Other Briefings2023 Foreign Investment Opportunities in Singapore
Following where China has been spending and investing its Belt & Road Initiative capital can provide FDI clues and reveal new opportunities in recipient countries. As infrastructure builds start to yield productive user cashflows and the need for subsequent support services arises, case studies for investment potential become apparent. In this new series, we will be examining where China has spent its money and where returns on investment exist for foreign investors in piggybacking onto opportunities created by the BRI build.
Singapore has been a consistent recipient of Chinese investment for some time, and its geostrategic position as the heart of the ASEAN free trade bloc, with free trade access also to China and India, has made it a hub for many Chinese investors. This has manifested itself primarily in the drive to digital economies and is building Singapore up as a key node for Asia in new tech. Plenty of money is being both raised and made via Chinese investments into various Singapore-based initiatives in crypto, fintech, blockchain, and AI.
This, coupled with extensive infrastructure connectivity plans uniting Singapore to ASEAN and the development of numerous free trade zones on outlying islands is seeing Singapore take on a highly competitive global role for foreign investment into the South Asian region. Savvy Chinese investors have also been able to score big with initial investments reaping significant rewards at subsequent IPO.
Both light manufacturing zones and a nationwide digitization program are seeing Chinese investments made in conjunction with the China-ASEAN Free Trade Agreement and the recent RCEP agreement – Singapore is a member of both ASEAN and RCEP and this shows how both have been combining development with free trade and developing the countries manufacturing to allow it to become a China financial capital alternative.
Background
In 1994, Singapore and China launched the Suzhou Industrial Park (SIP) project. One of the world’s first Special Economic Zones, attracting manufacturing via low tax rates, in the 30 years since the official establishment of diplomatic ties, SIP has been a landmark project and a forerunner of subsequent international/BRI SEZs.
Suzhou’s regional GDP in 1994 was circa 72 billion RMB. (US$10 billion). This figure more than doubled to 154 billion RMB in 2000, exceeded 1 trillion RMB in 2011, and nearly 2 trillion RMB (US$298 billion) in 2019, trailing only Shenzhen and Guangzhou SEZs, formed circa 1980, and laid the foundation for Chinese investments into Singapore and the wider ASEAN region ever since.
Trade
In 2021, Singapore-China bilateral trade reached US$97 billion, with the balance roughly 10 percent in China’s favor. What is noticeable in China’s behavior towards Singapore is that the country returns on infrastructure and technological investments that are driving the profitable element of investment relations while trade, while significant, is a secondary part of the overall economic relationship.
Infrastructure
CCI-ILTSC
Since the founding of the China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity (CCI) in 2015, over US$17 billion in cross-border deals (led by Singapore banks) have been signed, US$3 billion in 2021 alone. CCI cross-border financial services help drive the New International Land-Sea Trade Corridor (ILSTC) a trade and logistics passage jointly built by Singapore and provincial-level regions of western China. (Chongqing is the corridor’s operational center). Goods from western China can travel south via rail, sea, and road to access the markets in a shorter time compared with the traditional route from eastern China. CCI-ILSTC serves as a bridge between the Silk Road Economic Belt and the 21st Century Maritime Silk Road.
Other Investments/Commercial Projects
E-commerce
Tencent Shope (Sea) – Tencent participated in five rounds of funding to Sea between 2014 and 2017, investing a total of US$268 million. In October 2017, Sea, the Singapore-based digital entertainment firm (formerly known as Garena) raised US$884 million in its NYSE IPO. By 2019, Sea’s market cap had climbed to US$18.6 billion; by 2020 to US$101.7 billion. In January 2022, Tencent sold 14.5 million shares in Sea in public markets for circa US$3 billion. Tencent’s remaining 18.7 percent stake was worth US$19.3 billion.
Alibaba – In 2016, Alibaba initially acquired a 51 percent stake in Lazada, its e-commerce marketplace in Southeast Asia. In 2017, it added another US$1 billion to its investment increasing its stake to 83 percent. In 2018, Alibaba added another US$2 billion, doubling its investment to US$4 billion. In May 2022, Lazada received a US$378.5 million capital injection from issuing new shares to parent Alibaba Singapore. This raise follows the September 2021 report that Lazada recorded a gross merchandise value (GMV) of US$21 billion ranking it 3rd globally by GMV. Alibaba plans to expand Lazada to Europe (Cainiao; its logistics arm previously opened a hub for European sales in Liege, Belgium).
Digital banking/crypto
Greenland Financial Holdings – In December 2020, Greenland Financial Holdings Group Co. Ltd (Greenland), a subsidiary of the Greenland Group (Hong Kong), led a consortium on its successful application for a digital wholesale bank (DWB) license in Singapore (one of 4 licenses granted). The Monetary Authority of Singapore (MAS), issued a DWB license to the consortium comprising Greenland, Linklogis Hong Kong Ltd, and Beijing Co-operative Equity Investment Fund Management.
In June 2022, GREEN Link Digital Bank (GLDB) owned by a consortium began operations, becoming among the first digital bank licensees to launch in Singapore.
