S'pore firms in China fret over costs but remain upbeat

S'pore firms in China fret over costs but remain upbeat

SINGAPORE - Singapore companies with a presence in China are concerned about the country's rising costs and slowing economy but remain optimistic about its longer-term prospects.

Mounting concerns over a possible credit crunch in China are fuelling worries that the world's second largest economy will continue to lose steam.

Two weeks ago, the People's Bank of China did not intervene to ease an unprecedented liquidity crunch, allowing interest rates in the interbank market to shoot up to as high as 30 per cent.

In a country where double-digit economic expansion was previously the norm, the inaction by the central bank was seen by many as a clear sign that China's new leaders are willing to undertake economic reforms at the expense of growth.

Singapore companies told The Straits Times that the slowing economy is beginning to crimp their near-term bottomlines.

Armstrong Industrial's deputy chief executive Steven Koh said sales in China for the company's electronics business, which tends to be sensitive to economic cycles, were down 10 per cent in the first quarter, compared to the same period last year.

Armstrong Industrial has eight factories in China producing electronic components and automotive foam products.

Similarly, Mr Chris Leong, managing director of Leung Kai Fook (Guangdong) Medical, said the company's agents and retailers have reported "sluggish" product sales in recent months.

The company makes and distributes Axe Brand Medicated Oil and other pharmaceutical and health-care products in China.

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