 Let me just begin with a few programming notes, since this is actually being filmed for television. Please don't be upset if the Prime Minister looks more at me than at you. The conversation is going to be recorded for what we at CNN like to call hundreds of millions of people. The second point, if you can just turn off your cell phones, blackberries, iPhones, whatever you may have. There was an incident recently in the New York Philharmonic where a gentleman kept his new iPhone on and the conductor stopped the concert midway through and waited until the iPhone was turned off. I will not do that. I promise you I won't embarrass you, but if you can just... I will turn mine off. I know Prime Minister, I once asked... this was many years ago when the blackberry had just been invented. I asked Richard Holbrook, I said, have you ever tried these? They're amazing. They can keep all your contacts, all your calendars. And he said, I have something much better than this. I said what? He said it's called staff. I assumed that you had the same, so I assumed you didn't have one. All right, so we'll start. It is a great pleasure to have with us, Li Xianlong, the Prime Minister of Singapore. Welcome, Prime Minister. Hello. You have always been a very careful watcher of the Chinese economy. So I want to start by asking you, one of the great concerns people have looking out this year is that the Chinese economy is going to slow down, that it has built in certain excesses that in order to get out of the financial crisis, the government overspent, overlend and that these excesses are now going to bring some kind of a tough landing, if not a hard landing in China. What do you think? I'm an optimist on this fundamentally. I can't say that there will be no bumps in the short term, but I think in the long term the trend will be up. They've built a lot of infrastructure, they have built a lot of capacity in many industries, autos, some of the electronics industries, but it's an economy which is growing very rapidly, urbanising very rapidly, needing a lot of facilities, whether it's roads, hospitals, schools, houses, by the millions, and every year 1% of the population is moving into cities, which means 13 million people needing all this infrastructure. So I think that there may be a rough landing, but they will get through it. Do you get the sense that they are trying to shift from a model that is more oriented towards exports to one where their own consumers spend more money, and if so, are they taking the measures needed to raise consumption in China? I think they get it. They saw what happened to the exports in 2008, 2009, when there was a global crisis and the exports plummeted. They saw how vulnerable they were then. The mantra that they must stimulate domestic demand is quite pervasive. I'm not sure whether they have taken all the measures they need to do that, which has to do with restructuring their social safety nets so people have confidence to spend, has to do with restructuring and tidying up their state-owned enterprises so that the profits are distributed and properly utilised, has to do with having the right balance between investment, which they've done a lot of, and consumption, which is a different thing, which you have to have quite fundamental changes in order to cause happen. So this will be work for the years to come. And for the next leadership in China? Yes. You've probably met many of these people. What do you think of this new generation, and do you think that we can see some bold new moves that people have long been predicting or hoping for in China, either economic or even political? The prospects of political change in China have been dangled before everybody by people like Premier Wen Jiabao. I think there will be continuity between the present generation of leaders and the next. They are similar moles. The next generation came of age during the Cultural Revolution. Some were sent down. Some of them belong to the first vintage year of the university intake. After universities reopened when the Cultural Revolution ended. In 1975, right? In 1977. Something around that. So very capable people, but I think they will be cautious. I think it will be a collective leadership rather than any single dominant personality, which means that they will act cautiously. They will need some time to find their feet, but I hope that they will address the problems which some of which have been put off over the last couple of years, which are not easy to solve. They are both economic ones as well as political ones. The present leadership, Hu Jintao, for example, has acknowledged these issues. When they celebrated the 90th anniversary of the party last year, he listed fundamental problems including moral lassitude, including corruption, including disconnect from the people, which really goes to the heart of the right of the Communist Party to govern in China. So they know these problems. They need to find their solutions. But do you think that the Communist Party can engage in serious political reform without threatening its monopoly on power? They will try very hard. Nobody can say that they will succeed. It is a society which is changing just like every other society in the world. It is opening up. It is not a monolithic society at all. The internet is pervasive. I think there are 400 million internet users or something more than America has. It is a very diverse society. They speak up. And when there are public incidents now, you get mobilisation rapidly and angst and unhappiness expressed even by people in the establishment, even the television news viewer shows her disapproval of what she is reading. So that is a new world. Let's talk about the other superpower in the Pacific, the United States. The United States has went through a flurry of diplomatic activity, political activity over the last three months, the East Asian Summit, ASEAN, the proposal for this new trade area and the Trans-Pacific Partnership and a kind of military cooperation arrangement that could be described as a military base in Australia. Now