MALAYSIA is set to see a huge wave of investments from China as its capital begins to flow in under an official directive to treat Kuala Lumpur as a prime destination for offshore expansion, according to the Malaysia-China Chamber of Commerce (MCCC).

“China has allocated billions for the business expansion of its state-owned companies overseas and in its current official guidelines, Malaysia ranks top among Southeast Asian nations,” MCCC president Datuk Bong Hon Liong tells The Edge.

The desire to diversify and mitigate risk in a maturing economy is also driving China’s private sector and wealthy individuals to go offshore, adds the business leader, who has been doing trade and dealing in the garment business with China for nearly 50 years.

According to China’s official data, its accumulated investments in Malaysia only amounted to US$1 billion last year compared with Malaysia’s US$7 billion in the republic. Compared with its total global offshore investment of US$781.5 billion last year, its investment in Malaysia is negligible.

“FDI (foreign direct investment) from China has been very slow but this is changing because businessmen there say President Xi Jinping is paying special attention to Malaysia due to our close bilateral ties,” says Bong. “On my trips to China this year, I sense that Chinese leaders have high regard for Malaysia.”

He points out that Malaysian Prime Minister Datuk Seri Najib Razak was given the honour of being the first head of government to meet President Xi and Premier Li Keqiang on the sidelines of the Apec Summit in Beijing earlier this month.

In a briefing for local media in Beijing, Najib said Xi and Li stressed that China’s relationship with Malaysia was “very important”. Due partly to Malaysia’s gentle handling of the South China Sea conflict, Xi is treating Malaysia as a “trusted, reliable and intimate friend”.

Li also told Najib his government is encouraging Chinese enterprises to invest in Malaysia.

Bong highlights that China is grateful to Malaysia because it was the first Southeast Asian nation to establish diplomatic relations with China in 1974 amid fears of communism in the region.

On May 31, 1974, Najib’s father, the then prime minister Tun Abdul Razak, signed a joint communique with the then Chinese premier Zhou Enlai during a historic visit to China.

Indeed, pledged investments from Chinese companies this year have far exceeded the forecast figure of US$2 billion by the Chinese Embassy in Kuala Lumpur.

Among others, a US$1.4 billion steel plant is being built at the Malaysia-China Industrial Park in Kuantan. On Nov 7, China’s state-owned CEC Engineering Corp signed an agreement to build a wood pulp factory in Sabah’s Sipatang next year with an investment of US$2.66 billion, Bernama reported.

And the construction of a campus for Xiamen University, China’s first state university overseas, began recently in Salak Tinggi.

Bong opines that the inflow of Chinese capital was partly responsible for Iskandar Malaysia getting off the ground, although there are concerns that the multibillion-ringgit mega-property projects by Chinese companies may cause oversupply and create an asset bubble in Johor.

He notes that the players there, including Country Garden Group, Guangzhou R&F Properties and Greenland Group, are China’s top developers with a good track record.

Apart from property investment, Bong sees Chinese interest in the local oil and gas sector and resource-based industries.

Looking ahead, China’s pledged contribution of US$40 billion to set up a Silk Road infrastructure fund to boost connectivity across Asia and the establishment of the US$50 billion, China-backed Asian Infrastructure Investment Bank will provide numerous investment opportunities.

Bong, who attended the Apec CEO Summit, says trade and investment between Malaysia and China will also be boosted by a move to have a renminbi (RMB) clearing arrangement.

Bank Negara Malaysia signed a memorandum of understanding (MoU) on the arrangement with its counterpart, the People’s Bank of China, at the Apec Summit. “The MoU signifies another important step in our continuous joint effort to build capabilities in the Malaysian financial system to better serve the ever-rising bilateral trade, investment and financial flow between China and Malaysia,” said the Malaysian central bank in a statement.

Echoing Bank Negara’s views, Bong says: “This RMB clearing arrangement will mean that Malaysian businessmen can use the Chinese currency instead of US dollars to conduct trade or do business. It will remove a major currency risk for them. It will also help Malaysia and China achieve their bilateral trade target of US$160 billion by 2017.”

Bilateral trade leapt from US$200 million in 1974 to US$106 billion last year. The huge jump has turned China into Malaysia’s largest trading partner. Meantime, Malaysia is China’s largest trading partner in Southeast Asia.

This article first appeared in The Edge Malaysia Weekly, on November 24 - 30, 2014.

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