Ly Chong, chief operating officer at Hybrionic Pte Ltd, a Singaporean hybrid microcircuit producer which employs nearly 300 people, says his business has been “drastically” impacted by the US-China trade war.
The company builds electronic circuits and modules used in automobiles, healthcare devices such as hearing aids and telecommunication electronics. Ninety-five percent of the firm’s products are exported to the US market but its supply chain is linked to China.
“Because of the trade war and our end-customers, we were asked to hold back our shipments of an automotive product that represented 40% of our total sales,” Chong told Asia Times in an interview.
That product, Chong said, has traditionally been sent by his firm to China for assembly into a module which is then shipped to Mexico and the US. Sales volumes of the device have recently drop by some 60% because of US tariffs, he said.
“We are hoping things will not get worse. But even thinking about going back to last year’s volume, there’s no way from what we see because of this trade war issue,” he lamented. “Everybody kind of tightened their belt, the whole industry is shrinking.”
Singapore’s trade-reliant economy is expected to grow at its slowest pace in a decade this year as the city-state’s two biggest trading partners, the United States and China, raise the stakes with a new round of tit-for-tat tariff increases.
The island nation, widely seen as a bellwether for the global economy due to its high exposure to international trade, is caught in the crossfire of a superpower trade war that analysts predict could tilt its economy into recession later this year.
Nowhere is that pinch being felt more acutely than the export-geared electronics sector, which accounts for over a quarter of Singapore’s manufacturing gross domestic product (GDP) and provides components and other parts to supply chains worldwide.
Trade data from Enterprise Singapore, a government agency, showed non-oil exports continuing to fall by double digits for the fifth straight month in July. After a 15.9% drop in May, exports plunged a further 17.4% year on year in June – the largest contraction since early 2013 – followed by an 11.2% decline last month.
The city-state’s electronics sector, led by the semiconductor industry, saw exports shrink by 24.2% in July after a 31.9% drop in June. Apart from the US, trade with Singapore’s top ten export markets fell, with Japan, Malaysia and Hong Kong leading the decline in shipments.
“Heightened global trade tensions from the protracted US-China trade conflict are reflected in Singapore’s economic indicators,” said Han Tan, a market analyst at FXTM, a forex broker. “Open and trade-dependent economies across the region are likely to continue seeing downward pressure on their growth prospects.”
Earlier this month, Singapore lowered its economic growth forecast for this year to almost zero, a further warning sign that its trade-reliant economy is sliding toward a recession.
The city-state now expects GDP to fall between zero and 1%, which could be its worst performance since 2009, revised from an earlier 1.5%-2.5% forecast. Singapore’s GDP grew by 3.1% in 2018 and 3.7% in 2017.
Lackluster growth and an ongoing export slump have already cost many jobs, with retrenchments rising 40% in the first quarter of 2019 year on year, driven mostly by manufacturing sector cuts. Chipmakers across the city-state are said to be holding back on hiring and new capital investments.
The semiconductor industry – which produces the electronic components used in products such as smartphones, laptops and automobiles – accounts for more than 7% of Singapore’s total economic output and employs around 35,000 workers, making it one of the country’s largest employers.
Semiconductors made up 28% of Singapore’s total manufacturing output in 2018 and 76% of its electronics production, according to official data. Based on estimates by the Economic Development Board (EDB), a government agency, the city-state accounts for 11% of the global market share for semiconductors.
After a surge in global demand in recent years, global semiconductor sales are expected to decline 12-13% in 2019 according to industry estimates, due to trade tensions, slowing consumer demand and technology cycle maturation. US action against Chinese telecoms firm Huawei, the world’s biggest telecoms equipment maker, has also impacted Singapore.
“Singapore’s supply chains are highly exposed to China-linked production networks hit by the US tariffs and so, it has been caught in the crossfire. China imports a lot of Singapore semiconductor products and Huawei has also been receiving these imports,” Rafi Glass, an analyst at Trade Finance Global, a London-based finance broker, told Asia Times.
“The trade tensions have led to tariffs on dealing with Huawei and that has indirectly affected what they import from Singapore. Slowing global growth at the moment, though, is really what is having a negative impact on Singapore’s semiconductor industry. Many firms have been forced to downsize and make headcount reductions,” he said.
Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association (SSIA), believes chipmakers in the city-state are prepared for a recession should it occur. “Companies here have really seen a slowdown in business for the last two quarters and I think everyone believes this will continue for at least another quarter or so,” he told Asia Times.
There are bright spots, however, with expectations that a trend towards 5G adoption will spur an upturn for the semiconductor industry. In July, Singapore launched a S$40 million (US$29.5 million) initiative to test how 5G networks can be utilized in port management, manufacturing and consumer applications ahead of a planned rollout in 2020.
“This time around we’re seeing a more optimistic view in terms of sustaining, maintaining and waiting for the upturn again. Companies are also very careful in terms of reacting too fast to the slowdown, because the uptick, once it happens, we know the demand for next-generation communication technologies will be there,” Ang told Asia Times.
“Despite the whole Huawei fiasco, you can see countries are still installing their 5G networks and doing their testbeds. Eventually, the world will require it. I think companies are optimistic about that,” he said, adding that one of SSIA’s focus areas is supporting SMEs, “the ones being affected the most” by the downturn, as they upgrade their staff.
Nearly one thousand service sector SMEs surveyed in a poll released this month by the Singapore Chinese Chamber of Commerce and Industry (SCCCI) showed that around 63% of businesses are most concerned about the ongoing trade war and around 39% foresee lower revenues in 2019, up from 27% polled a year earlier.
More than half, or 54%, expected their profit margins to fall this year, compared with 45% of respondents who said so in 2018. Seventeen percent said they would cut back on manpower, up from 14% surveyed last year.
Chong’s Hybrionic is among those mulling a headcount reduction if the trade climate worsens.
“We had a record sales month in April of this year. Then in May, it dipped. In June, it dipped further. July was slightly better. Each time the company is faced with all this uncertainty, we cut back,” he said.
Hybrionic, which was established in 1991, has scaled back its overtime hours to zero and, according to Chong, is planning to “shrink down to survive” if a recession roils the city-state, with a downsizing that could see 10% to 20% of the firm’s staff retrenched.
“We tell our components suppliers that everything is on hold. Normally we would want to carry more inventory, but because of this uncertainty, we don’t want to hold any more stock,” he said.
Chong said the US businesses his firm deals with are “pulling out” of China, opting instead to expand their operations to the Philippines and Malaysia, where Hybrionic has operated a plant since 2014 that now accounts for 60% of its manufacturing output.
“I think over the next one to two years, there will be a lot of people exiting the Chinese market,” he said. “For the next six months, we’ll see how we can ride through by holding off on new investments and recruiting new staff. I would say we’re planning for the worst, lah.”
Additional reporting by Tan Kelu in Singapore