the Philippines is talking about perhaps having American troops back. Do you think these moves are stabilising the Asia-Pacific region? We fundamentally think it is good that America is interested in Asia and in the Asia-Pacific region and that that presence since the Second World War has been a tremendous benign influence. It has generated peace, stability, predictability and enabled all the countries to prosper, including China. And I think it is good that America continues to take a close interest in the region, not just on security issues but also economic issues and cultural and on a broad range of areas. But it cannot be for a few months at a time in a spasmodic style. It has to be sustained over a long period of time, really over many administrations and decades. And America has got many preoccupations around the world so we hope on your busy plate Asia doesn't fall off the edge. But we are naturally very happy that President Obama and Hillary Clinton have made the effort and have put Asia quite high on their agenda. We hope it will be sustained. Is there any prospect of American troops in Singapore? Well, we actually host facilities in Singapore and American ships and aircraft stop by from time to time and use those facilities. That's different from having a naval base. And a naval base would be a bridge too far? A naval base would be twice as big as Singapore. It can't be done. You would reclaim lots of land to build casinos, you could probably build a naval base. But let me ask you about the Chinese reaction. The Chinese reaction to this same flurry of diplomacy and these new agreements has been somewhat cautious in some cases hostile. The official position is that they are very happy to have more members join the East Asia Summit and America is welcome to join Russia is welcome to join and Europe is welcome to join as well. And the more the merrier. That's the official position. The private position probably is awareness. They are watching. They think that there will be people in America who are not quite happy that China is prospering and would like to hinder that process. And they will not want to let those people succeed. So I think that there is cooperation but there is also watchfulness on both sides. Do you think that Barack Obama has pursued a successful foreign policy in the part of the world you care about? I think he has put a lot of attention on it and the outcome has been constructive. These are issues which need long-term management and the most important item to be managed is America's relationship with China. And it hasn't come to blows although there have been tensions and that's a positive. Do you worry about the rise of protectionism? If you listen to the United States President Obama's State of the Union he had a few tough things to say about China but if you listen to Mitt Romney who until yesterday was the putative Republican nominee he had some very tough things to say about China particularly unusual coming from a Republican. Is listening to all that for a place like Singapore which so depends on free trade scare you? Some of it is election year rhetoric in America but I think the general mood in America on free trade has been negative for some time because of uncertainties brought on by globalization because workers haven't seen an upside in terms of their wages. They are worried that their jobs are insecure and they could get retrenched because industries may move offshore and they are not being created in America in the same way in a very large scale as they used to when you make an iPhone for example the pieces come from all over the world they are not made in America. So that's an underlying mood which worries us and which I think constrains the administration when it comes to free trade and it's one of the reasons why we are not getting anywhere with the Doha Round under the WTO. It's perhaps also the reason why the administration has decided to proceed on this Trans-Pacific Partnership as their one significant trade initiative. We hope they persevere and they don't take too hard a line and are able to come up with a constructive outcome. When you look at the outlook for the next few years do you feel that you will be able to continue to grow and prosper in a booming Asia? What keeps you up at night? I think Asia will boom. There will be ups and downs. We will be affected by Europe if Europe goes bump in the night but if it doesn't, well there is a certain momentum in the countries in China, in India, in Southeast Asia which will help to carry us forward. What worries us in Singapore is not that the world will not prosper but in the ups and downs of the world a small boat like Singapore with not very much room to maneuver and you make sure that every time you catch a wave head on and they are not flipped over because once you are flipped over, that's it. When you look at the American debate one of the things that is often talked about is this issue of outsourcing, moving factories offshore and if you look through the specifics you often find companies that are trying to figure out where to locate and Asian governments will often offer very rich inducements to these companies to move their factories to Asia including the Singapore government. So do American state governments. So you think you are just playing the same game that Americans... We are trying not to play the same game. My attitude is I am prepared to forgive you taxes if you come but I won't give you money if you lose money. So I am prepared if you have powerful... if you are in such great demand I may not be able to levy my full pound of flesh on you but I see no reason why I should give you money to come to Singapore through some grant or subsidy or some other scheme when in fact you are not creating economic value for Singapore. What would you advise... So some projects we would like to have but we have to decide... we have decided this is how far we are... how generous we are able to be and they have gone elsewhere and our people pursuing investments the Economic Development Board are sometimes