Lack of transparency in Malaysia-China investment risks local firms

Outcome can be very different if there are proper governance oversight


WHILE the multibillion investment of China in Malaysia proves to boost the nation’s economy, economists warned that lack of governance especially in direct award projects could jeopardise local businesses in the long term.

University of Malaya dean of Economics and Administration Faculty Prof Dr Edmund Terence Gomez said in the form of where state-owned firms are involved, there is lack of arm’s-length practices by the government, risking a corruption element in the decision-making process.

“There is evidence that state-business relationships can be effective. But we also need to see the nature of the state of transparency in the process.

“This includes the element of credibility, in the way they choose firms to work together with these Chinese firms is based on those who have privileges and access to the Malaysian government to form joint ventures with the state-owned enterprises in China,” Gomez, who is also the co-author of the book “China in Malaysia”, said.

“While there is a lot of ‘helping hand’ process by the government, there are also roles of ‘grabbing hands’ — a possible element of corruption coming in the projects,” Gomez said in a virtual launch of the book, themed “State-Business Relations and the New Order of Investment Flows” last week.

Also present were Ambassador of the European Union in Malaysia Michalis Rokas, China Europe International Business School Dr Richard Wayne Carney and Australian High Commissioner to Malaysia Andrew Goledzinowski.

The book looked at 92 companies that inked partnerships with their Chinese counterpart in the last five years. However, only seven corporations were cited in its “case study approach”.

Gomez cited the case on contracts awarded to the CRRC Corp Ltd, a Chinese state-owned and publicly traded rolling stock manufacturer which secured multiple projects and procurements for

Malaysian railway companies. He expressed concerns that this would open the gate for “grabbing hands” elements due to the government’s direct intervention without clear and transparent processes.

“If we can clean up and ensure there is proper governance oversight of these firms…then the outcome can be very different,” he said.

“In the short term, it’s a productive (cooperation) but in the long term, it doesn’t look promising in Malaysia in the sense that if we carry on with this trend, the volume of investment in China will definitely grow by leaps and bounds and the implications of this for Malaysian firms may not be so good,” he added.

“This may be something that we have to wait and see, but the projections are from what we are seeing, the long-term implication might not be good for Malaysia,” warned Gomez.

Among others, the study found that there are “untold stories” of some productive investments which were made within the last four to five years, including the establishment of Digital Free Trade Zone that linked global giant e-commerce Alibaba Group and local players.

“These kinds of investments nurture the small and medium enterprises (SMEs) in the countries,” Gomez said.

The partnership between Proton Holdings Bhd and Zhejiang Geely Holding Group Co Ltd in 2017 also spurred the supply chain in the automotive sector.

There has been good outcome from the partnership, noting that the turnaround plan of Proton is progressing well, said Gomez.

Prof Tham Siew Yean of Universiti Kebangsaan Malaysia, who is also the co-author of the book said the technology transfer between Chinese and Malaysian firms is also yet to be seen, despite the multibillion worth of trades between the two countries.

Tham said it is crucial for the government and local players to work hand in hand so enterprises can match and leverage Chinese’s expertise.

She urged local firms and SMEs to embark on their own research and development (R&D) as the automotive players in Thailand did — which can generate better sustainability in the industry, instead of waiting for foreign investors’ investment.

“We also cannot depend on foreign investors to transfer their core tech to us. We have to do indigenous R&D and upgrade further so we can absorb further,” she added.

China remains the main source of foreign direct investment (FDI) in Malaysia with RM18.1 billion invested to the country last year, from the total of RM64.2 billion recorded.

The country’s FDI in manufacturing had grown more than four times in the past five years, while the Malaysia-China bilateral trade has hit a new record high, rising to US$124 billion (RM504.68 billion) in 2019 — a 14.2% increase over the 2018 figure of US$108.66 billion.


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