The economic ties that bind us

TRADE and investment between Malaysia and China have grown exponentially in recent years on the back of changes in both countries’ economies, with opportunities arising from Asean integration and the rebalancing of growth to emerging Asia.

China has been Malaysia’s largest trade partner in Asean since 2008 with bilateral trade last year totalling RM203.23bil, a growth of 12.5%.

Broken down, exports to China rose 9.2% to RM96.97bil while imports from China grew by 15.7% to RM106.26bil.

The International Trade and Industry Ministry (Miti) describes the relationship between the two countries as a “supportive, nurturing, sustaining relationship that will continue to grow”.

It says frequent high-level visits of government leaders, business delegations and a bond of friendship strengthened through education and tourism have supported relations between both countries over the past four decades.

“Many Malaysian Chinese still have links, either in terms of family or friends, with China and vice versa.

“This has helped to reinforce the interpersonal ties between the two countries,” it noted.

Indeed, the economic, social and cultural ties between both countries go back centuries to a time when Chinese junks plied the trade routes of South-East Asia.

Similarly, today’s China views modern Malaysia as an important business partner in the Asean and wider Asian context due to Malaysia’s strategic geographical position in the region.

In recent years, Chinese investments into Malaysia have also surged with funds pouring into property development, infrastructure and renewable energy.

A Singapore-based economist points out that the trade relationship between both countries have become more complementary in recent years and the integration of Asean will strengthen Malaysia’s position with China, both in trade and investments.

“The markets have evolved over time and while the trade relationship will continue to be influenced by China’s exports to the developed markets and Asean’s role in exporting intermediate goods, this will change,” he added.

Among the notable Chinese investments are the Malaysia-China Kuantan Industrial Park, the Sultan Abdul Halim Mu’adzam Shah bridge and renewable energy projects in the Sarawak Corridor of Renewable Energy.

Of late, Chinese property developers have also bought land in Iskandar Malaysia located on the southern tip of Johor and announced plans to develop properties worth billions of ringgit.

Malaysian companies have also ventured into China with the China-Malaysia Qinzhou Industrial Park, Weifang Central Port and the Zhuhai International Circuit, among the notable projects.

The economist says the rebalancing of the Chinese economy and higher wage costs in first-tier cities have prompted a number of companies to move their operations to Asean.

“Malaysia is in a good position to capture these investments because the economy is also undergoing changes by moving up the value chain and there’s also good infrastructure,” he says.

Miti says bilateral investment has grown steadily over the years and is expected to grow even more with the gradual implementation of the Five-Year Economic and Trade Cooperation Programme.

It says that China’s recent social and economic initiatives have also provided numerous business opportunities for Malaysian companies.

“We foresee increased demand for better utilities, healthcare facilities and related services, more extensive and innovative retail and distribution capacity as well as many other niche services that Malaysian companies can capitalise on,” it added.

Furthermore, massive rural-urban migration and urbanisation means greater opportunities to increase exports of high value-added fast-moving consumer goods and healthcare products from Malaysia.

“Rapid urbanisation throughout China will create the quest for clean water, thus giving Malaysian companies specialising in wastewater treatment/seawater desalination technologies the opportunity to participate in the urbanisation programme,” Miti says.

Apart from that, China’s serious intention to control environmental pollution also offers a ready market for Malaysian exports of related products and services.

On the other hand, Miti says more quality investments from China, especially in the high technology manufacturing segment, are needed.

Currently, Chinese investments are mainly in basic metal products, electrical and electronics, machinery and equipment, transport equipment and rubber products.

In the manufacturing sector, China ranked as Malaysia’s fifth largest source country for investments last year after the United States, South Korea, Singapore and Japan.

“In recent years, the Chinese presence has increased in the construction sector, notably for infrastructure projects such as bridges, hydroelectric power, railways as well as the real estate sectors, particularly for tourist resorts and condominiums,” it says, adding that more Chinese investment in the projects outlined under the Economic Transformation Programme will complement the national economic agenda.

Increasingly, the Asean factor will loom large in Malaysia’s economic relationship with China.

Miti is positioning Malaysia as the preferred destination for Chinese companies to start their business expansion in Asean and in markets in the vicinity.

According to China’s Commerce Ministry, Malaysian investment in China has reached US$6.327bil (RM20.3bil) as at end-2012 with 5,253 projects, mainly in manufacturing, wholesale and retail trade, and other business services.

Chinese investments in Malaysia as at end-2012 amounted to about US$1.026bil (RM3.29bil).

In the manufacturing sector, as at end 2013, there were 158 projects with total investments of US$873.1mil (RM2.8bil).

Miti sees “the strong and genuine desire for the governments of both countries to take the relationship to the next level.

“With the prevailing strong people-to-people ties and common aspirations and cultural heritage, we envisage an enviable environment built on mutual respect and trust, helping to create a more vibrant, dynamic economy for each other,” it says.