Part­ner­ship push

China and Malaysia stand to ben­e­fit from trade agree­ments as bi­lat­eral co­op­er­a­tion flour­ishes

China Daily (Hong Kong) - - BUSINESS INSIGHT - By ELAINE TAN in Kuala Lumpur For China Busi­ness Weekly

China in 1974 was a coun­try on the cusp of an ex­tra­or­di­nary trans­for­ma­tion. Its lead­er­ship was evolv­ing, and the foun­da­tions of what would be the world’s fastest-grow­ing econ­omy were about to be put in place.

It was against this cli­mate of change that Ab­dul Razak, Malaysia’s sec­ond prime min­is­ter, made a his­toric visit to Bei­jing in May, 1974. On the eve of his trip, he de­clared at a news con­fer­ence: “I am go­ing on a jour­ney of good­will and friend­ship to sow the seeds of mu­tual un­der­stand­ing be­tween Malaysia and China.”

Shortly af­ter, Malaysia be­came the first South­east Asian na­tion to es­tab­lish diplo­matic ties with China — a diplo­matic coup that still bears sig­nif­i­cant good­will to this day. Ab­dul Razak’s hand of friend­ship paved the way for strong bi­lat­eral re­la­tions that have been on a con­tin­u­ous up­ward trend over the last 39 years.

“Mu­tual trade de­pen­dence; the tur­bu­lent US and Euro­pean eco­nomic cli­mate; the emer­gence of China as the eco­nomic su­per­power; as well as Malaysia’s po­ten­tial to act as a gate­way for China into other South­east Asian coun­tries and re­gional mar­kets, have all fu­eled the growth of this re­la­tion­ship,” says Ba­harom Ab­dul Hamid, a se­nior lec­turer at Tay­lor’s Univer­sity, Malaysia.

Trade is at the corner­stone of Sino-Malaysian ties. China be­came Malaysia’s big­gest trad­ing part­ner in 2009 af­ter over­tak­ing the United States, while Malaysia topped the 10-mem­ber As­so­ci­a­tion of South­east Asian Na­tions ( ASEAN) as China’s largest trad­ing part­ner over the last five years.

Ac­cord­ing to Khor Yu Leng, a vis­it­ing fel­low at the In­sti­tute of South­east Asian Stud­ies, writ­ing in ISEAS Per­spec­tive, this re­la­tion­ship is heav­ily fo­cused on elec­tron­ics and elec­tri­cal prod­ucts.

Her re­port, ti­tled The Sig­nif­i­cance of China-Malaysia In­dus­trial Parks, states that some key im­ports to Malaysia from China are elec­tronic in­te­grated cir­cuits, au­to­matic data-pro­cess­ing ma­chines, in­for­ma­tion and com­mu­ni­ca­tion tech­nol­ogy equip­ment, of­fice equip­ment, printed cir­cuits, elec­tri­cal trans­form­ers and trans­port equip­ment.

Malaysia’s main ex­ports to China are elec­tronic in­te­grated cir­cuits, palm oil and de­riv­a­tives, au­to­matic data-pro­cess­ing ma­chines, rub­ber, oil and gas, pro­cessed ed­i­ble oils and semi­con­duc­tors.

Bi­lat­eral trade be­tween the two coun­tries reached $94.8 bil­lion last year, clos­ing in on the $100 bil­lion mark that will make Malaysia the num­ber three trad­ing part­ner in Asia for China af­ter Ja­pan and South Korea.

But this is sig­nif­i­cantly im­bal­anced in fa­vor of the Chi­nese. Malaysia’s for­eign di­rect in­vest­ment (FDI) into China in 2012 was 6.3 bil­lion. Con­versely, the cross flow from China to Malaysia was only about 10 per­cent of that — although this has been ris­ing since 2010.

