Factors Leading to Investment Imbalance Between Malaysia, China

The Malaysia-China Business Council (MCBC) led by former Malaysian Deputy Prime Minister Musa Hitam announced that beginning next year, MCBC will, on one hand assist Malaysia's small and medium-size enterprises to invest in the China market, and on the other hand, MCBC will also persuade China's small and medium-size enterprises which are now facing hike in worker wages, to establish up their firms in Malaysia.
However, when we talk about mutual investment between Malaysia and China, there is indeed a big gap. According to the data provided by Chai Xi, the Chinese Ambassador to Malaysia, the Malaysian investment in China is $6.2bil and the Chinese investment in Malaysia is only $0.3bil. Although our Malaysian cabinet ministers, Menteri Besar (chief of state) and chief ministers have repeatedly traveled to China with the aim to recruit more Chinese investors to Malaysia; and although the Chinese authority has also mentioned that Malaysia is a ‘qualified investment country’ and that the Chinese authority has also encouraged Chinese enterprises to invest in Malaysia, but the Chinese investment capital is still not forthcoming. It has not yet landed on the Malaysian ground but only wondering around the Malaysian border.
In response, Abdul Rahman Dahlan, the United Malays National Organization (UMNO) MP (Member of Parliament) for Kota Belud, became angry and wanted the Malaysian Government to stop going to China to promote trade opportunities in Malaysia. He said that since the enterprises in China are not interested to invest overseas, it will be a waste of time and money for the Malaysian Government trying to urge the Chinese enterprises to come over to Malaysia.
However, according to Chinese Ambassador to Malaysia Chai Xi's statement, as of 2010 there are already 12,000 Chinese funded corporations establishing as many as 13,000 companies overseas. These overseas Chinese corporations are spread through more than 170 countries in different regions. From such statistics, it is not at all true to say that the Chinese businesses and enterprises are not interested to venture and expand their business bases overseas. In fact, under China's current trade policy which put a lot of emphasis on wanting the domestic enterprises to ‘go out’ from China, we can expect more capital fund from China to continue flowing out from China in the coming years. It is thus up to Malaysia to see if we can attract Chinese enterprises to invest in Malaysia.
Malaysian Attitude Toward Chinese Investors
Why on earth then the Chinese businesses are willing to go to the other far end of the globe and invest in South America and are also willing to invest in African countries which have poorer basic infrastructure than Malaysia? Why should the Chinese investors avoid putting their investment in Malaysia, a country which is much nearer to China than other countries mentioned? Instead of carrying out any further argument with UMNO MP Abdul Rahman Dahlan, it might be better for Malaysia to reflect our attitude toward the Chinese investors.
In response, Chai Xi, the Chinese Ambassador to Malaysia commented that Malaysia's economic policy seems to have opened but in fact it is not opened.
Perhaps Ambassador Chai Xi's remarks can be difficult for investors from Europe, Japan and the United States to grasp the full meaning behind. But to the Chinese investors, Chai Xi's remarks have talked to their hearts. This is because Chinese investors can sense that the Malaysian Government has taken an ambiguous attitude and resisted the coming of the enterprises and corporations from China although Malaysia's official policy says that the country will welcome Chinese investors to Malaysia. The Chinese enterprises can sense that although the Malaysian Government has tried very hard to recruit Chinese investors to Malaysia, but the administrative system of the Malaysian Government has made their applications to do business and to invest their capital in Malaysia difficult. Many Malaysian government officials have taken the approach of ‘putting the application aside while waiting for the authority to approve.’ Moreover, the administrative section of the Malaysian Government has also given the Chinese investors too many excuses of why their applications for business cannot be approved earlier than expected. In the end such attitude of the Malaysian government officials ended up given the Chinese investors an impression that Malaysia really does not care much about foreign investment coming from China. Very often, the attitude of Malaysian government officials has made the Chinese investors come to realize the hard fact that it is difficult for them to doing business and invest their fund in Malaysia. In the end, many Chinese investors walk away and invest in other countries.
