How China’s slowdown may spill over to Malaysia

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry. — Bloomberg

CHINA’S stuttering economic recovery post-Covid-19 pandemic reopening has stirred concerns that a protracted deep economic slowdown will have global repercussions, given its interconnectedness with each and every economy in this globalised world and transmission to both emerging and developed countries through different channels.

A slowing China economy is a bane for the world economy. While the global economy continues to gradually recover in 2023, the growth remains weak and low by historical standards, and the balance of risk remains tilted to the downside. It is not out of the woods yet.

Global manufacturing and services activities are losing momentum. Global trade, especially exports, remain in the doldrums, weighed down by weak consumer and business spending amid a continued inventory adjustment in the semiconductor sector.

Prices of commodities and energy have also softened. Global monetary tightening has started to weigh down on activity, credit demand, households and firms’ financial burden, putting pressure on the real estate market.

A slew of disappointing economic data for two consecutive months (June and July) from China indicated that the world’s second-largest economy (17.8% of the world’s gross domestic product or GDP) is indeed losing steam.

Falling exports, weak consumer spending, slowing growth in fixed investment and continued concerns about the property sector have dampened the recovery.

The emergence of deflation concerns adds to the complexity of China’s flagging recovery.

The Chinese government has provided a range of strategic measures aimed at targeting specific sectors.

These range from consumption (spending on new energy vehicles, home appliances, electronics, catering and tourism) to the property sector (reducing down-payment ratios for first-time homebuyers, lowering mortgage rates and easing purchase restrictions for buying a second house) and tax relief measures to support small businesses, tech startups and rural households.

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry.

Prior to the Covid-19 pandemic, China was the world’s most important source of international travellers, accounting for 20% of total spending in international tourism (US$255bil overseas and making 166 million overseas trips in 2019).

We consider three channels through which China’s slowdown can have spillover effects on Malaysia via direct and indirect transmissions: trade and commodity prices, services and financial markets.

Overall, the estimated impact of a 1% decline in China’s GDP growth could impact about 0.5% points on Malaysia’s economic growth.

Trade is the most important channel as China has been Malaysia’s largest trading partner since 2009, with a total trade share of 16.8% (exports share: 13.1%; imports share: 21.2%) in the first half of 2023 (1H23).

Spillovers from slower China demand and commodity prices are negative for Malaysia, a net commodity exporter.

After recording seven successive years of increases in exports to China since 2017, Malaysia’s exports to China declined by 8.8% in 1H23.

In sectors such as tourism, China’s tourists are one of the major foreign tourists in Malaysia. In the first five months of 2023, Chinese tourists totalled 403,121 persons or 5.4% of total international tourists in Malaysia, and was only 12.9% of 3.1 million persons in 2019.

According to the Malaysia Inbound Tourism Association, though the number of Chinese tour groups coming to Malaysia has increased in July and August to between 800 and 1,000 for the summer vacation, the number of tourists per group is smaller between 10 and 20 persons.

While direct financial links between China and Malaysia are limited, there will be indirect spillovers through spikes in global financial volatility as investors worry that China’s deep economic slowdown would temper global growth, and also has spillovers to the US economy.

Will China foreign direct investment (FDI) inflows into Malaysia slow?

Capital movements will be influenced by the inter-linking of factors such as economic growth and investment prospects in the host country (Malaysia).

These include stable political conditions and good economic and financial management as well as conducive investment policies.

The US-China trade war and rising trends of geoeconomic fragmentation have witnessed FDI flows among geopolitically aligned economies that are closer geographically as well as geopolitical preferences.

Throughout the period 2015-2022, China’s gross FDI inflows into Malaysia averaged RM7.5bil per year. Even during the Covid-19 pandemic, China’s economic slowdown did not deter the inflows of FDI into Malaysia (RM7.8bil in 2020; RM8.1bil in 2021; and RM9.8bil in 2022).

In 1H23, China’s gross FDI inflows increased by 25.2% to RM2.1bil though it is likely that the full-year FDI will be below the average FDI inflows of RM8.6bil per year in 2020 to 2022.

