China remains attractive to Singapore investors

China remains attractive to Singapore investors as a potential market more than as a place of low cost for production, a latest survey of Singapore companies showed.

The survey by trade promotion agency International Enterprise (IE) Singapore showed that 80 percent of the Singapore companies cited the market potentials in China as one of the key drivers for their decision to do business in China, it said in a report.

Only about half said one of the reasons was to seek lower cost.

Some 40 percent of the companies said they now have made it their primary strategy to not only produce in China, but also for China, so as to capture the demand generated by the fast-growing market.

Eleven percent of them are importing goods and services into China, too.

"There are compelling reasons for our companies to stay in China. These include a growing domestic consumer market that is becoming more differentiated, as well as the potential of emerging and fast developing provinces and cities," said Yew Sung Pei, assistant chief executive officer of IE Singapore.

"The gradual liberalization in policies and changing socioeconomic trends also present new opportunities that were not available before," Yew added.

Even when faced with the challenges of intense competition and rising costs, such as labor cost, they remain committed to China.

Eighty-six of the respondents are not considering moving any part of their investments in China to other markets, despite the attractive market conditions that have emerged in many Southeast Asian countries in the past few years.

About 48 percent said they plan to increase their investment in China over the next two to three years, while 41 percent said they plan to increase their workforce.

The survey also found that 34 percent the respondents were expecting their earnings before interest and tax to increase or increase substantially for the year 2012, while 37 percent were expecting no change under tougher market conditions.

The survey also found that Singapore companies have moved into relevant sectors in which China has the needs and they have the comparative advantage. In recent years, more Singapore companies entered the lifestyle business sector in China.

IE Singapore said it sees potential in China's services sector. In business services, for instance, Singapore currently only has 1 percent of the foreign services market in China, which is worth 360 billion U.S. dollars.

Trade and investment between China and Singapore have been growing fast over the past decades. China is now Singapore's third largest trading partner, and Singapore is China's the third largest source foreign director investment and the seventh largest investment destination.

Singapore companies invested 6.3 billion U.S. dollars in China last year, up 3.4 percent year on year. Close to 1.2 million people from the city state of 5.31 million visited China last year.