Making the US China Trade War Work For The New Malaysia As A Supply Chain Refuge And Principal Investment Hub

Now that the US China Trade War has started in earnest, it could get a lot worse before it gets better. Malaysia, as host country to regional supply chains, will suffer alongside US, China and other countries who are part of the global supply chain.

Do we resignedly suffer losses from the trade war that we can ill afford as Malaysia groans under the back breaking burden of the RM1 trillion national debt incurred by past governments? Or should we resolutely find ways to do better in the new challenging global economic environment around us?

Since April 2018, I have traversed 9 cities in China leading a regional Belt and Road Seminar Road Show and speaking at 11 different events on “Malaysia as a Principal Hub For Chinese and Other Foreign Investments In ASEAN”. Many more similar events will follow for the rest of the year.

Everywhere we went, concerns were raised and solutions sought over the escalating trade war and punishing tariffs imposed by the US to reduce the burgeoning trade deficit with China.

What can the new Malaysia offer to Chinese and foreign owned factories and supply chains in China seeking refuge from the trade war?

Last October, Datuk Zainal Amanshah, CEO of InvestKL described Honeywell’s choice of Malaysia as a regional hub as follows:

“Honeywell, a global Fortune 100 software- industrial company, chose Kuala Lumpur for its new Asean regional headquarters. They will be providing specific solutions to industries in aerospace, home and building technologies, safety and productivity solutions, and performance materials and technologies.

At this juncture, Honeywell has a workforce of 1,500 in Malaysia, with more than 4,000 employees across the region. To date, Honeywell has invested over US$500 million (RM2.12 billion) in Malaysia over the past decade.

The new Asean regional headquarters in Kuala Lumpur totalling 74,000 sq ft has over 400 employees from four business groups. They will continue to hire and develop local talents to support Honeywell’s businesses across the region.”

Apart from its strategic location alongside the Straits of Malacca, Malaysia offers liberal investment policies, attractive incentives, bilingual English Chinese speaking workforce, quality infrastructure, lower costs, impressive track record and quality of life etc for foreign owned manufacturing companies to operate in the country.

Foreign investors can own 100% of manufacturing companies in Malaysia.

For those factories in Malaysia which are already part of supply chains linked to China, it will be relatively easy to move significant portions of Chinese production into Malaysia so as to qualify for Malaysian Certificates of Origin.

For Chinese owned companies beginning to build their supply chains outside China, they could likewise move the production of a majority composition of their products to Malaysia to qualify for Malaysian Certificates of Origin.

In the 1990s, Malaysia was a magnet for export driven manufacturing in Asia before the rise of China and the migration of production there. With the trade war, there should be no difficulty for China based production to relocate to Malaysia.

With USD200 billion worth of China products threatened with US tariffs, a production shift of a significant portion of Chinese made products will go a long way to help Malaysia recover from past mismanagement.

Even better, for those looking for a regional hub for their business activities in Asia, Malaysia offers attractive Principal Hub incentives: See http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20170803135316_Principal%20Hub%20Guidelines%20-%20as%20at%2003%20Ogos%202017.pdf

As the new government swing into action in the coming months, it is hoped that both MIDA and MITI will play a prominent and proactive role in attracting and helping China based manufacturers to shift investments and production to Malaysia both as a supply chain refuge from the trade war and as a Principal Investment Hub in the region.