A police van reverses out of the premises of a dormitory as negotiations with striking bus drivers continue within the building in Singapore Nov. 26, 2012. (EDGAR SU/REUTERS)

With its drab dormitories and factory buildings, the Woodlands industrial area of Singapore could not be further removed from the city-state’s image as a burgeoning Asian financial center.

But this week, 259 bus drivers from mainland China went on a two-day strike at a public bus company in a protest over pay and living conditions, including an infestation of bed bugs in mattresses at the company’s rented dormitories in the area.

It was the first such industrial action in 26 years in Singapore, which has long encouraged negotiations between employers and workers to avoid conflict.

Four of the drivers were arrested for inciting the strike after posting a message on Baidu, the Chinese Web site.

The shock value of a strike in normally placid Singapore has gripped ordinary Singaporeans and attracted Beijing’s attention.

China said it was “very concerned” and dispatched officials from its embassy in Singapore to visit Woodlands and consult with workers and the bus company, SMRT, which fumigated the dormitories and promised to “make immediate improvements to . . . living conditions.”

The walkout has highlighted a difficult balancing act as Singapore’s falling birthrate forces it to rely on foreign labor to keep its decades-long economic miracle, envied around the world, on track.

The influx of migrant workers from China and Bangladesh has caused friction as “heartlander” Singaporeans complain about crowded public transport and competition for housing.

Many Singaporeans have been sympathetic to the arrests, pointing out that the strike was illegal since it was held without sufficient advance notice, as required under Singapore law. They have also taken a dim view of the disruption it has caused to public services.

But mainland Chinese posting on social media jumped to the defense of their compatriots, highlighting the drivers’ key grievance that they were paid less than Malaysian drivers hired for the same jobs. “All Chinese nationals should come back [home], and let Singapore go bust!” wrote one netizen quoted in Singapore’s Straits Times.

Anxious to reduce the potential for social friction, the government has for about a year been taking a series of measures to slow the intake of foreigners. But it is also determined to shift the economy to a more productivity-driven model less reliant on foreign labor.

That has come at some cost. Singapore has become a magnet for foreign companies using it as a springboard into Southeast Asia, a region whose economies are proving resilient as others struggle. Of Singapore’s population of 5.3 million, 1.3 million are nonresidents and just under half of those are migrant workers.

Recent revisions to the rules for acquiring employment passes have made it more difficult for top-tier foreign workers to obtain needed documents, including the “personalized employment pass.”

Starting next month, pass applicants will have to earn $118,000 annually, up from $28,000 previously. The pass will be valid for just three years, down from five at present.

“It’s become more difficult to get employment passes for certain positions,” said Andrew Norton, regional managing director at Michael Page, a recruitment consultancy.

The European Chamber of Commerce in Singapore is expected to survey its members next week to see what impact the restrictions are having.

Local companies have also suffered. Bankruptcies have risen since the foreign labor squeeze began, with small- and medium-size enterprises hit by rising wages. “The implication is that some of them could fold up or move out of Singapore,” said Kenneth Ng, head of research at CIMB, a Malaysian bank.

Prime Minister Lee Hsien Loong has acknowledged that restricting the influx of foreign labor could undermine Singapore’s competitiveness. But he says the move to a productivity-based economy is vital to ensuring sustainable, long-term growth, as well as greater social cohesion.

That task has become all the more urgent since Singapore has started to feel the chill wind of the euro-zone crisis, which has sapped demand for its exports. Manufacturing still makes up about a quarter of the economy, much of it electronics destined for Europe.

Singapore predicts that its economy will grow at just 1.5 to 2.5 percent this year, compared with more than 5 percent for neighboring Malaysia.

So far, the results of Singapore’s experiment have been mixed. Chua Hak Bin, an analyst at Bank of America Merrill Lynch, said the search for productivity has been “somewhat elusive.”

His research shows that productivity growth was zero last year and negative 2.1 percent so far this year. And with the government set to further restrict the influx of foreign labor next year, he said, there is a “danger of the policy swinging too far.”

— Financial Times