US-China trade war slows down demand for Singapore businesses

Singapore businesses exposed to the international environment are feeling the negative effects of the US-China trade war as both countries introduce tariffs on each other's goods, and orders from customers in China slow down.

Among the top concerns among Singapore SMEs is cash flow. While one in every three firm is facing external finance-related issues, there is an increase in those bracing for delayed payments from customers.

Today Online interviewed Sam Chee Wah, general manager at Feinmetall Singapore, whose products are used for testing semiconductor wafers. Sam said the climate of uncertainty means he is freezing hiring and major capital investments. He is also considering offering discounts or delayed payment terms to customers.

When not even payments, but lack of demand, is an issue, businesses have to decrease production and fire workers. Chipmakers in Singapore have started doing exactly that. The sector is in a slump, and as it comprises nearly one-third of Singapore’s manufacturing output last year, it could signal an impending recession for Singapore's export-driven economy.

According to the 2018 SME Development Survey by DP Info (now rebranded as Experian), delayed payments from customers went up to 84% from 81% in 2017. This has caused SMEs to have difficulties managing their finances. In 2018, half of SMEs said that their top concern on this front was the difficulty in managing cash flow, liquidity and credit risk – up significantly from 38% in 2017.

The survey also found that 15% of SMEs projected negative turnover growth for this year, up from 11% in 2017. Only 40% of the surveyed SMEs expect turnover growth this year.

In China, companies suffering from lower demand are stretching payment terms to sustain their businesses. Research by credit insurer Coface found that in 2018, average payment terms in the country went up to 86 days, up from 76 days in 2017.

China's economy grew only 6.6% in 2018 and did not improve in its latest quarter as it grew only 6.2% from April to June this year. Economy growth is affected by tight liquidity conditions and the ongoing US-China trade war. The Chinese economy will continue to face "downward pressure" for the rest of this year, the country's National Bureau of Statistics has said.