China investments transforming Malaysia

MALAYSIA’S economy is being transformed by huge and high-tech investments from China, with revolutionary changes seen in several sectors – particularly in manufacturing and construction.

In manufacturing, Malaysia has become the world’s third largest solar cell manufacturer – after mainland China and Taiwan. It has also become a glass exporter – instead of importer – after China firms poured in billions into the sector last year.

In construction, a Chinese contractor is using proven technology to build a tower in the Tun Razak Exchange at a faster rate of one floor every three days. This is among those contracts worth billions of US dollars clinched by Chinese builders in Malaysia.

This change in industrial momentum and productivity, as well as the benefits to be derived from China-funded infrastructure projects, were highlighted by China’s Ambassador to Malaysia Dr Huang Huikang (pic).

“Malaysia is able to bag the most benefits from China’s Belt and Road initiative. The country is gaining in economic growth, employment opportunities, opportunities to upgrade and transform its industries/economy,” said Huang, sporting a batik shirt at the Chinese Embassy in Kuala Lumpur, during an interview with Sunday Star.

He also said that China is buying Malaysia’s sovereign bonds in the open market on a daily basis, thus giving support to the ringgit. Below are excerpts of the interview:

Q: What could be the total value of foreign direct investment (FDI) from China to Malaysia this year?

A: In the first six months of this year, our non-finance FDI totaled US$480mil (RM2bil), a rise of 6% over the value in January-June 2016. Our accumulated FDI in Malaysia as at end-June 2017 was US$3.38bil (RM14.19bil).

 > What is your projection on total bilateral trade volume this year?

Due to slower economic growth, fall in commodity prices, depreciation of the ringgit, etc, the value of China-Malaysia trade fell 10.7% to US$86.87bil last year. But this year, trade value has risen healthily after recovery in prices of major export items from Malaysia. In the first seven months of this year, China-Malaysia trade posted US$52.55bil or a rise of 14.8% over similar period last year. With efforts by both nations, we aim for the return of US$100bil in 2017.

> What bilateral achievements have been made due to the close bilateral ties?

We made five major achievements last year:

1. China continued to be Malaysia’s largest trade partner for the eighth year in a row.

2. China topped the FDI country list last year. It was the first time we surpassed the United States, Japan and Singapore in FDI value.

3. We surpassed Singapore to be the largest investor in Malaysia’s real estate.

4. China continued to be one of the largest foreign contractors. Chinese corporations are contractors for many huge infrastructure projects.

5. China ranked first in terms of visitor arrivals to Malaysia, after Singapore and Indonesia. Last year, we recorded 2.2 million tourist arrivals for the first time. Based on an average spending of RM5,000 per person, our people have contributed about RM11bil to the local economy. This year, we are looking at three million and a spending of about RM15bil. In the first half of 2017, we recorded 1.48 million tourist arrivals.

Top notch: A Chinese contractor with high technical and engineering capabilities is able to build a tower in the Tun Razak Exchange at an impressive rate of one floor every three days. — FAIHAN GHANI/The Star.
> What benefits has Malaysia gained from China’s Belt and Road initiative?

With the entry of our corporations, Malaysia has become a new leader in certain sectors and there is significant improvement in some industries.

Take the example of the glass sector. In the past, Malaysia had to spend RM1.5bil per year to import glass. After investments by Kibing Glass Group and Xinyi Glass Holdings Ltd, Malaysia has become a glass exporter instead.

Another example is the solar cell sector. Two Chinese companies have invested in Penang and one in Sarawak. Malaysia has now become the third largest solar cell producer in the world, after mainland China and Taiwan.

There is a high-tech textile factory in Johor Baru set up by the Chinese.

In the auto sector, there is a strategic partnership of Proton and Geely. And in the Digital Free Trade Zone (DFTZ) to help digitise your economy, Alibaba is the main partner.

In the oil and gas sector, the pipeline transporting oil products from Melaka to Jitra (in Kedah) is starting construction soon, after an agreement signing last November. The Government is looking at extending the pipeline and talks are being held on this extension.

