Malaysia is seen as a key investment destination for Chinese companies, and the trend is expected to pick up even more momentum in 2018, as Chinese contractors continue to participate in major infrastructure projects around the country, either directly or via joint ventures with Malaysian partners. You know the reasons why Chinese investors are so keen to invest in Malaysia, but what are the mega-projects that are attracting them to our Malaysian shores?

Projects & Initiatives to Watch

  • Digital Free Trade Zone (DFTZ)
    In March 2017, the Digital Free Trade Zone (DFTZ), led by Alibaba Group, was launched to boost Malaysia’s e-commerce. It is set to transform the landscape of Malaysia’s retail and logistic sector. The Malaysian government has set an ambitious target by boosting e-commerce growth rate to 20.8% from 10.8%, and to increase e-commerce contribution to GDP by RM211 billion by 2020.
  • East Coast Rail Link (ECRL)
    In August 2017, the East Coast Rail Link (ECRL) was launched, which has China Communications Construction Company as the main contractor, to improve connectivity in the country. The RM55 billion, 688km rail link, which will seamlessly link the Klang Valley with the states of Pahang, Terengganu and Kelantan, is slated for completion in 2024. The awards to local contractors are expected to take place in early 2018, which would add to at least RM16 billion in construction jobs for local players.
  • Reform of Proton with Geely
    In June 2017, Zhejiang Geely Holdings purchased a 49.9% stake in Malaysian national car maker Proton. One of the key things to watch this year is the reform of Proton, whether Geely can turn the loss making firm into a profitable entity. The new management is focusing on cost optimization to improve immediate operating efficiency and financial performance. Proton’s new Chinese chief executive Li Chunrong has targeted a gradual reduction in Proton’s losses and breakeven in three to four years.
  • Kuala Lumpur-Singapore High-Speed Rail (HSR)
    The KL-SG HSR project is another rail line set to change the way people travel between Malaysia and Singapore. Its route will span 350km from Bandar Malaysia in Kuala Lumpur to Jurong East in Singapore, and will cut travel time between the two cities to a mere 90 minutes. It is expected to bring enhanced stimulus and growth to areas along the track, especially cities where the stations are located in Negeri Sembilan, Melaka and Johor.
  • One Belt, One Road (OBOR) Initiative
    Proposed in 2013, the Belt and Road Initiative aims to build trade and infrastructure networks connecting nations on and beyond the ancient Silk Road routes. It comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road. Malaysia is one of the first countries that supported the initiative.

Closer Economic Ties

Economists expect the economic relationship between Malaysia and China to further improve over the years. “Malaysia is well-positioned to benefit from the higher connectivity due to its central location for sea, air and land transportation, favorable policy environment and strong capacity to absorb foreign investment inflows,” said Sunway University Economics professor Yeah Kim Leng.

Positive benefits of Chinese investment will include expansion of production, export and infrastructure capacity. It will also offer more diversified sources of inward foreign direct investment (FDI), and increased access to Chinese markets for Malaysian manufacturers and service providers as. The real estate and construction sectors have already seen a surge in Chinese investments, with other industries to follow suit.

Bigger Role of Renminbi

Economists also believe the expansion of China in regional trades and economic ties will encourage the usage of Renminbi (RMB), the Chinese yuan, in Malaysia. Greater FDI inflows from China are likely to promote more two-way trade and investment flows between the two nations. As the Belt and Road Initiative gains traction, it is believed that the expansion of trade and investment links between China and its neighboring regions, including Malaysia, will encourage further adoption of the Renminbi.

The Belt and Road Initiative will promote wide use of the Renminbi and increase other local currency-denominated funding, as the Chinese government has committed to help fund overseas businesses under the initiative. However, it may still need time to see more usage of Renminbi as the U.S. dollar remains the dominant worldwide payment currency.