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Publication Date : 30-10-2012
Exploring business opportunities in Southeast Asian country offers China a route into more Asean markets
Across the blue Strait of Malacca, there will be a man-made island, that is poised to become a new travel hub of Malaysia, and is set to appear in 2020.
Northwest China's Gansu Chamber of Commerce, along with Malaysia's Mestika and IEPU, have invested 1.3 billion yuan (US$206 million) to establish the island as a new landmark in Malacca that engages in the travel, entertainment, commerce, culture and resort businesses, most of which will involve Chinese investors.
"Walking through Malacca, the legendary ancient city, I feel little exotic atmosphere, because the major business street is full of shops and hotels with a glittering array of Chinese billboards," said Song Liuming, a Chinese tourist.
Linking the Pacific and Indian oceans and located at the crossroads of Asia and Oceania, the Strait of Malacca has been a trading passage since the days of Zheng He, China's most famous navigator, who visited it five times during the Ming Dynasty (1368-1644).
Today, Chinese people are enthusiastic about investing this ancient city, which has many historical connections to China.
According to the market researcher MYC MM2H, most of the investment in the 607-hectare island is from Chinese investors.
In this traditional economic hub of Malaysia, the most active businessmen are undoubtedly Chinese. Chinese companies are also the country's biggest trading partner.
Song, an entrepreneur from Jiangsu province, said that he saw business opportunities in the travel industry and was sure it would be very profitable to invest and set up a tourist agency in the country.
"There are a lot of beautiful resorts in Malaysia that are attracting more and more Chinese tourists. But the travel service is still not as developed as that in the Chinese market," Song said.
China has become Malaysia's third-largest source of tourists, following Indonesia and Singapore. In the first half of the year, 758,300 Chinese tourists visited Malaysia, up 34 per cent year-on-year, according to the Malaysia Tourism Bureau.
Li Liping, general manager of Zhejiang Tonghui Investment Company, said he plans to invest in Malaysia's catering industry.
"Our company has set up a comprehensive network in China's catering industry and our next plan is to go abroad," said Li.
Li revealed that Malaysia will be the company's first overseas investment destination, where it will open a Chinese restaurant, to take advantage of the two countries' linguistic and cultural similarities.
Ong Chong Yi, minister counsellor for economic affairs at the Malaysian embassy in China, told China Daily that over the past three years, Chinese investors have been active in the construction sector in Malaysia but have less presence in the service sector.
The liberalisation of the country's service sector gives Chinese companies opportunities to explore new areas of business, Ong said.
"We concentrate on attracting high technology, knowledge and capital-intensive investment tailored to economic growth and development," he said.
While private companies are trying to grasp investment opportunities in Malaysia, China's State-owned enterprises have tapped into the market, which is China's largest trading partner among members of the Association of Southeast Asian Nations, or Asean.
In a move to gain a greater market presence in Southeast Asia's steel industry, China's State-owned steelmaker Shougang Group launched a project in December 2011 to build a 1.8 billion yuan ($288.3 million) integrated steel plant in Malaysia through a joint venture with the local steelmaker Hiap Teck Venture Berhad.
Built in Terengganu State in northern Malaysia, the project results from the largest Chinese foreign direct investment in Malaysia so far.
Once the plant is fully operational, it will have an annual production capacity of 3.5 million metric tonnes of steel slabs. The first stage of the project will be finished by the middle of 2013, when its annual production capacity will reach 1.5 million tonnes.
"China's steel industry is suffering from overcapacity and that is why we are venturing abroad," said Hu Bin, president of Shougang Group, one of China's largest State-run steel companies.
"Asean is a huge and developing market. I think the bloc has great potential and we are tapping into it via Malaysia," Xinhua News Agency quoted Hu as saying.
"We decided to invest in Malaysia because we find it economically stable," he added, pointing out that the plant is strategically located next to a deepsea port for exports.
Around 40 per cent of the products from the new plant are expected to be shipped to neighbouring Asean countries, especially Indonesia and Thailand, which consume more than 4 million tonnes of steel slabs annually.
Since 2009, Malaysia has been China's largest trading partner among Asean members, and China has surpassed Singapore to become Malaysia's largest export market.
