Chinese companies set up in Singapore to hedge against geopolitical risk

As many as 500 Chinese companies have quietly redomiciled or registered in Singapore over the past 12 months in a bid to hedge against rising geopolitical risk as tensions between Beijing and Washington escalate.

They follow online fast-fashion retailer Shein, electric vehicle maker Nio and IT services provider Cue, who were among the first to switch parent companies or global headquarters to Singapore, list on the stock exchange, acquire local businesses and form joint ventures in the city state.

Chinese businesses setting up in Singapore is not a new phenomenon, but senior bankers say there is now an “acute” rush by mainland groups to establish holding companies to future-proof their businesses as the west steps up its scrutiny of corporate China.

The exact number of Chinese companies being set up is unclear because Singapore does not disclose origin country in its public statistics. However, one lawyer said his firm’s internal research division found more than 500 new Chinese companies had set up this year in Singapore, which experts noted was a rise from previous years.

Another business advisory group in the city-state that had reviewed the data calculated the number at 400, including family offices, but also asked not to be identified due to the sensitivities involved. Analysts expect the number of family offices — many of which are from China — to be well over 1,000 by the end of this year, compared with 400 at the end of 2020.

“China has a huge domestic market, but increasingly, businesses there work around the world. They know sensitivities arise if they remain Chinese, so they market themselves as international. Singapore, with its strong regulatory system and global reputation, allows that platform,” said Ryan Lin, a director at Singapore’s Bayfront Law. “If those numbers are correct, it would be a huge step up from previous years.”

Singapore is expected to benefit from the trend as it works to establish itself as a centre for global finance and capital flows. In September, it overtook Hong Kong as Asia’s biggest financial hub and became third overall behind New York and London, according to the Global Financial Centres Index.

The city-state is also proving to be a better location for networking and dealmaking than China, where border restrictions and rolling coronavirus lockdowns have limited crucial business travel for executives.

“We call it Singapore-washing, and it definitely helps tick boxes when we present a company to investors if we can say it is domiciled or headquartered or even listed in Singapore,” said an executive at a global private equity firm.

The trend has accelerated. Shein, a fashion company popular with western consumers, has aggressively expanded its Singapore office this year. Since 2021, it has been operated by Singapore-registered Roadget Business, according to filings first reported by Reuters, which one lawyer specialising in US equity listing rules said “could make it easier to list in the US”. 

Nio, the EV start-up that plans to expand into the US market after entering Europe, listed on the Singapore exchange in May this year, despite already being listed in New York and Hong Kong.

The automaker said the listing was important for its “global business development” and an adviser familiar with the deal said the move was partially a hedge to retain access to international finance.

The flotation came at the same time Nio was put on a list of 80 Chinese companies facing expulsion from US exchanges following a stand-off between Washington and Beijing over accounting practices.

Others have established parent companies in Singapore. Cue Group was formed through a merger of three Chinese companies in Shanghai in 2017. Shi Kan, Cue’s chief executive, who divides his time between Shanghai and Singapore, said the company was originally founded in Singapore, but most of its 2,000 employees, along with most of its deals, were in mainland China.

Shi told the Financial Times its Singapore office was the “growth engine” for global expansion. There were only 20 staff members in Singapore as of September, but that would double by the end of the year, he said.

Traditionally, Hong Kong was the choice for many such companies, said Kia Meng Loh, a senior partner at Dentons Rodyk. But with Beijing “flexing its muscles” in the semi-autonomous rival finance hub, Singapore is the obvious next choice, he said.

Loh said he was seeing instances where Chinese companies were forming joint ventures with Singaporean entities, pursuing a merger or buyout, hiring Singaporean management and employees or including Singaporeans on the board.

One such company is St Louis Medical Devices, a joint venture set up in Singapore in 2020. The shareholders are a US company that specialises in technology to measure blood sugar levels without a needle and its Chinese partner, which injects capital and raises funds. George Chen, managing director of the joint venture, said Singapore was the “gateway to Asia”.

Anti-China sentiment in crucial markets such as India has also created obstacles for some Chinese companies, especially those designing apps for mass consumption. Lawyers and bankers cite instances where Chinese companies had redomiciled in Singapore specifically so they could launch apps in India without the “baggage”.

Singapore’s government is closely watching the trend to ensure no rules are broken. New regulations from December will require Singaporean entities to record nominee shareholders and identify controlling executives.

“There is a bright future for Singapore, but it has to be handled properly, and the government here has been taking the right steps to optimise the opportunity for the country,” said Greg Kallinikos, Asia chief executive of StoneX, a Nasdaq-listed international financial services company. Kallinikos said Singapore’s legal system is reassuring to the global investment community.

“The minute you hear [a company] is Singapore-incorporated, jurisdictionally it gives you a lot of confidence,” he said.