KUALA LUMPUR, Jan 22 — Malaysia is in a good position to benefit from the US-China trade war in 2019, observed Standard Chartered Asean and South Asia chief economist Edward Lee.
In a media briefing today, Lee pointed out that Malaysia is the third most attractive nation (behind Vietnam and Mexico) in terms of taking advantage of the trade disagreement between Western and Asian superpowers. This is due to its labour cost and quality, infrastructure, customs policies, ease of doing business and overall excellent environment.
However,he acknowledged that the government must take a few measures to take full advantage and benefit from the situation.
"It's not my space to think about micro-policies but I think the government should go out and identify more foreign direct investment (FDI) sources. We should go after more FDI sources and ensure that Malaysia is on their minds when they think about shifting.
"The macro policies are already there but it's really about micro policy tweaking because it's a very competitive world out there. Companies are not thinking only on labour cost and qualities but also incentives.
"To commit capital to a new country needs a lot of incentives and they (companies) have a lot to consider and incentives will help. Being on top of trade agreements will also help because a trade agreement can have negative outcome if a country isn't a part of it," Lee explained.
He felt that due to the strained ties stemming from trade deficit from US to China, there's very good reason that Chinese manufacturers are looking to expand their supply chain movement out of their country.
The nearest and most attractive nations to China are Vietnam and Malaysia which also sell similar products to the US.
At the same time, Malaysian companies can also take advantage of the US-China trade disruption but the real result can only happen in the long term.
"Let's say a Malaysian company gets increased orders. But how much overcapacity can you run on a sustainable basis? Realistically, it would be around 120 per cent if you factor in overtime and such.
"But at the same time, to sustain this you must increase your investments which takes time. It takes time for us to see this sort of positive effect coming in," he said.
Touching on the possible truce of the dispute between the two superpowers come March this year, Lee thinks whatever truce that happens will be for the short term.
He explained that the issue is far more complicated than mere trade deficits as it also encompasses intellectual property, false technology transfers, restricted access to the domestic market in China and global superpower dominance among other factors.
Lee said that the packages worked out in the current round of negotiations will placate market concerns but only temporarily.
