Investment from China a boon for Anwar’s administration, but Malaysia must be cautious

Investment from China a boon for Anwar’s administration, but Malaysia must be cautious

On 1 April, Malaysia has secured a record investment commitment of RM170 billion from China, the largest investment commitment from China to Malaysia to date.

The investment was made through 19 memoranda of understanding (MoUs) between Chinese and Malaysian businesses.

This investment is expected to have a significant economic impact, providing local businesses and various industry sectors from tech to agriculture with unprecedented opportunities for growth.

However, experts warn that Malaysia needs to be cautious and not be bullied by China given its significant economic relationship with the country.

There are also concerns about how the investment will impact Malaysia’s relationship with the United States, and the need for proper oversight and governance of the investment.

Malaysian Prime Minister Mr Anwar Ibrahim promised Chinese Premier Li Qiang at a bilateral meeting that his administration will prioritise building stronger bilateral relations with China. He also reiterated that the Malaysian government will support the ‘One China Policy’.

While Mr Anwar said Malaysia does not see China as a competitor nor a threat, he stressed that the country will not allow any big power to dictate its decision and future direction, and further reminded that the Association of Southeast Asian Nations (ASEAN) should maintain the same position as ASEAN was set up as a free and neutral zone.

Some commentaries also suggest that the visit by Malaysia’s 10th PM to China would have significant implications, particularly in light of the Russia-Ukraine war and the rising tension between the US and China.

Dr Abdul Aziz Azizam, Universiti Teknologi Mara (UiTM) political analyst, warned Malaysia needs to be careful not to be bullied by China, given its significant economic relationship with China.

Aziz added during Datuk Seri Najib Razak’s administration, the influence of Chinese companies became an issue involving the sale of strategic assets, for example, Forest City in Johor, Melaka Gateway, and Bandar Malaysia in Kuala Lumpur, which has affected local companies and people.

China hope to maintain stable relationship with Malaysia

Dr Ngeow Chow Bing, the director of the Institute of China Studies at the University of Malaya, stated that China aims to maintain a stable relationship with Malaysia and prevent the country from becoming unfriendly or biased towards any particular side in terms of geopolitics and diplomacy.

Dr Ngeow Chow Bing

He acknowledged Anwar and his team’s contribution to securing the investment. Still, he emphasized the importance of observing how both parties ensure the successful implementation of the MoUs and achieve fruitful outcomes.

However, he does not think this investment might directly imply that China is expanding its influence in the South China Sea.

“While it’s easy to associate the two, it’s not necessarily the case that there is, ” he said.

As for whether China is increasing its economic influence, it is a two-sided issue. Dr Ngeow said, “China might intend to increase its influence, but it is also evident that Malaysia is interested in China increasing its investment here. Therefore, it is certain that this is in line with the objectives of both parties.”

Regarding how Malaysia’s strengthened economic ties with China might affect its relationship with the United States, Dr Ngeow believes it does not necessarily mean Malaysia will distance itself from the US.

“Malaysia has consistently expressed our position of neutrality – we do not take sides, and we have a good relationship with China.”

“If the United States were to propose economic initiatives or actions, I believe that Malaysia would welcome them.”

Hard for US to counter China’s influence

Irina Tsukerman, a geopolitical and business analyst and President of Scarab Rising, Inc says that the recent RM170 billion investment will further solidify the cooperation between the two nations and make China an indispensable pillar for trade that the US will find hard to counter.

Ms Irina Tsukerman

Ms Tsukerman adds that China’s investments come with strings attached, one of which is political affinity with China’s line at international forums and regional orientation.

Tsukerman also notes that the US is exploring opportunities to disengage Asian countries from Beijing’s influence through economic alliances, investments, and support, and energy and climate change initiatives.

However, China has an edge over Washington as it has been Malaysia’s top trading partner for the past 14 years. Last year, China was the biggest foreign direct investment into Malaysia. Likewise, Malaysia has also significantly increased its exports to China.

“The economic impact will be significant, on the one hand providing local businesses and various industry sectors from tech to agriculture with unprecedented opening for growth, and on the other hand, potentially wiping out regional competition and making Beijing a near monopoly for consumers and others,” says Tsukerman.

Favourable atmosphere to stabilize the support for his administration

Dr Ngeow also noted that the large sum of investment secured by PM Anwar Ibrahim would likely bolster his administration’s support and create a favourable atmosphere.

Anwar’s focus on the economy and his efforts to win foreign investment and create job opportunities are earning him many brownie points, said Dr Ngeow.

“I think Anwar’s first thought is actually very simple: he focuses on the economy. His biggest concern now is the unity of the government.”

“I believe he is full of worries and he must stabilize the support toward his administration, and the way to do that is through economic development and increasing job opportunities, ” he added.

Malaysia has certain advantages as preferred investment destination for China

According to Dr Ngeow, Malaysia has certain advantages that make it a preferred investment destination for China.

While many foreign investors have expressed their concerns about the unstable political situation and constantly changing policies in the past, which has led to a slowdown in foreign investment.

Despite this, Malaysia still has advantages in terms of its system and a competent labour force.

These include having a relatively sound legal system and complete infrastructure compared to countries like Vietnam or Indonesia, although it may not be as competitive in traditional labour-intensive industries.

“In Southeast Asia, except for Singapore, Malaysia is considered the best option.”

Despite China’s strong national interests in foreign investment strategy, Dr Ngeow reminded that China’s private or state-owned enterprises cannot afford to do loss-making business.

“They still need to consider the operating environment in Malaysia before making any investment decisions.”

Advancement of China’s One Belt and One Road

Part of the recent visit and dedicated investment by China is to advance its signature geopolitical project, the Belt and Road Initiative (BRI), which will provide Malaysia with access to low-cost infrastructure.

Additionally, China and Malaysia are expected to expand their cooperation beyond existing sectors into new fields such as green development and digital economy, and China’s lead in these sectors will help shape Malaysia’s strategy in these areas.

According to Ms Tsukerman, Malaysia will also be looking to take a more active position in ASEAN alongside other member states to ensure that the impact of the ASEAN-China Free Trade Agreement is evenly distributed.

She notes that the upgrade of the agreement will deepen and broaden investment ties, produce a broader economic benefit to more diverse segments of the population, and address issues such as competition and consumer protection, targeting micro, small, and medium-sized businesses, not just large corporations.

Furthermore, there is an implicit security connection, which is to ensure the freedom of navigation and safe international trade in the Straits of Malacca.

Ms Tsukerman suggests that China’s investment in Malaysia will strengthen its access to Malaysia’s markets, help shape its business and political targeting strategy, and strengthen its base of popular and professional support.

Oversight and governance about investment

According to Chong Ja Ian, an Associate Professor of political science at the National University of Singapore (NUS), Malaysia is seeking investment, and China was the largest investor last year based on approved investments.

Associate Professor Ian Chong

However, Assoc Prof Chong raised some concerns regarding the investment, including the regulation and oversight of the investment, especially in light of how previous investments were misused under Najib’s administration.

Additionally, he questioned to what extent and over what time frame the investment would be realized as the Chinese economy slows and BRI investments are moderated.

Despite the risks that come with any significant investment, Assoc Prof Chong emphasized the importance of proper oversight and governance to avoid getting sidetracked by rent-seeking actors locally, as seen in the Philippines, for example.

He said that the lesson for many major corporate and state investors from history is to focus on proper oversight and governance, rather than having “no strings attached” investment and loans.

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