Chinese diversification helps fuel Singapore start-ups
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Chinese businesses have had to face political tensions with the west, US sanctions that hit their revenues, and severe disruptions from mainland Covid lockdowns. But many have found a simple way to cope with all of this: set up a new home in Singapore.
As a city state of 5.5mn people in the heart of south-east Asia, with a majority ethnic Chinese population, Singapore has long been a popular destination for mainland investment. However, the flows of money, talent and expertise from China have accelerated since 2018, as geopolitics, decoupling supply chains and the pandemic forced a need for diversification.
While its own market is small, neutral Singapore is regarded as a key hub from which to deploy capital into the rest of south-east Asia, home to 675mn people.
This has led about 500 Chinese companies to set up or redomicile in the city in the last calendar year, according to estimates by business groups. The influx has included family office funds, private equity firms and wealth managers. They have all brought expertise and talent from the world’s second-largest economy, experts note, and an eagerness to invest in Singapore’s technology and start-up scene.
Singapore is a “gateway” to south-east Asia and, as such, where many regional start-ups have their holding companies, says Nick Xiao, chief executive of Hywin International, the Hong Kong-based unit of China’s Hywin Wealth.
Chinese investors see massive potential in a region with a young, growing middle class where successful innovation and products from China can be replicated, he adds.
“The financial infrastructure of Singapore has come together to make it the perfect launch pad for Chinese investors wanting to tap into this market,” Xiao says, referring to recent reforms to encourage more investment funds and family offices.
The benefits to the region’s technology scene are not only financial. Chinese exports include entrepreneurs and expertise — many of whom have gone on to start their own technology companies in south-east Asia.
But some start-ups and experts doubt whether Singapore can produce enough talent and sophisticated innovation to put it in the same league as tech-savvy countries, such as Israel.
“There are a few hurdles for Singapore to be a world-class technology hub,” says the head of one private equity group with a presence in the city, who asks to remain anonymous because of the sensitivities involved. “The government needs to make it easier for companies to employ foreign tech talent because there is a tech skills and talent gap here,” the private equity chief explains. “I know a number of start-ups that are employing tech roles outside of Singapore because government rules around foreign visas have become so tight. That has a flow-on effect to the level of cutting edge technology that can be developed here.”
Singapore has, however, climbed to second place in the city rankings for the FT/Statista survey of Asia-Pacific High-Growth Companies in 2023. Tokyo leads the city placings with 82 companies, followed by Singapore with 75, and Seoul with 60 groups on the list.
Chinese capital has helped foster a generation of start-ups in the region. Singapore-based Grab, the super app offering ride-hailing, delivery and financial services, has received backing from Chinese ride-hailing group Didi Chuxing, Hillhouse Capital, and China Investment Corporation. Both Indonesia’s Gojek and Singapore-based Sea, the parent of online commerce platform Shopee, had Tencent as a major backer.
Many mainland investors have also backed Singapore-based venture capital funds, most of which invest across south-east Asia. Insignia Ventures Partners has a number of wealthy individuals and Chinese tech companies invested across its funds.
“As much as south-east Asia start-ups take inspiration from China, there are many layers to the region that cannot be fully understood without a local ‘guide’ or partners,” says Yinglan Tan, Insignia founding managing partner. “This is where a lot of local investors or GPs [general partners] can step in.”
A number of Chinese funds are expanding their Singapore presence as they scout for investment opportunities. Shunwei Capital, which is part owned by Xiaomi founder Lei Jun, is growing its Singapore presence, according to LinkedIn. Shunwei did not respond to a request for comment.
Source Code Capital, another major Chinese venture player that was an early backer of TikTok owner ByteDance, now has a Singapore-based venture partner, LinkedIn also reveals.
Wealth managers are fuelling the growth. Hywin’s Xiao says the company is looking at investing in venture capital funds that invest in south-east Asia, or co-investing alongside the local group and paying them a fee for finding the opportunity.
Others argue that the far greater and long-lasting impact on Singapore comes from the export of business leaders from China.
According to research by Asia Partners, a south-east Asia focused investment group, there are more than 13,000 people who graduated from Chinese universities working in south-east Asia tech, of which 557 are founders, co-founders or chief executives. Most — 68 per cent — live in Singapore.
SCI Ecommerce, a Singapore-based group ranked number 29 on this year’s list, was founded in 2014 by two former employees of Chinese ecommerce giant Alibaba.
SCI — short for Singapore, China, Indonesia — helps multinational companies, such as Unilever or Nestlé, set up and manage online stores in south-east Asia and China.
Geopolitical tensions and the decoupling of China from the west has made south-east Asia more crucial for investors seeking diversification. As the US and Europe grow increasingly hostile to Chinese companies and money, south-east Asia is one of the few regionals globally that welcomes investment from the mainland.
But others question whether the capital inflows and expertise have been enough to put Singapore on the global map, with many investors still focused on short-term returns.
“Creating world-leading technology and exporting or selling that as a product, globally, takes time and Singapore has not got to that point yet,” says Ravi Chidambaram, chief executive and co-founder of Rimm, a Singapore-based software as a service (SaaS) platform for sustainability management.
“There are two ways for a tech company to scale: leverage the size of the market or build world-class intellectual property. As a Singapore tech company, yes, you do benefit from proximity to south-east Asia, but not from the massive tech and data science expertise needed to create that world-class IP. To build that type of ecosystem, you need more patient capital and a more liberal labour regime.”