At last year’s APEC Summit, Chinese President Xi Jinping and Malaysian Prime Minister Najib Razak affirmed that the Sino-Malaysian bilateral relationship is at its highest level in history. China has been the largest trading partner of Malaysia for six consecutive years since 2009 (Figure 1). The trading amount increased from just USD 12 billion in 2000 to almost USD 108 billion in 2014, a nine-fold increase, and both countries intend to increase their trading volume to USD 160 billion by 2017. During the last 15 years, the major categories of Malaysian exports to China are Machinery & Transport Equipment (MT), followed by Mineral Fuels (MF) and Manufactured Goods (MG).
In recent years, there have also been several major China investments in Malaysia, including the Malaysia-China Kuantan Industrial Park (MCKIP); the Second Penang Bridge and land reclamation project; the Guangdong-Malacca memorandum of understanding (MoU) for setting up the Maritime Industrial Park, the Guangdong-Malacca Industrial Estate and deep-sea port in Malacca; the Bandar Malaysia project; and the proposed construction of the Kuala Lumpur-Singapore high speed railway.
MCKIP, at its first stage, was intended for high-tech industries including stainless steel products, electrical and electronics, information communication technology, and renewable energy. As of 2015, it has attracted RM 13.4 billion in investment, including RM 4.2 billion in steel production projects, RM 3 billion in the Kuantan Port expansion project, RM 4 billion in infrastructure projects, RM 2 billion in light industry and clay porcelain/ceramics projects, and RM 0.2 billion in renewable energy projects. It is the sister park of the China-Malaysia Qinzhou Industrial Park (CMQIP) in China’s Guangxi province which was established in April 2012.
In Malaysia’s Penang state, the wholly owned Malaysian subsidiary of China Communications Construction Company Ltd (CCCC) has a land reclamation contract worth RM 2.3 billion for the construction of Seri Tanjung Pinang Phase 2 (STP2)1. The CCCC group is the largest infrastructure construction and dredging company in China. Before this contract, Beijing-based China Harbor Engineering Co Ltd (CHEC), the main share-holder of CCCC, had undertaken the main construction contract of the Sultan Abdul Halim Muadzam Shah Bridge, also known as the Second Penang Bridge.
In September 2015, the China’s Guangdong province and Malaysia’s Malacca state promised to establish the “friendly state and province” relationship and signed several MoUs to construct a Maritime Industrial Park, the Guangdong-Malacca electrical manufacturing industrial estate, and Malacca’s deep water seaport. Furthermore, the Guangdong government is very interested in building a man-made Malacca island for the development of tourism and the maritime industry.
In addition, China Railway Group Limited (CREC), one of China’s largest state-owned firms, has formed a joint-venture with Malaysia’s Iskandar Waterfront Holdings (IWH) to invest USD 2 billion (RM 8.14 billion) for the construction of its regional center in the Bandar Malaysia project. In the meanwhile, CREC will make efforts to attract third-party investments to develop Bandar Malaysia. The Bandar Malaysia project is located just 7 km from the Malaysian capital city of Kuala Lumpur, and aims to become Kuala Lumpur's gateway for the high speed railway (HSR) to Singapore. It is a strategic step to position CREC to receive the Malaysia-Singapore HSR contract.
The construction of the Malaysia-Singapore HSR may be the next joint cooperation project between China and Malaysia. The Chinese government expressed keen interest in this project during several meetings between the two countries, and the project has also attracted interest from Japan and South Korea. Chinese Premier Li Keqiang has reiterated many times that China has the ability and commitment to build the Malaysia-Singapore HSR because it is part of the grand Kunming-Singapore HSR project listed under China’s One Belt One Road (OBOR) initiative.
Most of the aforementioned projects have been led by China’s State-Owned Enterprises (SOEs), but there have also been some large projects implemented by China’s private sector, especially in the real estate industry. Since 2010, six Chinese developers — Country Garden, Greenland Group, Agile Group, Macrolink Group, R&F Properties, and Zhuoda Group — have succeeded in running projects in Kuala Lumpur and the Iskandar economic region. For instance, the Forest City project of Country Garden which is worth RM 170 billion and which is expected to be completed over a 20-year period, has been approved by the Malaysian central government to be built as a duty-free zone.
According to Malaysia’s Ministry of Trade and Industry, Chinese companies have invested about RM 136 billion in 143 projects in the manufacturing sector. Annual investment increased from just RM 162 million in 2009 to RM 4.75 billion in 2014. The base metal industry received the largest amount of investment (RM 8 billion), followed by electrical and electronics (RM 3.5 billion), non-metal ores (RM 738 million), textiles and textile products (RM 556 million), and forged metals (RM 157 million).2
Malaysia could benefit considerably from a closer economic relationship with China. First, China can provide infrastructure investment funds for developing industrial parks such as MCKIP and reconstructing seaports such as Port Malacca. Malaysia needs more funds to comprehensively enhance its infrastructure construction within a short time, especially in fulfilling the “2020 Vision” to become a developed country3. To a certain extent, bilateral cooperation has reinvigorated the Malaysia Vision 2020 as the current level of Malaysian development still seems far from reaching the target.
