Malaysia Country Profile, Investment Opportunities and Risk Analysis (Five Country Report of the Bank of China Think Tank)

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Foreword: In order to serve the country's “One Belt, One Road” strategy, to help industrial and commercial enterprises “go global” and internationalization of commercial banks, Minsheng Bank Research Institute has successively launched a series of national research reports. This report outlines Malaysia's basic national conditions, economic conditions, policy environment, rating of international institutions and recent economic and trade exchanges with China. It focuses on the investment opportunities and risks of Chinese industrial and commercial enterprises in Malaysia, as well as Chinese banks in Malaysia. Development opportunities, challenges, and finally put forward countermeasures and suggestions (if you need to report the full text, please contact the end of the article).

I. Overview of Malaysia

1.

basic situation

Malaysia is located in the southeast of Asia, between the Pacific Ocean 601099, between the stock bar and the Indian Ocean. The land is divided into two parts by the South China Sea. In 2016, the total population of Malaysia was 31.7 million. The state religion was Islam, the Mandarin was Malay, and the general English was good.

Malaysia has a constitutional monarchy, and the National Front of the ruling coalition headed by the Malay National Unity ("UMU") has long served. It is a member of the Commonwealth, one of the five founding members of ASEAN, and also a group of 77 and a non-aligned group. The founding member states of the organization pursue an independent, neutral, non-aligned foreign policy, regard ASEAN as the cornerstone of foreign policy, attach importance to developing relations with major powers, and actively promote East Asian cooperation.

Malaysia is rich in natural resources. The production and export volume of rubber, palm oil and pepper are among the highest in the world. The reserves of oil and natural gas are abundant. In addition, there are minerals such as iron, gold, tungsten, coal, bauxite and manganese, which are rich in tropical forests, especially hardwoods. Malaysia is the world's second largest producer and largest exporter of palm oil and related products, the third largest producer and exporter of natural rubber, and the third largest exporter of LNG.

2.

economic status

The economic situation in Malaysia is generally stable. In recent years, it has maintained a medium-to-high-speed growth. Domestic demand is the main growth driver. The upward pressure on inflation is not strong, and the unemployment rate remains stable. In 2016, Malaysia's annual economic growth was 4.2%. In the financial environment, interest rates remained stable and credit growth grew steadily. At present, Malaysia's benchmark interest rate is 3%. At the end of 2016, Malaysia's M1 and M2 were 380.8 billion and 166.3 billion ringgit respectively, up 5.7% and 3.0% respectively. In terms of fiscal revenue and expenditure, public finances continued to deficit and the scale of public debt remained stable. In 2016, Malaysia's fiscal deficit was 13.513 billion ringgit, and the size of public debt reached 675 billion ringgit, accounting for 55.2% of GDP. In terms of trade and balance of payments, the current account surplus continued and international reserves continued to decrease, but remained basically sufficient. Since the Asian financial crisis, Malaysia’s current account has been in surplus. Although the account surplus has gradually narrowed in the past two years, it is still able to maintain its surplus status. The continuous current account surplus has enabled Malaysia to accumulate ample international reserves. In terms of debt situation, the external debt is moderate in scale and the short-term external debt is relatively high. In 2015, Malaysia’s short-term external debt was 76.467 billion US dollars, accounting for 40% of the total foreign debt, accounting for 80% of the international reserves. The concentration of short-term debt repayment in Malaysia is likely to have an impact on international reserves.

3.

Policy Environment

In terms of development planning, in May 2015, Malaysian Prime Minister Najib submitted the 11th Malaysia Plan (2016-2020) in the lower house of parliament, which included ten main contents. In terms of monetary policy, in July 2017, the Malaysian central bank announced that it will continue to maintain a loose monetary policy to ensure the orderly operation of the financial market. In terms of interest rates, on May 12, 2017, the National Bank of Malaysia decided at the Monetary Policy Committee (MPC) meeting to maintain the overnight policy rate (OPR) at 3.00%. In terms of exchange rate, since Trump was elected president in November 2016, the ringgit has depreciated more than 6% against the US dollar. On December 28, 2016, the ringgit fell to the lowest point in nearly 19 years since 1998. The exchange rate is 4.4823 ringgit to 1 dollar. In 2017, the ringgit exchange rate against the US dollar rebounded slightly. As of June 27, the ringgit against the US dollar was 4.2890 ringgit against 1 US dollar. In terms of fiscal policy, in recent years, the Malaysian Ministry of Finance and the central bank have been able to maintain liquidity and respond to budgetary expenditures through loans and bond issues. The government expects the 2017 budget deficit to shrink to 3% of GDP.

4.

