Malaysia still a promising market for Chinese firms

Source:Global Times Published: 2018/9/3 20:13:41

Will Fung Photo: Courtesy of the Malaysian Chamber of Commerce and Industry in China

Editor's Note:

Although there have been some setbacks in Belt and Road (B&R) projects, China and Malaysia are exploring more cooperation opportunities not limited to infrastructure projects. Since Malaysian Prime Minister Mahathir Mohamad came to power, the country has been recalibrating its relationship with China. Many Chinese enterprises have been deterred from making investment decisions due to the possible future uncertainties. Global Times (GT) correspondent Bai Yunyi interviewed Will Fung (Fung), chairman of the Malaysian Chamber of Commerce and Industry in China, to try and understand the position of the new Malaysian government on Chinese companies and investment.

GT: Chinese companies have recently been paying close attention to the possible impact of their investment in Malaysia, following the change of government. Some observers said Prime Minister Mahathir has been giving mixed signals. On the one hand, he has encouraged Chinese companies to invest in Malaysia. On the other hand, he canceled the East Coast Rail Link (ECRL) and the gas pipeline project in Sabah. What kind of attitude do you think the Malaysian government has toward Chinese companies and investment?

Fung: I don't think there are mixed signals. Those two examples are problems at different levels. When we talk about the canceling the ECRL and the natural gas pipeline project in Sabah, we need to consider the reality of Malaysia. The change of government marks the first time in 60 years that the opposition party has won. In the past decade, people lost faith in the previous government over issues like corruption and low administrative efficiency. The new government has promised to conduct reform and uncover the country's real financial situation. The result has shown that Malaysia's national debt is dangerous. Malaysia cannot afford those projects, especially taking into account the costs of maintenance and operation. It had no choice but to cancel them. But China has acted in an open-minded and tolerant way.

During his recent trip to China, Mahathir made it clear that Malaysia needs more technology and talent from China and that Chinese firms are very welcome. He has noticed that the technology industries in China have become role models for Malaysia.

GT: Which fields and industries are most appealing to Malaysia? Is it possible for the Malaysian government to provide preferential or supportive policies in this process?

Fung: According to the information I got from the Ministry of International Trade and Industry, the major fields in Malaysia that China is active in include rubber, food production and fabricated metal. In the future, Chinese companies will have more opportunities in the high-end manufacturing industries, such as alternative energy, advanced electronics, medical devices, telecommunications and aerospace. The 11th Malaysia Plan (2016-20) highlighted electronics, chemicals and machinery as three paramount industries. Medical devices and aerospace are two fields that will grow fast. The participation of Chinese companies would be highly welcome in these prioritized fields.

We also feel that automation is needed in Malaysia. The country still relies on labor-intensive industries. As labor costs go up, automation will inevitably draw more attention in the next five to 10 years. China is the forerunner in this area, and Malaysia would like to bring in this knowledge.

Malaysia has some good policies for attracting foreign investment. One relates to equity structure. Foreign companies are allowed to own 100 percent of ventures in the manufacturing industry and specific services sectors. Remittance is also easy. Companies' funds, interest, bonuses and profits can be wired outside the country without limitations. Hiring foreign employees is also simple. And if a company's investment field is in line with the country's needs, it can file an application with the Malaysian Investment Development Authority (MIDA) to get benefits for tax, customs and employee quotas. The MIDA has representative offices in China.

GT: What advantages does Malaysia have compared to other countries? How promising is it for Chinese companies in terms of profitability, opportunities and market share?

Fung: The Association of Southeast Asian Nations (ASEAN) is the seventh-largest economy in the world. And Malaysia is well positioned geographically, being the focal point for the whole of Southeast Asia. There are zero tariffs within ASEAN, meaning that products made in Malaysia can easily be exported to other Southeast Asian countries. Many countries including South Korea, Japan, India, Australia and Turkey have signed bilateral or multilateral free trade agreements with Malaysia. The legal environment and intellectual property protection is well developed, which is beneficial for investment. Multiple ethnic groups coexist in the country, which creates a friendly cultural environment with high internationalization and proficiency in foreign languages.

GT: In recent years, there have been heated debates over the issues of safety, administrative efficiency and corruption in Malaysia. This has also stirred concerns among Chinese businesses hoping to invest in Malaysia. From what you have observed of the new government's administrative style and primary focus, do you believe that Malaysia's investment environment will change along with the power shift?

Fung: The new government has pledged to make tackling corruption one of its priorities. The whole regime aims to become more transparent and this can alleviate the issue of rent-seeking. Accordingly, investors from across the globe will find it more convenient to do business in Malaysia. And I have faith that the change will come very soon. There's also a trend in the new government's official appointments that favors people with relevant professional and technical backgrounds, somewhat similar to the selection model now prevalent in Singapore. Previously, Malaysia's cabinet members and ministers were drawn from the leading figures of the country's political parties, but it was often the case that someone with a legal background was appointed as the health minister while someone with medical experience was nominated to be the minister for industry. The composition of the new cabinet shows, however, that most of the cabinet positions have been filled based on relevant professional backgrounds. This means the Malaysian government will become more efficient and professional.

GT: In light of the new situation, what do you think are the issues requiring attention from Chinese businesses that are considering investing in Malaysia?

Fung: Currently, some Chinese companies seeking overseas expansion are still focusing too much on strategy, without giving sufficient thought to commercial prospects. Some firms do not thoroughly probe the basic conditions of the investment destinations or the feasibility of proposed investment projects. Chinese investors should probably bear in mind the possibility of regime change when they enter global markets, including Malaysia. They should focus more on the benefits that a project can deliver and also the ability of their partners to honor the contract.

Another issue worthy of attention is rent-seeking. Rent-seekers have long been  a liaison between companies, local governments and other partners, helping companies to secure projects. But according to the new government's pledge and principles, these people will play a smaller part in Malaysia's politics and economy. Companies thereby ought to reduce their reliance on rent-seekers and instead focus more on outreach to professionals. Additionally, as the new administration has launched a sweeping anti-corruption drive, Chinese businesses need to be careful to avoid being embroiled in local corruption cases.


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