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Chinese investments and outcomes in Malaysia

Chinese investments and outcomes in Malaysia
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By Charles F. Moreira, Editor

Participants in the Malaysia-China Smart Silk Road Forum Cum Business Match & Meet 2018 at the Malaysian International Trade and Exhibition Centre on 17 August 2018 were given a preview of the Assessment Report of Chinese Investment in Malaysia by Dr. Edmund Terence Gomez and Mr. Lau Zheng Zhou who are collaboratively working on producing the final report in about one or two months.

Dr. Gomez is Professor of Political Economy at the Faculty of Economics & Administration, University Malaya, whilst Lau is Senior Director and Head of the Centre for Public Policy Studies (CPPS), an independent public policy institute established by Asian Strategy and Leadership Institute (ASLI).

According to Lau, they had told the China Embassy in Malaysia that they needed a true and fair assessment of Chinese investments in Malaysia, whether the findings were good or bad. They had also spoken to Malaysian government ministries.

After Malaysia’s last general elections, the researchers proceeded to break down China’s RM65 billion cumulative investment in Malaysia and the RM11 billion foreign direct investment from China, to identify which sectors these investments have gone to and the investment types.

So far, they had visited several companies and covered 93 projects to understand the impact of Chinese investments in terms of facilitation of technology and knowledge transfer to Malaysia which the Malaysian government is heavily focussed on today, as well as the potential towards adoption and implementation of Industry 4.0 and automation which are top on the Malaysian government’s agenda. They also spoke to several Malaysian government ministries in the process.

They identified four types of investment categories, the first three being joint ventures or partnerships between China’s and Malaysia’s state owned enterprises (SoEs) including with Malaysia’s government-linked companies (GLCs), SoE and private and private only partnerships, without any state involvement. China’s investments are spread all over Malaysia, including in Sabah and Sarawak.

A state-to-state joint venture is Malaysia-China Kuantan Industrial Park Sdn Bhd (MCKIP), a subsidiary of Kuantan Pahang Holding Sdn Bhd, a Malaysian GLC which holds 51% whilst a subsidiary of the Guangxi Autonomous Region authority, a China SoE owns 49%.

According to Bloomberg, the Pahang state government owns a total of 30% in Kuantan Pahang Holdings, whilst GLCs Sime Darby and IJM Lang respectively hold 30% and 40% respectively.

Malaysia’s stock exchange Bursa Malaysia and the Shanghai Stock Exchange collaborate on developing Malaysia’s market.

The Forest City property development in Johor is a joint venture between China’s private Country Garden Group and Esplanade Danga 88 Sdn Bhd, through which Kumpulan Prasarana Rakyat Johor Sdn Bhd, a wholly Johor state government company purportedly holds a 34% stake in Country Garden Pacificview Sdn Bhd, the developer an operator of the Forest City Project.

Kuantan Port Consortium Sdn. Bhd. (KPC), is a 60:40 joint venture between IJM Corporation Berhad and Beibu Gulf Holding (Hong Kong) Co. Ltd. With the Government of Malaysia having a special rights share.

The 70-acre Tun Razak Exchange (TRX) is one of the projects undertaken by TRX City Sdn Bhd, formerly known as 1MDB Real Estate Sdn Bhd and a wholly-owned subsidiary of Malaysia’s Ministry of Finance to which it was transferred on 31 March 2017. In September 2017, China’s SoE China Communications Construction Company Ltd (CCCC), announced that it had acquired land within TRX on which it would build a tower in which it would located its regional headquarters. CCCC also is the contractor building the now suspended East Coast Rail Link (ECRL), which currently is the focus of some controversy.

The fourth category comprised exclusively Chinese investment, such as CRRC Kuala Lumpur Maintenance Sdn Bhd, a wholly owned subsidiary of CRRC Zhuzhou Locomotive Co., Ltd (ZELC).

