Singapore-China Bilateral Relations: Trade and Investment Outlook

The evolving trade and investment landscape between Singapore and China reflects both enduring cooperation and emerging challenges as intensified industrial competition reshapes key sectors.

Singapore and China share a longstanding and mutually beneficial trade relationship, with each nation holding significant importance as a trading partner for the other. Over the years, China has consistently ranked as one of Singapore’s top trading partners, while Singapore has remained a key gateway for Chinese companies looking to expand into Southeast Asia. However, this relationship is evolving as both countries navigate changes in global trade dynamics and economic priorities.

Furthermore, the evolving relationship between Singapore and China carries implications not only for bilateral trade and investment but also for the broader geopolitical landscape in Asia at large. Singapore’s strategic location and role as a financial and logistics hub make it a crucial player in the region, while China’s growing influence shapes the dynamics of trade and cooperation in Southeast Asia and beyond. As such, understanding the latest trends in bilateral trade and investment between Singapore and China, along with the legal framework governing their economic ties, provides valuable insights into the future direction of this important relationship.

Singapore-China relations

Singapore and China have long-standing diplomatic ties characterized by mutual respect, cooperation, and strategic collaboration. With historical roots dating back to the establishment of diplomatic relations in 1990, the relationship between these two nations has evolved into a robust partnership spanning various sectors, including trade, investment, and cultural exchange. Over the years, both countries have worked tirelessly to enhance bilateral cooperation, resulting in numerous agreements and initiatives aimed at promoting economic growth and regional stability.

One of the key pillars of Singapore-China relations is economic cooperation. Singapore’s strategic location as a gateway to Southeast Asia offers Chinese businesses access to a dynamic and rapidly growing market. Moreover, both countries have collaborated on major infrastructure projects such as the Chongqing Connectivity Initiative and the Suzhou Industrial Park, further solidifying their economic partnership.

In 2021, Singapore made history by becoming the first nation to ratify the Regional Comprehensive Economic Partnership (RCEP), with China being its largest member. The appeal of the Chinese market to Singaporean businesses lies in its robust growth potential, well-established trade infrastructure, and market readiness, while Singapore offers Chinese companies connectivity and access to flourishing opportunities in the ASEAN region.

More recently, in January 2024, both countries announced the adoption of a visa exemption policy for their nationals, permitting visits of up to 30 days. Effective from February 9, 2024, individuals carrying regular passports and traveling for tourism, family visits, or business purposes can benefit from this new agreement. Signed in Beijing, it marks a significant advancement in strengthening connections between the two countries and simplifying travel for their citizens.

Building upon this momentum, in February 2024, the Singapore Business Federation (SBF) and the China Council for the Promotion of International Trade (CCPIT) collaborated to host the Singapore-China Economic Partnership Conference. Themed “Trade & Investment Opportunities through Enhanced Connectivity), the event aimed to bolster bilateral trade and investment between the two nations. The conference drew around 200 business leaders and government officials. Three Memorandums of Understanding (MOUs) were signed during the event to enhance business relationships, strengthen intellectual property protection, and support business mediation and arbitration. These agreements signify a significant step forward in fortifying the economic relationship between Singapore and China, geared towards fostering closer business ties.

Bilateral trade and investment

Boosted by the rapid expansion of the Regional Comprehensive Economic Partnership

(RCEP) agreement, trade between China and Singapore increased by 4.4 percent year-on-year to reach US$71.9 billion during the first eight months of 2023, according to statistics from China’s General Administration of Customs.

Singapore ranks as the ninth largest trading partner of China, while China holds the position of Singapore’s third-largest trading partner. In 2023, China accounted for 10.1 percent of Singapore’s total external trade.

Singapore’s primary exports to China, based on value-added categories, included electrical and electronic equipment (US$8.06 billion), machinery, nuclear reactors and boilers (US$7.13 billion), plastics (US$3.21 billion), pearls, precious stones, metals, coins (US$3.29), and optical, photo, technical, medical apparatus (US$2.96) according to data from ICT Trade Map.

Meanwhile, in the same year, the main goods exported from China to Singapore were electrical and electronic equipment (US$15.32 billion), mineral fuels, oils, distillation products (US$10.24 billion), machinery, nuclear reactors, and boilers (9.31 billion), ships, boats and other floating structures (US$7.68 billion), and plastics (US$3.20 billon), according to data from ICT Trade Map.

Bilateral investment

The National Business Survey 2023/24 conducted by the Singapore Business Federation (SBF) reveals that China ranks second among the countries where Singaporean companies have established overseas operations and fourth in terms of countries they intend to expand into in the future. In 2022, over 500 Chinese firms were established in Singapore.

Singapore’s allure to Chinese companies as a strategic destination for regional expansion and global outreach lies in its multifaceted appeal. With a reputation for political stability, transparent governance, and a business-friendly environment, Singapore offers a conducive ecosystem for companies seeking to establish a foothold in the Asia-Pacific region. Moreover, its robust legal framework, protection of intellectual property rights, and efficient regulatory processes provide a sense of security and confidence for businesses navigating the global market landscape. This stability and transparency are particularly attractive to Chinese firms, offering a reassuring environment for investment and growth.

Notably, Singapore’s position as a global financial center and technology hub further bolsters its attractiveness to Chinese companies. The presence of major Chinese tech giants like Alibaba, Tencent, and ByteDance, along with a myriad of other tech firms, underscores Singapore’s significance as a gateway to international markets.

Beyond its renowned financial infrastructure, Singapore’s strategic location, multicultural workforce, and strong connectivity make it an ideal hub for Chinese companies looking to expand their regional operations and tap into Southeast Asia’s dynamic markets. As Singapore continues to foster a conducive environment for innovation and collaboration, Chinese businesses find themselves well-positioned to leverage the city-state’s resources and propel their global ambitions forward.