International agency rating

Standard & Poor's has set a long-term sovereign credit rating outlook for Malaysia as “stable”, and has determined the long-term and short-term sovereign credit ratings of Malaysian foreign currency as A-/A-2, respectively. The long-term and short-term sovereign credit ratings of the local currency are recognized as A/A-1. Fitch announced that Malaysia's sovereign rating has remained stable and Malaysia's long-term foreign currency debt rating is A-. Moody's confirmed Malaysia's A3 rating and its outlook is stable. CITIC Insurance has rated Malaysia's national sovereign credit risk rating as A. Coface announced Malaysia's national credit rating of A4 and the business environment rating of A3.

5.

Economic and trade relations with China

China and Malaysia formally established diplomatic relations on May 31, 1974. After the establishment of diplomatic relations, the exchanges and cooperation between the two countries in the fields of economy, trade, science and technology, education, culture and military have been carried out smoothly. In the economic and trade field, the two countries have signed more than 10 economic and trade cooperation agreements. Malaysia is China's second largest trading partner in ASEAN and China's largest source of imports in the region. China is Malaysia's largest export market, the largest source of imports, and the largest source of foreign investment in manufacturing.

2. Investment opportunities and risk analysis of Chinese-funded industrial and commercial enterprises in Malaysia

In recent years, China’s investment in Malaysia has been heating up. According to the statistics of the Ministry of Commerce of the People's Republic of China, in 2015, China's direct investment in Malaysia reached US$489 million, covering areas such as steel, power generation, real estate, railways and manufacturing. As of the end of 2015, China’s stock of direct investment in Malaysia was $2.231 billion.

1.

Investment opportunity

In 2006, the Malaysian government proposed to implement an economic development plan to build five special economic zones, including the Iskandar Development Zone, the North Malaysia Economic Corridor, the East Coast Economic Zone, the East Malaysia Sabah Development Corridor and the Sarawak Economic Corridor. Up to now, the five major special economic zones have made great achievements in attracting foreign investment and creating jobs.

The areas in which Malaysia encourages foreign investment include: agricultural production, medicine, wood, textiles, steel, non-ferrous metals, machinery and parts, electronic appliances, medical devices, scientific measuring instruments, plastic products, renewable energy, research and development, food. Processing, cold chain equipment, hotel travel, etc. In the manufacturing sector, starting from June 2003, foreign investors can hold 100% of the shares in new projects. Focus on the industry: First, infrastructure. With the advancement of the ASEAN integration process, ASEAN countries will increase interconnection and promote the construction of infrastructure projects. As an important fulcrum of the ASEAN transportation hub and the 21st Century Maritime Silk Road, Malaysia has a huge market for infrastructure construction. Malaysia has a unique geographical advantage and market radiation, and the government has introduced various preferential policies to create an investment environment. Malaysia attaches great importance to infrastructure construction. The investment cooperation between China and Malaysia in infrastructure projects is deepening. The construction of transportation infrastructure, ports, civil aviation, logistics and railways are all areas of active cooperation between China and Malaysia under the framework of the “Belt and Road” initiative. The second is agricultural machinery. In recent years, demand for heavy equipment in Malaysia has shifted from the construction industry to agriculture, especially palm farming and forestry. This is due to the huge demand for palm oil and biodiesel produced from palm oil in the international market, which has led to the transformation of more and more fields into palm plantations. Construction machinery used in agriculture is mainly pavers, excavators, bulldozers and compactors. The third is cars and parts. Malaysia is the second largest auto market in Southeast Asia. On October 28, 2009, the Ministry of International Trade and Industry of Malaysia announced a new policy in the automotive industry. This policy is broadly divided into 18 aspects, and has been adjusted in all aspects of vehicles, parts, used cars, and tariffs. . The new policy aims to use the power of multinational auto companies to change the status quo of Malaysian autos so that Malaysia's auto industry can reach and then surpass Thailand's level and become the most important automobile production base in Southeast Asia. As a transitional policy, before 2015, Ma will control the multinational vehicle approval certificate, and it is expected that this policy will be completely abolished after December 31, 2020. In other words, starting in 2015, the Malaysian auto market will gradually open up, and after five years, this market will be fully open. The fourth is medical equipment. Malaysia has listed the medical device industry as one of the high growth potential industries. The medical device manufacturing industry has made great contributions to the economic development of Malaysia. At present, the medical equipment market in Malaysia is around US$1 billion. In terms of import and export, China's medical device industry has more trade relations with Malaysia, but the export products are mainly low value-added products. The fifth is the environmental protection industry. Malaysia's green technology market has huge investment potential. In 2010, the Malaysian government launched the Green Technology Financing Program (GTFS) with a capital of 3.5 billion ringgit, which subsidizes 2% annual interest or profit margin for financial institutions. It also provides a 60% government guarantee for the “green cost” portion of the corporate financing amount. As of September 2015, 55% of the financing in the program used Islamic finance. As of June 2015, Islamic Finance has provided a total of RM2.2 billion for 188 green technology projects. Sixth is the technology industry. At present, in the Asia-Pacific market, the growth rate of Malaysia's technology industry is at the forefront, and it is urgent to introduce new technologies such as cloud computing, big data, and artificial intelligence. According to public information, Malaysian SMEs account for 97% of the total number of enterprises, and there is a strong demand for mature and stable cloud computing services. Feitian technology far exceeds industry standards in terms of unit computing power and computational cost performance, and has the ability to turn world-class computing power into Pratt & Whitney cloud computing technology.

