China investments to lift Malaysia’s outlook

Malaysia’s economic and business outlook looks depressed from official projections and private sector surveys, but this may be lifted by the massive inflow of Chinese funds and investments. (Reported by business.asiaone.com)

Chinese Premier Li Keqiang, who promised last November to help embattled Malaysia overcome its economic problems during his official visit to Kuala Lumpur, is seen delivering his promise soon after his return to Beijing. The first was the purchase of 1MDB’s energy assets in Edra Global Energy Bhd for RM9.83bil (SGD3.42bil) by state-owned China General Nuclear Power Corp in the same month. This was followed by the multi-billion ringgit purchase of a substantial equity stake in Bandar Malaysia by China Railway Construction Corporation on Dec 31.

Last month, China Railway Engineering Corporation announced its plan to set up its multi-billion regional headquarters in Bandar Malaysia, which will host the main terminal for the planned KL-Singapore High Speed Rail. On Monday, The Star reported that China’s government has started buying more Malaysian Government Securities (MGS) and this inflow of new money could possibly rise to RMB50bil (about SGD10.48bil) in total or 8.5 per cent of Malaysia’s total outstanding MGS in early April.

The report on China purchasing Malaysian bonds spurred the ringgit’s rise to a Monday intra-day high of 3.8752 against the dollar, before ending at 3.8888 from 3.9015 in previous trading day. The bond purchase is seen as a reason for the strengthening of the ringgit to around 3.9 to a dollar in recent weeks, from its low of 4.46 last September. From late 2014 to early this year, the ringgit had been hit by the non-stop outflow of funds, 1MDB woes and the local political issues. Though many analysts look at China cautiously – warning that the Middle Kingdom is eyeing the RM70bil (SGD24.36bil) HSR project and thanking Malaysia for adopting a non-confrontational approach towards Beijing on disputed claims in South China Sea waters – most are convinced that these massive investments and inflows are real and impactful.

China is also seen as throwing a lifeline to Malaysia. Without a doubt, China’s investments may help Malaysia achieve its target to attract RM40bil (SGD13.92bil) worth of foreign direct investment (FDI) this year. “Like it or not, China has played a positive role in brightening up our economy this year and possibly in the future. They have started buying our bonds and they are planning more investments into Malaysia,” says International Trade and Industry (MITI) Minister II Datuk Seri Ong Ka Chuan when met at his office recently. “Apart from China, I don’t see other countries entering Malaysia in a big way. Many countries where our traditional FDIs have come from are hit by economic downturn or financial woes,” he adds. Despite the slower economic growth of China, the minister expects Chinese investments in sectors they are in now to increase. China, apart from being Malaysia’s largest trading partner taking up 19 per cent of its exports, is presently one of the top five foreign investors in the country.

Investments from China in the manufacturing, construction, infrastructure and property sectors are at significant levels now. According to official data, China’s investments in local manufacturing from 2009 to 2015 totalled RM13.6bil (SGD4.73bil) and are expected to create 24,786 jobs. Within manufacturing, the Chinese are in basic metal products, electronics and electrical products, textiles and textile products, non-metallic mineral products, chemicals and chemical products. Among these, the most prominent players include China National Machinery Import and Export Corporation in four coal-fired power plants; Alliance Steel in integrated steel manufacturing; Delong JC Sdn Bhd in making hot rolled narrow strips; Sinohydro Corporation Ltd in power station re-powering project; and Comtech Solar International in making solar-grade silicon ingots and wafers.

The Chinese are also in the financial sector, with the presence of Bank of China and Industrial and Commercial Bank of China. And in telecommunications are Huawei and ZTE Corp. Chinese companies are also undertaking major construction projects related to highways, bridges and power stations in the country. Giants such as Sinohydro have been involved in many big projects in Malaysia worth more than RM7bil (SGD2.44bil), according to Ong.

Within the real estate sector, conglomerates such as Country Garden and Greenland Group are building residential and commercial blocks in Iskandar Malaysia, Johor. The latest huge project, with strong Chinese interest and involvement, is the multi-billion-ringgit Forest City Johor.