On the other hand, Singaporean companies are continuing their expansion efforts in China, undeterred by short-term challenges, and instead focused on the long-term prospects offered by the Chinese market. With China’s status as a key global manufacturing hub and its evolving digital and green economies, Singaporean firms see ample opportunities for growth and innovation. Supported by organizations like Enterprise Singapore and the Singapore Business Federation (SBF), Singaporean companies are tapping into China’s vast market potential across various sectors, from technology and healthcare to manufacturing and services.

The revised China-Singapore Free Trade Agreement (FTA), signed in 2023, further enhances the business environment for Singaporean investors and service providers, offering liberalized rules and expanded market access.

Among the Singaporean companies expanding in China is Durapower Holdings, a lithium-ion battery manufacturer, which commenced the construction of a sizable factory in Suzhou. This move reflects Durapower’s commitment to meeting the rising demand for its products in China and the wider region.

Additionally, medical concierge Premium Care SG and traditional coffee supplier Kim Guan Guan Coffee are seizing opportunities in China’s booming healthcare sector and consumer market, respectively.

With Singapore’s established presence and expertise in key industries, coupled with China’s economic dynamism and growing consumer base, these companies are poised to contribute to Singapore’s continued expansion and deepening ties with China.

Trade and investment treaties

Singapore-China free trade agreement

Singapore was the first Asian country to sign a bilateral free trade agreement (FTA) with China. Effective since October 2009, and officially replacing the 1085 bilateral investment agreement, the Singapore-China FTA eliminated tariffs on up to 85 percent of Singapore’s exports, with an additional 10 percent of exports going duty-free starting in 2010.

The Singapore-China FTA includes exports like instant coffee, aviation kerosene, and ornamental fish, totaling over US$18 billion in trade value.

Singaporean manufacturers gained a notable competitive advantage over their ASEAN counterparts since the tariffs were reduced before the ASEAN-China FTA, which started on January 1, 2010.

Through the Singapore-China FTA, Singaporean companies secured preferential access to specific Chinese markets. For example, in the healthcare sector, they can hold up to a 70 percent stake in mainland hospitals.

Another benefit of the Singapore-China FTA is the enhanced mobility for professionals. Auditors, accountants, and architects from both countries now enjoy greater flexibility when working across borders. Additionally, Singapore’s Ministry of Trade and Industry highlighted that the CSFTA encompasses various areas, including trade in goods and services, movement of people, investment, customs procedures, technical barriers to trade, food safety, and economic cooperation.

In 2023, the two countries signed an upgraded version of the FTA to deepen trade and investment ties between the two nations. Announced by China’s Ministry of Commerce, the upgraded protocol involves liberalizing services and investment through a negative list approach, opening up more market opportunities for investors and service providers from both sides.

Singapore-China Double Taxation Avoidance Agreement

In addition to the BIT, Singapore and China have also signed a double taxation agreement (DTA), which prevents companies and individuals from being taxed on the same income in both countries. The Singapore-China DTA, effective as of September 2007, supersedes the previous treaty signed in 1986 between the two nations.

The DTA pertains to income taxes imposed by both Singapore and China, covering:

Chinese individual income tax (IIT) corporate income tax (CIT); and

Singapore’s income tax.

Under the Singapore-China DTA, a permanent establishment is defined as a fixed place where a business conducts its activities. This includes any building site, construction, or assembly project lasting more than six months, as well as the provision of services through personnel for periods ranging between six to twelve months (Article 5). This definition outlines the criteria for determining a permanent establishment for tax purposes, ensuring clarity and consistency in tax obligations for businesses operating between the two countries.

Withholding tax rates are outlined as follows:

Dividends: Rates range between 5 percent and 10 percent, with the lower rate applying where the beneficial owner of the dividend is a company (not a partnership) that directly owns at least 25 percent of the capital of the paying company.

Interest: Typically set between 7 and 10 percent percent, with the lower rate applying to interest payable to banks or financial institutions.

Royalties: Rates vary from 6 percent to 10 percent, contingent on the type of royalties paid.

In the context of double taxation relief, China follows the credit method, which means that if income is taxed in both China and another country, the taxpayer can typically claim credit in China for the taxes paid abroad, thus reducing the overall tax burden.

Singapore also uses the credit method to avoid double taxation. Specifically:

When a Singapore resident earns income from China that is taxable in China under the agreement, the tax paid in China can be credited against the Singapore tax on that income. This is subject to Singapore’s domestic laws regarding foreign tax credits.
If the income from China is a dividend paid to a Singaporean company owning at least 10 percent of the share capital of the Chinese company, the credit can take into account the Chinese tax paid by the Chinese company on the profits from which the dividend is paid.

Multilateral treaties

Singapore and China, both members of the WTO, are signatories to various multilateral treaties concerning trade and investment. These include:

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which mandates WTO members to extend intellectual property rights to owners in any member state. It incorporates a most-favored-nation (MFN) clause, ensuring equal treatment for IP rights protection across all member countries. Additionally, it provides mechanisms for dispute resolution and compensation.

The Agreement on Trade-Related Investment Measures (TRIMs), which prohibits the implementation of investment measures that restrict trade between members. This includes measures like local content requirements, which mandate the use of locally-produced goods or services by companies operating in a market.

The General Agreement on Trade in Services (GATS), which grants the most-favored-nation status to service providers of any WTO member, excluding governmental services such as social security, public health, education, and certain services related to air transport.

Source: ASEAN Briefing