Impact of Slowdown in China's Growth on Singapore

Ms Tan Su Shan asked the Minister for Trade and Industry (a) how will the current slowdown in China's growth affect our economic growth particularly our export and tourism industries; and (b) how can Singapore adapt to the structural changes in China's growth strategy in order to remain relevant in the international economy.

Growth in the Chinese economy slowed from 9.3% in 2011 to 7.8% in 2012, and further to 7.6% in the first half of 2013. Thus far, the slowdown in the Chinese economy has had a limited impact on Singapore's

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exports to and tourist arrivals from China. Singapore's non-oil domestic exports (NODX) to China have continued to increase, while tourist arrivals have remained resilient.

While the Chinese economy has slowed, most analysts do not expect it to have a "hard landing". For 2013, the International Monetary Fund expects growth in the Chinese economy to be around 7.8%, similar to the pace of growth in 2012, while the July Consensus Forecast has China's growth coming in slightly lower at 7.5%. If the Chinese economy slows down gradually as expected, the impact on our exports and tourist arrivals should remain limited. Moreover, as our export and tourist source markets are fairly diversified, a gradual pick-up in the growth of other markets, such as the United States, would help to cushion the impact of a gradual slowdown of the Chinese economy on the Singapore economy.

However, should the Chinese economy slow down sharply, the impact on Singapore's growth is likely to be more significant. First, a sharp contraction in China's demand is less likely to be offset by a pick-up in demand from other markets in the short term. Second, to the extent that other regional economies will be adversely affected by a sharp slowdown in China, our exports to these economies may also be affected. At this juncture, a China "hard landing" is not our central scenario. We will continue to monitor the situation carefully.

China is re-balancing its economy from an export-led and investment-oriented growth model to one that is driven by consumption. There is potential for the services sector to further drive growth in China. Under China's 12th Five-Year Plan, China's GDP share of the services sector is poised to increase from 43% in 2010 to 47% by 2015.

We see three broad trends supporting this growth and how Singapore’s services sector can ride on it. First, Chinese government is widely expected to pump in more resources in urbanisation. There will be greater demand for Singapore companies' expertise in housing, transport, water and waste management solutions. Second, the fast growing affluent and middle-class Chinese population will spur demand for consumption of goods and services. According to a report by McKinsey2, China will become the second largest consumer market in the world by 2020. This will provide a large consumer base for Singapore players in Food & Beverage, retail, logistics, healthcare and education services. Third, more Chinese companies may use Singapore as a springboard to Southeast Asia, as they seek new markets to expand their operations. Many Chinese companies have already set up their regional

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headquarters, R&D and manufacturing operations in Singapore. To date, more than 4,500 Chinese companies, such as Sinopec and Baidu, operate in Singapore. Professional services companies in legal, tax advisory and financial and banking can tap on this wave to expand its clientele base.

The Government will continue to do its part to help Singapore industries benefit from China's growth. We will do this through regular reviews of FTAs involving China, such as our bilateral China-Singapore Free Trade Agreement (CSFTA) to help improve market access. We will also work closely with the business community and trade associations to profile Singapore's products and services at trade fairs in China. Our agencies, IE Singapore, EDB and STB will continue to assist Singapore-based companies to internationalise in China and anchor Singapore's position as a gateway for Chinese companies and tourists.