Chinese tech firms eye Singapore base amid US-China tensions, coronavirus border closures
As Washington increases its scrutiny over firms such as ByteDance, more are opting to diversify into Asean markets instead of the US or Europe.
While Singapore is set to benefit, it has to balance risks over data safety and ensure it is not seen as an escape route from US sanctions.
Rising business costs, uncertainties arising from souring US-China ties, and border closures due to the coronavirus pandemic – these are some factors prompting Chinese firms to increasingly adopt a business approach that has helped corporations diversify their operations while tapping into the mainland’s opportunities.
Under the “China Plus One” strategy, which has been used by businesses in the mainland for years, China remains the main supply source while certain operations are carried out in other countries, said Lau Kong Cheen and Vanessa Liu, senior business lecturers at the Singapore University of Social Sciences.
“The strategy is therefore a way to diversify supply chain risks, [and gain] access to new revenue channels and resources while tapping into China market opportunities,” they said.
This game plan has been particularly evident in Singapore of late, with reports pointing to a wave of Chinese tech behemoths expanding their footprint in the city state.
Just last month, Tencent Holdings confirmed plans for a new Singapore office as part of its Southeast Asian expansion, while e-commerce giant Alibaba Group, which owns the South China Morning Post, is reportedly in talks for a US$3 billion investment in Singapore-headquartered ride-hailing firm Grab. Content platform company ByteDance, the developer of the popular TikTok video-sharing app, is also planning to invest “several billion dollars” in a data centre in the city state, according to reports.
Analysts and economists suggest this is the start of a tide that is gaining momentum amid increased scrutiny of Chinese firms by Washington. But while Singapore looks set to gain economically from this wave, it could also present challenges for the government if not handled carefully.
Lau and Liu, the business lecturers, said Southeast Asia appeared to be at the heart of the “China Plus One” strategy. Chinese firms invested some US$1.78 billion in the region’s tech start-ups in the first seven months of 2019 alone, including in Malaysian online delivery booking platform Easy Parcel and Indonesia’s e-commerce firm Tokopedia.
The US-China trade war has fuelled an “urgent leap” to the region as businesses operations become increasingly disrupted or constrained by the spat, Lau and Liu said.
Wang Yanbo, an assistant professor of strategy and policy at the National University of Singapore’s (NUS) Business School, said geopolitics used to be “in the background” of Chinese firms’ growth plans, which usually involved them expanding to the US or the European Union (EU).
But the US and China’s “complicated relationship” and the uncertainty in the EU has prompted a shift in perspective. “Now, geopolitics has become the No 1 factor for entrepreneurs to think about,” Wang said. “It has forced Chinese entrepreneurs, especially those with international ambitions, to rethink their global strategies.”
Lawrence Loh, an associate professor of business administration at NUS, agreed the “China Plus One” approach had gained “escalated traction” in recent months, and said he had observed an increase in the number of chief executives from leading Chinese firms signing up for his training programme on how to enter the Southeast Asian market.
The 10-member Asean bloc, home to about 650 million people, was China’s top trading partner in the first half of this year, overtaking major players like the US and the EU. The market potential of Asean economies, as a whole and individually, was “immense”, Loh said.
“So the relevance for Chinese firms to come to Asean is more than a virtue. It’s a necessity,” Loh said.
Singapore, in particular, stands out. The city state’s connectivity infrastructure made it a viable launchpad and a “logical foothold” for Chinese firms looking to engage with Asean markets for the first time, Loh said, adding that Singapore also had a domestic market of consumers with spending power that could serve as a test bed for business strategies.
On top of that, having a presence in Singapore, a stable and open economy with links to the world, could lead Chinese firms to emphasise they are “global firms”, said Ramkishen Rajan, an economist and professor at the Lee Kuan Yew School of Public Policy.
“Singapore has well-known positives in terms of ease of doing business, low taxes, high quality human capital, intellectual property rights protection, and rule of law,” he said.
hort-term gains, long-term risks.
The flow of Chinese firms into Singapore would bring the city state considerable short-term benefits, said Chen Guoli, an associate professor of strategy at Insead Business School.
Besides creating job opportunities, the trend could also send tech talent streaming into the country, and help sharpen Singapore’s innovation capability, Chen noted.
Rajan said the incoming wave of Chinese firms could boost the local tech scene by facilitating “greater technopreneurship locally as locals who work in the Chinese tech firms go on to set up their own ventures”. But he cautioned that the city state needed to be careful that its tech sector, and its general economy, were not reliant on any single country.
Wang, the NUS assistant professor, noted the incoming Chinese companies looking to expand or invest in Singapore were data-driven ones, which meant there could be concerns over data protection and privacy regulation. This could “force” Singapore into an “awkward position”, he said.
“In a situation where the Chinese government demands some kind of data transfer from the data centre in Singapore to Beijing, or the US requests certain transfers to Washington, what should the Singapore government do?” Wang asked.
With data regulation at a nascent stage globally, the academic said the Singapore government could become a global leader in this field by proactively setting out clear regulations and expectations.
On the optics front, analysts said Singapore could also find itself in a risky situation if it was viewed as an escape route for Chinese firms to dodge US-related sanctions or the increased scrutiny from Washington.
Rajan said if Chinese tech investments rose in a “big way”, it was crucial for the Singapore government to ensure Beijing did not view the island nation, home to 5.7 million people, as “another Chinese city”, particularly as three out of four residents were ethnic Chinese.
Singapore has repeatedly maintained it is a multi-ethnic society with its own cultural identity, and it should continue pushing that message, Rajan said.
Alex Capri, a visiting senior fellow at the NUS Business School, said a large-scale movement of Chinese firms into Singapore could eventually prompt Washington to act.
Just as how the US had recently nudged its allies into expunging Chinese tech from their networks, Singapore could similarly be placed under increasing pressure, Capri said.
“The tipping point is hard to tell, but we are coming close to that.”