Leveraging China's GDI to revitalise Malaysia’s industrial sector

SINCE the early 1990s, Malaysia has been exhibiting signs of premature deindustrialisation, characterised by a decline in the relative contribution of the manufacturing sector to the economy – a trait typically observed only when a country has attained the status of a developed country.

In 2022, the manufacturing industry contributed only 23.4% to the country’s gross domestic product (GDP), down from a peak of 30.9% in 1999.

The main culprits behind this phenomenon are lack of quality investment, limited spending on research and development (R&D) and high dependence on imported low-skilled labour.

These have collectively led to the country’s inability to join the high value-added segment of the manufacturing value chain.

The Global Development Initiative (GDI) proposed by Chinese President Xi Jinping in September 2021 presents a promising opportunity for resurrecting Malaysia's industrial sector via the industrialisation priority area.

Under this priority area, the GDI aims to: enhance collaboration in worldwide production capabilities; assist developing nations in enhancing their industrial production capabilities and manufacturing standards; facilitate their seamless integration into global industrial, value, and supply networks; and expedite the process of industrialisation and modernisation.

In the 2023 GDI progress report, published by the Center for International Knowledge on Development, the GDI has helped developing countries advance sustainable industrialisation and resolve development bottlenecks.

This is done through three channels.

Firstly, the GDI has established a global network of partners encompassing think tanks, international organisations and multilateral institutions, universities and industry alliances and associations.

Secondly, there is strengthening of financial support and policy coordination via Chinese investments in developing countries and cooperation on Industry 4.0 as well as digital transformation.

Thirdly, the GDI is supporting the training and capacity building of talent for industrialisation by drawing focus on vocational education.

In a bid to revitalise the country’s industrial sector, Malaysia could leverage the GDI to attract foreign direct investment and technology transfer.

Chinese investment in Malaysia's industrial parks and special economic zones could facilitate the inflow of capital and expertise, contributing to the modernisation and expansion of the industrial sector.

This collaboration could lead to the transfer of advanced manufacturing technologies, ultimately elevating Malaysia's industrial capabilities and competitiveness on the global stage.

Two of the 12 key challenges outlined in the New Industrial Master Plan (NIMP) 2030 are stagnating labour productivity, as well as shortage and skills mismatch among local talent.

To circumvent these issues, Malaysia can proactively engage in collaborative initiatives with China to enhance skills development and knowledge transfer.

By fostering partnerships in R&D, innovation and skills training, Malaysia can ensure that its workforce is equipped with the expertise needed to drive industrial growth in the era of digitalisation and automation.

The NIMP 2030’s aim to expand Technical and Vocational Education and Training (TVET) is also in line with the GDI’s focus on vocational education.

A remarkable example of a successful partnership between China and Malaysia is the acquisition of Malaysia’s national car brand Proton by Zhejiang Geely Holding Group in 2017, where the two partners have made great strides in working together.

Apart from elevating the brand image and sales of the local carmaker, the signing of various joint ventures, technical assistance, foreign direct investment and technical collaboration agreements between the two countries have greatly benefitted local Malaysian dealers with access to new and advanced technologies, while Chinese suppliers have found new sources of raw parts.

Meanwhile, another success story is the setting up of the Malaysia-China Kuantan Industrial Park (MCKIP) in Gebeng which has attracted more than 50 international companies and created more than 10,000 jobs for locals.

It is worth mentioning that of the RM11.01bil in foreign direct investment that Pahang attracted as of 2022, more than half was contributed by China.

These success stories indicate that it is essential for Malaysia to strategically position itself to maximise the benefits of participating in the GDI.

This involves formulating inclusive policies, streamlining regulatory processes, and addressing any potential challenges associated with the influx of Chinese investments.

By doing so, Malaysia can create an environment that is conducive to sustainable industrial development while safeguarding its national interests.

The potential revitalisation of Malaysia's industrial sector through the GDI is not without its considerations.

It is imperative for Malaysia to carefully assess the economic, environmental and social impacts of various projects to ensure that they align with the country's long-term development goals and sustainability agenda.

Additionally, robust governance frameworks and transparency measures should be put in place to mitigate the risks associated with large-scale infrastructure and industrial development efforts.

In conclusion, Malaysia stands to gain substantial advantages by capitalising on the opportunities presented by the GDI. The initiative has the potential to inject momentum into Malaysia's industrial sector, address the challenges of deindustrialisation, and propel the country towards productivity-led growth.

By embracing strategic collaborations with China and leveraging the GDI’s multifaceted offerings, Malaysia can position itself as a key beneficiary of the initiative and revitalise its industrial landscape for sustained prosperity.

Dr Liew Ping Xin is an Assistant Professor at Universiti Tunku Abdul Rahman. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.