Engineering Projects
From what we observe, there are indeed some Malaysians who have adopted a sensitive attitude toward the flow of Chinese capital fund to Malaysia or toward the engineering projects tendered by the Chinese-funded corporations. The sensitivity of these people toward Chinese investors can even reach the stage of rejecting Chinese investment in Malaysia. In the end, these people used all kinds of measures to resist the investment coming from China. Certain sector of the Malaysian society also resists the engineering projects the Chinese funded corporations have openly expressed interest. These people almost always hold the views that any projects with the involvement of Chinese enterprises are ‘no good.’
For example, before the Second Penang Bridge Project participated by China Harbor Engineering Co Ltd has even begun the construction, some sector in the Malaysian society has already said that it was not right for the Chinese corporation to bring in 200 engineers from China to do the construction work. They said such action taken by the Chinese corporation will deprive the employment opportunities of Malaysian engineers. But in actual fact, such an allegation on the China Harbor Engineering Co Ltd is baseless. The rumor was spread by certain sector or people who are extremely sensitive to any investment coming from China.
China-Funded Corporations To Invest in Malaysia
Another example was that when government-linked Urban Development Authority (UDA) Holdings wanted to carry out the ‘Bukit Bintang City’ re-development project, China's Everbright International Construction Engineering Corporation (EICEC) has offered the best business deal to the UDA Holding by funding of this engineering work fully. While the success rate of EICEC in tendering this government engineering work then was almost certain, some sector of the Malaysian society has immediately attacked the UDA Holding for forgetting its responsibility as a government-linked corporation. They said UDA Holdings has ignored the interest of the bumiputera (indigenous people, the Malays). In the end, not only the executive chairman of the UDA Holdings suffered critical attack by certain sector, these people even wanted the Malaysian Anti-Corruption Commission to carry out investigation on him. Such a dilemma is hardly encountered by other foreign investors in the country.
In this regard, we should not say that the businesses and enterprises from China are not interested to invest in Malaysia. Instead, we should come to the conclusion that it is because certain people in the Malaysian society are unwilling to accept the investment coming from China. These people made deliberate attempt to make Chinese investors to Malaysia difficult. As a result the Chinese investors have now taken a difficult attitude toward investing their money in Malaysia. This attitude is that they will respect Malaysia's trade and investment policy but they will not want to put their investment here.
China's Overseas Investment Capital
In any case, it is important for Malaysians to acknowledge the fact that China has already emerged as a major economic body in the world. It is inevitable that the massive Chinese investment capital will overflow overseas. It is also inevitable that in the coming years, the strength of the Chinese investment capital to other countries will be stronger than that Japan, Europe and the United States.
Whether Malaysia can share the cake of China's overseas investment capital; and whether if we want to accept the fact that the continual growth of China's economy can indeed benefit Malaysia or not will depend on the mentality of certain group toward China and the Chinese investors to Malaysia.

China's Economic Strategy in ASEAN Countries

Economic relations between China and the Association of Southeast Asian Nations (ASEAN) have clearly become closer as China is now ASEAN's No. 1 trade partner and ASEAN is China's No 4 trade partner with a possibility to surpass Japan to No 3 soon. Not only in trade, investment by China's private sector and state enterprises in ASEAN countries has grown in a big leap. China now tops the investor list in ASEAN countries like Myanmar, Laos, and Cambodia, while ranking fourth for foreign investment in Thailand.
Regional Economic Trend
It is not a matter of coincidence or regional economic trend but the Chinese Government does intend to tighten economic ties with ASEAN under what I would call a "southward strategy." China began with its serious move southward in the year 2000, when Chinese and ASEAN were then fiercely competing in the world market. The China-ASEAN trade volume was not so big at the time. Then came the day when then Chinese Prime Minister Zhu Rongji wooed ASEAN to form ASEAN-China Free Trade Area (FTA). The Chinese Government has been seriously pushing for the FTA since then. The trade cooperation started with a gradual cut of import tax until the rate became zero in January 2010.
Chinese have paid frequent visits to ASEAN countries to pave the way for an army of Chinese investors. Chinese Prime Minister Wen Jiabao has visited almost all ASEAN members. Prospective fifth-generation Chinese top leader Vice President Xi Jinping has also visited Myanmar, Cambodia and Laos.
