This year as Malaysia and China commemorate 50 years of diplomatic relations, enhanced collaboration, and cooperation between the two nations will prove beneficial. The potential for the strengthening of bilateral relations is most recently demonstrated by the numerous commercial agreements and memorandums of understanding (MOUs) worth billions of ringgit that both countries inked.

The history between the two goes back 600 years when China’s Admiral Zheng He visited Melaka in quest of trade and amicable ties. Since the official establishment of diplomatic relations through the signing of the Joint Communique between Malaysian Prime Minister Tun Abdul Razak and Chinese Premier Zhou En-Lai on 31 May 1974, both countries are closer than they have ever been.

The numbers speak for themselves. China has been Malaysia’s largest trading partner for 15 consecutive years and Malaysia is China’s second-largest trading partner in ASEAN. As of 2023, China held 17.1% of Malaysia’s total trade and in the first quarter of this year, trade with China expanded 3.3 per cent year-on-year to over RM112billion.

The emergence of several trends perpetuated by the global economic shift, including the reorientation of supply chains, the rapid acceleration of digitisation, and the fight against the threat of climate change, has enabled Malaysia and China to reap the benefits of collaborating closely, with both having pledged to build an even stronger strategic partnership.

In maintaining its status as a crucial trading partner of China, Malaysia has focused on expanding foreign direct investment (FDI). This is especially true in the sectors of manufacturing, infrastructure development, and digital innovation, where high-quality investments need to be prioritised, and is consistent with Malaysia’s strategic growth aspirations as outlined in the New Industrial Master Plan (NIMP).

Riding the manufacturing wave

Chinese investors are showing greater interest in exploring investment opportunities in Malaysia’s manufacturing sector, particularly in the electrical & electronics (E&E), automotive, and solar equipment manufacturing segments. As noted in the NIMP, the country is committed to the development of high-growth, high-value industries within these segments such as integrated circuit design, battery manufacturing for electric vehicles, and the development of high-end solar panels; all of which can attract greater investments from China.

Malaysia is already deeply ingrained in China’s regional value chain and is expected to continue to reap the benefits of increased post-Covid diversification and the derisking of supply chains. As supply chains are reconfigured, there is a rising likelihood that multinational manufacturing firms, including China-based manufacturers, will relocate their production facilities. Now more than ever, Malaysian businesses need to reassess the global footprints of both their supply and production networks while also capitalise on opportunities to improve their global connectedness.

Implementing further reforms to make it easier for Chinese multinationals to invest in the country while improving the ease of doing business will also be crucial. Banks will continue to be essential partners in attracting more FDI into targeted industries and accelerating the sustainable development of local businesses. This aligns with the strategies laid out in the Malaysian government’s Madani Economy Framework, the National Energy Transition Plan, and the NIMP.

Boosting infrastructure cooperation

One of the four catalytic policy enablers of the Twelfth Malaysia Plan focuses on enhancing the country’s connectivity and transport infrastructure, and FDI will be vital in supporting this development. Already, there has been significant Chinese investment in major Malaysian transport, telecoms, and energy infrastructure projects. Clearly, the way forward is to attract further investments in infrastructure that unlocks productivity and delivers growth, but that does so in a way that minimises future carbon emissions. At the same time, financing the colossal need for sustainable infrastructure is going to require all available sources of private and public sector capital.

The recent MOUs signed between Malaysia and China have the potential to advance Malaysia’s infrastructural development. Chinese businesses themselves continue to see the advantages of collaborating with local partners in Malaysia to execute projects. This presents several prospects for Malaysian businesses with distinctive competencies and the ability to carry out infrastructure projects abroad.

Further developing Malaysia into a hotspot for infrastructure investments and a location where Chinese companies are more inclined to invest would be valuable.

Embracing digital transformation

Beyond traditional sectors, attracting investments from China into diversified sectors such as the digital economy will also be important. Malaysia itself has an ambition to expand the digital economy’s contribution, with various efforts having been put in place to smooth the way for more high-quality investments in the industry. This includes the implementation of Malaysia Digital.

Digital technology investments in areas such as Artificial Intelligence, Big Data analytics, and robotics amongst others, have the potential to be a major factor in breaking new ground. To draw these kinds of investments, it will be crucial to market Malaysia as a centre for digital innovation. Fostering the development of Malaysia’s workforce by encouraging the acquisition of competencies essential for both current and future job needs is part of this.

E-commerce continues to be a vital component in the growth of the country’s digital economy. With many Chinese cross-border e-commerce platforms and sellers turning their attention to Malaysia, the country stands to benefit from greater innovation and an enhanced retail experience.

Encouraging businesses in the country to adopt new and advanced technology to fortify the industry ecosystem and attract a larger pool of Chinese investors will be advantageous. Enhancing the permeation of digitisation across industries can be achieved by allocating funds to create stronger sector ecosystems, elevating digital standards and practices, and improving the way industries respond and adapt to changing payment systems.

Closer ties make sense on both sides and HSBC is well placed to strengthen relations

As a strategic hub in ASEAN with strong economic fundamentals, Malaysia provides a range of investment opportunities to organisations from China. Along with attracting a diversified pool of international talent, the nation’s competitive business environment, growing infrastructure capabilities, and connectivity to global trade networks and supply chains offer major draws for global corporations looking to establish their regional centres in Malaysia.

With China’s increased focus on venturing outwards, the commercial opportunity for Malaysia will be significant and wide-ranging. Economic transformations such as China opening access to its financial market have also made it easier for Malaysian businesses to tap into growth opportunities there.

Boosting the level of engagement will be crucial to galvanising the relationship between both countries, and HSBC is ideally positioned to support this with our extensive portfolio of financial solutions, unrivalled international network, and capacity to effectively seize local growth opportunities.

HSBC itself has been part of China’s story for more than 150 years. We were established for the express purpose of facilitating trade and investment between China and the West. Our dedication to assisting Chinese enterprises as they grow internationally does not waiver.

For HSBC Malaysia, this year we celebrate 140 years since we opened our first branch here in Penang in 1884. Then, as now, our role has been to foster the development of trade and investment between Malaysia and the wider world.

Throughout the years, HSBC has assisted Chinese businesses in accessing the Malaysian market and supported Malaysian enterprises looking to expand into China. And today, we are as committed as ever to collaborating with the Malaysian government to attract additional FDI from China while also providing essential services for Malaysian companies looking to grow and make investments in China.

With its solid economic foundation and strategic location as an ASEAN hub, Malaysia offers Chinese organisations a variety of investment prospects. Consequently, these institutions have the potential to be a major source of funding for the country. But success will require the strengthening of trade and investment efforts across Malaysia’s strategic economic sectors. This will be fundamental to stimulating Malaysia’s economic growth and opening a plethora of opportunities for both countries in the future.

Connecting The World. 140 Years And Beyond.

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