Malaysia piggybacks on China's
boom By Federico Bordonaro
Perhaps more than any other Southeast
Asian country, Malaysia has translated China's
economic growth, often perceived as a threat in
the region, into a huge economic opportunity.
Malaysia is one of Asia's most
export-geared economies. Between 1970 and 2000,
exports as a percentage of gross domestic product
(GDP) rose from 73% to 202%, ranking Malaysia as
the fourth-most-open economy in the world. In the
Asia-Pacific region, only Singapore, Australia, Hong Kong and Taiwan still rank higher
than Malaysia in the World Competitiveness
Yearbook.
Buoyed by strong exports,
Malaysia's GDP is on course to grow well over 6%
this year, a marked improvement over last year's
5.3%
showing. That performance is renewing foreign
kudos for Malaysia's economic stewardship.
European Trade Commissioner Peter Mandelson last
month praised Malaysia as a "showcase for rapid
industrialization". The International Monetary
Fund, meanwhile, expressed its view that Kuala
Lumpur's handling of the economy was "skillful and
pragmatic".
When Malaysia controversially
slapped on capital controls in the wake of the
1997-98 Asian financial crisis, the country's
economic management was called into question by a
wide array of international commentators. Through
heavy state intervention, Malaysia weathered that
economic storm. Now, Malaysia is being looked upon
as a regional model for how best to deal with
China's rapid economic rise as the world's leading
low-cost manufacturer.
As China entered
many of the same low-end industries that fueled
Southeast Asia's extraordinary growth in the 1980s
and 1990s, many commentators predicted a large
number of Malaysia's exporters would be driven out
of business. Indeed, Malaysia's previous
comparative advantage in unskilled,
labor-intensive manufacturing has gradually been
eroded by China's low-wage policies over the past
decade.
However, Kuala Lumpur has managed
to move many of its industries quickly up the
value-added ladder into more high-skilled,
technology-intensive manufacturing. In recent
years, the government has led an investment spree
into science and technology resources. It has also
enhanced its already well-developed education
system toward producing more skilled technicians
and engineers.
As Prime Minister Abdullah
Badawi recently aptly remarked in a speech:
"Having First World infrastructure won't produce
the desired results if coupled with a Third World
mentality."
Profiting from
China Although electronics manufacturing is
still Malaysia's most important economic sector,
the country has astutely avoided industries that
China is heavily invested in, and has moved into
more high-end niche markets, including bio- and
nanotechnologies, micro-electromechanical systems
and other technology-related services.
At
the same time, Abdullah's government is aware that
while high-tech products and services are the
country's future, traditional economic sectors
must also be revitalized and improved. The
recently promulgated Ninth Economic Plan lays
particular stress on modernizing the agricultural
sector.
The application of technology to
agriculture - as some Western countries have
achieved - is the key to expanding the sector and
boosting its small and medium-sized enterprises.
If effectively implemented, this approach signals
a new holistic perspective and follows Thailand's
example of trying to boost domestic demand through
more globally oriented grassroots production.
Malaysia's relative success makes a strong
argument for innovative state-led economic
policies. The country has historically been
criticized for the sometimes too cozy relations
between industry and government, ties that
Abdullah has vowed to break. But the government's
past emphasis on maintaining the global
competitiveness of national enterprises has
contributed largely to the country's rising living
standards and overall economic prosperity.
With government help, Malaysia's service
providers are now expanding overseas, including in
China. Construction, health care and education
services have been identified by Minister for
International Trade and Industry Rafidah Aziz as
priority sectors for expansion into China.
Malaysian companies are now angling to win
construction and management contracts for
wastewater treatment plants, water supply works,
and city gas-distribution projects on a
build-operate-transfer basis in China. Malaysia is
also in the process of partnering with United
Kingdom and Australian universities to offer
foreign university courses and degrees to Chinese
students at cut-rate prices.
The country
is also leveraging its expertise in electronics
production to make more business inroads into
China. SilTerra Malaysia, the country's leading
semiconductor wafer foundry, is leveraging its
expertise to join forces with emerging Chinese
foundries. The Malaysian group excels in the
highly competitive high-voltage and
mixed-signal/radio frequency (RF) semiconductor
markets, and its management stresses strict
covenants on intellectual property protection - an
area in which most Chinese companies are sorely
lacking.
Malaysia's most successful and
globally known enterprise is still its national
oil-and-gas corporation, Petronas. Mahathir
Mohamad, former prime minister and Petronas
adviser, recently announced the group's record
US$22 billion profit for the fiscal year ending
March 31. Soaring oil and gas prices are helping
Petronas expand its global operations and the
company is angling to help sate China's growing
appetite for fuels. The ambitious industrial
policy outlined in Kuala Lumpur's Ninth Economic
Plan includes upgrading various
technology-oriented industries, and a portion of
Petronas' profits are expected to be mobilized for
that cause.
Muted terror
risk Malaysia's continued economic success
relies heavily on political stability. And foreign
analysts and investors are carefully monitoring
Malaysia's security policy and its ongoing
response to the regional terrorism threat. While
Indonesia and Thailand have both been rocked by
the spread of militant Islam, Malaysia has been
wholly unaffected.
More than 60% of
Malaysia's population is Muslim, and the
government has struck a balanced approach to the
security environment post-September 11, 2001.
Kuala Lumpur has answered Washington's call to
check the spread of Islamic extremist groups, but
at the same time has maintained a large measure of
strategic autonomy. Because Malaysia's population
is a complex mix of Muslims, Hindus, Christians,
Buddhists and Taoists, Kuala Lumpur has been
careful not to fuel the fires of identity-based
conflicts that could ignite extremist sentiments.
Malaysia has privately resisted US calls
to play a bigger role in patrolling the Malacca
Strait, which Washington and regional security
analysts have identified as a potential terrorist
target.
The escalating conflict in
southern Thailand represents the largest security
risk to Malaysia. The Thai government has
repeatedly alleged that Muslim militants have
taken refuge in northern Malaysia after staging
attacks in Thailand - charges that Kuala Lumpur
contends are unsubstantiated. So far, however,
there are no indications the conflict could spill
over the countries' shared border.
Threats
to Malaysia's national interests remain
low-intensity, including long-running territorial
disputes with Singapore, Indonesia, Thailand and
the Philippines. Instead, Malaysia's leaders are
able to focus more of their attention on growing
economic ties and competition with China while
maintaining their historic markets in Japan, the
US and Europe. If Abdullah's administration can
stay its current policy course, Malaysia will be
one of the biggest regional beneficiaries of
China's rise.
Federico Bordonaro
is senior analyst with the Power and Interest News
Report. He can be contacted at
fbordonaro@NOSPAMpinr.com.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
Please contact us about sales, syndication and republishing
.)