2.

At risk

The investment risks of Chinese-funded enterprises in Malaysia are mainly reflected in the following five aspects: First, the domestic party struggle has intensified. The increasingly fierce partisan struggle has brought uncertainty and negative impact to Malaysia's investment environment to some extent. Second, the United States has strengthened its influence on Malaysia's political situation and trade. Since the United States proposed the "Asia-Pacific rebalancing strategy," military assistance to Southeast Asia has increased substantially. This has potential threats to China-Malaysia relations. Although Malaysia-China relations have always been friendly, countries with weaker strategically sensitive core areas are often subject to foreign countries such as the United States. In addition, although Malaysia is not a major trading partner of the United States, bilateral trade may change under Trump's new trade policy. Third, there are territorial disputes between Malaysia and neighboring countries such as the Philippines, Brunei and China. The Philippines is the most serious. Sabah is currently under the jurisdiction of Malaysia, but the Philippines has declared sovereignty since 1962. The two sides have had armed conflicts in Sabah. Although the Malaysian government has expressed confidence in stabilizing the situation in the region, the territorial dispute between the two countries The rise to military conflict has increased the risk of investing in Malaysia. Fourth, drugs bring social security problems. Malaysia is closer to the Golden Triangle, and although Malaysia’s sentencing of drug crimes is high (the only crime against the death penalty), Malaysia’s drug trade is still rampant. The annual cost of the anti-drug campaign by the Malaysian government is huge, and it has a certain squeezing effect on the development of other areas of the social economy. Fifth, ethnic relations tend to be tense. At present, ethnic issues still have considerable operational space in Malaysian politics, and the status of Chinese may be further reduced.

3. Development opportunities and risks analysis of Chinese-funded banks

There are currently three Chinese-funded financial institutions in Malaysia. On February 23, 2001, Bank of China Malaysia 601988 opened its business and became the first Chinese financial institution to enter the Malaysian market. On January 28, 2010, Industrial and Commercial Bank of China 601398, the stock bar Malaysia Co., Ltd. was established, is a wholly-owned subsidiary of ICBC. On October 1, 2016, China Construction Bank 601939, the stock bar (Malaysia) Co., Ltd. was incorporated and officially became a Malaysian registered public company. It also became the first institution of China Construction Bank in Malaysia, the 30th overseas one. Level institution.

1.

Policy regulatory environment

The Central Bank of Malaysia is a national bank established and owned by the Malaysian government. It is responsible for maintaining national currency stability, regulating and supervising banking, financial and insurance institutions, and issuing national currencies. In terms of foreign exchange management, Malaysia’s exchange control is relatively loose and has few restrictions. At present, Malaysia has no restrictions on the flow of foreign capital, profits, interest, import and export trades, and currency exchange. However, the Ringgit exchange can only be operated by a government-authorized financial institution in Malaysia. Foreign investors need to go through A government-authorized bank opens an account. In terms of foreign bank policies, in order to develop the domestic banking industry, the Malaysian government has imposed strict restrictions on foreign banks including Chinese banks for a long time, and stipulated that foreign banks should not set up more than 10 branches, issue credit cards, set up branches, etc. All need to be approved.

2.

Chinese bank opportunities

In terms of environmental opportunities, China-Malaysia's diplomatic relations were promoted to a comprehensive strategic partnership in 2013, and the current relationship between the two countries is at its best in history. Malaysia is an important country on the ancient Maritime Silk Road. It is also one of the earliest countries to respond to the “One Belt, One Road” initiative. It is also one of the most harvested countries in the early days of the “Belt and Road” initiative. In recent years, the two countries have actively engaged in the 21st Century Maritime Silk Road and Malaysia's economic transformation plan. The two countries have steadily promoted the construction of "two countries and two parks" and continued to strengthen cooperation in infrastructure, humanities education, and tourism.

