How important is China to Malaysia?

CAPITAL TALK

www.icapital.biz

WHEN President Hu Jintao visited Malaysia on Nov 11-12, he was greeted with all the pomp and ceremony that symbolised his personal and nation’s immense importance. Such a grand treatment is only natural given China’s increasing influence on Malaysia’s economy and her fast ascent as an economic powerhouse.

Just how important is China to Malaysia?

Despite Malaysia’s confrontation with the communists in the 1950s and 1960s, Malaysia established formal ties with China as early as 1974, among the earliest to do so. In the 1980s and 1990s, Malaysia traded mainly with developed countries, namely, the United States, Europe and Japan.

However, this has changed dramatically over the years. In the early days of the 21st century, Malaysia’s export growth to China consistently outpaced that of the United States.

Therefore, China’s share of Malaysia’s exports climbed to 8.8% in 2007 and 9.5% in 2008. In the first nine months of 2009, China became Malaysia’s biggest export market, overtaking the United States. (Due to its big entrepot trade, Singapore’s market share is not directly comparable).

China is now the largest market for many of Malaysia’s major exports, especially commodity products.

This is important, as there were instances in the past when the exports of Malaysia’s electrical and electronic products were hit, it was commodity exports that played an important role in mitigating the adverse impacts on the economy.

Apart from trade, China is also becoming an increasingly important market for Malaysia’s tourism industry. In the 1990s, Japan used to be Malaysia’s largest source of tourist arrivals outside of the Asean region. Now, the role has been taken over by China.

To become an education hub in the region has been one of the noble goals of the Government for some time. In the early 2000s, a large number of Chinese students came to Malaysia to pursue their higher education.

In fact in 2002, close to 40% of all foreign students in Malaysia were from China. Although the number of Chinese students coming to Malaysia has fallen sharply since, China is still the second biggest contributor of foreign students in Malaysia. There was a significant rebound in Chinese students enrolling in colleges and universities in Malaysia last year.

As the China has been encouraging Chinese companies to venture overseas, Malaysia certainly would want to catch part of China’s foreign direct investment (FDI) outflow, especially when FDI outflows from western countries are expected to be weak in the next few years.

The US-led financial crisis has hit countries that are dependent on the US economy hard. Malaysia’s manufacturing sector has been one of the hard-hit victims.

As the global economic weight is leaning increasingly towards Asia and with China being the leader of the Asian block, it is only logical for Malaysia to give President Hu the highest honour it can.