[SINGAPORE] 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 IE Singapore. Mr 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 US" of 5-6 percentage points even as its economic expansion will probably slow below 7 per cent, 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 per cent in 2012. The South-east 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 per cent this year as investors anticipate the government will miss its growth target.
China's government targets growth of 7.5 per cent this year after the economy expanded 7.7 per cent in 2013, the same pace as in 2012.
"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 per cent 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 1-3 per cent this year, after falling 6 per cent last year. The South-east 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 Mr Seah. Singapore invites future mayors to attend MBA programmes in the city to build connections, said Mr 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 Mr Seah. "You want to go China, what do you want? Somebody to hold your hand."
Expanding overseas is a necessity for Singapore companies grappling with rising rental costs and a labour 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. IE Singapore's strategy is to "put a lot of emphasis" on China, Indonesia, Malaysia, Myanmar and Africa, Mr Seah said.
"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."
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 signalled unexpectedly weak growth.
"I have trust with the current leadership," said Mr 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 Mr 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 per cent that year.
Mr Seah, CEO of Pavilion Energy, said that he's looking at the possibility of building liquefied natural gas receiving terminals in Shandong. Singapore companies such as Jurong Consultants can provide construction and consultancy services for LNG facilities and its rotary engineering firms can build storage tanks, he said.
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. - Bloomberg