NO ESCAPE FOR MALAYSIA – WITH SCANDAL-PLAGUED AZMIN INCOMPETENT AS ECONOMICS MINISTER, THE FALLOUT COULD BE WORSE: US-CHINA TRADE WAR WILL BITE MALAYSIA HARD DESPITE EARLY GAINS

THE US-China trade war will ultimately be bad for the Malaysian economy despite some early benefits, said the American Malaysian Chamber of Commerce (Amcham).

It said the trade dispute is pulling down growth in an already sluggish global economy, and nations like Malaysia, which relies heavily on exports, will suffer.

In fact, about 83% of Amcham’s 1,200 members who do business in the US, China and Malaysia said they are concerned about the trade war, Amcham executive director Siobhan Das told The Malaysian Insight.

Some 44% of members said they were negatively impacted in the last six months, with only 9% saying they saw some positive impact, she said.

This is despite the fact that according to data by the Malaysian government, the trade war has increased investments in the country as foreign companies relocate some of their operations here to escape higher tariffs.

Amcham’s internal survey of members showed that because of the trade war, US companies are finding Southeast Asia, especially Malaysia, more attractive to do business with.

But on the balance of impact, the negatives of the trade war outweigh the positives.

“Yes, we are seeing some additional production being moved to existing factories within Malaysia,” said Das.

“This being the case, our member companies (and Malaysia as a whole) are deeply integrated in global supply chains, and the negative impact that the trade war is having on global trade and economic growth is ultimately an undesirable outcome for all.”  

Benefiting from relocations

According to the latest figures by the Malaysia Investment Development Authority (Mida), investments from the US jumped to a whopping US$5.62 billion (RM23.45 billion) in the first six months of the year from the US$113 million recorded in the same period in 2018.

This is believed to be due to US companies moving some of their operations out of China and into Malaysia.

Mida said the biggest chunk of new US investments in the first half of 2019, or RM11.52 billion, went to the services sector. In comparison, the sector received only RM42.3 million in US investments in the same period last year.

In the first six months of 2019, Malaysia approved US investment proposals worth RM1.69 billion in the manufacturing sector, compared with RM307 million a year ago.

Vietnam and Malaysia are two of the most attractive destinations for such companies, said a Reuters report.

Das said the US was Malaysia’s third-largest trading partner last year, with total imports and exports worth RM155 billion.

“Exports from Malaysia to the US increased to more than RM90 billion, the highest value in more than a decade.”

Despite the trade war, most US companies will remain in China because the market is still their biggest customers, she said.

“To understand the impact of the trade war in terms of US investment in Malaysia, we need to delve deeper than thinking only about new companies entering the market.

“Many US companies have manufacturing operations in both Malaysia and China, and what we are more likely to see are some product lines or specific business activities being moved from China-based entities to Malaysia-based entities.”

For example, said Das, a US company in China that produces 70% for the Chinese market and 30% for export to the US will likely move part of the latter portion of its operations out of China to countries like Malaysia, while the 70% portion for Chinese consumers will stay in China.

“Our member companies are part of a global supply chain, and a prolonged trade war that undermines global economic growth will ultimately have a negative effect on business performance.”

She said both Putrajaya and the World Bank project that Malaysia’s trade growth will cool over 2019 due to slowing global trade and increased uncertainties in major economies.

Malaysia can’t expect trade war benefits to continue

MALAYSIA cannot depend on benefits from the US-China trade war to sustain its growth, said a US-Malaysian commerce group, adding that the country must strive to be a competitive, high-value investment destination.

The American Malaysian Chamber of Commerce (Amcham) said although the trade war has increased investments in Malaysia over 18 months, whether those benefits can be sustained is uncertain.

This is because the global supply chain that Malaysia is part of is highly complex, and it is difficult to see how the trade war will impact any given country, said Amcham executive director Siobhan Das.

“The trade war is largely outside Malaysia’s control. The best thing the Malaysian government can do is to focus on enhancing the country’s value proposition to foreign investors. 

“This can be done via the traditional routes of developing our talent pipeline and ensuring ease of doing business.

“To realise sustainable economic benefits, Malaysia needs to position itself as an attractive investment destination, regardless of what happens with the trade war,” she told The Malaysian Insight.

This means working to leverage Malaysia’s existing strengths, such as its infrastructure, diversity, robust small and medium business ecosystem, and strategic geographical location, she said.

At the same time, said Das, the country must address the long-standing business concerns of skill shortages, access to labour, bureaucratic red tape and need for regional harmonisation.

“Ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership would also be very much a step in the right direction to keep Malaysia competitive.”

Her comments follow the latest investment figures released by the government that showed Malaysia continuing to reap the benefits from the trade war, which was started by US President Donald Trump.

Amcham executive director Siobhan Das says the belief that Malaysia can keep looking forward to the large-scale relocation of factories from China is misplaced. – September 8, 2019.
Amcham executive director Siobhan Das says the belief that Malaysia can keep looking forward to the large-scale relocation of factories from China is misplaced. – September 8, 2019.

No guarantees

According to the figures from the Malaysia Investment Development Authority (Mida), investments from the US jumped to a whopping US$5.62 billion (RM23.45 billion) in the first six months of the year from the US$113 million recorded in the same period in 2018.

The increase is believed to be due to US companies moving some of their operations out of China and into Malaysia.

Mida said the biggest chunk of new US investments in the first half of 2019, or RM11.52 billion, went to the services sector. In comparison, the sector received only RM42.3 million in US investments in the same period last year.

In the first six months of 2019, Malaysia approved US investment proposals worth RM1.69 billion in the manufacturing sector, compared with RM307 million a year ago.

Vietnam and Malaysia are two of the most attractive destinations for such companies, said a Reuters report.

And yet, said Das, Malaysia cannot expect the positive impact to continue.

“The trade war neither guarantees nor precludes Malaysia from securing additional investments and economic gains.

“Rather, it is an external factor that must be carefully monitored and navigated, while Malaysia focuses on enhancing our international competitiveness based on our own merits.”

The belief that Malaysia can keep looking forward to the large-scale relocation of factories from China is also misplaced, she said.

“I think this early optimism was based on some misconceptions or assumptions about how the global supply chain works, and how multinational companies make their investment deployment decisions.

“Firstly, you’re unlikely to see the large-scale shutdown of US companies in China, because China is itself an enormous market, and much of the manufacturing that US companies undertake in China is to serve the domestic Chinese market.”  

Late last year, the American Chambers of Commerce in Beijing and Shanghai surveyed US companies in China, and 65% said they had no plans to move out their manufacturing facilities, she added.

Of the remaining 35% considering relocation, about half were looking at Southeast Asia, with Thailand, Malaysia and Vietnam being the prime candidates.

“However, competition for foreign investments these days is very much global in nature, and multinationals will also consider options further afield, depending on the nature of their operations and specific business needs,” said Das.

– https://www.themalaysianinsight.com/

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