KUALA LUMPUR – Malaysia’s reliance on trade and investment links with China is less a fear and more an opportunity, economic experts say.
Deputy director-general (human capital) of the Economic Planning Unit in the Prime Minister’s Department Johan Merican said Malaysia’s growing links with China should be looked at positively.
He was speaking at a forum organised by the Institute of Chartered Accountants in England and Wales (ICAEW) Southeast Asia Economic Outlook 2018.
Johan said trade links with China have helped offset the impacts of moderating trade and growth in developed countries, with China being one of Malaysia’s main trading partners.
On top of that, the East Asian economic powerhouse which is flush with liquidity has enabled Malaysia access to “cheap and long term funding,” for its infrastructure projects.
He also noted that the exchange of know-how and association between the two countries in terms of the Digital Free Trade Zone and Proton are plus points.
Nonetheless, he acknowledged that there are also concerns, which include market entry of Chinese small and medium enterprises, awarding of infrastructure projects to Chinese contractors and sourcing of materials from the country and the change in trade composition between the two countries which has aroused concerns over premature de-industrialisation on Malaysia’s part.
Malaysia has to ensure that it increases the complexity of its industrial base and carve a niche – while also remaining on track of providing high value-added offerings and generating high income.
ICAEW economic adviser and Oxford Economics Lead Asia economist Sian Fenner noted that China, which is expected to de-throne the United States as the world’s largest economy, is important for global supply chain and its growing middle-income society could be beneficial to Malaysia’s education, health and tourism industries in terms of investments.
ICAEW has forecast for Malaysia’s economic growth to moderate from a projected 5.9% for the whole of this year to 5% next year, in line with the cooling down of trade in tandem with the slowdown in China’s growth, slowdown in exports and tightening of the domestic monetary policy.
The ringgit which is touted as among the best performing currencies in Southeast Asia, will continue to strengthen against the greenback and stabilise to at least RM4.20 against the dollar in 2018.
“We remain quite constructive on the ringgit. Given that we have a broadly soft US dollar, that means the ringgit will remain quite attractive to foreign investors,” Fenner told reporters.
She said there is a likelihood for a 25 basis point hike in Bank Negara Malaysia’s key rate, most likely in the first quarter of 2018.
“As interest rates rise that also means household debt servicing cost will increase as well and it is part of the reason why we believe that Bank Negara will take a bit more of a hawkish approach to raising interest rates as a normalising policy,” Fenner added.