Tuesday, July 5, 2016
Malaysia - A win-win relationship
China’s one-belt one-road regional economic expansion will shower abundant trade opportunities and development on Malaysia’s ports, railways and airports.
IT was a grim-faced Datuk Seri Liow Tiong Lai who took over the reins of the Transport Ministry two years ago. The fair-complexioned, well put together man hardly wore a smile then. But those days are long gone. In his place stands a much happier man who talks animatedly and brims with enthusiasm.
His appointment as Transport Minister in June 2014 came with an inherited, highly unenviable task – he had to console sobbing family members and answer incessant queries about the Beijing-bound MH370 flight that mysteriously went missing on March 8 that year.
Barely had he warmed his seat when four months later – on July 17 – Flight MH17 was shot down in eastern Ukraine, en route to Kuala Lumpur from Amsterdam. All 298 people on board were killed while Ukraine and pro-independence militia blamed each other for the downing of the plane.
But with these two air disasters linked to government-owned Malaysia Airlines gradually fading from the limelight, Liow – also the president of MCA – is now able to turn his focus to his real ministerial work.
Last Tuesday, he was his cheerful, talkative self when he spoke passionately about what he has done to woo multi-billion-dollar investments into Malaysia’s ports, railways and airports under China’s one-belt one-road regional economic expansion, which will ultimately translate into a surge in bilateral trade and investments.
“I don’t think we can achieve the original bilateral trade target of US$160bil (RM640bil) next year due to the economic slowdown. But with China’s investments under its belt-road initiative, we may achieve this target in 2018 or 2019,” says Liow at the MCA headquarters in Kuala Lumpur.
Currently, Malaysia is China’s third largest trading partner in Asia, after Japan and South Korea. Total bilateral trade for last year was estimated to be around US$106bil (RM424bil).
Liow says Malaysia is keen on fostering an economic partnership with China as it is prepared to enter into a win-win relationship, and provide transfer of technology and low-interest funding for infrastructure projects.
China’s investments are both timely and crucial for Malaysia amid the global economic slowdown and dwindling foreign investments. Exports fell 17.2% year on year in the first quarter of this year, due partly to the sluggish demand for commodities.
Against this backdrop, the 55-year-old energetic minister has been making frequent trips to Beijing to entice more direct investments into the country. If he succeeds, it could mean tens of billions of new investments for Malaysia.
Last month’s trip to Beijing saw him inking an extension to the port alliance agreement with China, a deal that carries wide-ranging business implications for Malaysian ports and associated stakeholders. A top officer of MMC Corporation Bhd, a utilities and infrastructure group with interests in ports and logistics, was spotted in China with him.
As 80% of the world’s East-West maritime trade passes through the Straits of Malacca, Liow has proposed that China build a third deep-sea port at Carey Island in Port Klang to service these ships.
Port Klang is the world’s 12th busiest container port now. Its container cargo handling volume is projected to hit 16.3 million TEUs in 2020 – nearing its capacity. Hence, expansion plans for Port Klang are needed now.
Liow says he has also asked China to re-look the Port Klang Free Trade Zone (PKFZ), once tarnished by mismanagement, cost overruns and a land deal scandal. The Chinese came once before PKFZ was revamped.
“With lots of Chinese investments, PKFZ has become a very crucial area to develop our ports. The Chinese are interested to use PKFZ to transfer goods for export and import into the region. We are working with China Merchants Group (CMG) on this,” he said in an interview with Sunday Star.
CMG is a state-owned conglomerate based in Hong Kong, with transportation and property development as two of its core businesses. The highly profitable company with total assets of 976.7 billion yuan (RM587bil) is described on its website as a major player in the transportation infrastructure industry. It owns 30 ports in 16 countries.
Without referring to written answers, Liow talks excitedly non-stop for one hour on how Malaysia is reaping benefits from the belt-road investments. Below are the excerpts:
What local infrastructure projects will benefit from China’s Belt and Road initiative?