China was the largest foreign investor in Malaysia’s manufacturing sector in 2016 to 2022 before dropping to second position in 2022 and the fourth position in 2021.

There was a contrasting picture when it comes to China’s approved investment in the manufacturing sector, which saw two consecutive years of decline (2022: 42.5% to RM9.6bil and 2021: 6.5% to RM16.6bil) and declining further by 17.8% to RM4.3bil in the first quarter of 2023.

We believe that Malaysia will remain one of the preferred investment destinations to China, given both countries’ strong established friendship and bilateral ties in trade and investment as well as people-to-people movements.

Malaysia needs to enhance its investment climate with progressive policies to rival regional peers to offer the country as a China Plus One destination for China and foreign companies.

Malaysia can offer investments to build a chip-testing and packaging factory, advanced manufacturing technologies such as robotics and automation, manufacturing electric vehicle supply chain, petrochemicals, renewable energy, agriculture and food processing.

China can offer the technology, innovation and technical know-how as well as talent that deepen the country’s industry integration with global supply chains and also links Malaysia and China to South-East Asia.

China can invest in Malaysian manufacturing companies to help them adopt advanced manufacturing technologies and further improve their competitiveness.

The RM170bil prospective investments (comprising RM69.7bil from 19 memoranda of understanding and RM100.3bil from the round-table meeting) concluded during the prime minister’s visit to China are set to provide a massive investment boost to our economy for years to come.

Among these are China’s Rongsheng Petrochemical Holdings, which will invest RM80bil to build a petrochemical park in Pengerang, Johor; and investment from Geely, with an initial investment of RM2bil in the Tanjung Malim Automotive Valley, which will gradually increase to RM23bil in the future.

 LEE HENG GUIE is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.

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INTERACTIVE: Journey to Merdeka

China is a good and reliable ally for Malaysia; Chinese are not outsiders, They were invited here

 

China is a good and reliable ally’

Johor Ruler: Crucial for Malaysia to maintain ties with key trading partner

PETALING JAYA: It’s crucial for Malaysia to maintain friendly relations with China, says Johor Ruler Sultan Ibrahim ibni Almarhum Sultan Iskandar (pic).

Describing the Asian superpower as a “good and reliable” investment partner, His Majesty said Johor has had a long-standing good relationship with China since the time of his ancestors.

“A Chinese emperor once presented the ‘Double Dragon Precious Star’ award to my great-great-grandfather.

“After that, the Chinese were invited to Johor to cultivate gambier and pepper.

“That’s why I have been reiterating that the Chinese in Johor are not outsiders. They were invited to be here,” the Ruler said in an interview published in Sin Chew Daily yesterday, following a recent meeting at the palace in Johor Baru.

The Ruler’s great-great-grandfather Sultan Abu Bakar received the “Imperial Order of the Double Dragon” award from the Chinese emperor during the Qing Dynasty in 1892.

The award was first presented as a gift to foreigners in 1882. From 1908, it was also conferred on Qing Dynasty officials.

The year 2024 marks the 50th anniversary of Malaysia-China diplomatic ties, and Sultan Ibrahim has been closely following developments since the unity government was formed.

The Sultan took a jibe at a former leader who claimed that his visit to China was unsuccessful despite receiving a warm welcome in the country. 

“Do you want them to stop buying our palm oil?” Sultan Ibrahim said of the leader, whom His Majesty did not name, adding that “it is better to pick a fight with someone of equal stature”, the Chinese daily reported.

Sultan Ibrahim is confident of the reputation he has built in China, as many heads of Chinese corporations had wanted to meet His Majesty.

The Ruler revealed that he had advised a company to collaborate with Chinese partners to engage in the processing, producing, refining and export of palm oil.

His Majesty said he would like to “go everywhere” when visiting China, adding that the country holds a special place in his heart as it reminds him of his son, the late Tunku Abdul Jalil, who was the third prince of Johor.