Malaysia is also lag­ging be­hind other coun­tries in the re­gion in terms of its share of out­bound in­vest­ments by the Chi­nese. “There is a lot of room to play catch up,” noted the Eco­nomic-Trea­sury Re­search unit at United Over­seas Bank (UOB).

Ac­cord­ing to the Her­itage Foun­da­tion’s China Global In­vest­ment Tracker, the com­bined in­vest­ment and con­tracts out of China into ASEAN amounted to $66.6 bil­lion as of June, about a tenth of the world­wide to­tal of $688 bil­lion.

“Of this, the amount in­vested in Malaysia is about $9 bil­lion, which is be­hind In­done­sia ($ 25.9 bil­lion) and Viet­nam ($ 11.2 bil­lion), but ahead of Sin­ga­pore ($8 bil­lion) and Laos ($7.1 bil­lion),” UOB re­ported.

Nev­er­the­less, Sino-Malaysian ties are on an up­ward tra­jec­tory with Chi­nese Pres­i­dent Xi Jin­ping vis­it­ing Kuala Lumpur in Oc­to­ber — his sec­ond visit to a South­east Asian coun­try, af­ter In­done­sia, since as­sum­ing of­fice in March.

Xi de­scribed his con­nec­tion with Prime Min­is­ter Na­jib Razak as “yi jian ru gu” (trans­lated as a meet­ing of old friends for the first time). He told the busi­ness com­mu­nity in his key­note speech at the Malaysi­aChina Eco­nomic Sum­mit: “Our two coun­tries have proven to be good neigh­bors, good friends and good part­ners who go through thick and thin to­gether.”

UOB said: “This is a sig­nif­i­cant visit be­cause both coun­tries have agreed to deepen their al­ready ex­ten­sive eco­nomic ties and el­e­vate bi­lat­eral ties into a for­mal com­pre­hen­sive strate­gic part­ner­ship.” Both lead­ers signed a five-year pro­gram on eco­nomic and trade co­op­er­a­tion that will see two-way trade nearly triple to $160 bil­lion by 2017.

In a state­ment, Malaysia’s Min­istry of In­ter­na­tional Trade and In­vest­ment said sec­tors of fo­cus for deeper bi­lat­eral co­op­er­a­tion un­der the pact are agri­cul­ture, manufacturing, in­dus­trial parks, in­fra­struc­ture, en­ergy and min­eral re­sources, in­for­ma­tion and telecom­mu­ni­ca­tions, tourism, en­gi­neer­ing ser­vices, ha­lal in­dus­try, lo­gis­tics and re­tail­ing.

This is di­vided into early har­vest projects such as the Malaysia-China Kuantan In­dus­trial Park, Qinzhou In­dus­trial Park and the Kuantan Port ex­pan­sion project, plus new co­op­er­a­tion projects to be ex­plored by the pub­lic and pri­vate sec­tors.

Ex­am­ples of new co­op­er­a­tion projects in­clude: Manufacturing of med­i­cal de­vices; tech­ni­cal ex­changes; solid waste treat­ment and re­cy­cling; en­ergy sav­ing and emis­sions and pol­lu­tants re­duc­tion. There is also co­op­er­a­tion in emerg­ing forms of trade such as fran­chis­ing, e-com­merce and emerg­ing busi­ness mod­els cap­i­tal­iz­ing on on­line trade plat­forms and en­gi­neer­ing con­tract­ing.

China’s im­port is fore­cast to ex­ceed $ 10 tril­lion and out­bound in­vest­ments to­tal $500 bil­lion in the next five years. Malaysia is tar­get­ing to cap­ture 5 per­cent of that out­flow.

As­sum­ing the role of a gate- way to the As­so­ci­a­tion of South­east Asian Na­tions (ASEAN) could cer­tainly help ex­pe­dite this goal. South­east Asia has a com­bined pop­u­la­tion of 600 mil­lion and an econ­omy of more than $2 tril­lion. When the ASEAN Eco­nomic Com­mu­nity com­bines strength as one en­tity in 2015, it will be the eighth largest econ­omy glob­ally.