PBG Program
The Chinese Government has been using every stage, framework and forum available to continuously and seriously promote economic cooperation with ASEAN, including the push for the Pan-Beibu Gulf Economic Cooperation (PBG) program. Chinese Prime Minister Wen Jiabao has been pushing the PBG among ASEAN leaders since 2007.
As a Thai representative invited to join the Joint Expert Group for the PBG since 2008, I made the latest trip to attend the ratification of the feasibility study for the PBG early this month. I would like to cite the PBG as a case study for China's "southward strategy".
The prominence of the PBG is the participation by three key southern Chinese provinces of Guangdong, Guangxi and Hainan. The trade volume that the three provinces have with ASEAN represents one-third of the whole China-ASEAN trade. After the ASEAN-China FTA fully took effect in 2010, the trade between the three provinces and ASEAN has expanded as showed in the table above.
China's 12th Development Plan
For Guangxi in particular, it was designated by the Chinese Government as key player in China-ASEAN relations. Guangxi was officially declared Gate to ASEAN (not Yunnan as many think). It hosts China-ASEAN Expo on yearly basis in Nanning, the principal city of the province, since 2004. With conducing factors and guidance brought about by the government, economic ties between Guangxi and ASEAN have enjoyed a big leap. ASEAN has become Guangxi's No 1 trade partner. Businesspeople from Singapore, Malaysia and Indonesia have flocked to invest in the province. In the latest drive, China's 12th Development Plan targets injecting a mammoth budget of 2.6 trillion yuan in five years into the so-called Guangxi Beibu Gulf Economic Zone (GBEX) covering four key cities of Nanning, Fangcheng, Jinzhou and Beihai.
Some of you may wonder why it must be Beibu, a city bordering the South China Sea. Those who have well followed news on international politics and relations have asked me a hit question what the Chinese Government has in mind for pushing its "southward policy" through the realization of the PBG.
Of course, China does not expect to gain from the PBG only in terms of economy and investment. There are points about military strategies and security involved. China and some ASEAN countries have claimed their rights over overlapping marine territories in the South China Sea. Vietnam's Navy has gone so far as to have conducted a military exercise with live ammunition in the South China Sea recently. Vietnamese people have also staged noisy protests against China over the marine territorial dispute.
Role of Vietnam
Vietnam is sensitive to the issue in every aspect, even in the academic field. We members of the PBG panel of experts had to spend a long time to find a suitable name for the disputed marine border as the Chinese representative preferred the term South China Sea, while the Vietnamese counterpart wanted it changed to East Sea, the official term used by the Vietnamese Government. The Chinese expert would not yield to the Vietnamese counterpart's demand and it took several months for the panel to end up with just the word Sea (LOL) so as not to be biased towards any country.
The South China Sea territorial dispute and the push for the PBG could become boiling regional issues in the future. The Thai Government will have to come up with how to properly handle them. It will be certainly better for all parties concerned to cooperate than fight.

New Bangladesh Tax Policy

Allegation has been surfaced that Ministry of Finance and National Board of Revenue (NBR) are taking the economy of the country to drastic disaster. In the conventional system, the more revenue NBR is collecting, the more the country is going into debacle. In spite of being the supplier of 80 percent financing of the national budget, NBR is, in fact, not being able to contribute in any development of the country. Rather the revenue generated by NBR is gradually making the economy stagnant. However, the impact was supposed to be entirely opposite. Economists believe that with their foresight-less tax policy, NBR is playing the adverse role; whereas they could have played a positive role in economy, investment, industrialization, and overall commerce and business, increasing income of majority people, reducing poverty, reducing income discriminations between rich and poor, and increasing income tax paying capability of the mass people. At first the target for NBR's revenue collection in financial year 2010-11 was set to 720 billion takas (Tk) ($10.28 billion). As the collection performance was ‘good’ in terms of NBR, in June 2011, the target was revised to Tk 750 billion ($10.71 billion). The Ministry of Finance is expecting that this will also be collected within this June. Due to this the NBR officials will be specially rewarded in addition to regular salaries and allowances. Under this condition, Ministry of Finance, riding on the cloud number nine, has provided NBR a target of Tk 940 billion ($ 13.42 billion) for the next financial year. The patriot businessmen and industrialists are alleging that NBR will claim their success also in the next financial year by pouring the same old rum in the new bottle.
