Spotlight: Malaysia eyes tapping China's economic "new normal"

As China embarks on a transition of economic growth pattern, the Malaysian government is upbeat on the prospect of increasing Chinese investment and tourists among the benefits and opportunities present to the Southeast Asian country.

In its latest annual economic report released this week, the Malaysian government said China is making the transition to an economic "new normal", moving away from an export, manufacturing and investment-driven growth model to one based on domestic, services and consumption.

The transition entails slowdown in economic growth and is expected to make an impact on Malaysia's economy, the report said.

Quoting a study by the International Monetary Fund (IMF), the report said a single percentage point reduction in China's GDP growth would likely impact Malaysia's growth by 0.3 percentage points, while Malaysia's own study indicated that in the short run a 10 percent drop in exports to China will result in a 0.02 percent decline in real GDP.

Meanwhile, the report stressed the long term benefit from the transition of Malaysia's largest trading partner.

"While China's rebalancing poses some downside risks in the near term, the economic transition will present significant opportunities for the Malaysian economy over the medium to long term," it said.

The policy reform initiated by China towards a more sustainable growth path provides business opportunities for Malaysians, the report said, adding that the Belt and Road Initiative will boost trade and investment in countries stretching from Asia to Europe, including Malaysia.

NEW OPPORTUNITIES FOR EXPORTS

The report said the Malaysian government has recognized the new developments in China and has embarked on various initiatives to boost bilateral trade. A special Malaysia Promotion Program will be launched in November to intensify the branding of Malaysian products and services.

According to China's statistics, bilateral trade between China and Malaysia amounted to 97.36 billion U.S. dollars in 2015. China continues to be Malaysia's largest trading partner while Malaysia remains China's largest trading partner in Southeast Asia.

In 1990, China accounted for a mere 2 percent of Malaysia's total exports. But by 2015, China accounted for 13.1 percent of Malaysia's total exports, said the economic report.

The export pattern has also shifted. The bulk of Malaysia's exports to China were commodities and related products in 1990, with palm oil and palm based products as well as crude petroleum accounting for 44.5 percent and 15.8 percent respectively. In 2015, electric and electronic (E&E) products accounted for 42.6 percent of Malaysia's exports to China, followed by chemicals and chemical products.

The report predicts higher imports of services and consumption goods by China, benefitting exporters of consumer services such as tourism, health and other services, where Malaysia has competitive advantage.

It urged local exporters to be nimble and adapt to structural development in the Chinese market, including providing new product offering that caters to Chinese "strong and affluent middle class" as well as corporate demands.

ATTRACTING TOURISTS AND INVESTMENT

One of Malaysian government's priorities will be attracting more Chinese tourists, who are continuing to spend more overseas despite the domestic economic slowdown.

Tourists from China are the third largest in Malaysia comprising 1.7 million or 6.5 percent of total tourist arrivals in 2015, contributing 5.7 billion ringgit (1.36 billion U.S. dollars) in receipts. During the first half of 2016, tourist arrivals from China increased significantly by 32.1 percent, according to the report.

It expects a substantial increase in inbound Chinese tourists as a result of a more convenient visa policy, offering of attractive family entertainment holiday packages as well as operation of more international flights to second and third-tier cities in China.

Meanwhile, Malaysia has seen increasing Chinese investment pouring in as more and more Chinese companies see the Muslim-majority country as an ideal foothold and gateway to Southeast Asia and the Middle East.

By the end of June this year, the accumulated Chinese investment in Malaysia stood at 4.4 billion ringgit (1.05 billion U.S. dollars), mainly concentrated in financial and insurance as well as construction sectors, said the report.

It listed several major projects including the financing and construction of the Second Penang Bridge, a double-tracking rail project and the Malaysia - China Kuantan Industrial Park as China's presence in the country.

"These indicate that Malaysia is a big recipient of China's growing outward investment," said the report.

In his annual budget speech on Friday, Malaysian Prime Minister Najib Razak said he was hopeful to attract more Chinese investment when he visits the country next week.

Among major investment from China announced recently, China General Nuclear Power Corporation has acquired the underlying assets of Edra, a Malaysian company, including 13 clean energy projects scattered in Malaysia, Egypt, Pakistan, United Arab Emirates (UAE) and Bangladesh.

China Railway Group Limited (CREC), one of China's largest state-owned companies, announced a 2 billion-U.S. dollar investment in a future transportation hub of Malaysia's capital city Kuala Lumpur.

"Going forward, Malaysia is set to benefit from China's 'new normal' mainly through trade, investment and strategic co-operation," the report concluded. Enditem