Looking East, Looking West

Malaysia

Economic News

22 Jul 2010
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Launching a new musical TV drama showcasing talent from China and Malaysia, Information Minister Sheikh Fadzir reflected on the importance of Sino-Malaysian ties.



"Malaysia and China have a close relationship in history, culture and business," he said. "We always support China and China also supports us in many aspects."



Yet the relationship is not always something to sing about. Nestling in the heart of the Association of South East Asian Nations (ASEAN), while incorporating members of both the Chinese and Indian diaspora, means that nowadays Malaysia is also building bridges west across the Bay of Bengal.



On this score, news came this week that a joint committee appointed by both India and Malaysia to investigate the feasibility of a comprehensive economic co-operation agreement (CECA) has now come up with its report.



A CECA covers not only free trade in goods, but also covers services and investment. India already enjoys such an agreement with Singapore.



The committee's report will be submitted to both governments next month and will state that a CECA between India and Malaysia is feasible and would be mutually beneficial.



Initiated in 2004 during a visit by Indian Prime Minister Manmohan Singh, the committee highlighted services in particular, saying that areas such as health care, medicine, advertising, audio-visual, accounting and transport could all benefit from the deal - as well as the liberalisation, promotion and facilitation of investment.



Indeed, both sides stand to gain, since Malaysia is India's biggest trading partner in the region and India is Malaysia's largest trading partner in the southern hemisphere - excluding China and the combined members of ASEAN.



Investment flows both ways, too. There are over 57 Indian joint ventures in Malaysia in fields as diverse as power, railways, construction, IT and palm oil.



The two countries' leaders had a chance to talk at the ASEAN Summit Council in Kuala Lumpur during December.



"We believe India is a country to watch," Malaysian Prime Minister Abdullah Badawi told assembled the business leaders. "With improved relations with its neighbours, as well as the US, India has the potential of being an important partner for the region.''



He went on to highlight the shifts in economic power and direction that are shaping modern Asia.



"The emergence of China and India as powerhouses", he continued, "coupled with demographic changes in Japan, would almost certainly lead to a re-alignment of power arrangements."



Indeed, the changing face of Asia has long been the catalyst for integration within South-East Asia, particularly through the ASEAN framework. Initially the grouping came together to address regional security concerns, but now the real mission is economic integration.



With its giant neighbour northern dominating the region, the ASEAN leaders sought to create the world's biggest free trade area by signing the ASEAN-China accord in November 2004. Removing tariffs began in 2005 and will continue until 2010.



It's not all about cashing-in on China's economic miracle though. Political concerns have arisen over China's rising economic strength as well - concerns that China's premier, Wen Jiabao, was keen to dispel at the East Asia Summit which ran concurrent to the ASEAN Summit in Kuala Lumpur during December.



"China will continue to seek peace and development through co-operation and will strive to achieve development that will bring about peace, openness, co-operation and harmony as well as benefit to itself and other countries," he told regional leaders
Nonetheless these concerns have lead some ASEAN members to seek a counter balance in the form of the other Asian giant, India, according to some analysts. China, on the other hand, has not been so keen on the encroaching Indians and was opposed to India joining the inaugural East Asia Summit.



However, those countries which have already leant west are not necessarily enamoured with the results. The committee report on the Indo-Malaysian CECA may have been upbeat, but the actual results of Singapore's own agreement have, according to some on the Singaporean side, not been implemented effectively.



In a recent report on India's "look east" policy, the Indian-based South Asian Analysis Group (SAAG) attributed the problems to Indian industry's doubts about its own competitive efficiency, or its worries about facing competition at home and fear of cheaper imports.



They identify the same problems as blighting the Indo-Thai Free Trade Agreement (FTA). Indeed, alongside Singapore and Thailand, Malaysia has criticised India in negotiations on the multilateral Indo-ASEAN FTA.



With India apparently needing to put its own house in order, Malaysia might see more opportunity in the east than in the west. Whilst relations with China may have given Malaysian TV something to sing about, balancing the changing powers of Asia may require some tricky dancing steps by Kuala Lumpur.

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