disappointed but I think there has to be a limit otherwise you are taken to the cleaners. What would you advise President Obama if he is trying to revive manufacturing one of the things Asian countries have done very successfully has been to adopt industrial policies where the state in some way or the other provides help incentives tax subsidies of various kinds to industries and has been quite successful. Should America have a more nationally planned industrial policy? No, I don't think I would describe it as industrial policy. I would describe it as investing in the preconditions to enable a wide range of industries to develop, take root and some of them to prosper. So invest in education, invest in infrastructure, invest in financial... building up a financial system which can support your manufacturing activities. Make sure your government is clean and efficient and forward looking so that you anticipate the next bump in the road and smooth the road for your industries. Then the industries will prosper but you need to have hardworking people, well-trained people, disciplined people, unions who understand what this is about and will work with employers to bring this about and that is a work of several administrations. The World Economic Forum has this list of global risks and I was struck by the fact that the number one risk on its list is rising inequality and it's happening of course in the United States where there's this big debate. All over the world. But it's happening everywhere and I was wondering if you would reflect on what it means and what you can do about it because you yourself have had to deal with this in Singapore where you have this long tradition of paying public servants very well which is why you have one of the lowest levels of corruption in the world. But one of the things that you have had to do was in response to some public outcry you have had to cut the salaries of public sector employees including your own. No, no, only of the ministers, not of the civil servants. So why did you do it? Well, it became an issue during the elections. There are reasons for needing to pay people well, pay people properly, are well established because you must pay, commensurate with the responsibility of the job and commensurate with the quality of the person you are looking for to do that job. And the job is vital because you make a wrong decision, it's billions of dollars and you put the wrong man in, that's a disaster. And anybody who comes in must make a calculation, must think what are the financial implications not just for him but for his wife and children or spouse and children. But when you are talking about salaries which are a million dollars or two million dollars so the man in the street earning a few thousand dollars a month is an incomprehensible sum. I mean, it's defensible. He cannot wrap his mind around it. So it became an issue in the elections and after the elections I appointed the committee to review it and look at it dispassionately and they decided that the principles were sound, you have to treat, you have to pay competitively but they recommended a different benchmark and a different number and we have accepted that. I don't think it will be the last word on the matter but it's a very difficult issue because it is important to get the right quality of people into government. What do you do about inequality in Singapore? You have your top people are world class, they make millions and millions of dollars. At the bottom your workers are facing pressures from India, China. It is a problem like it is in India and China like it is in every other country. First of all we make sure that everybody gets a very good education. So no matter which school you go to, you will get the first class education and if you are bright and able, you have every chance of rising all the way to the top. Never mind what your background is. Secondly, through our public housing programme, through our other public subsidies, particularly on healthcare and education, we make sure that everybody starts with some chips in life. You don't start with zero down and out. If you are poor in Singapore, there is no fun but I think you are less badly off than if you were poor nearly anywhere else in the world including in the United States. Thirdly, I think that we have to encourage people to try their best to not be satisfied with where they are but to upgrade themselves. Not just in school or while studying but all their lives because you may be 30, 40 years old but unless you can keep current and unless you can keep on doing something new and something which others can't do, it is going to be difficult to sustain a standard of living which is growing up year by year. But on top of the self-reliance message, there also has to be a certain amount of social equality and redistribution. Redistribution in ways which do not encourage people to become dependent, self-dependent, reliant on the state and to give up trying. We have been trying different ways. One of the things which we have done is a work fair scheme. It is like what you call an income tax credit in America. In other words, if you work and your income is low, you get a top-up from the government, a certain percentage. Some goes in cash, some goes into your pension fund to pay for your future retirement and so the more you work, the more you get. I think we need more schemes like that. Explain to us what happened in the last Singapore elections because this is a country which has had enormous rise in standard of living and yet you yourself called it a watershed, the government got a historically low percent. The reason I ask is because many people from the outside look and say the problem is the political system is too closed, you need to open up more. You need more political openness and competition. Well, if only that. It was so simple. I think no society is static. Every society changes. The population changes. New generations have new experiences, new aspirations. In an earlier stage, the economy grew very rapidly and very evenly and