PETALING JAYA: Economists have warned that a slowdown in China could lead to reduced demand for Malaysian products, putting certain sectors at risk.
Shankaran Nambiar of the Malaysian Institute of Economic Research said slowing economic growth in China, coupled with a strengthening of the US dollar, could have a negative impact on its inclination to import.
“China’s economy has not been growing well and may continue to expand at a slower pace in the second half of 2023,” Nambiar told FMT Business.
“Given our close trade ties with China, this will undoubtedly affect us.”
Electronic goods, metals and liquefied natural gas (LNG) account for a major proportion of exports to China. As a result, these are the sectors that will be most severely affected in the event of a slowdown.
China’s industrial output and retail sales missed their respective forecasts in May, according to a recent report from Reuters.
All indices, namely the manufacturing purchasing managers index (PMI), import index and purchase quantity index, indicate that China’s industrial production will see a decline in the second quarter of this year.
Trade ties that go way back
Malaysia and China have maintained strong economic and trade ties for 49 years now.
Trade between the two countries reached a record high of RM487.1 billion in 2022, growing at an annual compounded increase of 10.8% since 2009.
However, Malaysian exports to China saw an 11.13% year-on-year (y-o-y) decrease in the period from January to April, according to data released by the investment, trade and industry ministry.
Liew Chee Yoong of the Center for Market Education said the manufacturing sector, particularly electronics, relies heavily on a robust China supply chain.
He said a drop in demand from China would put the sector at risk.
Liew, who is also an assistant professor at USCI university, told FMT Business the demand for commodities such as crude palm oil could also drop, making the agriculture sector vulnerable as well.
However, it is not all doom and gloom.
Liew and Sunway University economist Woo Wing Thye agree that despite China’s economic slowdown, there still are opportunities for Malaysian investors to cash in.
Foreign investors, especially those from the west, are withdrawing from China due to its ongoing tiff with the US.
China’s preference to direct new investors to preferred locations within the country has also discouraged not only foreign investors but their domestic counterparts as well.
Liew said these factors presented an opportunity for Malaysia. “It is up to us to get them to relocate to Malaysia,” he said.
He said that with new investments, Malaysia could also strengthen trade ties with other countries.
“There are opportunities to expand trade with other markets, develop high-value industries and promote diversification in the tourism sector,” he added.