Business as usual as ‘people still spending’
For Singapore companies with businesses in China, the weakening yuan has been a mixed bag.
The falling currency affects margins for some, and the slowdown in the Chinese economy has dragged down revenues. But for others, surprisingly, it is business as usual.
Mr Jason Lim, general manager of Singapore-based Epita Semiconductor, told The Straits Times on the phone from Wuxi, a city near Shanghai in eastern China, that he is watching the exchange rate closely. If the yuan drops by another 5 to 10 per cent, he will start losing money on some products he sells.
"Thirteen years ago, when we started trading in semiconductor parts in China, our sales were denominated in the United States dollar. The yuan started strengthening steadily over the years, and we switched to selling in yuan about three years ago," says Mr Lim, who is on a monthly visit to China to see clients and check on operations.
Though Mr Lim has diversified the business into engineering services, 40 per cent of it is still in trading and he is feeling the pinch from the yuan's recent rapid weakening.
Most of the semiconductor parts he sells in China are sourced from the US, Japan and Europe. So he buys in US dollars and sells in yuan.
"One or two years ago, no one would have thought that the yuan will stop appreciating. But it's a reverse trend now," he says.
His biggest concern is that he may have to raise prices for some products or tell his Chinese customers to go to another supplier if the yuan weakens further. As a small business with an annual turnover of around 15 million yuan (S$3.3 million), there is a limit to how much his business can stomach in terms of exchange rate losses.
However, despite eroded margins, Mr Lim has not seen sales volume slow. The demand for his engineering services is also still very strong. Overall, there are no visible signs of a slowdown in the semiconductor industry in China, he says.
"This industry receives a lot of support from the government. It's pretty stable," he notes.
But he observes that the oil and gas industry as well as the construction and property sectors are badly hit.
FINANCE SECTOR'S SILVER LINING
A Singapore business owner in southern China paints a gloomier picture for his area of interest, the financial sector - although this could mean opportunities for his company.
According to Mr Lennon Tan, group chief executive of Jing King Technology Holdings - which makes credit and debit cards, and provides business process services to banks - business sentiment is bad.
"Overall, businesses in China are bracing themselves for a tougher year ahead. Bank lending will be tight, and collections will be tough, yet the costs like labour and rentals will continue to rise," says Mr Tan, whose company employs 2,000 people. Mr Tan's customers are banks, financial institutions and the Chinese government. They are now slowing or deferring purchases as they hold back on expansion plans.
Mr Tan expects lower revenue and keener price competition from other industry players.
And he foresees significant layoffs in the financial sector - which could provide his company with more opportunities in business process outsourcing and banking automation.
"The banks may start outsourcing more to trusted service providers like us to reduce costs and overheads," he says.
However, some Singapore companies in China, especially those providing services to consumers, seem rather unaffected by the slowdown.
Dr Cheah Kim Fee, chief executive of Q&M Dental Holdings (China), says it is business as usual for the dental chain in north-eastern China.
"We are watching the trend closely but right now we're on track with our plans in China for this year," says Dr Cheah. The Singapore dental chain has three hospitals and eight polyclinics, with more than 100 dentists, in Liaoning province.
"There has been no change in our patient patterns - they have been requesting the same kind of treatments and there's also been no change in pattern of payment - we have not seen delays in their payments," he adds.
Dr Cheah says he has not noticed anything unusual economically in provincial capital Shenyang. "While the macroeconomic numbers are there, I've yet to see a big change (in consumer sentiment).
"If my flight (from Singapore) to Shenyang is any indication, it was a full flight," he quips.
BRIGHT IN CHONGQING
Another Singaporean businessman, Dr Richard Yen, who runs a chain of 56 pre-schools in China, mostly in the south-western city of Chongqing, echoes Dr Cheah's sentiments.
For his business, things have not changed much in the recent months. "There is still a pipeline of schools that we are opening in China this year," he says.
He observes that the pre-school sector has been doing fairly well so far. "Unless the parents really cannot afford it, they will not take the child in and out of a school on a short-term basis," he points out.
Though not based permanently in Chongqing, Dr Yen visits the city from time to time. He notes that "consumerism is still very lively in the city", with no signs of any slowdown. He sees crowds everywhere in the key shopping areas in the city.
"People are still spending. And some of the meals are not cheap by Singapore standards," he adds.
But on the flipside, he also notices that several new huge high-end malls are "totally empty".
"It could be very scary when you looked at these malls. I wonder how they can sustain," he says.
But he points out that it could be a case of China having too many malls and the shift to shopping online is taking a toll on the retail industry.
Dr Yen adds: "China is very big. It's very likely that the slowdown doesn't affect the entire country across the board.
"In many ways, life is still normal. There may be some indications that things are not quite right, but, in some other ways, you don't feel that there is a slowdown at all."