CRRC Kuala Lumpur Maintenance’s main operations in Batu Gajah provide maintenance, repair and overhaul (MRO) service for 38 sets six-car electric multiple units, 50 sets of Ampang Line light rail vehicle and 2 sets of E-Loco in Malaysia. CRRC is the first China company to provide MRO service for railway vehicles in overseas markets.

Its range of products and services include its own developed Maintenance Management Information System, technical consultancy and research and development of maintenance related technologies and tools, the provision of maintenance services and supply chain management of spare parts using its Parts Management System to monitor and record the status and failures of parts installed effectively based on self-developed data management software which enables CRRC to forecast the parts’ life cycle to prevent from fatigue failure, investigate and analyse the failure to improve the solution, optimise the maintenance activities to enhance vehicle availability and so forth.

Founded in 2015, Xiamen University Malaysia is the first overseas campus of Xiamen University, founded in China in 1921 by Mr. Tan Kah Kee, an overseas Chinese entrepreneur, social reformer, political activist, philanthropist, and community leader resident in Malaya and Singapore back then.

Another Chinese company is Huawei Technologies (Malaysia) Sdn Bhd, the Malaysian unit of Huawei Technologies Co. Ltd, a private, employee owned telecommunications equipment manufacturer, communications solutions and services provider of handheld devices, cloud services, Internet of Things, 5G and so forth to consumers, enterprises and telecommunication network operators.

On 10 August 2018, Malaysian mobile operator Celcom Axiata Berhad signed an agreement with Huawei Technologies (Malaysia) Sdn. Bhd. to apply Huawei’s Cloud-based Digitized Operation Platform, Software as a Service (SaaS) solution. It employs Huawei’s artificial intelligence (AI) and machine learning technology to enhance Celcom’s capabilities in managing increasingly complex networks and services which enables Celcom to transform their daily operations from reactive to proactive and predictive to provide their customers with an excellent experience.

In the last phase of their research, Prof. Gomez, Lau and their team will look at investments in Malaysia by small to medium enterprises from China and the types of investments involved.

About 63% of the samples studied are in construction and both state-to-state and state-to-partnerships tend to predominate in these two categories. Lau reckons that the predominance of construction partnerships is due to the maturity of Malaysia’s construction industry which is well equipped to construct. However, Lau has some reservations about the construction industry being susceptible to rent-seeking.

No premature de-industrialisation!

Twenty percent are in manufacturing and there is growing interests from investments in manufacturing from China, especially when European, American, Japanese and Taiwanese investments in manufacturing are declining, whilst Chinese investments in manufacturing are filling the void left.

For example, CRRC’s facility in Batu Gajah makes trains not only for Malaysia but also is a launch pad to supply trains to other countries in our region and involves much technology transfer which can enable the development of highly advanced skills amongst Malaysian who can in turn bring high levels of development for Malaysia.

Lau also believes that this is an opportunity for Malaysia to avoid what he calls “premature de-industrialisation”, since Malaysia’s manufacturing capabilities are not mature yet in terms of our abilities to develop high-end, advanced technology products as well as advanced automation systems and solutions such as Huawei does. Also, Malaysia needs to learn and develop high-end skills to implement Industry 4.0 manufacturing facilities and systems.

This writer understands the term “Industry 4.0” involves the use of independently intelligent manufacturing equipment, including robots and automated machines which are networked with and intelligently communicate with each other, as well as with RFID chips, bar codes, sensors and so forth to perform and coordinate manufacturing operations automatically, including to control or speed up manufacturing operations at different parts of the assembly line to maintain a smooth, flow.

And, in case there is a jam in some part of the production line, the machine can signal others to pause production and summon human intervention to clear the jam before automatic production resumes.

Such intelligent production facilities can also communicate with cloud computing facilities which enable inter-communication between similar intelligent production facilities up the supply chain and down the distribution chain.

Whilst Industry 4.0 production lines will require fewer workers to operate and manage them, those who do will require a higher order of skills, including skills to configure, calibrate and maintain the intelligent machines and to coordinate their operations, as well as skills in big data analytics, and this should help Malaysia reduce her reliance on foreign workers.