We are focusing on trade. From 2009 till now, we are China’s number one trading partner in Asean. In 2014, our two-way trade exceeded US$100bil (RM400bil). This initiative means a lot to Malaysia because we want to enhance trade with China. We have put in place a lot of projects to increase trade.
For example, we have the sister industrial parks in Qinzhou, Guangxi province and Kuantan, Pahang, to create investments for both countries. We have Iskandar Malaysia to attract Chinese investment to property and mixed development projects. We also focus on infrastructure, such as the railway line, which is of great interest to China. In addition, we have lots of ports to work with China.
Malacca and Guangdong have established a “friendly state and province” status. Chinese provinces have to achieve trade KPIs, which is why Malacca can achieve results very fast. China Southern Airlines will be making its maiden flight from Guangzhou to Malacca in September. This is major news for Malacca, as few international flights use its airport.
All these can happen because of the Belt and Road initiative. We have put forward lots of programmes for China, including projects in Sabah and Sarawak, for them to pick and choose. In fact, they want most of them.
Why is Malaysia keen on China?
We want China to not only take our projects, but also bring in soft loans and technology transfer. That is why we work with them.
If China is interested in our railway projects, such as the East Coast line from Tumpat (in Kelantan) to Kuala Lumpur, they can come up with packages that include financing and technology transfer. If beneficial to Malaysia, we can take up their offers.
The Kuala Lumpur-Singapore High Speed Rail (HSR), currently estimated to cost RM60bil, is another important project.
Has China indicated any soft loan for this RM60bil project?
No, because we have yet to call for tenders. When we do next year, we will see who offers the best. We really hope China can come up with not only financing, but also transit-oriented development projects to help develop cities and towns along the HSR.
You have indicated that you are very impressed with China’s rail technology. What about Singapore’s?
China has managed to take the best from others and innovate the best. They take the best from Bombardier, Siemens and technologies from Italy and Europe. They innovate – but not copy – from the best and produce their own rail technology.
But it is also important for us to look at the life cycle cost. We can’t just look at cost per se. The life cycle cost – which covers maintenance for the whole project – is also vital. We have to compare the Chinese costs with other countries too.
We don’t have any comments from Singapore yet. But we have been invited by the South Korean, Japanese and Chinese governments to visit their HSR projects.
I visited Japan and China, so we are able to make some comparisons. We want to look at the overall picture. It is too early to judge now.
So there’s no guarantee that China will get the job?
Nobody can guarantee anything now because the terms of reference are not up yet, the specifications are not drawn up. And nobody can say anything now. Japan and China cannot say they are sure they will get the project. We should be fair to all because this is an international tender.
What’s your conclusion after seeing the HSR technologies in Japan and China?
Well, I should not be too open about my comments because I am part of this very important project. The country also wants to look for the best. We have regular economic council meetings on the HSR. I reserve my comments.
What kinds of business opportunities will our companies benefit from under these projects?
There are a lot of benefits under the whole Belt and Road initiative.
Firstly, we are able to initiate the projects faster as China responds quickly to our calls. For example, when we tried to form a port alliance among six Malaysian ports and 10 Chinese ports last year, Chinese Premier Li Keqiang responded and witnessed the MoU signing ceremony between the transport ministries of both countries.
That shows that government commitment is very, very high.
Secondly, you can see that all giant companies – China Merchants, China Shipping and other ship liners have come to Malaysia to see our ports. This has created a lot of excitement.
Because of this port alliance, ship liners are coming up with proposals to expedite and enhance trade between ports.
China’s Transport Ministry wants this project to be implemented fast, so in mid-July, there will be a forum in Ningbo, Zhejiang province, to discuss the activities under the port alliance. We are going to have a convention of ports once a year, and alternate the venue between China and Malaysia.
Under the extension agreement signed recently, we are opening up membership to more ports, port operators, ship liners, freight forwarders and logistic companies. All stakeholders will benefit from this. It will definitely enhance trade between our ports.
Under the MoU, we are talking about port study, training and apprenticeship, exchange of information, technical assistance, traffic development and promotion of services. I have proposed more areas of mutual cooperation.