While battling cancer, Tunku Abdul Jalil underwent liver transplant surgery in Guangzhou, China, in 2014 under a special permit from the Chinese government.

This arrangement helped to enhance the warm relations between the Johor royal family and China.

As Sultan Ibrahim strived to foster closer friendship with China, His Majesty’s efforts to bring in Chinese developers, however, drew criticism, as some assumed that land was being taken away.

His Majesty said this is a misconception, adding that land cannot simply be taken away.

“Under the land ownership law, if you want to convert a leasehold (99-year tenure) land to freehold status, fees and fines will be imposed. Why is this an issue?”

Sultan Ibrahim said Johor, with its neighbour Singapore and three states along its borders, is more adept at dealing with foreigners and building mutually beneficial relationships.

“By offering better incentives to foreign investors, our products can go further, reaching more markets,” His Majesty added.

Sultan Ibrahim said providing more incentives to foreigners will not disadvantage locals in Johor.

Instead, Johoreans can benefit from more businesses and job opportunities that will be available, His Majesty added.

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Recession unlikely for global economy but challenges linger on

 

THE global macroeconomic picture is still more sluggish than investors would have liked, particularly when viewed from the gross domestic product (GDP) growth perspective for the first half of 2023 (1H23), although it remains a stretch to say the world is heading for a recession.

A quick glance across the Causeway to Singapore sees the city-state registering a 0.5% yearon-year (y-o-y) growth rate for the second quarter of the year (2Q23), extending marginally from the 0.4% expansion it charted for the preceding quarter.

Elsewhere, such as in major markets like the United States, China and the eurozone, economists are of the opinion that growth has been sturdy during 1H23 but stiff hurdles still remain on the horizon.

While acknowledging that global GDP growth has been slower so far in 2023 due to several familiar factors such as higher interest rates and elevated cost pressures, newly appointed Bank Negara governor Datuk Abdul Rasheed Ghaffour is also not expecting the global economy to slip into recession.

He says resilient domestic demand in advanced economies is providing sufficient support, while also anticipating worldwide trade to improve towards the end of 2023.

Most notably, he perceives China’s slower-than-expected recovery to have limited impact on Malaysia’s own economic expansion and improvement.

“Malaysia’s economy is well diversified in terms of products, services and trade partners, which would cushion the Chinese impact,” says Abdul Rasheed.

According to Bernard Aw, chief economist at Singapore’s Coface Services South Asia-pacific Pte Ltd, although the global economy has been resilient year-to-date, growth outlook in the second half remains challenging, not the least from increasing signals of weakening Chinese economic activity.

Forecasting global GDP expansion to be at 2.2% y-o-y for 2023, and anticipating a similar growth rate of 2.3% growth for next year, he says: “We expect Asean GDP growth (2023: 4.3%; 2024: 4.6%) to be generally faster than advanced economies – at 4.3% and 4.6% for 2023 and 2024 respectively – as tourism recovery and domestic demand drives economic activity.”

Continuing subdued external demand for the region would imply that domestic demand has to continue to partially offset some of the slack, Aw, tells Starbizweek.

“However, the challenging economic environment worldwide, relatively high inflation and interest rates means that even growth in domestic consumption and investment may fall short of expectations,” Aw opines.

Commenting on the overall global interest rate environment, he believes that the trend of disinflation would continue into 2H23, mainly driven by lower energy prices, coupled with China’s deflation having fed into lower export prices, which has also moderated global price pressures.

On the flipside, Aw thinks underlying inflation will remain fairly sticky, despite not being severe enough necessarily for central banks to revert to hiking rates.

“Having said that, they will likely maintain the current restrictive interest rates for a longer-than-expected period,” he says.

Earlier in July, it was reported that the United States economy had grown 2.4% y-o-y in 2Q23, up from the 2% it posted for the first three months of the year and bringing 1H23 GDP to a commendable 2.2%.

“The improved expansion rate had been driven by consumer spending, on top of increases in non-residential fixed investment, government spending and inventory growth.

