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S'pore is China's largest investor
SIGNIFYING the strong business sector interaction with China, a fact not too well known to many is that Singapore has become China's largest investor country.
For the second consecutive year Singapore was China's largest foreign investor with investments amounting to US$5.8 billion in over 700 projects last year. At the same time, Singapore is China's largest investment destination in Asia, and one of the top investment destinations for Chinese companies investing abroad.
In a landmark development, Singapore became China's largest investor country for the first time in 2013 when its investments in China hit US$7.23 billion, according to data from International Enterprise Singapore, the government agency that drives Singapore's external economy.
Since establishing diplomatic relations in 1990, Singapore and China have developed strong links in the areas of trade, finance and investments. Trade and investment ties between Singapore and China in particular have been growing steadily over the years.
China was Singapore's largest trading partner in 2014, with bilateral trade in goods increasing by 5.4 per cent to S$121.5 billion, while Singapore is China's third largest trading partner in Asean. In 2013, total trade between China and Singapore amounted to S$115.2 billion.
"Bilateral trade in services has also been growing significantly, with Singapore currently being China's third largest foreign trading partner for services after the US and Japan," Yew Sung Pei, assistant chief executive officer of IE Singapore, told The Business Times.
"In recent years, we see more Singapore companies venturing into the services sectors in China, in line with China's strategic push to boost modern services. China underscored its commitment to liberalise its services sector and a consumption led growth model at the Third Plenum in November 2013.
"Singapore, being a services oriented economy with strong players in the services sectors, has been seizing more opportunities to participate in China's development."
Key examples are Crestar Education Group and Q&M Dental Group. As at last year, Crestar's revenue from China accounts for 25 per cent of its S$60 million business revenue, which is 10 times more than its Malaysia and Indonesia business combined. Within the next 18 to 24 months, seven more Crestar branded outfits will take root in China, taking the total to 35.
As for Q&M, it entered the China market through acquisitions and joint venture partnerships. It is now on track to reach its goal of 50 dental clinics and 20 dental laboratories in China by year-end.
Looking ahead, Mr Yew says there are new opportunities for Singapore companies in China even as its traditional growth engines such as exports, property development and infrastructure investment have experienced a downward trend in recent years.
Even as exports decline and government spending becomes more prudent, China's focus on expanding urbanisation and boosting domestic consumption presents new opportunities.
Many Singapore companies whose strengths and experiences lie in the service sectors will benefit from the gradual liberalisation in China of sectors such as healthcare, education and environmental services.
"We see increasing opportunities underscoring the following strategies - the "Belt and Road" initiative envisioned by President Xi Jinping, and "Internet Plus" by Premier Li Keqiang - announced at the National People's Congress and Chinese People's Political Consultative Conference respectively in March 2015. Singapore companies can and should ride on the new opportunities arising from these two initiatives," says Mr Yew.
While Singapore's local banks - DBS, OCBC and UOB - have been expanding their branch networks in China, Singapore's leading property developers active in China include big boys like CapitaLand, Keppel and CDL. Consumer groups like OSIM, Eu Yan Sang and BreadTalk have also made successful forays into China.
Among the Singapore banks in China, DBS has been at the forefront and has been growing its business rapidly. It opened its first representative office in Beijing in 1993 and is the first Singapore bank to be incorporated in China in May 2007.
Today, DBS has over 2,200 employees in China. The bank inaugurated its China headquarters building in 2010, DBS Bank Tower, located in the heart of Shanghai's financial district, with spectacular views of the Bund.
"In 2014, income from our China franchise grew more than 30 per cent to a multi-year high as we captured the intra-Asia business and investment business of Chinese corporates. We have built strong relationships with 700 leading corporates by supporting their expansion overseas. This year, China's economy and our business growth are slower; however, our portfolio remains robust and we will continue to pace our expansion," DBS chief executive Piyush Gupta told The Business Times.
DBS takes a long term view on China. "Given China's mantra of financial sector reform, going forward, we will need a strong focus on counterparty selection. Nonetheless, China remains an attractive place to do business. Its financial sector liberalisation is rapid and throws up opportunities," Mr Gupta adds.
Offshore renminbi, trade finance, capital markets and derivatives markets are all new businesses that opened up in the last four years. Connecting Chinese customers to the outside world, including supporting China's "One Belt, One Road" initiative, will be important for DBS, which also sees the potential to leverage digital banking to reach out to more individual customers.
"China is a key market and, over the years, we have managed to grow the franchise to become the fifth-largest foreign bank there. We have a meaningful corporate banking and affluent business," Mr Gupta highlights.
DBS has established a presence in the various special economic zones in China like the Shanghai Free Trade Zone (FTZ), Qianhai Shenzhen-Hong Kong Cooperation Zone, Suzhou Industrial Park and Tianjin Eco-city. It was the first foreign bank to open for business in the Shanghai FTZ in January 2014.
