Malaysia and China have been maintaining their close economic and trade ties throughout the history, where now it has become the biggest trading partner country of China in ASEAN, and for Malaysia, China is the largest source of imports and the second largest export market. In 2018, the import-export value of both Malaysia and China is US$77.77 billion, a 14.8% year-on-year increase, where the growth maintains in high position. The Malaysia government continues to support and actively participate in the construction of the "Belt and Road Initiative", hence it is expected that the economic and trade co-operation between China and Malaysia will be promote continuously, meanwhile providing opportunities to the investment for both sides. However, the political background and economic policies of Malaysia are two main factor that can't be neglected and they will continue bringing a huge effect to the politics and economic development of Malaysia. This will then affect the investment from China and other countries to Malaysia to a considerable extent, which the relationship of the Federal Government and state government are relatively important. However, the new government of Malaysia is definitely aware that the most important task is to prosper the troubled economy and to guaranteed the legitimacy and sustainability of governance. As a result, the government of Malaysia will distribute the resources evenly among the states in order to promote balanced economic and social development. Malaysia has a vision of becoming a developed country by 2020. Therefore, Malaysia is willing to co-operate with the biggest trade partner, namely China, to participate in the construction on different places.
On October 5, Malaysia government has officially released the Shared Prosperity Vision 2030. It is worth noting this is a major economic document since Pakatan Harapan (PH) formed the government at 2018. To assure the sustainability of development, the PH government has proposed several economic construction projects for the coming years based on this document. With fairness, equity and inclusive distribution as the core principles, this document has proposed five goals for resources allocation, namely is income group, race, political, area and supply chain. With this, Malaysia government attaches great importance to the difference of development in various places, and has also pointed out the economic potentials and types of industries that can be developed in all 13 states and two federal territories (excluding Labuan). For investors from China and other countries, these are all valuable information. ANBOUND has organized the information herein, for investors to analyze the economic condition of various places in Malaysia. In this connection, ANBOUND will discuss the business opportunities of each states from the macro and micro perspective. At the macro level, the five states that are relatively underdeveloped will obtain substantial financial assistance and auxiliary policies from the Federal Government. According to the current situation of economic development, two states in East Malaysia (Sabah and Sarawak), Kelantan and Pahang that are located on the East Coast of Malaysia, and Kedah on the West Coast are having biggest investment opportunities. It can be seen from the GDP for year 2016 that the most developed area (Kuala Lumpur Federal Territory and Selangor) has occupied 40%, which is higher compare to the occupancy of 25% of the other five states. In addition, together with the developing Penang at the North, the differences on development will be even greater. This also means that, they will obtain larger funding from the Federal Government in order to develop their own infrastructure (for example, the construction of 5G internet, port expansion and renovation of transit hub). Moreover, in order to attract investors to invest in the five states, the Federal Government will also provide more auxiliary policies, which includes Free Trade Area (FTA) at the border of Kedah and preferential treatment of Malaysia-China Industrial Park at Pahang.
From the micro perspective, according to the 2030 vision, whether it is developed or underdeveloped, each state will have its own positioning. Shared Prosperity Vision 2030 has pinpointed the position of 4 areas: the states located at the West Coast will be developed as mixed economy sector, Johor locating at the South will be mainly holding the role as a logistics hub, grain crops and education center, while the East Coast will become an area of rural economy, logistics and other downstream industries. As for East Malaysia, the focus will be on developing tourism, aquatics products, oil industry and border economy. Meanwhile, for West Coast, as the center will be Penang locating at the North, hence the mentioned state will utilize its high-end manufacturing and services to cater the backward state of Kedah and Perlis. On the other hand, the Federal Government is having great expectations on Kedah and actively improving the border economy in order to bring in more heavy industry manufacturers to set up their manufacturing plants in the state. Both Kuala Lumpur and Putrajaya federal territories will continue to act as a financial hub and government administrative center, whereas Selangor will continue in developing high-end industries and logistics. Perlis, Negeri Sembilan and Melaka will develop their own tourism, high-end agriculture and creative industries respectively. As the development level lags behind the states at the West Coast, East Coast and East Malaysia (Kelantan, Terengganu, Pahang, Sabah and Sarawak) will be positioned as development of low value-added industries. In order to improve their industry chain, investors can look forward to more funding and development projects from the Federal Government to expand their own slice of cake. The funding from the Federal Government towards Sabah and Sarawak stated in the financial budget plan is an example. Besides that, as a long-term logistics hub and has been promoting the construction of Iskandar Development Region, the main development of Johor is still positioned as logistics and service industry, which is already quite clear.
To conclude, in the coming years, the resources allocation (including policies) of Malaysia will be determined according to areas (and their states). Hence, investors shall master two pieces of information, which is the infrastructure needs of the relatively underdeveloped states, and to invest according to the industrial economy position and development of each states. This is the only way to ensure and obtain corresponding profit and preferential treatment.
Final analysis conclusion:
As the economic co-operation between Malaysia and China continues to strengthen, Chinese investment will also increase as time goes by. As the political economy of Malaysia is rather complicated, investments in Malaysia should not only take into consideration the national policies, but also to understand the conditions of different places. It is only through this understanding that the investments could meet the demands of the local government and guarantee the economic interests.