Through China-Malaysia industrial cooperation, it may not only lower the cost of local infrastructure in Malaysia, but also assist China in reducing its internal overcapacity.
Second, Malaysia could also benefit from technology transfers from China, especially in the field of infrastructure construction. For instance, in 2015, University Technology Malaysia, witnessed by Prime Minister Najib, signed a MoU with Professor Wang Qing Zhong from China who is the creator of the Advance Moving Bed Bio Reactor (AMBBR) technology for producing highly quality treated water without odors and with a minimum sludge output.4 The technology has been commonly applied in China on a commercial basis and its application could lower the operating costs of Malaysian factories. Chinese companies also invested a production-based center for collaborative efforts in developing renewable energy technology in MCKIP.
Third, the development of MCKIP will have positive spillover effects for other industrial parks in the East Coast Economic Region in Malaysia. One of the MCKIP projects to expand the Kuantan Port will facilitate the growth of other surrounding industrial parks — the Petrochemical Industrial Park, Integrated Biopark, Pekan Automotive Industrial Park, and Gambang Halal Park — and provide more logistic capacities and trading possibilities in Kuantan.
From China’s perspective, the country aims to enhance her relationship with ASEAN through its close work with Malaysia during its chairmanship role in 2015, especially in accelerating the development of the Regional Comprehensive Economic Partnership (RCEP). This is partly in response to the US-Trans Pacific Partnership, signed in 2015.
Meanwhile, industrial overcapacity and Chinese “zombie” companies have become major problems in China’s development. The Chinese government has been trying to solve it by shifting production facilities to foreign countries. Through China-Malaysia industrial cooperation, it may not only lower the cost of local infrastructure in Malaysia, but also assist China in reducing its internal overcapacity.
Malaysia is located along China’s OBOR which includes a plan to construct a Kunming-Singapore railway across the mainland Southeast Asia countries. More importantly, Malaysia acts as a bridge between the countries surrounding the South China Sea and the countries along the Indian Ocean. As postulated by the Chinese government, the OBOR initiatives aim to strengthen connectivity with about 60 countries along the routes, in term of policy coordination, infrastructure construction, trade and investment collaboration, financial cooperation, as well as person-to-person contacts and communication. In particular, China and Malaysia have had prolonged maritime relations since Zheng He’s expedition to Malacca in the 14th century. Moreover, the Straits of Malacca is located in a strategic position and is one of the busiest shipping lines around the world, over 79,000 vessels transit in 2014, compared to just 14,000 in Panama Canal in the same year.
However, Malaysia will possibly meet with some challenges that could impact the development of Sino-Malaysian economic cooperation. On one hand, the instability of Malaysia’s political economy and the politically-volatile ethnic issue would internally limit the ability and capacity of Malaysia’s external cooperation. On the other hand, the economic slowdown of China, the geopolitics of the South China Sea, as well as the strategic perceptions of the US will interfere with Sino-Malaysian cooperation. Malaysia will make efforts to establish a deeper and broader partnership with China through the OBOR initiatives, but at the same time will not try to harm US security interests in the Asia Pacific. Realistically, the ASEAN countries’ sovereignty claims in the South China Sea against China’s maritime expansion, the continued diplomatic protests against Chinese illegal fishing, for example, will inevitably hinder the Sino-Malaysian relationship in some aspects.
1. China firm wins RM2.3bil Penang reclamation contract. (2015, October 28). The Star. Retrieved from http://www.thestar.com.my/business/business-news/2015/10/28/china-firm-wins-rm2bil-penang-reclamation-contract/
2. China invests RM13.6bil in manufacturing sector. (2016, April 5). The Star Online. Retrieved from http://www.thestar.com.my/news/nation/2016/04/05/china-invests-rm136bil-in-manufacturing-sector/
3. Vision 2020 of Malaysia was addressed by former Prime Minister of Malaysia, Mahathir bin Mohamed in 1991 during the drafting of the Sixth Malaysia Plan. The vision then was towards making Malaysia in 2020 a fully-developed country in all dimensions especially in the areas of economic prosperity, social well-being, and political stability.
4. Najib witnesses signing of MoU on transfer of AMBBR technology from China to UTM. (2015, June 3). Eco-Business. Retrieved from http://www.eco-business.com/news/najib-witnesses-signing-of-mou-on-transfer-of-ambbr-technology-from-china-to-utm/