"We are also honoured to be selected among the first batch of banks to participate in China's Cross-border International Payment System (CIPS) in October 2015. The launch of CIPS will bring China closer to having a major currency for both trade and investment purposes, by improving the financial infrastructure for the internationalisation of the RMB," says Mr Gupta.
DBS has also been successful in capturing China related flows. For instance, it has been able to intermediate Greater China trade and investment flows to deepen relationships with Chinese enterprises with cross-border operations. In 2014, the Greater China region contributed 29 per cent of DBS's income.
"By being nimble, and responding quickly to market opportunities, we were an early mover in the offshore RMB market and are now one of the market leaders. We have a 10 per cent plus share of the interbank FX market in Hong Kong," Mr Gupta highlights.
"We are also an active market-maker in USD/RMB non-deliverable forwards, USD/RMB non-deliverable swaps and RMB non-deliverable interest rate swaps in the interbank market. Last year, we ranked fourth in offshore RMB bonds issuances."
Looking ahead to the challenges of doing business in China, Mr Gupta says It is a challenge for foreign banks to build up a retail franchise in most countries. China is no different. However, the digital transformation will open up new opportunities, potentially accelerating access to emerging markets without the need for a large brick and mortar footprint.
China's liberalisation comes with opportunities but also a set of challenges. As rules and regulations evolve, banks will have to adapt their business models.
"In a slowing China, some sectors are seeing headwinds. With structural reform, it is no longer a case that a rising tide will carry all boats. There is a need to be more circumspect and thoughtful about credit selection," says Mr Gupta.
Meanwhile, OCBC is planning to remodel its unprofitable consumer banking unit in China and focus on corporate banking in an effort to boost profits from the mainland.
The bank will add new customer segments and products to the consumer-banking business, said Kng Hwee Tin, chief executive officer of OCBC Bank (China) Ltd, in an interview with Bloomberg earlier this year.
Net income at OCBC's China unit surged 231 per cent to 238 million yuan (S$51 million) last year, thanks to higher income from corporate loans, fees from trade finance and settlement, and investment returns, according to the bank's annual report. The consumer-banking segment posted an operating loss of 175.8 million yuan.
China's economic progression towards new, high-tech and service industries in recent years is leading Singapore businesses to realign their business strategy. Quick to respond, Ascendas-Singbridge says that its projects have been realigned. For instance, it has redeveloped its Ascendas-Xinsu project to cater to the needs of these new industries, and is looking forward to its opening in December 2015.
In fact since entering China with Ascendas-Xinsu in the Suzhou Industrial Park in 1995, it has grown its presence in China to 11 cities today, providing a wide range of integrated business space solutions for companies involved in the manufacturing, science and technology, information technology, research and development (R&D), and retail sectors.
Developments such as the Ascendas Plaza, Dalian Ascendas IT Park, Ascendas iHub Suzhou, Singapore-Hangzhou Science & Technology Park, and Ascendas OneHub GKC currently play host to more than 500 Chinese and multinational companies such as Citi, Infosys, Intel, Konica Minolta, Nomura, Knowles, Qualcomm, Isoftstone, and Yidatech.
"All Ascendas-Singbridge projects aim to create value, and enrich the lives of the local community. We are a firm believer of building long-term and mutually beneficial partnerships with our customers. We want to be more than just a landlord, and differentiate ourselves by creating innovative products and services that enable our customers to grow and succeed in our developments," says Miguel Ko, group CEO of Ascendas-Singbridge Group.
"We will continue to enhance our product offerings to attract high value-adding businesses. As these businesses take up our business space and invest in these cities, they will further contribute to local and regional economic growth."
Mr Ko says the merger between Ascendas and Singbridge to form Ascendas-Singbridge Group in June 2015 strengthens the ability to develop end to end integrated solutions for sustainable developments in the region.
"We are beginning to see results of the successful collaboration between Singbridge as a master developer and Ascendas as a real estate developer in Sino-Singapore Guangzhou Knowledge City (SSGKC). The basic infrastructure has been completed and is ready to host further industrial, commercial and residential developments in the area. Some 60,000 square metres of office space in the first phase of Ascendas OneHub GKC project will be ready for occupation by end-2015.
"The timely opening of Singapore Centre located within Ascendas OneHub GKC in July is a testament to the synergistic collaboration within SSGKC, as the development gets ready to welcome its first group of companies.
"At Ascendas-Singbridge, we do not want to be just a property developer, but rather a trusted partner for our customers and partners. We work closely with the local governments of our host locations, ensuring alignment of objectives, and create solutions that can contribute to the economic and social development of these locations," says Mr Ko.