Region: Thirty Years of Sino-Malaysian Relations


Lee Poh Ping

When Tun Abdul Razak, the then Prime Minister of Malaysia, established diplomatic relations with China in 1974, political considerations dominated the bilateral relations. On a regional level, Razak was keen to pursue a policy of neutrality, and this necessitated the recognition of China, as a power with a legitimate role to play in Southeast Asia, along with others such as the US and the then USSR. On a domestic level, it was hoped that the recognition of China would find favour with the Malaysian Chinese (and not incidentally secure their votes in the general elections in the months to come after the Razak visit to China); and put pressure on the Communist Party of Malaya to cease their armed struggle against the Malaysian government.

Today, some thirty years later, these issues have faded away. The concept of neutrality has lost much of its force with the end of the Cold War. Chinese integration into Malaysian society is no longer a problem in bilateral Sino-Malaysian relations. The Communist Party of Malaya has ceased its armed struggle in 1989 and, if it still exists, is of little or no consequence in Malaysian political life. The more pressing issue however for Malaysia today is the economic, not so much the political, impact of a rising China, even if new bilateral geopolitical problems have emerged such as overlapping claims over the Spratly islands and how Malaysia should adjust to a potential superpower. But these geopolitical problems are less salient now because of the increasing success of the Chinese in projecting a benign image to Malaysia and the rest of Southeast Asia.

In the economic realm, China now poses both a challenge and an opportunity for Malaysia. The most serious challenge is the rise of China as a global manufacturing base, which could divert to China investment in Malaysia by multinationals. This is of particular importance as Malaysia is quite dependent on this kind of industrial investment for its industrialisation. It is of course difficult to conclude from the statistics of multinational investment in China and Malaysia as to whether such a diversion is in fact happening. But there are plenty of statements from many multinationals, particularly Japanese multinationals, of their intent to invest in China and to invest less in Malaysia to worry Malaysians. And indeed if a sustained and a large-scale diversion eventuates, this could possibly lead to the de-industrialisation of Malaysia.

It is however in trade and, to some extent, in services that China presents an opportunity to Malaysia. Malaysian exports to China have been increasing dramatically. According to Chinese statistics, Malaysia for example exported goods to the value of about US$7.4 billion in 2002 compared to US$830 million worth of exports in 1992. These Malaysian exports are likely to increase further in value in the years to come. Indeed, such is the market potential that the former Malaysian Prime Minister, (Tun) Dr Mahathir Mohamed, spoke of the potential of exporting halal (meant for Muslims) products to China. In the area of services, Malaysia is keen to attract Chinese tourists, an increasing breed with rising affluence in China. Also, the success of Malaysia as an educational hub increasingly depends on attracting students from China who find Malaysia an attractive place to study, because they can get a tertiary English education with degrees from Western universities (made possible by a twinning system between Malaysian colleges and many Western universities). In sum, China is increasingly viewed in Malaysia as an opportunity rather than as a threat.

WATCHPOINT: Overall trends in Foreign Direct Investment (FDI) coming into Malaysia will be of ongoing interest to Malaysian government planners, as also trade with China and education industry statistics.


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AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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