Malaysia and China look to boost two-way trade

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A diplomatic approach towards regional issues has strengthened Malaysia’s efforts to boost trade and investment ties with China, setting the scene for the two countries to roll out an ambitious programme of increased financial cooperation.

Last October, China and Malaysia agreed to raise bilateral ties to a “comprehensive strategic partnership”, with a focus on boosting military cooperation and increasing two-way trade almost three-fold to $160bn by 2017.

Deputy Minister of International Trade and Industry, Datuk Lee Chee Leong, announced in July that Malaysia’s exports to China for the year had already reached $106bn (RM341bn). He added that Malaysian exports currently accounted for 23.9% of China’s total trade with Asean countries.

Although Malaysia is China’s largest Asean trading partner, more can still be done to help the dynamic reach its full potential say Malaysian business groups in particular.  

Building ties

The strengthening of bilateral ties comes against a backdrop of growing tension between Beijing and key Southeast Asian nations over maritime disputes in the South China Sea.

While the sovereignty issues simmer, however, diplomatic relations between China and Malaysia remain positive, as US state department envoy John Finkbeiner pointed out in a 2013 study. “Malaysia appears to pursue a non-confrontational approach in the sovereignty dispute, which differs markedly compared to Vietnam and the Philippines,” he wrote. “The first pillar regards Malaysia’s firm commitment to increase its trade and investment ties with the world’s most dynamic economy [China] in order to hedge its other strong economic ties, with the US in particular.”

However Malaysia’s approach has contributed to a growing imbalance in bilateral cross flows between the two countries. Malaysia has channelled almost $7bn of investment into China, but received just $1bn from the Asian giant in return.

Last year, the National Chamber of Commerce and Industry Malaysia (NCCIM) called on the government to intervene by adopting a more pro-active stance in correcting the current investment imbalance, which falls in China’s favour.

The Chinese ambassador to Malaysia, Huang Huikang, has given a reassurance that efforts to address the imbalance are making headway. Chinese interest in Kuantan Industrial Park is expected to help take the country’s investment in Malaysia past the $2bn (RM6.42bn) mark this year, he said. The ambassador added that Beijing aimed to encourage more of its companies to increase their investments in Malaysia.

While Malaysian exports to China remain dominated by agricultural products, such as palm oil, Chinese firms are strengthening their presence in the technological sector as well as in cultural initiatives such as the $91.47m Impression Melaka venture, a live theatre project, which is being rolled out jointly by Malaysia’s PTS Impression Sdn Bhd and China Impression Wonders Art Development Co. Ltd in Malacca.

A readiness to do business in the Chinese currency renminbi (RMB) is giving Malaysia’s exporters an added advantage, according to a HSBC Commercial Banking survey released in July.

“The settlement of goods and services in RMB will remove the foreign exchange risk exposure from the Chinese companies and hence allow them to reduce their cost,” HSBC Bank Malaysia Bhd head of global trade and receivable finance, Vincent Sugianto, said in a statement. “Ability to trade in RMB also allows Malaysian companies to tap into a wider customer base in China which currently does not have access to foreign currency trades.”  

Containing shocks

Despite Malaysia’s healthy trade relations with China, however, external factors risk weighing on bilateral ties.

The disappearance of Malaysia Airlines’ Flight MH370 in March put a strain on the relationship between the two countries, sparking a 19% drop in visitors from China for the month of April year-on-year (y-o-y), although these figures have since rallied. The casualties included 153 passengers who were Chinese nationals.

“That the Chinese press has begun to soften its tone towards Malaysia’s government [over the MH370 search] reflects the view that China is better off swallowing a tough pill than taking any action that could provide the US with a major strategic advantage at Beijing’s expense,” the South China Morning Post said.

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