"Due to its advantageous geographical position and stable political and economic conditions, the Malaysian market is a gateway for Chinese investors to enter other Asean markets," said Ong from the Malaysian embassy.
YBhg Tan Sri Datuk Mustafa Mansur, chairman of the Federation of Malaysian Manufacturers, said that Chinese investors could seek investment opportunities in eight industries in Malaysia, including oil and gas, sustainable energy, water, hydroelectric power and food processing.
Tan Sri Dato' Haji Muhyiddin, deputy prime minister of Malaysia, has vowed to provide Chinese investors with a profitable investment conditions.
Muhyiddin said that apart from the traditional fields, infrastructure including real estate has become Chinese investors' new target in Malaysia.
The Construction Industry Development Board of Malaysia has also called on Chinese companies to increase their investment in the industry.
The Malaysian government has allocated a total of 230 billion ringgit ($75 billion) for its investment plan. And 60 per cent of this government development expenditure is allocated for physical infrastructure development, while the rest will be spent on non-physical infrastructure development.
According to the board, domestic market participation by foreign contractors in Malaysia accounted for 16 per cent of the total project value in 2011, compared to 10 per cent in 2010.
The number of projects awarded decreased by 22 per cent but the monetary value increased by 34 per cent. This indicates that foreign contractors are securing fewer but higher value projects.
Foreign contractors undertake projects that require specialised expertise or those financed by foreign investors, the report said.
According to the Ministry of Commerce, Chinese contractors completed contracted construction valued at $21.5 billion in Asean markets.
China Harbour Engineering Co. Ltd. is building a 22.5-km bridge connecting Penang to peninsular Malaysia. Construction of the bridge began in 2008, and 90 per cent of the project has been completed so far.
The Export-Import Bank of China has so far offered loans totalling $286 million to the project.
Many Chinese construction contractors have already started to invest in projects in the country.
"As the biggest market among Asean countries, we will seek business opportunities there to deepen our presence in emerging markets," said Zha Changmiao, a spokesman for China Communication Construction Co. Ltd., the parent company of China Harbour Engineering Co. Ltd.
China and Malaysia have boosted their investment ties in recent years. In 2010, China's investment in Malaysia reached $65.97 million, up 22.7 per cent year-on-year.
Ong said that Malaysia is taking measures to boost Chinese investment in Malaysia, as it's still in its infancy, compared to Malaysian investment in China.
By the end of 2011, Malaysia had invested nearly $6 billion in China, while China's investment in Malaysia stood at just $800 million, according to the Malaysian embassy in China.
"The establishment of two economic cooperation zones will further boost bilateral investment and trade between the two countries," Muhyiddin said.
The China-Malaysia Qinzhou Industrial Park in the Guangxi Zhuang autonomous region is the third industrial park created through a partnership between China and a foreign government. The park serves as the latest symbol of the friendship between the two nations and a platform for cooperation.
A second industrial park between China and Malaysia will be opened at the end of the year in Kuantan in the Malaysian state of Pahang.
"There is no doubt that the Qinzhou and Kuantan industrial parks will create many trade and investment opportunities for both countries," Ong said.
"We are expecting to attract 7 billion yuan in investments and create 5,500 jobs upon its full completion by 2020."
Datuk Seri Liow Tiong Lai, vice-president of Malaysian Chinese Association, said the 607-hectare park was expected to boost economic growth and generate downstream activities for the local business community.
Liow said the project would not have materialised without the full support and commitment of the state government led by Mentri Besar Datuk Seri Adnan Yaakob.
"The federal and Pahang governments share a close working relationship and mission to bring about economic prosperity and lift up the well-being of the people," Liow said.
After the completion of Kuantan Industrial Park, Malaysia's iron ore could be exported from Kuantan port to Qinzhou port to support the development of the shipping and automobile industries in the China-Malaysia Qinzhou Industrial Park, according to Ong.
Meanwhile, Kuantan port will become a container terminal hub in Southeast Asia, establishing smooth interaction with the Qinzhou tax-free port.
US$1 = 6.24 Chinese yuan
US$1 = 3.05 Malaysian ringgit