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China’s slowing economy could impact Singapore

SINGAPORE — While China’s past rapid growth has been a positive driving force for Singapore, a sustained slowdown in the world’s second-largest economy could prove to hurt the most for the sectors that have benefited the most from its boom.

China reported Wednesday, July 10, 2013 that imports and exports both fell abruptly in June. The statistics are a new sign of weakness in the world's second-largest economy. Photo: AP

China reported Wednesday, July 10, 2013 that imports and exports both fell abruptly in June. The statistics are a new sign of weakness in the world's second-largest economy. Photo: AP

SINGAPORE — While China’s past rapid growth has been a positive driving force for Singapore, a sustained slowdown in the world’s second-largest economy could prove to hurt the most for the sectors that have benefited the most from its boom.

With China being at the centre of the region’s growth story and an important trading partner of Singapore’s, exports — and in turn the manufacturing sector — can expect to be hit the hardest.

Singapore’s overall economy could also suffer if China’s moderating growth results in an Asia-wide slowdown.

Excluding the European Union, China was Singapore’s largest non-oil domestic export (NODX) market last year, accounting for 11.8 per cent of total NODX, or S$21 billion.

This is a significant increase from S$4.1 billion, or 3.6 per cent, in 2000.

“The global structural shift that has been happening over the last two decades has seen this small and open economy leaning more and more towards China,” said DBS Senior Economist Irvin Seah.

Chinese nationals accounted for 28 per cent of all foreign purchases in the private residential market in 2011, according to a study by Savills.

China has also been the second-largest tourism market for Singapore over the last decade, according to the Singapore Tourism Board.

As such, any slowdown in China would have a ripple effect in those sectors here.

“If Chinese tourist arrivals start to decline, the effect will be felt across the entire tourism value chain from the hotels to retail outlets, casinos as well as the F&B business,” said Mr Seah.

Regionally, our South-east Asian neighbours, whose economies are more dependent on China, are also expected to be affected, possibly more severely, by events in the Asia powerhouse, said UOB Senior Economist Suan Teck Kin.

While it would be prudent to keep an eye on events in China, the sluggish growth there would not be “fatal” for Singapore, he added.

“It will be nice to have China doing well, but the country is not in a crisis situation. The days of strong double-digit growth are behind us, and this is now the new normal … Of course we still have to be mindful, but the situation is not fatal for us.”

Mr Seah from DBS cautioned that the restructuring of Singapore’s domestic economy against the backdrop of China’s moderating growth could prove to be a double whammy.

“Underlying cost pressures within the economy remain high. With inflation risk lingering, room for monetary policy manoeuvring is limited despite the slower growth,” he said.

“While Singapore has benefited greatly from a strategy of engagement with this East Asian dragon over the years, it has also made itself susceptible to the economic cycle within China. Any change in China’s economic policy will impact Singapore,” said Mr Seah. Lee Yen Nee

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