An­bound Re­search Cen­ter in Malaysia, part of the Bei­jing-based in­de­pen­dent think tank An­bound Con­sult­ing, says Malaysia can lever­age its re­gional knowl­edge, ex­per­tise and suc­cess­ful track record to di­vert Chi­nese FDIs through the coun­try to its neigh­bors.

“ASEAN is not just a mar­ket for cost-com­pet­i­tive con­sumer prod­ucts that China is known for, but also its ca­pa­bil­i­ties in in­fra­struc­ture and en­gi­neer­ing projects. The re­vival of the Malacca-In­done­sia bridge pro­posal is an ex­am­ple where China would be able to cap­i­tal­ize on its en­gi­neer­ing prow­ess as well as in­vest­ment ca­pa­bil­ity,” added UOB.

Both coun­tries can also col­lab­o­rate on high-im­pact sec­tors in which Malaysia has ca­pa­bil­i­ties that can be de­vel­oped fur­ther with China’s in­vest­ments. UOB iden­ti­fies the agri­cul­ture and com­modi­ties sec­tors as po­ten­tial tar­gets: “This also cre­ates an op­por­tu­nity for China to ac­cess sources of raw ma­te­ri­als, such as palm oil, rub­ber, crude oil/gas, min­er­als and forestry prod­ucts, which it lacks on its home ground.”

There are some 12 sec­tors un­der Malaysia’s Eco­nomic Trans­for­ma­tion Pro­gramme — oil, gas and en­ergy; fi­nan­cial ser­vices; palm oil and rub­ber; tourism; elec­tri­cal and elec­tron­ics; busi­ness ser­vices; com­mu­ni­ca­tions con­tent and in­fra­struc­ture; ed­u­ca­tion; agri­cul­ture; health­care and whole­sale and re­tail sec­tors — in which China and Malaysia can work to­gether.

“We sug­gest that both coun­tries aim for a mid­dle point be­tween cur­rent pro­vi­sions in ACFTA (ASEAN — China Free Trade Area) and CEPA (Com­pre­hen­sive Eco­nomic Part­ner­ship Agree­ment be­tween Hong Kong and China) in de­cid­ing their bi­lat­eral in­vest­ment ar­range­ments in or­der to fa­cil­i­tate greater in­vest­ments,” says Ed­ward Foo, direc­tor of An­bound Malaysia.

“Hav­ing the Chi­nese govern­ment amend reg­u­la­tions for the over­seas list­ing of its Sta­te­owned en­ter­prises and small and medium-sized en­ter­prises in Malaysia; the es­tab­lish­ment of a fu­tures mar­ket sys­tem with Malaysia and low­er­ing the el­i­gi­bil­ity re­quire­ment for Malaysian banks to ap­ply for qual­i­fied for­eign in­sti­tu­tional in­vestor sta­tus in China are some of the start­ing points,” says Foo.

In ex­ter­nal trade, Malaysia stands to ex­pand its sur­plus by meet­ing the grow­ing do­mes­tic de­mand of what will be the world’s largest mar­ket by 2018. China is cur­rently Malaysia’s largest im­port source and sec­ond largest ex­port des­ti­na­tion.

The Malaysian prod­ucts sug­gested by An­bound for ex­port to China in­clude petro­chem­i­cal out­puts, palm oil, bio­gas, rub­ber and med­i­cal de­vices. Ser­vices sug­gested are fi­nan­cial ad­vi­sory, cor­po­rate con­sul­tancy, higher ed­u­ca­tion, ur­ban devel­op­ment know-how and in­fra­struc­ture.

“As China pre­pares to open up its ser­vices sec­tor, Malaysia can also pro­vide ex­per­tise from its more es­tab­lished bank­ing, elec­tron­ics and health­care sec­tor,” UOB sug­gested.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.