At the same time, China had registered a 6.3% 2Q23 y-o-y GDP growth rate, which was also an improvement from the 4.5% charted in the previous quarter.

The acceleration however was slower than the expected 7.3% forecast by economists on a Reuters poll, dragged back by tepid demand and sinking property prices which has sapped consumer confidence.

On the same note, chief executive of Centre for Market Education Carmelo Ferlito feels that China’s post “zero-covid” recovery has been fragile since the beginning.

“The economy is not an engine to be switched on and off, but rather it is a living emergent order.

“As such, China is paying the price to a degree with its severe, nation-wide lockdowns while it was implementing the zero-covid policy,” he says.

The decelerating growth in China, says Ferlito, is evidenced by the People’s Bank of China unexpectedly cutting a range of key interest rates on Tuesday, which is seen as an emergency move to reignite growth after new data showed the economy has decelerated further last month.

With Chinese officials from its National Bureau of Statistics also suspending reports on youth unemployment, he says the move would deprive investors, economists and businesses of another key data point on the declining health of the world’s second-largest economy.

Divulging more numbers, Ferlito says the twin moves of cutting rates and holding back unemployment data from the Chinese government has coincided with new data showing a slowdown in spending growth by consumers and businesses.

“Concurrently, factory output grew much less than expected, adding to a recent raft of worrying signals. For the first time since February, China’s headline measure of unemployment rose, climbing to 5.3%.

“The jobless rate for people ages 16 to 24, meanwhile, had marched steadily higher for six consecutive months to hit a series of record highs, culminating in a reading of 21.3% in June,” he says.

Ferlito says an economic trichotomy is emerging on the global scene, before adding: “The United States is still fighting inflation, but countries like Germany and Holland are starting to experience technical recession, while China is facing challenges of its own.

“It is that post-lockdown crisis that the CME predicted two years ago.”

Echoing Bank Negara governor Abdul Rasheed, he re-emphasises that it is important to look beyond GDP figures, making his case that if the GDP of a country declines because of a cut in impractical government spending, that would be positive for a country.

Conversely, he argues if GDP growth were to accelerate due to an increase in spending financed by debt, it ultimately would be a bane to the government’s coffers and the national economy.

Meanwhile, the International Monetary Fund (IMF) is predicting a 3% GDP global growth rate for this year and the next, receding from the 3.5% achieved in 2022.

It says the rise in central bank policy rates to stave off inflation has continued to weigh on economic activity, but the good news is that global headline inflation is expected to fall from 8.7% last year to 6.8% in 2023 and 5.2% in 2024.

“The recent resolution of the US debt ceiling stand-off and strong action by authorities to contain turbulence in the US and Swiss banking earlier this year reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook,” the IMF says.

However, it cautions that the balance of risks to global growth remains tilted to the downside, as inflation could remain high and even rise if further shocks occur, including those from an escalation of the Russia-ukraine conflict.

Moreover, the IMF warns that China’s recovery could slow further, partly due to unresolved real estate problems, with negative cross-border spillovers.

On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient

• By keith Hiew keith.hsk@thestar.com.my
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Multinationals committed to China; Summer Davos showcases China's high-quality development drive

Entrepreneurs and industry experts exchange ideas at the Summer Davos Forum in Tianjin. Photo/Xinhu

BEEFING up their presence in China will only move multinationals forward with stronger growth over the long term, despite rising uncertainties over decoupling and supply chain disruptions, said global business leaders and industry experts on the sidelines of the Summer Davos Forum in Tianjin.

They made the remarks as Premier Li Qiang said at the forum on Tuesday that China has full confidence and the ability to achieve steady economic growth and high-quality development for a long time to come.

The country's economy shows clear rebound and improvement momentum with the first-quarter GDP growing 4.5 percent year-on-year, and is expected to expand faster in the second quarter, Li emphasized, adding that it will offer "a consistent source of dynamism" to global economic recovery and growth.

