Singapore — A Strategic Start for the Chinese Enterprises to Enter the ASEAN Market

“Becoming more confident and mature， more and more domestic enterprises begin to make overseas investments and are devoting themselves to bringing their brands and products to the international markets and eventually bringing them to the whole world，” said Luo Jialiang， Ambassador from the Republic of Singapore to China， when commenting on the Chinese enterprises’ efforts to invest abroad in an interview with China’s Foreign Trade.

Statistics from the Ministry of Commerce of China show that in 2011 China’s inbound foreign direct investment (FDI) went up by 9.72% over 2010. Among all the countries / regions that made direct investments in China， Singapore ranked fourth， only after Hong Kong， Taiwan and Japan. The trade relations between Singapore and China keeps improving and Sino-Singapore trade hit a record high in 2011 with the trade volume exceeding SGD 100 billion. Now China has become Singapore’s third largest trade partner. So far， more than 3，000 Chinese enterprises have set up offices in Singapore. Under China’s positive economic situation， more and more Chinese enterprises began to invest in the developed countries and some emerging countries， Lin Ruiguang， Chief Commercial Counselor from the Embassy of Singapore to China， told the reporter. Singapore can serve as an optimal platform for the domestic enterprises to go global. In the mean time， the Singaporean enterprises may become partners for the Chinese counterparts to go global.

Why has Singapore become an investment destination for so many Chinese enterprises? How will the domestic enterprises make full use of Singapore’s advantages to expand their international market? To answer these ques- tions， Tay Woon Teck， Director from Stone Forest Corporate Advisory and Grace Xie， Director of China Practice Group of RSM Chio Lim， listed the unique superiority that Singapore boasts of.

First of all， when investing in the ASEAN， the domestic enterprises need to note that the ASEAN consists of many ethnic minorities with over 30 different languages and dialects. It can be a major handicap as not all ASEAN enterprises can communicate in Mandarin. Singapore is a metropolis defined by diverse races and cultures， and every race keeps its own culture and customs. Most Singaporeans can speak both English and their mother tongue which comprises Mandarin， Malay or Tamil. Therefore， in facilitating the Chinese enterprises investment plans in ASEAN， Singapore can play a pivotal role of a language bridge， which is helpful to build friendship in a short time and help Chinese enterprises integrate better into the local communities.

Second， Singapore is situated in central Asia， adjoining to the South China Sea and the Indian Ocean and it is also located in the junction of the world’s major shipping routes. With such a strategic geographical location， Singapore has been an important regional trade center nearly in the past 100 years and it also serves as an important base for the international and Asian enterprises to invest and do business in the fast growing Asian market and to expand their international network. He expressed that the majority of the Southeast Asian trade is conducted through Singapore. Singapore possesses the world’s second busiest container port and its Changi Airport’s air capacity ranks fifth in Asia. Singapore is also an international financing center with more than 500 international banks and financial institutions. The city is Asia’s largest asset management center and is the fourth foreign exchange transaction market， only after New York， London and Tokyo. Over USD 1.1 trillion is managed by the Singaporean banks and financial institutions. Therefore， Singapore is a perfect platform for enterprises to finance or issue bonds.

Grace told the reporter that so far， over 7，000 multinational enterprises have settled in Singapore， 60% of which position Singapore as regional or international headquarters. For instance， China Huaneng Group has invested in Singapore’s third largest power supply plant， Sinopec has invested in a lubricant factory in Singapore and Huawei has established its regional headquarters in Singapore. Li-Ning， a renowned Chinese sports goods company， set its regional headquarters in Singapore as early as in 2009.

Third， Singapore has signed 18 regional or bilateral free trade agreements， including the world’s major trade countries such as the US， China， Japan， India and the ASEAN. These agreements cover over 80% of Singapore’s total foreign trade volume. These free trade agreements have enabled Singapore-based enterprises and their products to enjoy preferential tariff treatments with the world’s key major economies. It also encourages investments using Singapore as a base.

Fourth， Singapore is a low-tax country. In Singapore， the corporate income tax is 17% and Goods and Services tax rate is 7%. Shareholders， whether individual or corporate， are not taxed on dividend income distributed by Singapore companies. Singapore has no estate duties and tax losses can be transferred infinitely provided there is no substantial change in the ultimate shareholders. In addition， overseas dividends， branch’s profits and foreign-source service fees are exempted from tax if conditions are met. Generally， the Singapore government offers tax incentives to encourage investors to set up an establishment in Singapore. For instance， companies enjoy- ing tax incentives can reduce its corporate income tax rate of 17% to 0—15% for a period of 5 to 10 years.

Given Singapore’s above-mentioned advantages， how can the Chinese enterprises make full use of these advantages? Grace， who has long engaged in the overseas investment business for the domestic enterprises， told the reporter that Singapore has signed a comprehensive avoidance of double taxation agreement with China. The Sino-Singapore free trade agreement has brought tremendous growth to the two countries’ bilateral trade. the world’s foreign direct investment totaled USD 1.4 trillion last year， over 20% of which went to South Asia and East Asia. Such countries as Thailand， Malaysia and Indonesia are the direct beneficiaries of FDI. So far， China has signed 9 free trade agreements and more agreements are still under negotiation. Grace stressed that when going global the domestic enterprises need to attach great importance to these agreements. And the domestic enterprise may set up operating companies in Singapore， which will then serve as a platform for expanding into the markets in the ASEAN， Europe and the US and for entering a third party country together with many Singaporean enterprises.

Grace gave an example that as costs of raw materials and labor are on the rise， China—a big nation for textile is losing its original competitiveness. In the mean time， if directly exporting products to the EU and the US， China may possibly be confronted with many trade barriers and anti-dumping issues. However， the Chinese enterprises can be headquartered in Singapore and set up manufacturing plants in ASEAN countries. It can use the Free Trade Agreements that Singapore and ASEAN has signed， register products for property rights in Singapore and then optimally allocate all the sections along the industrial value chain.

She added further that for instance， Shanghai can take charge of design and production bases can be located in the more competitive ASEAN countries. As long as the value-added section of the products is located in Singapore and this section’s value does not exceed 25% of the total value， the products’ country of origin can be identified as Singapore. In this way， the domestic enterprises may enjoy the privilege of the free trade agreements and finally successfully avoid trade barriers.