Who You Betting on in the Chinese-Singapore Trade War?

It’s been a few weeks now since the trade dispute between China and Singapore escalated, and the economic damage is clear to see. The tit-for-tat import restrictions and ban on each other’s products have hammered both countries’ economies. The uncertainty is starting to weigh on both businesses and consumers.

While China’s economy has taken a hit, the impact on Singapore has been even more severe. The trade restrictions have been so comprehensive that many fear for the long-term health of its economy. This is particularly concerning, as Singapore has long been considered one of the world’s most financially secure countries. This year, it became the first Asian country to enter the billionaires’ club. With so much at stake, it’s no surprise that the rivalry between China and Singapore is attracting keen interest from the betting community.

China–Singapore Trade War

The trade dispute between China and Singapore is now in its fifth month. Each side has imposed increasingly strict import restrictions on the other, and several rounds of punitive tariffs have been applied.

On June 15, 2019, a 24-hour general strike called by the Chinese Trade Union Federation paralyzed Singapore. More than 2,000 shops and businesses closed, as did several public services. There were also reports of angry mainland tourists turning away from the country. The following day, the government of Singapore announced it would exempt travel agencies and package tour companies from its tourism law, which required all businesses to close and offer workers the day off. This measure was seen as a way to ease the economic pain being suffered by these companies as a result of the trade restrictions.

The tit-for-tat import restrictions have taken their toll. In the 12 months to September 30, 2019, Singapore’s overall trade dropped by 6% year-on-year, falling to $66.9 billion. Meanwhile, the value of China’s imports to the island state shrank by 11% to $52.2 billion over the same period.

China’s economy is currently suffering through its own version of a trade war, with the U.S., the EU, and other major trading partners, including Singapore, Canada, and Mexico, hitting it with a combination of tariffs and non-tariff barriers. In the most recent update of its economic forecast, the International Monetary Fund (IMF) slashed its global growth forecasts for this year and next, pointing to the impact of the trade disputes.

Short-Lived Impact

While much of the international media has devoted considerable time to covering the economic impacts of China’s trade disputes, much less attention has been paid to the short-term economic impacts these disputes are having on Singapore. In fact, with some major exceptions, the bulk of media coverage has been directed toward Beijing and its demands, rather than how Singapore is handling the matter.

One of the reasons behind this is that, in the grand scheme of things, China’s imports to Singapore are relatively small. In 2018, China was Singapore’s third-largest export market, accounting for 9% of total exports. The following table shows the top 10 countries of origin for Singapore’s exports and imports in 2018.

Even a cursory glance at the table shows that, while China is an important market for Singapore, its share of Singapore’s total trade is fairly small.

The Growing Threat To Singapore’s Economy

Nevertheless, the impact of the trade dispute on Singapore’s economy is significant. The country depends heavily on trade for its economic well-being; over 75% of its economy comes from exports alone. As one of the most open of the major Asian economies, Singapore has always prided itself on being a trade-driven and investment-friendly investment destination. The ban on some Chinese manufactured goods has clearly not helped to promote investment, as the following table shows; there were some signs the crackdown on foreign companies was having an effect, with Chinese investments falling 71% in 2019.

The steep decline in investment in 2019 was not necessarily a sign of things to come. In fact, in an interview with Nikkei Asian Review, Ong Yeong Chee, Singapore’s secretary for economic affairs, stressed that the island’s economic health was not at risk, but that the slowdown in Chinese investment might just be a blip, especially given that the government had just eased a number of foreign ownership restrictions.

Why Are Singaporeans Betting On China?

It’s clear that there’s a lot at stake as a result of the trade disputes between China and Singapore. Not only do the economies of both countries rely on the export of merchandise to sustain themselves, but the long-term health of both economies is also at stake. While there are a number of factors at play here, including the battle for supremacy in the tech sector, it’s also possible that a large swath of ordinary Singaporeans are simply betting on China at the moment.

What Is The Smart Money Moving?

Singaporeans have been known to be quite shrewd in the stock market, and they’ve certainly been proved right in the case of China. The following chart shows the past performance of selected Chinese equities from January 2018 to March 2021; in Singapore dollars, the blue line indicates the performance of the FTSE ASEAN (Futures and Options) index, a benchmark for investing in Southeast Asia, while the gold line represents the performance of the Shanghai Composite, a benchmark used by many investors across the world.

In absolute terms, both indices are up spectacularly, with the ASEAN benchmark having gained over 40% since the start of the year, and the Shanghai Composite up nearly 30%. Given the headstart gained from a strong start to the year, along with sustained growth in many of China’s big cities, it’s little wonder that investors have flocked to the Chinese market. Many have also pinned their hopes on Beijing enacting some long-awaited economic reforms, believing these will provide the basis for future growth.

While it’s quite possible that the Chinese government will eventually find a resolution to its trade disputes with its Southeast Asian neighbors, in the meantime, much of the world’s attention has once again turned to Beijing, along with a large contingent of smart money moving toward Chinese stocks and other financial products.