Joe Ngai, chairman of management consultancy McKinsey China, said: "After looking at the global context we are in right now, there is no other place in the world that has the size and is still growing at the same rates we're seeing in China. The Chinese market has also been a major growth segment for multinational companies. I still believe the next China is China."

Bruce Cameron, chairman of Zespri, a cooperative of kiwi fruit growers in New Zealand, said the economic growth rates in China are still very "impressive" when compared to the rest of the world.

The latest estimates from Boston Consulting Group show that China is projected to contribute at least 25 percent of global economic growth by 2030.

"We are very confident about the Chinese economy and its ability to continue to have a strong presence here. We believe that our company and our presence here take us forward over the foreseeable future with strong growth," he said.

Such a long-term potential for economic growth is inspiring multinationals to ramp up investment, expand their talent lines and chalk up medium-to-long-term plans in the country.

Wang Rui, senior vice-president of US tech company Intel and chair of Intel China, said many international companies attach great importance to the Chinese market, and "Intel will firmly adhere to its development strategy in China".

"The Chinese market has vast opportunities and provides an open business environment. Intel's innovative technology is also in line with the high-quality development demands of the Chinese economy. This is a mutually beneficial relationship," Wang said.

George Xu, CEO of Airbus China, said: "Airbus China plans to expand its recruitment of new energy talent to support its green transformation and sustainable development."

Xu said that in China, even faced with challenges from the COVID-19 pandemic, the company increased its headcount by 15 to 20 percent on a yearly basis.

Faced with external propositions on decoupling and de-risking, Premier Li emphasized at the forum on Tuesday that the world should not and cannot return to a state of seclusion or isolation, and should oppose the politicization of economic issues and work together to keep global industrial and supply chains stable and smooth.

Such a stance was shared by company executives and industry experts at the forum.

Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a panel discussion that decoupling and fragmentation are something that the world simply cannot afford to have.

Even with rising decoupling challenges, Wu Chun, managing partner of Boston Consulting Group Greater China, said that the country has demonstrated its resolution to join hands with all other stakeholders to tackle challenges and seek win-win outcomes, thus providing confidence and stability in an uncertain world.

It gives an extra vote of confidence for multinationals to grow in the country over the long term.

"We see China as a very long-term global market. We have no intentions of backtracking or leaving China," Cameron from Zespri said. "We are embedded here." 

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 Summer Davos showcases China's high-quality development drive

Officials, economists and entrepreneurs attending the Summer Davos in North China's Tianjin have expressed full confidence in China being able to achieve its growth target of around 5 percent for 2023, with some putting an even higher forecast, as the global gathering of business elites acknowledged China's continued role as ...

Top exec at China state-run firm sacked after exposed affair but mistress’ dress is the talk of town

 

The “mistress dress” that moved inventories at Taobao and spawned an anime-themed meme. PHOTO: DOUYIN/XIAOMI223 via The Straits Times/ANN

the video went viral on Douyin  

THEIR affair had sent tongues wagging in China, but it was the “mistress dress” that stole the show.

A top executive at state-run firm China National Petroleum (CNPC) lost his job on Wednesday after a video of him holding hands with a much younger woman while out shopping in downtown Chengdu went viral.

The woman was not his wife – a fact that led to the executive’s downfall. But it was what the woman was wearing – a body-hugging, summer dress with floral prints of pink, yellow and blue – that drew “oohs” and “aahs”, and sent online sales of the frock soaring.

Chinese netizens have taken to calling it the “mistress” or “dismissal” dress.

Mr Hu Jiyong, the erstwhile general manager of CNPC subsidiary Beijing Huanqiu Construction, and Ms Dong Sijin, a co-worker of his, were spotted this week at a popular shopping district in Chengdu by a street photographer.

A short clip of Mr Hu – who was dressed in a matching pink polo T-shirt – and Ms Dong walking hand-in-hand was posted on Douyin, TikTok’s Chinese sibling, on Wednesday, and quickly drew millions of views.

Within hours from the time the video appeared, CNPC released a statement saying Mr Hu had been sacked. Ms Dong, too, was let go.