Revenue Generation
Analyzing the sector wise revenue generation of NBR, we find that the sector that singly generates the maximum amount of revenue is Bidi (local cigar), cigarette, and different types of narcotic products. NBR generated Tk 100 billion ($ 1.42 billion) of revenue from this sector that is growing by 10 percent per year. It is to be noted that these so called 'legitimate' tobacco and tobacco based products are actually guiding the economy to the doom. The physicians have commented that the economic value of the loss owing to loss of longevity, loss of workability, loss of health, and spreading of different disease is around Tk 500 billion ($7.13 billion).
Although the government is earning Tk 100 billion revenue from the development of tobacco and tobacco based products, the government and nongovernment expenditure only on treatment due to usage of tobacco is around Tk 150 billion ($ 2.14 billion). Narcotics are increasing disorder, indulgence, corruption, and adultery in the society. What more disaster can economy face!
The second largest sector for revenue generation of NBR is importing of motor vehicles. Ninety percent of these vehicles mean private cars. NBR earns revenue of Tk 50 billion ($0.71 billion) from car importing duty and transport tax. It is to observe that 95 percent of the cars that are imported in Bangladesh are sold and driven in Dhaka city. The related transportation specialists and even the ministry of communication opines that traffic congestion in Dhaka has increased to extreme due to excessive amount of private cars. As per a recent research report of Bangladesh University of Engineering and Technology (BUET), the value of the wasted work hours and fuel owing to the regular traffic jams in Dhaka is Tk 200 billion ($ 2.86 billion). The calculation for environmental pollution has not been considered here. Private cars are increasing in this mega city of hundred million people due to lack of minimum public transport system, and as NBR has not made the import of big single Decker and double Decker busses convenient or duty free. Along with this, huge amount of motor driven or manual three wheelers like baby taxis and rickshaws are imported. The import of private car is not getting restrained even after imposing high taxes. The reason i s that necessity knows no hindrance. Let alone any other poor countries of the world, the capital of the rich countries in the world even do not have so many private cars. No nation also has to pay such enormous amount for transportation. This is happening due to crisis of public transport and NBR is not allowing this public transport to be easily available. The secretary general of Bangladesh Reconditioned Vehicles Importers and Dealers Associatoin (BARVIDA), Hamid Sharif himself made the same allegation.
The third highest source of revenue generation for NBR is the current mobile phone operators. It is needless to say that almost all of these mobile phone companies are foreign and their total number of subscribers is more than 60 million. NBR earns around Tk 450 billion ($ 6.43 billion) as VAT, income tax, and other duties from these mobile phone companies. Renowned Economist and Executive Director of Economic Research Group (ERG) Dr. Sajjad Zahir informed that the more there will be communication through mobile phones, the more revenue will be earned by NBR and the related companies. As a consequence, more and more Taka or valuable dollars will go out from Bangladesh and the country will become broke day by day. Investing Billions of Taka, the mobile companies are milking out trillions of Taka from Bangladesh in legitimate or illegitimate ways and making Bangladeshis a loquacious nation. From the calculation of Teletalk- the local mobile phone company with one million subscribers, on an average every mobile user spends $ 5.00 or Tk 350 per month. Based on this calculation, 60 million subscribers in Bangladesh spends Tk 20 billion ($ 285.71 million) per month or Tk 240 billion (around $3.5 billion) per year for speaking, internet browsing, SMS, and using other telecom services. From that, at least $2 billion is flying away from the country in legal or illegal ways. This creates massive deficit in the balance of payment of the nation.
