Taiwanese investment in Singapore has surged over the past two years as the city state has become a refuge for money to hedge against the risk of a military conflict with mainland China, according to official data and analysts.
In 2020, just S$3.69 billion (US$2.8 billion) in Taiwanese money reached Singapore’s enterprises, funds and other assets after only S$1.48 billion made it in 2019.
But direct investment flows from Taiwan to Singapore reached S$7.21 billion (US$5.4 billion) in 2021 and S$6.1 billion last year, according to Singapore’s Department of Statistics.
“In Taiwan, what they have on their minds is a lot of uncertainty, given the tense relations with China,” said Kent Chong, managing director at professional services firm PwC Legal in Taipei, who manages clients looking to take money off the island.
“There is anxiety on the part of their funds.”
Taiwanese investment funds, companies and wealthy individuals favour Singapore over other countries because they believe it is politically “neutral” with options for residency, if needed, Chong added.
The turn toward Singapore may have started because of strict coronavirus controls that “undermined business activities” in mainland China, said Wang Wei-chieh, a Taiwan-based foreign affairs analyst and inbound foreign service master’s student at Georgetown University.
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Taiwanese businesspeople have, Wang added, traditionally favoured investing in mainland China.
Since the 1980s, Taiwanese investors have regarded mainland China as a place to manufacture goods for the Chinese market or for re-export to other countries.
But lockdowns flared up in early 2020 and again last year, hobbling factories and slowing shipments of goods through ports.
“Also, the rising geopolitical tensions between the US and China and across the [Taiwan Strait] could play a role behind these investors’ calculations,” Wang said.
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Beijing sees self-ruled Taiwan as a breakaway territory that must be reunified, by force if necessary. Cross-strait tensions have risen in recent years and peaked in August, when former US House speaker Nancy Pelosi visited Taiwan. This prompted massive military drills by mainland China in the waters near the self-ruled island and trade sanctions on Taiwan exports.Many foreign business operators in Taiwan have their own contingency plans in place in case of any potential conflict with mainland China, the American Chamber of Commerce said in February, which analysts have said could involve moving assets and foreign staff.Singapore makes sense for Taiwan because of its geographic proximity, its role in the growing supply chains of Southeast Asia, and its reputation for rule of law, according to Wen Wei Tan, an analyst at the Economist Intelligence Unit.
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Some offshore investors reach Singapore on their way to buying fixed assets, such as factories, in neighbouring Malaysia or Indonesia, said Song Seng Wun, a Singapore-based economist at CIMB Private Banking.
They view their money as being “safe” in Singapore, he added.
A spokeswoman for Singapore’s Ministry of Trade and Industry said the city state draws foreign capital because of its “clear policies and reputation as a stable and neutral country”.
Louis Liu, founder and CEO of Taiwan-based family investment office Mimesis Capital, said he is considering opening an account in Singapore because of “demand” in Southeast Asia, while he also sees possibilities in cross-border trade around Asia.
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Mainland Chinese also increased their exposure to Singapore over the past two years, the data official showed.
Inward direct investment from mainland Chinese individuals and institutions reached S$8.7 billion (US$6.5 billion) in 2021 and S$9.28 billion last year, up from just S$2.19 billion in 2020.
Investors in Hong Kong – who analysts believe to be largely mainland Chinese bank account holders – parked slightly more than S$10 billion in Singapore last year, up from S$3.45 billion in 2021 and S$1.68 billion 2020.
“Covid-zero policies and the resulting lockdowns made many successful, rich businesspeople and their families realise the system in China has embedded a lot of institutional uncertainty about their wealth, their business, and their families,” said Chen Zhiwu, chair professor of finance at the University of Hong Kong.
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Chinese investors wanted to increase their positions in Asia to avoid the impact of virus restrictions, Taiwan-based foreign affairs analyst Wang added, after Beijing only cut back on lockdowns in December and lifted international travel restrictions in January.
But Chinese investors looking at Singapore still worry about “physical harm” in the event of a conflict between the US and China, Chen added.
Beijing imposes strict controls on cross-border capital flows, an excess of which could destabilise the centrally managed yuan currency.
“It’s clearly a question everyone should try to think about,” he said. “Chinese monetary control is tighter now than before.”
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