However, their studies found little interest amongst China companies to invest in agriculture or high-end services such as analytics.

Want to hire Malaysians but….

Some China companies in Malaysia have come under fire for employing mostly staff from China but in his discussions with them, they told Lau that whilst they had interviewed Malaysian graduates at job fairs and so forth, however they found it very difficult to find applicants with the required technical knowledge and skills for the work they do. It is also costlier for them to hire senior management staff from China than to hire Malaysians.

For instance, CRRC found it very hard to find graduates with technical knowledge in trains, so had to hire them and send them to China for training, whilst Huawei had to send them for training at its training centre in Malaysia.

Lau attributed this to there being many technical institutes in China which specialise in particular industries such as trains, telecommunications and forth which Malaysia does not have.

Well, that is similar to the many complaints this writer had heard much earlier from computing and information technology companies in Malaysia which found the majority of Malaysian ICT graduates unsuitable for their requirements, either because they lack soft skills or because what they were taught at university does not match their requirements.

“Whilst they would like to transfer their technical knowledge to us, Malaysians must also be able to absorb such knowledge”, said Lau. “Also, the Malaysian government needs to facilitate the upgrading of Malaysian workers to conduct research and development (R&D)”.

CRRC plans to set up a research and development (R&D) centre in Malaysia and needs workers to conduct R&D into new or different materials and so forth which will enable their trains to better cope with a tropical climate.

However, the question remains as to whether such R&D activities, which basically are into modifications of existing train designs will eventually enable Malaysian engineers to be able to design homegrown Malaysian trains or any other products from the ground up.

This writer remembers the early 1970s, when the Malaysian government had been urging foreign investors such as Texas Instruments, National Semiconductor, Intel, Motorola, Siemens Semiconductor, NEC Semiconductor and others which set up integrated circuit assembly plants in Malaysia, to transfer their technology to Malaysians.

Back then, hundreds of production operators, mostly peering through microscopes, operated machines to manually connect the electronic circuits on a tiny piece of silicon to metal leads, then seal them up in an air and water-tight plastic or ceramic casing, test them for defects then ship them out.

Whilst such integrated circuit assembly work in Malaysia today is highly automated and managed, however it’s still not core research and development (R&D) work, apart from a handful such as Altera in Penang, where engineers use specialised software and tools to design customised integrated circuits for customers on Altera’s field-programmable gate arrays (FPGA) or application-specific integrated circuits (ASIC).

After these designs have been tested, verified and finalised, their  design can converted to a series of masks (screens or templates) used in the fabrication and mass production of these integrated circuits which perform specialised functions.

Also, Malaysian engineers at Intel in Penang participate with their colleagues in other countries on the design of Intel microprocessors.

Mimos Semiconductor, a subsidiary of MIMOS Berhad – Malaysia’s National R&D Centre, also conducts research and development into semiconductor chip design, as well as wafer fabrication and provides consultancy services to customers. It has also developed photonics sensors, wireless systems and graphene conductive ink technology. MIMOS comes under the purview of Malaysia’s Ministry of Science technology and Innovation.

Silterra Malaysia, a Khazanah Nasional company in the Kulim Hi-Tech Park in Kedah, designs CMOS (complementary metal-oxide semiconductor) integrated circuits but it mostly is a semiconductor wafer fabrication plant.

So Malaysians have been able to absorb such technologies and apply them in R&D activities.

However, MIMOS Semiconductor and to a lesser extent Silterra are the only Malaysian companies involved in semiconductor integrated circuit design, whilst Altera and Intel are multinationals.

So, whilst it looks like Malaysians will be able to absorb technology from China and be able to conduct R&D activities, the question remains as to whether there will eventually be many Malaysian companies designing and building homegrown Malaysian trains, telecommunications and other equipment, products, systems and solutions.

In the next article, we’ll cover Prof. Gomez’s assessment of the genesis and changes which had taken place in the roles of Malaysian state entities and GLCs, as well as a list of China companies, joint ventures and projects in Malaysia deemed productive or highly productive and those which are controversial.

 

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