PETALING JAYA: Although much has been made of China’s growing involvement in the Malaysian economy, a research house warns that economic growth and the ringgit demand hinge on the commercial viability and funding for Chinese projects here.
In a recent report by CNBC, Citi Research analyst Kit Wei Zheng said Malaysia appeared to have emerged as one of the biggest winners in Southeast Asia in terms of bagging investments from China.
However, despite Malaysia expecting to receive as much as RM400 billion from China for its port and railway projects, he said questions remained over the projects’ commercial viability and funding.
“Overall, FDI (foreign direct investments) from China may understate the extent of Chinese involvement in the Malaysian economy, but overstate the impact on gross domestic product (GDP) growth or Malaysian ringgit demand,” he was quoted as saying.
China has committed to two major infrastructure projects in Malaysia: the East Coast Rail Link (ECRL) and the Melaka Gateway ports project.
Chinese companies have also signed a memorandum of understanding (MoU) with Malaysian firms to carry out the second phase of the ECRL from Gombak to Port Klang, as well as connect a multi-products gas and petroleum pipeline commencing from Melaka to a refinery under construction in Pengerang, Johor.
However, Kit said China’s interest in the port projects may be motivated more by geopolitical interests than profit as the ports along Malaysia’s west coast would allow China access to the Straits of Melaka.
In the report, he also warned that funding the projects through loans from Chinese state-owned banks could increase the government’s liabilities.
Additionally, construction contracts awarded to Chinese firms were really “service imports” which could subtract from GDP growth and ringgit demand, he was quoted as saying.
On Tuesday, Treasury secretary-general Mohd Irwan Serigar Abdullah said the economy could record 5% or more GDP growth this year, based on the country’s first-half performance.
Malaysia’s economy recorded 5.6% growth during the first quarter of the year, boosted by strong domestic demand and private expenditure.
Prime Minister Najib Razak, who is also finance minister, said the nation’s economic performance for the first quarter of 2017 remained stable and strong, with FDIs rising to RM17 billion.
Last November, Najib made an official visit to China which resulted in the signing of agreements worth about RM150 billion.