6 November 2018

SG exporters look to China’s young wealthy for future growth

Singaporean companies are looking past cyclical downturns and trade tensions to China’s rising wealthy milllennials for future growth, a HSBC survey has found. Whilst businesses have mixed opinions on the best strategies to grow their exports to China, the majority agree that a price-led strategy is not sustainable, and that regional trade pacts will be an economic booster.

HSBC’s Navigator: Made for China survey explores the intersection of international businesses’ growth ambitions with China’s increasingly affluent and discerning consumers. In September, the survey canvassed the views of 120 businesses in Singapore, as part of a total pool of 1,205 small and large companies in 10 other key global economies that already export to China or are considering doing so.1

Singapore exporters to still target China despite short-term uncertainty

Despite trade tensions and a cyclical down-turn in electronics, Singapore businesses are bullish about the structural opportunity that China’s growing wealth presents for their future sales/exports to the country, and are focused on technology-related products and services.

Amongst the surveyed Singapore companies:

  • 49% say China is currently a sales destination with 69% of companies currently exporting there saying it’s among the most important destinations (more than any other destination).
  • More than 80% of Singapore corporates see millennials as the driver of future sales.
  • 48% feel that technology services will be the fastest growing industry (global average of 38%) followed by medical care (28%) and high-end intelligent equipment (25%).

Tony Cripps, HSBC Singapore CEO said “As an open and trade-dependent economy such as Singapore, the cyclical downturn in electronics and current trade tensions cannot be ignored. But it seems like businesses are looking beyond these short-term headwinds to the structural macro-economic opportunity that China’s burgeoning tech-hungry millennial consumer can bring. As an underlying driver of future commercial activity, understanding the spending motivations of this consumer segment is immensely important.”

The two countries have long been strong economic partners. China is Singapore's biggest export destination2, while Singapore has been China's biggest source of foreign direct investment since 2013.

Whilst 2017 saw a 17% surge in year-on-year export growth from Singapore to China, trade tensions and the electronics downturn has revealed a more mixed picture for 2018. In October, Enterprise Singapore published official data that despite seeing an overall 8% year-on-year increase in trade, exports to China dropped by 17%, with a 5.3% slide in electronics exports and a 21.3% fall in non-electronics.3

Notwithstanding this, China’s GDP is expected to remain at 6.6% into 2019.4 China’s wealth is also expected to grow at striking speeds. According to HSBC research, Chinese households with earnings ranging between USD20,000 and USD125,000 are projected to grow from 99million in 2016 to 220million in a decade.5

Singapore corporate growth strategies shift away from price

Whilst the survey showed a mixed response amongst Singapore businesses as to how they intend to grow their China exports, there is consensus that China’s rising wealth can necessitate a shift away from solely taking a price-led approach.

Amongst the surveyed Singapore companies:

  • 36% of current exporters say price has historically been the key sales driver to date. Interestingly, 51% of these same respondents say Chinese customers are price-focused – a 15% point difference.
  • 46% of those already exporting say China’s growing consumer wealth will create new opportunities (29% global average) with 41% also saying they are focused on delivering new products and services.
  • Amongst the aspirant exporters, 41% say creating superior products will drive sales.

Mr Cripps continued: “The research reveals an interesting mismatch with 36% of current exporters saying they lead on price yet 51% conceding that the Chinese customer is price-focused. That more Singaporean companies are resisting matching Chinese consumers’ price-led preferences demonstrates a concerted effort to drive the market towards value over price. On this point, both experienced and aspiring Singaporean exporters to China are aligned.”

HSBC China’s CEO, David Liao, agreed saying: “Much has been said in recent years about the opulence of China’s new rich, and their outsized impact on anything from Swiss luxury watches to designer handbags6 and super yachts.7 But China isn’t just about “Crazy Rich Asians”. Indeed, less recognised is how consumption is becoming more sophisticated and inclusive, as wealth spreads from urban centres to rural heartlands, bolstered by better-educated new generations who are both Web-savvy and worldly-wise.”

Support for enhancing regional trade pacts with China

When asked about the impact of trade agreements, HSBC’s report finds that Singapore businesses are more supportive of those which enhance the regional prospects of trade with China.

Nearly two thirds (63%) of the Singapore businesses surveyed feel that the ASEAN–China Free Trade Area (ACFTA) is likely to help them grow business in China, and nearly half (47%) feel similarly about the Regional Comprehensive Economic Partnership (RCEP).

In contrast, bilateral agreements between Singapore and China are deemed to be less important to Singapore businesses (37%). However, this sentiment may change with Singapore and China expecting to upgrade their existing free trade agreement by the end of 2018. Singapore and China first signed the bilateral FTA in 20088 which currently eliminates tariffs for 95% of Singapore's exports to China.

1 Europe: France, Germany, UK Asia-Pacific: Australia, Hong Kong SAR, Malaysia, Singapore MENA: UAE North America: Canada, Mexico, USA

2 Enterprise Singapore: Singapore’s External Trade – May 2018

3 Enterprise Singapore: Singapore’s External Trade – September 2018

4 HSBC Asia Economic Quarterly 4 October 2018

5 HSBC Global Research: Future Consumer, April 2018 page 12

6 Nikkei Asian Review, Europe's luxury brands buoyed by Chinese spending, 8 August 2018

7 South China Morning Post, Luxury yacht sales in China stall amid concerns over economy, crackdown on corruption, 26 December 2016

8 Enterprise Singapore: China – Singapore Free Trade Agreement (CSFTA)