in Singapore for most of February and March after my Bangkok trip over the Lunar New Year. In April, it was time to get on the road again. This time we were off to see sakura trees in full bloom at the Hanami Festival in Kyushu.
I wonder if, like my last two trips last year, I will see a continuation of the Chinese uplift of the Japanese economy. After all, Fukuoka is closer by air to Shanghai (1 hour) than Tokyo (1.5 hours) and the Mandarin spoken by Chinese emigres bringing in investments from real estate to business can be heard in the shops and restaurants of Tokyo to the markets and onsens further south from Osaka to Kyushu.
If one were to listen closely, you can pick up a fair amount of Taiwanese accents alongside Cantonese from the Hongkongers. I figured this was the right time to conduct an onsite inspection of our “Dark Horse” market of 2023, which since the beginning of the year, has hit a new high above the bubble numbers of 1989.
Unfortunately, the rally has been largely led by large caps across the board for headline Japanese indices and the Lion-Nomura Japan Active ETF (Powered by AI), which was listed on the Singapore Exchange (SGX) in late January, has thus far lagged beta returns. Still, it is up a modest couple of percentage points and holding steady as it goes. The very first rate rise from the Bank of Japan since anyone can remember had little impact on yen appreciation as the central bank sounded dovish. It looks like whatever the colour of this Japanese horse, there is more room to run. I will pick up some ground intel and share it in a later column upon return.
Before my sojourn in Japan, I had to make a day trip across the Second Link to Iskandar Malaysia in Johor. The last time I was there was six months ago and for a different purpose. A friend who is very senior in our economic agencies commented the week before the trip that I should keep an open mind. This was given my history of being more sceptical about investments in Malaysia from stocks listed on the Bursa Malaysia (and Clob before that) to ghost apartments in Forest City. After all, even if there is asset appreciation, the Malaysian ringgit versus the Singdollar continues to head in the wrong direction and does not look like changing — so I thought.
The on-and-off-again promises of a connected hinterland have had their their cycles of optimism only to collapse as politics in KL get in the way of economically sensible projects for both countries such as the KL-Singapore high-speed rail (HSR) project. Would the JS-SEZ (Johor-Singapore Special Economic Zone) mooted by Johor’s Chief Minister Onn Hafiz Ghazi last September transform Johor — like how Shenzhen has been transformed into a city with the second-highest GDP per capita in China after 40 years of transformation? There was only one way to find out.
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Back in the day
To be sure, if Singapore continues to industrialise and grow, we will run out of space (and carbon quotas) and become such a high-value (read high-cost) destination for manufacturing that we would be priced out no matter how much efficiency and governance gains we offer as the best place to do business in Asia.
The Sijori Growth Triangle — a partnership arrangement between Singapore, Johor and the Riau Islands that combines the competitive strength of our three areas — linking the infrastructure, capital and expertise of Singapore with the natural labour, resources and abundance of land (and sunlight) in Johor and Riau — was first announced in 1989 by our then deputy prime minister Goh Chok Tong.
In 1994, Sijori was blessed with a signed MOU. It has certainly strengthened the economic links in our region and created local jobs even if the speculators who bought houses in Batam and Johor never saw a return on investment or were not habitable as holiday homes — a feeling shared by many Chinese (and some local) buyers of Forest City units in Johor.
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Nonetheless, the free export zone of Batam provided global manufacturers with low-cost labour and land while tourism offerings expanded as Japanese and Korean golfers arrived on ferries from Changi to stay at the resorts and play on the greens.
In 2006, the Iskandar region was set up under Malaysian PM Abdullah Badawi with much fanfare that only accelerated during the tenure of former PM Najib Razak from 2013. At the Iskandar Film Studios, locally-listed China media company GHY Culture & Media Holdings remade Little Nonya for the Mandarin-speaking world beyond Singapore while Netflix’s Marco Polo starring Michelle Yeoh too was filmed there before the pandemic took its toll.
