According to the import and export statistics of the Ministry of International Trade and Industry, in April this year, Malaysia's exports grew by 11.1 percent to 57.8 billion Malaysian ringgit ($19.6 billion) whereas the imports grew by 9.4 percent to 46.8 billion ringgit ($15.9 billion). The imports and exports were similar in May -- the exports grew by 5.4 percent to 55.1 billion ringgit ($18.7 billion) while the imports increased by 5.6 percent to 46.6 billion ringgit ($15.8 billion). In May, Malaysia's trade with China and Japan rose by 10 percent and 16 percent respectively. These figures reflect the changes in Malaysia's external trade relations and release some noteworthy alerts.
This obvious change in trade could be deemed as a result of the change from the previous ‘one triangular trade relationship’ to the current ‘two triangular trade relationships,’ in which China, Japan, and Thailand play the key roles. In the past, the government emphasized on the development of processing and export industries. Primarily, it involved importing machines and raw materials from other countries and utilizing the relatively skilled yet cheap labor force to process and manufacture products to be exported to countries like China, Singapore, Japan, the United States, and Thailand. Therefore, Malaysia's trade relations with these countries had turned from trade deficit in earlier years to trade surplus and the trade surplus had increased year by year. At the same time, our trade deficit against certain countries had also increased year after year.
World Investment Report
In recent years, driven by the free trade agreements and strong pressure from relevant countries to open up our market, Malaysia's trade surplus has seen some decrease. Yet, the triangular trade relationship remains. The new triangular trade relationship is the result of Malaysia's external investment in other countries, coupled with the increase of exports of machine equipments and components in the recent five years. According to the world investment report 2011 released recently by the United Nations Trade and Development Agency, the foreign direct investment to Malaysia soared 536 percent to 27.3 billion ringgit ($9.3 billion) in 2010, constituting the highest record in the history. Meanwhile, Malaysia has relied on Japan for the supply of key raw materials needed for the exports of machine equipments and components. Thus, Malaysia's trade deficit against Japan has been increasing year by year. Consequently, the issue of trade deficit against Japan has not shown any sign of improvement or solution; instead, it has deteriorated year after year.
On the surface, the changes of export markets and the expansion of exports caused by the overseas investment have maintained the growth of Malaysia's exports (the first five months of this year saw an increase of 8 percent despite the worsening external environment). This has enabled Malaysia to maintain a reasonable economic growth and led to the major changes in Malaysia's trade balance with its major trade partners. This is a normal structural adjustment. However, if we study more in-depth, we will realize that there are indeed some worrying issues in the current process of Malaysia's trade and economic development.
Export-Oriented Economy
The first issue is about the capability to maintain our overseas investment. Some officials have been talking about ‘all-round development’ lately and advocating investment in places like China, West Asia, and Middle East. However, a country's capability of overseas investment is subject to its international balance of payments. A county will only be capable to invest overseas if it enjoys massive international trade surplus for consecutive years. When its international balance of payments turns from surplus to deficit, the country's capability of overseas investment will decline substantially, or even b e eliminated altogether. Prior to the Asian financial crisis, Malaysia had enjoyed increasing surplus in the international balance of payments almost every year and the overseas investment had naturally flourished.
During the crisis and even the early stage of the recovery, the surplus in Malaysia's international balance of payments dropped drastically and even came to the verge of deficit. As a result, Malaysia's capability to invest overseas is no longer as strong as that in the years before the crisis. Therefore, a very important issue now is about how to maintain the development of our export-oriented economy.
Overseas Investment
The second issue is concerning the subsequent growth of the export of components derived from overseas investment. The export of components derived from overseas investment has constituted the major part of the growth of Malaysia's exports in recent few years. However, China has become the main destination of Malaysia's overseas investment. We must not overlook the capability of China-made components replacing imported components in the country itself. This is especially so considering the fact that Malaysia's investment in China has shifted from coastal areas to inland areas.
To save the cost of transportation, of course it is more convenient to use locally-produced components. Thus, it will be not surprising if Malaysian enterprises in China choose China-made components over those imported from Malaysia. This will lead to a shrink in the export of components derived from Malaysia's overseas investment. Should this happen, after some time, the growth of Malaysia's export will be retarded and another huge change may be seen in the value of Malaysia's trade balance against other countries.
Increasing Trade Deficit
The third issue is the issue of the development of key raw materials. Malaysia's industries have indeed seen substantial development in the past. However, the experience of the two triangular trade relations tell us that Malaysia has relied on China and Japan for key raw materials, both in processing-type export and investment-type export. Thus, the growth of exports to countries other than China will always come together with the increase of trade deficit against China and Japan. The fundamental issue here is that Malaysia is not able to develop key raw material industry on our own yet. The government and the industrial sector have to get Malaysia out of this nightmare by planning and developing relevant key raw material industries so that Malaysia's economy could grow normally.
