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China’s Belt and Road: What’s in it for Malaysia?
« on: July 13, 2018, 04:49:33 PM »
China’s Belt and Road: What’s in it for Malaysia?
September 3, 2017, Sunday Rachel Lau

China’s Belt and Road initiative (BRI) is perhaps the country’s biggest initiative to date in an effort to energise the global economy via projects spanning 65 countries by building massive infrastructure revolving around transport and energy.

Proposed by China’s President Xi Jinping in 2013 for the joint economic development between the countries and regions involved in the initiative, through the promotion and facilitation of international trade between them.

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Malaysia stands to gain?

Overall, the widely debated initiative has garnered equal amounts of positive and negative attention from all over the world. Supporters of the initiative were quick to point out that the BRI would be able to help bring down trade barriers while increasing opportunities for local players on a global scale, but on the hand, its naysayers question whether or not the complex endeavour would be able to navigate through the immense number of political, socio-economic, financial and logistical issues it faces.

Some of our more opportunistic companies have already begun on this path as the recent Belt and Road Forum (BRF) held in Beijing in May 2017, yielded a total of nine memorandums of understandings (MoUs) and agreements signed between Malaysian and Chinese companies.

Among the major projects under the initiative is the Malaysia-China Kuantan Industrial Park in Pahang, Melaka Gateway, East Coast Rail Link and Xiamen University Malaysia.

These agreements were mostly trade based and boasted a total value of US$7.22 billion or RM31.26 billion.

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The five aspects of the Belt and Road

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In order to achieve this, the ACCA-SSE recommends that countries along the BRI routes and should actively plan ways of connecting their infrastructure and bring technical standards into line, working together to build international passageways.

“This means making improvements to – or entirely new construction of – transportation infrastructure, energy infrastructure, and cross-border cable and other communications networks.”

So far, the push for connecting infrastructure has be a tedious task as government officials of involved countries have all been fighting for their country’s best interest in the initiative.

In Malaysia the effect has also been observed as BRI-related projects such as the ECRL and Melaka Gateway deep-sea port have faced heavy criticism in regards to its necessity, contract awards and funding.

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“New trading channels, such as crossborder e-commerce, will consolidate and expand conventional business. Investment and trade are seen as complementary: one drives the development of the other.”

In Malaysia, observers have noted that this impact of unimpeded trade between China has already begun with the anticipated doubling of our annual pineapple export to China to RM320 million by 2020, following the signing of the protocol on phytosanitary requirement in Beijing during the BRF.

In addition, the upcoming digital free trade zone set up by Chinese e-commerce giant Alibaba Group Holding Ltd (Alibaba Group), slated to be launched end-2019, will also act a catalyst for increased unimpeded trade for not only between Malaysia and China, but also Malaysia and her other regional partners.

According to an article from The Edge Financial Daily published on March 24, 2017, Jack Ma, the founder of the Alibaba Group has announced to reporters that the digital free trade zone was a private sector initiative to support china’s BRI.

“This is Alibaba’s own initiative to support the One Belt, One Road. We are also paying attention to other regions such as the South America.”

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Opportunities for Malaysia

But what about Malaysia specifically? What impacts do we expect in our economy and industry landscapes?

According to Goh, majority of our industries and sectors all set to be beneficiaries of the BRI.

Infrastructure-related development sectors

However, the first sectors and industries set to see tangible benefits are our infrastructure-related development in sea, land, air transport; energy; water information communications; and pipelines.

While majority of the recent infrastructure development projects falling under BRI umbrella have been clinched by Chinese-national companies, reports have noted that provisions put into place by our federal government require that a certain percentage of sub-contracting job packages be awarded to Malaysian companies.

Thus, boosting greatly boosting our infrastructure-related development sector.

One example of a Malaysian company potentially walking away with a subcontracting job soon is Vivocom Intl Holdings Bhd (Vivocom).

In a research report by Midf Amanah Investment Bank Bhd, its research arm shared that it expects China Railway Construction Corp Ltd (CRCC) to clinch a RM450 million to expand Sultan Ismail Petra Airport (SIPA) which is in dire need of expansion as the airport, which is the last stop of the ECRL, has already exceeded its capacity of 1.45 million passengers annual.

The proposed upgrades at the moment for SIPA include an apron expansion, enlargement of runway/taxiways, and the construction of new terminals such as contact pier finger terminals.

Midf Research is anticipating that these packages will be not be segmented, leaving room for Vivocom to potentially end up taking up the entire package.

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Risks and challenges

In spite of these benefits, several risks persist for Malaysia stemming from the BRI. In a risk assessment report from the Economist Intelligence Unit Ltd, operational risk of BRI in Malaysia is among one of the lowest in all 65 nations involved.

While this does help quell some concerns of the BRI, the research report highlighted that our labour market would be our biggest risk due to our dependence on foreign workers.

Even without the BRI, the issue of our foreign worker dependence has been ongoing debate for many years now as companies complain about labour shortages and expensive foreign worker levies that would cut profit margins.

And addition, the research house also surmises that our lack of skilled workers would also cause cost issues in BRI projects.

“Over the short-to-medium term, foreign companies are likely to have to import skilled or specialist workers for their Malaysian operations, which will significantly raise production costs,” they explained.

Besides our labour market, main concern political parties and industry observers have also raised is whether or not we have the ability to meet the loan payments of these large scale infrastructures.

For financing, various reports have indicated that the RM55 million ECRL, our biggest BRI project, will have 85 per cent of its project value be funded through a 3.25 per cent 13 year soft loan from the Exim Bank of China, with payments starting only in the seventh year.

The total interest incurred from the loan at the end of its period will be around RM19.75 million, translating to a required payment of RM9.5 million per annum once payments are required to begin in seventh year.

This is as significant amount of interest and does warrants valid concerns on whether we have the ability to pay it off as we are still attempting to service the remaining US$602.73 million payment owed to the International Petroleum Investment Company PJSC (IPIC).

However having said that, it is worth noting that it is unfair to merely view our BRI investments in just monetary terms as we would need to include the benefits it would yield on our economy on the whole to get a more justified picture of the situation.

And as the imitative is still in its early stages of implementation in Malaysia, it would be up to us as major stakeholders in our own economy to shape the impacts yield by appropriately assessing both its benefits and risk.