China's Consumer Boom Tempts Singapore Firms Looking for Expansion but Doubts Remain

Water spouts out of the mouth of the Merlion statue in Singapore.Reuters

Singapore wants its companies to cash in on China's consumption boom, but the uncertainties that plague the world's second-largest economy could compel companies from the island nation to tread with caution.

Overseas expansion is a necessity for Singapore firms, which are battling rising rental costs and a labour crunch amid government curbs on foreign workers willing to accept lower wages.

Meanwhile, Chinese leaders are keen on rebalancing the economy by reducing its reliance on exports and big-ticket government investments.

China became Singapore's biggest trading partner last year, replacing Malaysia.

However, companies in Singapore are hesitant to enter China owing to capital constraints and because it is difficult to do business without knowing local government officials, said Seah Moon Ming, chairman of trade promotion agency IE Singapore.

Seah, who also heads energy supply and trading firm Pavilion Energy, will lead a business delegation to Shandong, China, this week.

Seah will explore the possibility of constructing liquefied natural gas (LNG) receiving terminals in Shandong. Singapore firms such as Jurong Consultants can provide construction and consultancy services while Rotary Engineering and its firms can build storage tanks, he said.

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Singapore's shipments to China could increase as a share of total exports, driven by consumer, infrastructure, logistics and energy, said Seah.

"We want to leverage on every possible access channel that we can have, either market access or business access," he told Bloomberg.

He added that China is expected to have net growth of over 5-6 percentage points, higher than that of the US, though economic expansion could slow to below 7%.

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

Singapore's small and medium enterprises can keep the growth momentum in the future only if they expand into regional markets, the report cited economist Vishnu Varathan of Mizuho Bank as saying.