Love-hate with Chinese goods

CHINESE products are flooding Malaysia, and the usual suspects are increasingly coming under fire.

From Shein to Lazada and other cross-border eCommerce platforms like TikTok Shop, Taobao and Pinduoduo, the growing availability of inexpensive Chinese merchandise has raised concerns about the survival of local businesses.

The concerns are not without merit.

Chinese manufacturers are producing goods at prices Malaysian companies struggle to match, while online platforms are making it easier than ever for consumers to buy directly from overseas sellers.

This debate, however, overlooks a fundamental irony.

Some of Malaysia’s most successful homegrown retailers are themselves heavily dependent on Chinese products.

In other words, the same Chinese manufacturing ecosystem that threatens certain Malaysian businesses is also helping others flourish.

Consider MR DIY Group (M) Bhd, one of Malaysia’s most recognisable retail success stories.

According to RAM Ratings, products sourced from China account for approximately 70% of the group’s cost of goods sold.

This is hardly surprising.

The company’s business model revolves around offering an extensive selection of household products, hardware, stationery and other everyday essentials at competitive prices.

Access to China’s enormous manufacturing ecosystem gives it the purchasing power, product variety and cost advantages needed to sustain that proposition.

In the case of Padini Holdings Bhd, which has 151 own stores in Malaysia and nine across Cambodia and Thailand, the company procures about 60% of its products from China.

The group is the parent of Padini Concept Store and Brands Outlet, and one of its well-known brands is Vincci.

Eco-Shop Marketing Bhd, which predominantly sells household items at RM2.60 in Peninsular Malaysia and RM2.80 in Sabah and Sarawak, provides another interesting example.

Earlier in August, AmInvestment Bank Research said about 60% to 70% of Eco-Shop’s products are sourced from China and of that about 90% is yuan-denominated.

Meanwhile, ACE Market-bound Panda Eyes Group Bhd is almost entirely reliant on China.

In the financial year of 2025 (FY25), products sourced from China represented 96.34% of the group’s total purchases.

In its draft prospectus, Panda Eyes said it does not undertake in-house manufacturing of its products, even though it possesses in-house design capabilities.

The procurement figures reveal something important.

Chinese sourcing is not merely an incidental feature of Malaysian retailing.

For some operators, it is central to their commercial competitiveness.

And there is nothing inherently wrong with that.

Retailers exist to serve consumers, and consumers naturally gravitate towards affordable products, particularly when household budgets are stretched.

The bigger question is whether Malaysia is becoming increasingly comfortable with building successful retail businesses around goods manufactured elsewhere.

After all, there is a fundamental difference between creating a Malaysian retail brand and developing a Malaysian manufacturing industry.

One builds distribution networks, creates retail employment and generates profits through merchandising and sales.

The other develops production capabilities, industrial expertise, technology and potentially a broader ecosystem of domestic suppliers.

Both contribute to the economy, but their long-term economic implications are not identical.

This distinction becomes particularly important as Malaysia confronts intensifying competition from various Chinese manufacturers.

China’s competitive advantage is not simply cheap labour.

It is the result of decades of industrial investment, sophisticated supply chains, manufacturing clusters, extensive infrastructure and enormous production scale.

A Malaysian retailer can source thousands of products from Chinese manufacturers without having to replicate these capabilities.

For many businesses, importing is simply more economical than manufacturing locally.

That makes commercial sense.

True enough, some of the retailers mentioned earlier do enjoy a good margin on a volume-driven business.

Take MR DIY for example. In its FY25, it enjoyed a profit before tax (PBT) margin of 17.1%.

Eco-Shop’s PBT margin stood at 12.1% in FY26 and Padini at 8.6%, although Padini’s earnings have been declining over the years.

All said and done, not all retailers are dependent on China.

In the case of Parkson Holdings Bhd, close to 99% of its FY25 total procurement expenditure was directed towards local suppliers.

This approach, according to Parkson in its annual report, contributes to domestic economic growth and helps reduce transportation-related emissions.