The changes in Malaysia's external trade balance indeed show us negative signs in the long-term development of industries in this country.
This obvious change in trade could be deemed as a result of the change from the previous ‘one triangular trade relationship’ to the current ‘two triangular trade relationships,’ in which China, Japan, and Thailand play the key roles. In the past, the government emphasized on the development of processing and export industries. Primarily, it involved importing machines and raw materials from other countries and utilizing the relatively skilled yet cheap labor force to process and manufacture products to be exported to countries like China, Singapore, Japan, the United States, and Thailand. Therefore, Malaysia's trade relations with these countries had turned from trade deficit in earlier years to trade surplus and the trade surplus had increased year by year. At the same time, our trade deficit against certain countries had also increased year after year.
World Investment Report
In recent years, driven by the free trade agreements and strong pressure from relevant countries to open up our market, Malaysia's trade surplus has seen some decrease. Yet, the triangular trade relationship remains. The new triangular trade relationship is the result of Malaysia's external investment in other countries, coupled with the increase of exports of machine equipments and components in the recent five years. According to the world investment report 2011 released recently by the United Nations Trade and Development Agency, the foreign direct investment to Malaysia soared 536 percent to 27.3 billion ringgit ($9.3 billion) in 2010, constituting the highest record in the history. Meanwhile, Malaysia has relied on Japan for the supply of key raw materials needed for the exports of machine equipments and components. Thus, Malaysia's trade deficit against Japan has been increasing year by year. Consequently, the issue of trade deficit against Japan has not shown any sign of improvement or solution; instead, it has deteriorated year after year.
On the surface, the changes of export markets and the expansion of exports caused by the overseas investment have maintained the growth of Malaysia's exports (the first five months of this year saw an increase of 8 percent despite the worsening external environment). This has enabled Malaysia to maintain a reasonable economic growth and led to the major changes in Malaysia's trade balance with its major trade partners. This is a normal structural adjustment. However, if we study more in-depth, we will realize that there are indeed some worrying issues in the current process of Malaysia's trade and economic development.
Export-Oriented Economy
The first issue is about the capability to maintain our overseas investment. Some officials have been talking about ‘all-round development’ lately and advocating investment in places like China, West Asia, and Middle East. However, a country's capability of overseas investment is subject to its international balance of payments. A county will only be capable to invest overseas if it enjoys massive international trade surplus for consecutive years. When its international balance of payments turns from surplus to deficit, the country's capability of overseas investment will decline substantially, or even b e eliminated altogether. Prior to the Asian financial crisis, Malaysia had enjoyed increasing surplus in the international balance of payments almost every year and the overseas investment had naturally flourished.
During the crisis and even the early stage of the recovery, the surplus in Malaysia's international balance of payments dropped drastically and even came to the verge of deficit. As a result, Malaysia's capability to invest overseas is no longer as strong as that in the years before the crisis. Therefore, a very important issue now is about how to maintain the development of our export-oriented economy.
Overseas Investment
The second issue is concerning the subsequent growth of the export of components derived from overseas investment. The export of components derived from overseas investment has constituted the major part of the growth of Malaysia's exports in recent few years. However, China has become the main destination of Malaysia's overseas investment. We must not overlook the capability of China-made components replacing imported components in the country itself. This is especially so considering the fact that Malaysia's investment in China has shifted from coastal areas to inland areas.
To save the cost of transportation, of course it is more convenient to use locally-produced components. Thus, it will be not surprising if Malaysian enterprises in China choose China-made components over those imported from Malaysia. This will lead to a shrink in the export of components derived from Malaysia's overseas investment. Should this happen, after some time, the growth of Malaysia's export will be retarded and another huge change may be seen in the value of Malaysia's trade balance against other countries.
Increasing Trade Deficit
The third issue is the issue of the development of key raw materials. Malaysia's industries have indeed seen substantial development in the past. However, the experience of the two triangular trade relations tell us that Malaysia has relied on China and Japan for key raw materials, both in processing-type export and investment-type export. Thus, the growth of exports to countries other than China will always come together with the increase of trade deficit against China and Japan. The fundamental issue here is that Malaysia is not able to develop key raw material industry on our own yet. The government and the industrial sector have to get Malaysia out of this nightmare by planning and developing relevant key raw material industries so that Malaysia's economy could grow normally.
The changes in Malaysia's external trade balance indeed show us negative signs in the long-term development of industries in this country.
No comments:
Post a Comment