But that didn’t stop the online tongue-wagging.

Some said Ms Dong’s father was himself a senior executive at CNPC, and that Ms Dong was known for posts on social media that showcased her taste for expensive designer bags and luxurious vacations. Netizens noted that she was carrying a Lady Dior handbag that retails for around S$8,000 in the video.

But it was the infamous dress that stood out.

Online sleuths quickly learnt that the dress was being sold by a vendor on the online shopping platform Taobao for 618 yuan (S$116).

On the same day Mr Hu’s and Ms Dong’s video was posted, some 1,000 units of the dress were sold, lifting the item to the top of Taobao’s hot items list.

By Thursday, 4,000 units were sold. Overwhelmed by the sudden interest, the Taobao vendor told its customers to “shop rationally”.

But the “mistress dress” also sparked fierce online debate.

“Why would someone want to dress in the style of a mistress? The craze over this really reflects a moral decline in our society,” a Weibo user lamented.

Another person thought the dress was “kinda tacky”.

One fan, though, wrote: “Every dress is probably worn by a mistress at one point. The dress is innocent!”

Others took to using AI imaging tools to render screenshots of Mr Hu and Ms Dong as manga and anime characters.

The ruckus compelled The Beijing Daily, a state newspaper, to post an editorial to say that the dress was attracting attention for all the wrong reasons.

“Focusing too much on the dress and making up salacious stories will divert public attention from the real lesson here,” it said. - The Straits Times/ANN 

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China Makes the First Quantum Chip "Refrigerator", China's Innovations That Have Sparked International Interest

 

 China Makes the First Quantum Chip "Refrigerator"

Quantum chips have become an important development track for the semiconductor industry and a key component in the deployment of quantum computing technology.

The Chinese manufacturer Benyuan Quantum has built the first quantum chip production line in China, laying the foundation for the mass production of quantum chips in China.

Following the quantum chip production line, China has made another breakthrough in quantum technology and created a "quantum chip refrigerator".

China's first 'refrigerator' for quantum chips put into use to ...

Photo: Screenshot of video from Science and Technology Daily

China's first "refrigerator for quantum chips" has been put into use to maintain a stable environment and enable the smooth operation of quantum chips, scientists revealed on Wednesday.

The "refrigerator," actually a high-vacuum box, has three cavities for storage and each can be controlled separately.

A smart system monitors the cavities in real time to maintain a high-vacuum state, according to a statement by the developer of the device, Origin Quantum Computing Technology Co, which is based in East China's Anhui Province.

A human-computer interaction function guarantees automated operation of the device, read the statement.

The Global Times learned from Origin Quantum that compared with a classic integrated circuit, a quantum chip requires a more complicated manufacturing process. Temperatures and conditions in the chip's environment, such as noise, vibration, electromagnetic waves and even super-small particles, would have an impact on the quantum chip.

If the strict environmental conditions are not maintained, superconducting materials can easily react chemically with oxygen and water vapor in the air, absorbing various impurities. As a result, the key components of the chip may fail to burn in and would not function correctly.

Scientists have compared the burn-in process with "food going bad" in the air and dubbed the high-vacuum box as a "refrigerator for quantum chips."

Quantum chips are the "brains" of quantum computers, which use quantum mechanics to perform certain computations far more efficiently than a regular computer.

Although the general public is mostly unfamiliar with quantum computers and their capabilities, the Spring Festival box office hit The Wandering Earth II offered a fictional opportunity for people to comprehend the immense computing power these machines possess.

 

 Chinese #scientists develop #'quantum chip refrigerator' in breakthrough #china #fyp

 

China's Innovations That Have Sparked International Interest | Brics | China Technology

 #Chinatechnology #China #chinaeconomy China's Innovations That Have Sparked International Interest | Brics | China Technology 

Investigate China's various innovations, from the BRICS countries to cutting-edge technology, and understand how these have sparked an international interest. Learn about the impact China has had on the world, and how its projects have been duplicated around the globe.

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