However, Johor’s industrial potential has not been fully realised thus far even if real estate prices are generally more expensive compared to other parts of Malaysia. Eventually, the HSR project was aborted by then PM Mahathir’s new government in January 2021 — along with the Bursa-SGX link announced by PM Najib — after the Pakatan Harapan-led government took over. Optimists are confident that the JS-SEZ MOU has a better chance of realising its objectives as it was signed by both sovereign governments versus Iskandar Malaysia Corridor which was a bilateral agreement between the state of Johor and the republic.
In addition, the current Agong (Malaysian King) was the former Johor Sultan, making it a full alignment of federal and local interests across the Causeway, with that of Singaporean businessmen keen on doing business up North. With the RTS linking JB and Singapore to be completed by December 2026, that would help make travelling through one of the world’s busiest land-border crossings even easier. For now, my trip at 9am on a Monday was still very smooth via the Second Link, as was the return trip mid-afternoon on the same day.
In mid-March, The Financial Times declared Malaysia as the surprise winner from the US-China chip wars which continues to benefit from global supply chain diversification. In a strategy politely described as China-plus-One, a host of companies Chinese and non-Chinese are setting up in Penang, which received RM60 billion ($11.2 billion) in foreign direct investments (FDI) last year, more than the total from 2013 to 2020. If Penang is turning into a high-value semiconductor hub for Intel to AMD, where its expat executives have to fly in and out from Singapore, Johor may have more interesting advantages being the Shenzhen equivalent to Hong Kong for Singapore.
Johor’s vast land, connectivity and resources have given rise to a spate of infrastructure projects from traditional chemical plants by South Korea’s Lotte and petroleum refineries to data centres and renewable energy solar farms. Officials are optimistic that FDI in 2024 will exceed RM7 billion. Is this time going to be any different?
Green data future
In these last two trips to Johor, I witnessed the ongoing development of the Iskandar region and was positively surprised by how far the potential SEZ has come, with better roads, security and modern infrastructure easily accessible from Singapore. It is no longer about retirement homes, cheaper medical care and shopping centres but other services could benefit too.
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Those were the ideas many Singapore-listed companies once sold as promises of new business opportunities for expanding into the region. Akin to some long-forgotten listed companies that built houses and resorts in Batam, I can even almost understand why branded international schools from the West have set up shop there to tap on expats from Singapore who cannot afford to send their kids to the UK or US.
However, the future economy of Singapore requires more than cheap land and labour. But whether it is AI or the metaverse, data centres are a key part of the plan. However, they consume a lot of energy as well and have a high carbon footprint.
In 2H2023, Singapore awarded 80MW of precious new capacity to four data centre operators — namely, AirTrunk-Bytedance consortium, Equinix, GDS and Microsoft. As part of its Digital Connectivity Blueprint to support an environmentally sustainable digital economy, the number of submarine cable landing facilities will also be increased to enhance its internet and technology infrastructure.
Having been a user of data centres by Keppel and SingTel when I was at SGX and also having worked on capital market transactions for REITs for local and global operators, it was impressive to see during this visit data centre operator GDS, which is listed in New York and Hong Kong and has ST Telemedia as a 30% shareholder, built facilities on land formerly owned by CapitaLand. What was incredible was how a new data centre could be up and running within 14 months although there are plans to shave over 30% off the time to deployment.
GDS also has a project in the “Ri” part of Sijori with Singapore in the middle. Low-value high-capacity usage and hyperscalers can be more economical for global Western and North Asian clients in “Jo” and “Ri” but interconnected and interoperable with sensitive and high-value data hosted in Singapore. No wonder other regional players including YTL and Kerry are circling the wagons.
GDS also has a public commitment to be green by 2030 and Malaysia and Batam can build the requisite solar infrastructure support. There are also plans for submarine trunking of renewable energy to Singapore from Riau or overland as far as Indochina. If so, billions of dollars worth of contracts for the construction and operation of these long-term infrastructure projects could be up for grabs in Singapore, Malaysia and Indonesia for listed companies too.
It may not be as exciting as crypto or headline-grabbing as consumer apps and platforms but these boring critical infrastructure projects could create significant revenue streams for members of winning consortiums. I have yet to venture to Batam or Jakarta given that the post-election political dust in Indonesia has not fully settled and it is unclear which consortium has been granted conditional approval to export renewable energy. However, it may be worth watching this space closely when the projects eventually hatch.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multiasset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