In Sabah, there will be a multi-billon ringgit gas pipeline linking Sandakan to Kimanis.

I have inspected these companies in February and March. They are producing tangible results.

Over the last three years, China’s actual investment in real estate was at US$2.1bil (RM8.9bil), surpassing US$1bil (RM4.3bil) by Singapore.

> Is China still supporting the ringgit by buying our sovereign bonds?

During his visit to Malaysia in late 2015, Chinese Premier Li Keqiang said China would help to support the Malaysian economy. We carried out measures such as granting a 50-billion yuan quota to Malaysia under the Renminbi-Qualified Foreign Institutional Investor programme and buying Malaysian government bonds in line with market rules. He also called for more joint efforts to stabilise financial markets and boost investment and trade cooperation to tackle global financial instability and other economic woes. Following his statement, the ringgit strengthened.

> There is some local opposition towards China’s investments as Chinese firms are not dishing out contracts to local players. What is your view?

Chinese corporations are here to create win-win collaborations for both countries. There is no issue of taking away the “rice bowls” of locals. In fact, every Chinese project brings employment opportunities and economic growth.

I have inspected 12 China investment projects in Malaysia in March. There are localisation measures in place to fulfil the development strategies of both countries.

Apart from business development, Chinese corporations also emphasise on social responsibility. Investment from China is bringing mutual benefits. I hope people here will not politicise Chinese investments in Malaysia.

> Some of the largest foreign contractors in Malaysia are Chinese. Does it mean they have deprived local players of opportunities?

Chinese corporations are undertaking mega projects that local firms are not capable of doing, as they need world-class technical requirement. These corporations are world-class top players, with sophisticated technical expertise.

You can see in two examples. Penang’s second bridge, an excellent model for the construction of bridges, is showcasing high standard of expertise. Malaysian firms have yet to reach such level.

In the construction of Tun Razak Exchange (TRX), our Chinese company is able to complete one storey in three days. In comparison, the Petronas Twin Towers constructed by the Koreans and Japanese in the 1990s saw one storey per month.

These are difficult jobs that require high technical and engineering capabilities.

But for most other mega projects, there are jobs that can involve the local contractors. In the case of East Coast Rail Link (ECRL), Prime Minister (Datuk Seri Najib Tun Razak) has announced that at least 30% of the civil engineering work will be awarded to local contractors. The electrified double-tracking railway line linking Gemas with Johor Baru will see 50% of the civil construction works awarded to local players.

For some of the projects awarded to Chinese contractors, China also provides financing. The ECRL is one of those. Soft loans will be provided at low interest rates. We bring our money to work in Malaysia.

For projects which locals are capable of undertaking, Chinese enterprises may not have the competitive edge against them.

> Some experts say the RM55bil cost of the ECRL is too high. Any explanation from China?

The cost of construction is not high. There are two reasons:

From Gombak to Kuantan, an 18km-tunnel to cut through Peninsular Malaysia’s Titiwangsa Mountain range needs to be built. The tunnel will be the longest in Malaysia and will be completed within six years. The whole railway will be completed in seven years. It took the Swiss 20 years to complete a similar tunnel.

Secondly, from Kuantan to Terengganu and Kelantan, the railway will be built along the coastal line. More than 30% of the railway will need viaducts to be elevated due to soft clay ground.

This is not an easy project, as the construction and the engineering of geological condition is very complicated. Viaduct and tunnel will take up 30% of the 600km railways.

> With many parties showing interest in bidding for the RM70bil KL-Singapore High Speed Railway, what is the chance for China?

China has a strong chance to win. Chinese corporations will be the most competitive as we will give the best terms. I have said before, 10 years to build the railway is too long, five years is enough. China has capabilities to finish it in five years.

> What do you think of the Malaysian economy?

Early this year, I publicly made some optimistic predictions. I said the local economy this year would grow faster than 4.5% and the ringgit would appreciate by 5% to 8%. These predictions have come true. The key takeaway is that China has confidence in Malaysian economy, so Malaysians should have confidence in their economy, too.