In terms of market opportunities, Malaysia's political environment is stable, its economic foundation is good, its financial supervision is more cautious and conservative, and the Chinese account for 25% of the total population. It is a suitable destination for Chinese banks to go out. The development of infrastructure, logistics, technology and other fields in Malaysia will provide a broad space for the development of Chinese banking institutions in the local area. First, the banking industry in Malaysia is more developed, and the banking industry is driven by economic growth. Overall, the Malaysian banking industry is relatively developed in Southeast Asia. Among Malaysia's more than 30 million people, with an average of 1.4 banking institutions and 4.7 ATMs per 10,000 population, this proportion is among the best in Southeast Asia; its adult account has a bank account ratio in Southeast Asia after Singapore. The World Bank predicts that by 2020 Malaysia's financial services are expected to fully cover the adult population. Second, infrastructure construction has a large demand for credit. In the context of the “Belt and Road Initiative” initiative, cooperation between China and Malaysia in the field of infrastructure is progressing well. The development of projects such as the Huangjing Port and the eastern coastal railway in Malaysia provided banks with credit business opportunities.

3.

The challenges facing Chinese banks

The development of Chinese banks in Malaysia faces a series of difficulties and problems, mainly reflected in the following three aspects.

First, Chinese banks have a narrow range of customers. Chinese banks are facing bottlenecks in their development. The customers are mainly Chinese citizens, Chinese and Chinese companies in Malaysia. The longest-running Bank of China has no more than 30,000 individual customers, and the newly opened CCB does not have personal banking services at this stage. Chinese-funded banking institutions have entered Malaysia for a short period of time and have not yet fully integrated into the local economy and society. The local market's awareness and acceptance of Chinese-funded banking institutions needs to be further improved. In terms of corporate investment and financing, Chinese-funded banks are mainly Chinese-funded enterprises. Due to the increasing number of Chinese-funded enterprises operating and investing in Malaysia, Chinese banks cannot fully meet the requirements of enterprises in this respect. . On the other hand, large acquisitions and mergers and acquisitions by some Chinese companies also require the participation of other foreign banks.

Second, Malaysia's financial supervision is stricter, and it is difficult for Chinese banks to play their own advantages. Limited by the financial supervision of Malaysia, the development advantages accumulated by Chinese banks in emerging banking services such as online banking and mobile banking are difficult to play. Therefore, Chinese banks do not have much advantage over local banks in Malaysia.

Third, banks are not sufficiently localized and have not yet fully integrated into Malaysian society. In terms of localization, Chinese banks still have a certain gap from major Western foreign banks such as HSBC. The middle and lower-level employees of Chinese banks are basically local employees, but the middle and high-level leaders, especially the leaders of the bank, are still mainly based on internal staff.

Fourth, policy recommendations

In recent years, China-Malaysia bilateral economic and trade cooperation has been in a state of rapid development, and the business exchanges between our government, enterprises, banks and Malaysia have been continuously strengthened. In the process of further deepening cooperation between the two sides, special attention should be paid to the following points to prevent the occurrence of related risks.

First, adhere to the complementary advantages and achieve mutual benefit and win-win. When investing in Malaysia, China must combine the competitive advantages and complementarities between Malaysia and China, while taking into account economic, political, cultural and environmental protection and other multi-field benefits, innovative investment methods, and selection of cooperation areas to achieve mutual benefit and win-win results. To achieve long-term development.

The second is a comprehensive and in-depth understanding of Malaysia. It is necessary to conduct a comprehensive and in-depth understanding of Malaysia's political, economic, legal, humanistic, religious and other preferential policies in the areas of finance, taxation, finance, import and export management, and strengthen local taxation, law, accounting, marketing, etc. in Malaysia. Intermediary cooperation.

The third is to adapt to the complexity of the legal environment in Malaysia. Chinese-funded enterprises and banks need to pay close attention to the changes in laws in Malaysia, hire local experienced lawyers as legal counsel, listen to the opinions of professional lawyers, and handle legal affairs. In addition, due to the long process and complicated rules for Malaysian companies to register and apply for various types of licenses, investors must also be fully prepared for corporate registration and bidding for various types of licenses.

The fourth is to fully calculate the tax burden and strive for preferential policies. The Malaysian tax system is complex and the professional requirements for tax payment are high. Chinese investors should carefully listen to the opinions of professional tax officials, fully calculate the tax burden costs, and try to invest in areas or regions where income tax relief can be obtained.

The fifth is to use RMB settlement to avoid exchange risk. Considering the risk of the Ringgit exchange rate fluctuation and the cost of currency exchange, China should strive to use the RMB as the settlement currency to minimize or eliminate exchange rate risks and reduce operating costs.