Ant Digital Bank – In early June 2022, Ant Group soft-launched ANEXT Bank, a digital wholesale bank in Singapore following MAS approval for the bank to launch. (the license was approved in 2020). ANEXT will focus on providing digital financial services to local and regional micro, small and medium-sized enterprises (MSMSE) and especially those engaged in cross-border operations.
Blockchain/crypto
In December 2021, Binance Asia Services, the Singapore arm of major cryptocurrency exchange Binance (China), announced that they planned to acquire a stake in a local private securities exchange, Hg Exchange (HGX): the company officially announced the acquisition of a post-money 18 percent stake in HGX, a stock exchange licensed and regulated by the MAS. Later in December, Binance withdrew its application with the MAS for a digital payment token services license.
AI/digitization
In 2018, Baidu teamed up with Asia Mobility Industries (AMI) to launch a new Singapore-based mobility venture fund, called “Apollo Southeast Asia.” This will also help establish a foothold for Baidu to pursue commercialization of its autonomous driving platform in the region, and source strategic partners for its deployment. The fund being launched along with the joint venture includes US$200 million in available investment capital, which will be put into companies working on all aspects of autonomous driving and connected smart transportation services.
AMI works on AI and mobility services, and since 2019 it has been working with Singapore’s transit authority through one of its subsidiaries to develop smart mobility solutions for the region and is now working with four prominent Chinese companies to drive this technology forward.
- Signed an MOU with Geely to develop robo-taxis (AMI believes it can be the largest robo-taxi operator in the region by 2025);
- Has partnered with China’s largest mapping company NavInfo to develop the advanced mapping technologies needed for autonomous taxis;
- Signed a preliminary agreement with CATL to sell its automotive batteries in Singapore; and
- Planning to bring Baidu’s driverless buses, which began mass production in China last year, to Southeast Asia.
Global leadership innovation in infrastructure finance
Bayfront (IABS) – In June 2021, AIIB announced that it was committing US$60 million to Bayfront Infrastructure Management’s (Bayfront) debut issuance of infrastructure asset-backed securities (IABS). AIIB’s anchor investment will set an important benchmark for future IABS, which are a critical part of the market-building process for new asset class creation. Bayfront is a Singapore-based entity with a mandate to invest in and distribute infrastructure debt in the Asia Pacific and the Middle East regions. Historically, Asian infrastructure has been primarily financed through bank loans, which are not suitable for many institutional investors due to investment restrictions. IABS can help bridge the infrastructure financing gap by allowing investors to invest in rated and listed debt securities backed by a diversified portfolio of project and infrastructure loans. The total issuance by Bayfront will offer investors access to a US$401 million portfolio of 27 project and infrastructure loans, primarily with an Asian focus, diversified across 13 countries and eight industry subsectors.
This is AIIB’s second investment related to Bayfront, the first as a 30 percent shareholder Bayfront, approved in 2019. Co-established by AIIB and Clifford Capital, Bayfront is Asia’s first fully-fledged infrastructure securitization platform.
The Keppel Asia Infrastructure Fund – In June 2020, AIIB approved a US$100 million investment as a commitment to the Keppel Asia Infrastructure Fund with co-investment rights for another US$50 million. The Keppel Asia Infrastructure Fund is a closed-end private equity fund with a target size of US$1 billion. The Fund Manager’s parent company, Singapore-based Keppel Corporation, is a leading Asian brand that has established and diversified infrastructure businesses in the region.
Leveraging the Keppel Group’s regional network and project capabilities, the Fund will invest growth and expansion capital into diversified infrastructure projects in the Asia-Pacific region.
Asian data center development
In October 2021, AIIB announced that it would invest a further US$100 million, again with co-investments up to US$50 million, in the Keppel Data Centre Fund II, LP (KDCF II), a closed-end PE vehicle managed by Alpha Investment Partners Ltd (Alpha), a wholly-owned subsidiary of Keppel Capital. Since 2004, Alpha has managed six commingled funds and has executed over 190 transactions across key gateway cities with a gross acquisition value of more than US$26 billion. KDCF II focuses on the development of data centers, that mostly serve emerging Asia and are designed to promote greener digital infrastructure and cross-border connectivity.
Looking ahead
Singapore’s advance estimate of GDP for the second half of 2022 is up 4.8% year-on-year, after growth of four percent in H1 2022. This follows GDP growth of 7.6 percent in 2021 as the economy rebounded from the impact of the COVID-19 pandemic. Singapore’s manufacturing output grew by 13.8 percent year on year in May 2022. According to the World Bank, Singapore is a high-income economy with a gross national income of US$72,794 per capita in 2021. The country provides one of the world’s most business-friendly regulatory environments for local entrepreneurs and is ranked among the world’s most competitive economies.
Singapore investment intelligence
Readers may use the ASEAN Briefing search function at the top of the homepage to find more Singapore intelligence. Just type ‘Singapore’ into the subject box. We also provide investment assistance and research into Singapore, having had an office there for the past 15 years. Please contact us at singapore@dezshira.com for assistance.
Our 2022 Guide to Doing Business In Singapore may be downloaded here.
Also in this series
About Us
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Esen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at asia@dezshira.com or visit our website at www.dezshira.com.
