China and Singapore: Cushioning the impact of economic slump

It is widely believed and accepted that the winds of change and development have shifted direction from the Western hemisphere to Southeast Asia. As if to confirm this belief, the last few years saw great leaps of ASEAN countries like Malaysia, Indonesia, Thailand and the Philippines, holding their own against developed economies. This despite going through a series of economic crunches, catapulted by the infamous Asian Financial Crisis of 1997 that literally broke the camel’s back in terms of stability and created a contagion effect on the Asian market.

Recently, however, speculations are ripe on the extent of possible loss that can be inflicted as a result of China’s economic slump that has reverberated to most of the Asian economies. Singapore, which has long attained the tiger economy ahead of others in ASEAN, is experiencing its worst crunch in years, likely brought about by too much exposure with China. Added to the woes are the influences of other major economies, significant to Singapore’s international trade, particularly the Western economy that brought down the value of the Singapore dollar (SGD).

Singapore’s predicament was to an extent brought about by its trade relations with China which is estimated to be around 11.8 percent of its aggregate trade transactions. Economic authorities of Singapore predict that further depreciation of the Singapore dollar is in the offing. This was aggravated by the fact that the United States economy has been performing well lately resulting in its strong performance against other currencies. Current figure shows that the value of the SGD against the U.S. dollar (USD) is 1.44 SGD against 1 USD when in fact it was around 1.34 SGD to 1 USD a year ago.

China’s economic slowdown has contributed a lot to the contraction of the economy of Singapore, as China’s dropped in export performance by 6.8 percent for 5 consecutive months, year-on-year was worse than expected. And this does not seem to be the end of China’s economic woes. According to a source, “China was Singapore's No. 1 trading partner in 2013, with bilateral trade of 115.2 billion Singapore dollars ($91.4 billion), up 11 percent on year and surpassing Malaysia.”China’s decision to devalue or control the price of the Yuan was prompted by the need to strengthen their export which, if not immediately addressed, will further pull down not only China’s economy but will likewise impact other  countries, as most have considerable amount of interest in China’s trade affairs.

China’s economic slowdown has contributed to the contraction of the economy of Singapore.

But for now while the impasse has not reached its “progressive stage,” the most sober approach is to bring down the price of export products to be made available for buyers, and the best way is to devalue Yuan and relax the rules and regulations for exporters to attract foreign buyers. As it is, most countries are experiencing an economic slump brought about by the long spell in the Western economy, which despite the recent slow recovery has been doused with cold water by a significant slump and recess in China.  

This puts further pressure on the SGD as Singapore is a big supplier of China’s electronic products and raw materials for gadgets and mobile phones. The country’s shipping industry, meanwhile, contributes immensely to facilitate world trading. Singapore’s floating currency may not work to its advantage as its value will continue to depreciate against the US dollar considering the forecasted improvement of the US economy against the contraction of its manufacturing sector. Although positively, export market will flourish because the buying country needs to pay less, or put in another way, they will pay less for more products. On the other hand, imported products become more expensive than usual.

We should bear in mind that Singapore is bereft of natural resources and can only rely on manufactured products and technology. It is safe to assume, therefore, that for Singapore to earn its bread and butter, it needs to re-export its products. Unless Singapore can explore other possibilities, where its economic reliance is not dependent on big trading partners, Singapore will be highly vulnerable to the economic fluctuations and influence of its trading partners. 

We should bear in mind that Singapore is bereft of natural resources and can only rely on manufactured products and technology.

Significance to the Philippines

The Philippines with a GDP growth rate of 5.8 percent in 2015 may be influenced significantly or insignificantly by events in Singapore and China. Singapore ranked as the fourth largest trading partner of the country for 2013 with a total trade amounting to $8.378 billion or a share of 7 percent to total trade, next to Japan, United States and China, a source reveals. The same source reveals that People’s Republic of China placed third among the Philippines biggest trading partner accounting for 12.7 percent or $15.098 billion total trade in 2013.

The percentage share of Singapore and China’s trade to the Philippine economy is about 20 percent of the total trade transactions for the entire 2013 and this share total to about $23.8 billion in economic benefit. At the current rate of P47 to a dollar, the amount is equivalent to P1.118 trillion. The amount is equivalent to more than 33 percent of our national budget for 2016. To say that we are unaffected by the current economic turmoil in these two mammoth trading partners is an understatement.

The Philippines needs to counter its vulnerability to whatever economic slump may be experienced by its large trading partners. Developing products that are internationally competitive should be the order of the day for the local front lest we become passive to world trading movements and competition. The 3rd quarter GDP report showed that the Philippines is a net importer of goods which does not augur well with its thrust of achieving a higher milieu in global economic rankings.  

The Philippines needs to counter its vulnerability to whatever economic slump may be experienced by its large trading partners.

It is therefore incumbent upon the local economy to find ways and means for an alternative way and resolve that will cushion the impact of a worldwide economic slump by maximizing growth, productivity and development at least in the local market.

Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own.  For comments email: [email protected]