everybody could see in five years your salaries, incomes would go up 20-30% effortlessly, almost. Now it is slower and it is less even. And in the last five years before the elections, we went through a global crisis. We came out better than many other countries but nevertheless it was a bumpy ride for quite a number of Singaporeans. And I think that caused and the rapid changes in our society as well as around us caused a certain unease and disquired among some segments of the population and it showed in the votes. Social media played a part. Global mood of dissatisfaction with the status quo I think had some part to play. We are part of an interconnected world and you look at the way the Occupy movements went all around the world. We did not have much of an Occupy movement in Singapore but we are not immune from these currents. Do you expect there will be significant political reform in the next five years in Singapore? I think the situation will continue to change. We have to find our own way forward. It is not so simple as to say if we had more political parties we would have a perfectly functioning government. You need more openness, you need more engagement. At the same time, you need people to pay a lot more attention to what is happening in their lives and to think about what is happening to the country and to us collectively as Singaporeans. And that calls for effort on both parts, on the population as well as on the government. We are in a new situation and you must govern in a new way. You cannot do it the old style nor can you do it just by going with the tide. You have to find a direction and do the best you can to try and maintain that direction however you are buffeted. But you say things will change and you also said something similar about China. China is changing, the political system will have to adapt. But what does that mean? Well if you look at China over the last 20 years, it is a tremendous change. You may think that it is a continuity because it is still the Communist Party in charge but the way that people think, the way that people are informed about the world, the way they discuss issues, the way they have to accommodate interest groups when they make decisions, the way that people travel and know what is happening. I think today's China is very different from China 20 years ago. I think Singapore is very different from Singapore 10 years ago and I am sure in 10 years time it will be different again. Do you think China will be trusted as the dominant power in Asia? If you look at the last year where China made these pushes in the South China Sea with Japan, with that episode with the ship, it seemed like it provoked a very strong backlash in Asia. Well every superpower or big country has to be looked on with a certain careful respect by others, not quite so huge. Even the United States. But the United States after 60 plus years in the Pacific since the war is still welcomed and is still considered benign and that is really a good example for the Chinese to seek to emulate. Do you think that the forces within China that are for that kind of a conciliatory approach versus more hard line approach are gaining or losing strength right now? I think the generation which saw the war, the generation which experienced the Cultural Revolution will know the limits and will understand that the priority is to make sure that China is well internally and not to push your weight around externally. The generation which grew up as China was prospering and rising out of so many things, fast trains, Olympic games, cosmonauts or astronauts or tycoons and so many achievements, whether they will have the same balance and perspective is the $64,000 question. Let me close by asking you a couple of questions that are slightly more personal. You are the son of a Prime Minister and the son of really the founder of your nation. What is it like to follow in his footsteps? I realise it was not an immediate succession, but still, what is it like to have that legacy or shadow? Well, I don't know. I've never not had it. It's tough enough, but you get to live with it. Well, I've had the honour of meeting your father many, many times. He's been on this programme several times. He would strike me as an extraordinary leader. He'd be a tough dad. Was he somebody who was strict disciplinarian? He had expectations. But he left me to do my own thing and he didn't push me into this and neither would if I had worked had he done so. I had to make up my mind whether I wanted to go this way or not. My siblings didn't decide to go this way. I did. Do you think your children are likely to go into politics? I think they will have to decide, but if you ask me now, I think the odds are not on it. It's a different generation. It's a new world. There are so many opportunities, opportunities in Singapore, opportunities abroad. For the talented, the whole world is the oyster. If you are in an Ivy League University, in your first year, you are already talent spotted. In your first vacation, you are already offered internships. After your internship, you are offered more or less, here you are, when you graduate, please call this telephone number. And if you are working in Wall Street or in Silicon Valley or one of the startups, you feel like you are the cat's whiskers because ice cream any time of the day is the least of the perks. They need talent, they treat talent well and Singaporeans, having been well educated and completely comfortable in this world, are going in significant numbers in these directions. We have many students studying in America in the best institutions. We have many students in Oxbridge, some on the continent and I am sure many of them will be tempted by these opportunities. And it is a great challenge for Singapore in this situation to make sure that enough decide that despite this, we will be in Singapore and we will make the system work. And with your children, you still maintain the high expectations? They have to find their own path in life. Prime Minister, pleasure. Thank you so much. Thank you very much.