Singapore Urges Companies to Exploit China Consumer Boom

Singapore is encouraging companies to expand in China to tap rising consumption in the world’s second-largest economy as President Xi Jinping sustains efforts to reduce his country’s reliance on investment and exports.

The island’s shipments to China will probably increase as a share of total exports, driven by consumer goods, infrastructure, logistics and energy, said Seah Moon Ming, chairman of the trade promotion agency known as IE Singapore. Seah, who also heads an energy supply and trading company, will lead a business delegation to Shandong, China this week in his first overseas mission as head of the agency.

“We want to leverage on every possible access channel that we can have, either market access or business access,” he said in an April 2 interview. “China still will have net growth over the U.S.” of 5 to 6 percentage points even as its economic expansion will probably slow below 7 percent, he said.

Asia’s biggest economy overtook Malaysia as Singapore’s top trading partner last year, as direct investment to China from the island rose 7 percent in 2012. The Southeast Asian nation’s faith in China contrasts with concern among investors that growth will slow as credit risks escalate. The Shanghai Composite Index has fallen 2.7 percent this year as investors anticipate the government will miss its growth target.

China’s government targets growth of 7.5 percent this year after the economy expanded 7.7 percent in 2013, the same pace as in 2012.

Growth Story

“In the bigger scheme of things, China is still a fantastic growth story,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc, who predicts China’s economy will grow 7.2 percent this year. “We shouldn’t be going there to set up factories, we should be going there to sell directly to the increasingly affluent Chinese consumer.”

IE Singapore forecasts non-oil domestic exports will rise 1 percent to 3 percent in 2014, after falling 6 percent last year. The Southeast Asian nation’s economy expanded more than economists estimated in the fourth quarter of 2013 after a pick-up in manufacturing, a sign the economy is recovering after exports fell 10 months out of the year in 2013.

Companies in Singapore are hesitant to venture into China because they may not have the capital and it’s difficult to do business without knowing local government officials, according to Seah. Singapore invites future mayors to attend MBA programs in the city to build connections, said Seah, and his agency has helped train over 2,000 Shandong government officials.

“The whole issue is not rules and regulation but how to navigate,” said Seah, 57. “You want to go China, what do you want? Somebody to hold your hand.”

Domestic Pressures

Expanding overseas is a necessity for Singapore companies grappling with rising rental costs and a labor shortage at home amid a government clampdown on overseas workers willing to accept lower wages. Firms will have to restructure their businesses by improving productivity, reconfiguring their businesses or entering new markets, according to IE Singapore.

“Singapore also from a very domestic perspective knows that SMEs have been hitting up against the ceiling for a long time now,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “We’re hitting up against all the capacity constraints, the only way small and medium enterprises can go forward is to expand into regional markets.”

IE Singapore’s strategy is to “put a lot of emphasis” on China, Indonesia, Malaysia, Myanmar and Africa, Seah said. Singapore set up its Trade Development Board in 1983 to promote its exports, renaming it International Enterprise Singapore in 2002 with a broader focus including helping local companies internationalize.

Stimulus Package

China’s debt is poised to expand faster than its economy through at least 2016, according to a Bloomberg survey. The nation outlined a package of measures on April 2 including tax relief to support the economy and create jobs after slowdowns in manufacturing, retail sales and investment signaled unexpectedly weak growth.

“I have trust with the current leadership,” said Seah. “I think Xi Jinping, he knows what to do for the Chinese economy” in the second half of this year, he said, adding that Xi is boosting transparency in the nation, which will appeal to investors.

Singapore and China signed a free-trade agreement in October 2008. China’s economy grew 9.6 percent that year, compared with 7.7 percent in 2013.

Seah, chief executive officer of Pavilion Energy Pte, owned by Singapore state-owned investment company Temasek Holdings Pte, said he’s looking at the possibility of building liquefied natural gas receiving terminals in Shandong. Singapore companies such as Jurong Consultants Pte can provide construction and consultancy services for LNG facilities and Rotary Engineering Ltd. and its firms can build storage tanks, he said.

LNG Terminals

LNG receiving terminals are typically situated along a country’s coastline and comprise a jetty, insulated pipes and pumps, storage tanks and re-gasification equipment. Pavilion Energy plans to invest in receiving terminals in what IE Singapore described as regional emerging countries.

Seah, who took over as IE Singapore’s chairman this year, joined Temasek last year as senior managing director for special projects before running Pavilion Energy. He was previously deputy CEO of Singapore Tecnologies Engineering Ltd., a defense-related company that’s partly owned by Temasek.

The Southeast Asian nation has learned lessons from its past investments in China, including Suzhou Industrial Park, said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. The $30 billion joint venture between the two governments posted its first profit in 2001, after earlier accumulating about $80 million in losses as the city in eastern China set up a rival industrial park nearby.

“There’ll be cases where they’ve been burned,” said Chua. “At the end of the day China is a huge market so it would be tough for anyone to not pay attention.”

Before it's here, it's on the Bloomberg Terminal.