IDEAS: China investments showing trickle-down effect but…

The East Coast Rail Link project is one example of how Chinese FDIs can have positive externality for the Malaysian economy.

KUALA LUMPUR: Although there is too little data to conclusively determine if Chinese investments in the construction and infrastructure sectors are benefitting local businesses and workers, a trickle-down effect appears to be taking place, a think tank says.

Ali Salman, who is CEO of the Institute of Democracy and Economic Affairs (IDEAS), said this was based on the findings of the think tank’s research team.

Ali Salman, CEO of Institute of Democracy and Economic Affairs (IDEAS)

“For instance, in the Kuantan Port and Malaysia-China Kuantan Industrial Park project, a local company was engaged in the construction of a factory in the industrial park and even this was done through an open tender.

“While this may not be generalised, this certainly shows that Chinese FDIs (foreign direct investments) can have positive externality for the Malaysian economy,” he said in an opinion piece in The Malaysian Reserve.

Another example, Ali said, was the Malaysia-based building material firm Lafarge Cement Sdn Bhd, which secured a RM270 million cement supply contract for the East Coast Rail Link project led by China Communications Construction Co Ltd.

Noting the link between investment and trade, Ali said there was some cause for concern where trade was concerned.

For years, he said, Malaysia was one of the few Asean countries that invested more in China than China invested in it. Flows of Malaysian FDIs into China grew from US$251 million in 2003 to over US$400 million in 2009, at which point the trend reversed.

He said by 2013, flows of Malaysian FDIs into China stood at US$280 million, while flows of Chinese FDIs into Malaysia reached a new high of US$616 million, increasing to almost US$4 billion by the end of 2017.

Ali said in terms of trade, Malaysia had enjoyed a surplus vis-à-vis China. However, this changed in 2012, with Malaysia having a negative net export. As of 2016, the net export was (-) RM43.81 billion, with imports from China constantly on the rise.

“In fact, exports to China have started to decline. The gap is telling. The reversal of investment and trade flows between China and Malaysia may not be just coincidental.”

He said the Malaysian leadership should “convince the Chinese side to create a more synergistic relationship between Chinese investors, both state-owned and the private, and Malaysian counterpart firms and agencies”.

Ali said the investment and trade relationships must continue to grow with wide-scale dispersal of benefits across the economy.

“Trade and investment are not a zero-sum game and long-term benefits must outweigh long-term costs. But transparency in contracts and transactions is fundamental to win confidence,” he added.

In 2017, Malaysia became the fourth largest recipient of China’s overseas direct investment globally, a surge from 20th place in 2015.

In a short span of two years, FDIs from China into Malaysia have skyrocketed from RM1.5 billion in the first quarter of 2015 to almost RM15 billion in the 4Q17, according to the Department of Statistics Malaysia.