[COLUMNIST] China Investment in Malaysia: Risks and Rewards that lie beneath

KUALA LUMPUR: China is the largest foreign direct investor in Malaysia, with investments totalling RM170.07 billion ($38.64 billion) as of October 6, 2023. This represents a significant increase from the RM55.4 billion ($12.5 billion) invested in 2022.

Chinese investment is spread across a wide range of sectors in Malaysia, but is concentrated in the following areas:

• Manufacturing (particularly electronics and electrical, chemicals, and transport equipment)
• Infrastructure (including energy, transportation, and logistics)
• Property development
• Digital economy
• Green technology

Some of the most notable Chinese investments in Malaysia in recent months include:

• Rongsheng Petrochemical’s RM80 billion petrochemical refineries in Johor
• Zhejiang Geely Holding Group’s RM32 billion investments in Proton
• Alibaba’s RM1 billion investments in Malaysia’s digital economy
• Tencent’s RM1 billion investment in Malaysia’s cloud computing sector

Chinese investment has played a significant role in Malaysia’s economic development in recent years. It has

helped to create jobs, boost exports, and transfer new technologies and skills.

However, Chinese investment also comes with some risks and downsides. These include:

Overreliance on China: Malaysia’s increasing dependence on China for investment and trade could make it vulnerable to economic shocks in China. For example, the dampened development of Forest City due to the property crisis in China.

Crowding out of local businesses: Chinese companies may dominate certain sectors of the Malaysian economy, making it difficult for local businesses to compete. For example, the steel industry in Malaysia is suffering due to stiff competition from China.

Environmental concerns: Some Chinese investments have been criticized for their environmental impact.

For example, Rongsheng Petrochemical’s refinery project has raised concerns about air and water pollution.

National security concerns: Some Chinese investments have been criticized for raising national security concerns, such as the involvement of Chinese companies in the development of critical infrastructure.

Another example is how Huawei’s product will be used for 5G network infrastructure development despite espionage allegation and being banned in numerous countries.

The Malaysian government is working to mitigate the risks of Chinese investment, such as by setting up a special unit to review foreign investments and by developing a national investment policy that prioritizes local businesses.

It is important to weigh the risks and rewards of Chinese investment carefully before making any decisions. Especially considering the complex and nuanced territorial dispute between Malaysia and China at the South China Sea.

Overall, the impact of Chinese investment on Malaysia’s territorial dispute in the South China Sea is uncertain. It is possible that it could have a positive impact, by giving Malaysia more economic leverage and helping to develop its economy and military capabilities.

However, it is also possible that it could have a negative impact, by making Malaysia more dependent on China and compromising its sovereignty.

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* Rahman Hussin runs his own boutique advisory firm, Imperium Consulting and regularly shares his insights on business, trade, politics and geo-politics.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.