Malaysia ready to capitalise on China’s manufacturing exodus

Malaysia is well-positioned to attract multinational corporations (MNCs) to set up factories here amid an exodus of companies from China seen since the trade war and Covid-19 global supply effects.

Malaysian Investment Development Authority (Mida) CEO Datuk Azman Mahmud (picture) said the country has developed strong fundamentals including infrastructures, supply chain networks, connectivity and talents that make the country an attractive investment location in this region.

Azman said some companies have expressed their intention to relocate out of China although they may not be in a rush to do soon the back of a recession.

“We knew quite a number that have expressed their intention to shift from China and we have engaged them. The only thing is timing,” Azman told The Malaysian Reserve (TMR).

He said any investment decision by these companies would hinge on the dynamic around the world while different markets are at a different stage of the Covid-19 situation.

As such, Azman said Malaysia is ready to welcome these MNCs when they are ready.

“Everybody is very cautious and the lower economies are heading for a recession. We are ready to facilitate when anyone is ready.

“We do not want to give an outlook that is too optimistic. Every country wants to restart their economy and it will take some time for companies with a lot of resources to start investing again,” Azman said.

Manufacturing companies, particularly US corporations, are leaving China since the trade war between the two largest economies due to heightened tariff barriers.

However, the Covid-19 pandemic has triggered one new paradigm among global producers which is the need to reduce reliance on China’s supply chain to avoid systemic disruptions.

In Kearney’s seventh annual Reshoring Index report last month, consultants said there was a dramatic reversal of a five-year trend as US domestic manufacturing in 2019 commanded a significantly greater share versus the 14 Asian low-cost countries (LCCs) tracked in the study, with manufacturing imports from China registering a particularly sharp decline.

The Kearney China diversification index (CDI), which tracks the shift in US manufacturing imports away from China to other Asian LCCs, most notably Vietnam, showed that while China maintained its position as the primary producer of manufactured goods, it has lost share within the CDI for the sixth year in a row.

“Three decades ago, many US producers began manufacturing and sourcing in China for one reason, cost. The US-China trade war brought a second dimension more fully into the equation — risk — as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs.

“Now, Covid-19 brings the third dimension more fully into the mix, and arguably to the fore — resilience,” the report said.

Besides the US, Japan has doubled down its efforts to promote its manufacturers to exit China.

Tokyo embarked on a ¥243.5 billion (RM9.74 billion) economic support package including ¥220 billion for companies shifting production back to Japan and ¥23.5 billion for those seeking to move production to other countries, according to details posted online.

Crewstone International Sdn Bhd chairman Datuk Wira Jalilah Baba said Malaysia can attract foreign investors to establish their Asean regional headquarter here with various forms of tax incentives. This, she said, has been an ongoing effort by Malaysia.

Jalilah said corporations with large exposure in China’s market and its networks would likely maintain their manufacturing operations there to save costs.

“If their products and services being offered to China’s market, which is huge, are going strong, there is no reason to move from there. China has some rules and regulations of import and by producing there, companies get easy access to the market,” Jalilah told TMR.

As it is, she said there could be a political factor in play that caused companies to move their production away from China.

Jalilah said manufacturers may still want to have an operation in China or elsewhere, but they could create a regional base in Malaysia and that is where the opportunity lies.

She said Malaysia can attract companies that make state-of-the-art technology, high-value parts and components that are needed by industries in Malaysia.

CIMB Asean Research Institute chairman Tan Sri Dr Mohd Munir Abdul Majid said “nearshoring is the new normal” and it depends where those companies want to set up shop.

“Malaysia has to be selective. We do not want any company with any dated technology which is going to be mobile as well,” Munir told TMR.

Source: The Malaysian Reserve