Will the extension of this port alliance help to achieve the bilateral trade target of US$160bil (RM640bil)?
Yes. We can’t achieve the goal in 2017 but maybe a little later – 2018 to 2019.
Will it help to achieve your trade target for Port Klang?
Our target is to also enable Port Klang to handle up to 30 million TEUs.
We can easily handle 16 million TEUs now but we have to plan for a 30-million-TEU capacity. We cannot wait too long.
I am trying to improve our port logistics and infrastructure: the customs system to remove the bottleneck and reduce paperwork by using technology to speed up trade at ports.
We are also looking at developing a third port called Carey Island, in addition to Westport and Northport. We will see if China is interested to develop this.
How will our airports benefit from China’s Belt and Road initiative?
Because of e-commerce, air cargo has become an important growth sector in Malaysia. That’s why KLIA is also focusing on air cargo development.
I recently launched the KLIA Aeropolis to turn KLIA into a cargo hub. A lot of parties are interested to fly into KLIA for air cargo. DHL is already in and so are many local air cargo companies. We are trying to attract air cargo companies from China to come in.
There should not be any problem to get investors to come into this sector.
What is the impact of the Belt and Road initiative on our economy?
The Malaysian and Chinese economies are closely linked. (About 20% of Malaysian exports go to China). If China’s economy drops by 1%, our economy will be affected by 0.4%.
We are very worried when China slows down, but we are glad that it is experiencing non-stop growth although its double-digit growth dropped to 6.9% last year.
Its GDP goal for this year is 6.5%. We can still maintain our economic growth of 4% to 4.5% should China achieve a 6.5% growth.
The ultimate goal of this Belt and Road initiative is connectivity through infrastructure development. It brings Malaysia and Asean closer to China. When people from both sides are closer, there will be more economic opportunities.
Take the Kunming-Singapore trans-national railway link for example. We have wanted to push for it since 1995 but only recently we saw real development of the link.
Before this, there were concerns of shortage of funds and of the rail link becoming a white elephant. But as soon as China pledged its support, Thailand immediately committed to building a railway from China to Bangkok. Vietnam, Cambodia and Laos all began to push for their rail projects.
Without China to spearhead this plan, it will need another 10 to 20 years for the project to come to fruition. I strongly believe that the Belt and Road is the impetus for development in the world.
Does China impose conditions on Belt-Road projects in Malaysia since it is funding many projects?
Malaysia will impose our conditions on local content. Normally when they invest here, we set our own rules and regulations. Not theirs. They will follow our requirements even if funding comes from them.
In fact, we are offering good projects to them. For example, we offered sea-fronting land for the Malacca Gateway project. They are using our local contractors and suppliers. There are no conditions to say that everything must be imported from China. There are no such requests too.
There is overcapacity in China, so they need to export this overcapacity?
Maybe this applies to African countries, but not for Malaysia. We are not an underdeveloped country but a developing country with our own expertise. We have the technology to build our own railway lines.
But because of our good relationship with China and the lower costs it can offer, it’s a win-win pact for us. It’s never a one-sided agreement. It has to be a win-win situation for us.
China is seen as expanding its power and influence through the Belt and Road initiative. What’s your take on this?
I don’t think so. China is very keen to enhance trade with Malaysia and Asean. Asean, as a group, is a big market now and Malaysia is in the centre of Asean. Asean is now the seventh biggest economy in the world and it can jump to fourth place in years to come.
Malaysia has good infrastructure, a good legal system and a stable government, which is why we can attract the Chinese to come.
As a group, Asean has its own territory and boundary. We have our own stance on the South China Sea issue. The Asean position is very clear and China knows it.
We are putting trade as our priority. Whatever disagreements can be further negotiated and discussed in a cordial environment.
South China Sea is definitely an issue for Asean but it will not be a hindrance to the Malaysia-China good relationship. It won’t be a stumbling block. As of now, we need China and China needs us, in terms of economic development.