Now, what makes sense for individual companies does not necessarily produce the most desirable outcome for the national economy.

If importing finished products consistently delivers better returns than investing in domestic production, capital will naturally gravitate towards retailing and distribution rather than manufacturing.

Over time, Malaysia risks developing a consumer economy that becomes increasingly efficient at selling products but insufficiently competitive at producing them.

The issue is not whether Malaysian retailers should stop buying from China.

Such a proposition would be commercially unrealistic and potentially damaging to consumers.

Rather, it is whether the country is doing enough to ensure that local manufacturers can participate meaningfully in the supply chains supporting its own retail industry.

There is another dimension to this debate.

For years, Malaysian retailers have benefited from China’s manufacturing efficiency by importing products in bulk, distributing them through physical stores and earning margins along the way.

Now, cross-border eCommerce is challenging that traditional arrangement.

Why should consumers purchase an imported product from a local retailer if they can obtain a similar item directly from an overseas seller at a lower price?

This is where the controversy surrounding Chinese eCommerce becomes particularly interesting.

The competitive threat is not necessarily the arrival of Chinese products.

Those products were already here.

What has changed is who controls the distribution channel and captures the retail margin.

Previously, Malaysian retailers could use their sourcing networks, store locations and inventory management capabilities to connect Chinese manufacturers with local consumers.

Digital platforms have weakened some of those advantages by allowing overseas sellers to reach Malaysian households more directly.

It is notable that the main eCommerce platforms are also largely China-linked.

Lazada is part of the Alibaba Group, TikTok Shop by ByteDance, whileTemu and Pinduoduo are sister companies under Chinese firm PDD Holdings that is listed on Nasdaq.

Shopee, on the other hand, is owned by Singapore’s Sea Ltd. Interestingly, the billionaire trio who founded Sea were born in China and two of them came to the city-state on Singapore’s government-backed scholarship.

In effect, the manufacturing ecosystem that helped Malaysian retailers expand is now enabling new competitors to challenge them.

That does not mean local retailers are destined to lose.

Panda Eyes benefitted from these digital platforms and in FY25, over 58% of its total revenue was contributed by online sales – conducted primarily through Shopee and TikTok Shop.

Meanwhile, immediate product availability, convenient store locations, quality assurance, after-sales service and the ability to inspect merchandise remain valuable advantages of physical presence.

But it does mean that importing inexpensive products and reselling them at a markup may no longer be sufficient to guarantee long-term success.

There is also a legitimate regulatory question.

If local retailers must comply with Malaysian taxation, product safety, labour and operating requirements, comparable obligations should apply to overseas sellers competing for the same customers.

Fair competition requires a reasonably level playing field.

However, regulatory intervention should not become a convenient excuse to protect inefficient businesses from competition.

Higher import barriers could raise consumer prices while doing little to improve the underlying competitiveness of Malaysian manufacturers.

More importantly, the broader trade relationship cannot be reduced to cheap consumer merchandise.

China is Malaysia’s largest trading partner, and a substantial portion of Chinese imports consists of intermediate goods and capital equipment that support domestic production.

According to the World Bank, intermediate goods accounted for 48.3% of Malaysia’s imports from China in 2025, while capital goods represented another 20.3%.

Consumer goods accounted for 14.9%.

This distinction matters because restricting imports indiscriminately could hurt the very Malaysian manufacturers policymakers hope to protect.

The challenge, therefore, is to distinguish between imports that strengthen domestic productive capacity and those that displace potentially competitive local industries.

Malaysia should also examine how its successful retailers can help nurture domestic manufacturing.

Large retail chains possess valuable information about consumer demand, purchasing patterns, product specifications and pricing.

These capabilities could support partnerships with Malaysian manufacturers, particularly small and medium enterprises seeking access to larger distribution networks.

Retailers could collaborate with domestic suppliers on product development, private labels, packaging and quality improvements, rather than relying predominantly on importing finished merchandise.

Building stronger domestic supply chains should be viewed as a strategic economic objective.