The fourth largest source of revenue generation of NBR is tax and Value Added Tax (VAT) collected from local oil and gas companies. NBR earns around Tk 450 billion ($ 6.43 billion) from this source. The interesting fact is that the half dead local companies that sell per thousand cubic feet of gas to government or Petro Bangla for less than half a dollar are paying all the VAT and taxes to government. As a result they do not have any amount remaining for re-investment. However, the foreign companies that market more than 65 percent of gas and charge around $4 for the same amount of gas, does not pay a single penny as VAT or tax. These looters foreign companies are rebated with all the tax and VAT and allowed to carry all the money outside in dollar form the country as if they are sons in law of the government. This is called the justice in the realm of Nero. It is the fancy of killing someone's own son and tying knot with other people! Even the NBR officials have acclaimed that if Ministry of Finance, the father of NBR would not have done this historic malfeasance, gas sector would have generated the maximum amount of revenue. The current energy secretary Dr Mesbah Uddin Ahmed could not but appeal to the finance minister for several times for at least redemption of VAT. However, due to suspicious reason, the appeal is not getting granted. Oh NBR! Oh Ministry of Finance!
The fifth largest amount of revenue of NBR comes from the Bank-Insurance sector. NBR earns around Tk 350 million ($ 5.00 billion) from this sector considering 15% VAT, and 42.5% corporate tax. Such high rate of corporate tax rate is imposed no where in the world. Because of this abnormal super tax rate, the lending rate of banks is also very high in this country (18 percent to 24 percent). No where in the world except Bangladesh and Pakistan, lending rate is more than single digit. Industrialization and the overall economy are now getting distressed due to this high interest rate. I nflation is creeping up. The number of loan defaulters is also rising. However, banking sector is the heart of the economic system. According to the economists and the industrialists, no industry or business in the world can be legitimately profitable after paying interest more than 5 percent. However NBR very craftily, is demolishing the base of economy. The entire economy of Bangladesh has been paying high price for increasing the revenue of NBR. One of the directors of FBCCI--Federation of Bangladesh Chambers of Commerce and Industry, the elite organization of the businessmen and industrialists--and director of EXIM Bank Limited Mr. Nurul Fazl Bulbul said, ‘No directors of any bank will go to heaven. Along with that no official from Ministry of Finance, Bangladesh Bank, and NBR will go to heaven. The reason is that a group of bank directors are taking so much interest that the economy is going to doom. Except theft, it is impossible to operate business and trade honestly in any part of the world with 18-20 percent interest. The banks are intended to recklessly impose such high rate of interest only due to imposition of super tax (42.5 percent) in the budget by NBR. Bangladesh Bank, in this regard, remains indifferent. There is no such super tax or interest in the world. Even if anyone relieves from this liability of interest in the living world, he will not get mercy from Allah in the later world. The destroyers of industry and employment, all these usurers and the promoters of usurers will go to hell.’ He commented that as per the commitment of Allah they will be generation-less. The directors of the renowned banks and other industrialists recently uttered the same tune in a pre-budget meeting organized by NBR and FBCCI. Almost all the important businessmen and the industrialists of the country claimed to drop down the bank interest rate to single digit (below 10 percent) in the 32nd pre-budget annual discussion meeting of National Board of Revenue (NBR) held in Hotel Sonargaon, Dhaka. They said that no where in the world except Bangladesh and Pakistan, lending rate is more than single digit. For reducing this, NBR will have to lessen this super tax.
The sixth largest sector for revenue generation of NBR is the Annual Development Program or ADP of government. In this financial year, Tk 350 million ($ 5.00 billion) has been spent in this sector and Tk 460 million ($ 6.57 billion) will be spent in the next financial year. From that fund, 95 percent is spent for purchasing different products and services from the contractors and the 4.5 percent of the spent amount deducted at source by the related department as advance income tax and VAT. That is government is paying tax too government itself and setting aside the fund from the capital earlier on. By this way, they are playing with the fund. However, it was expected that the contractors, after performance of the work will pay tax from the profit generated and kept in their own pocket and the tax amount will be determined on the basis of profit. However, in reality the reverse is happening. The contractor, not spending from their pocket, sending the government money (whatever the amount is) in the government treasury and leaves after completion of the work by any means. That is frying fish in the fish oil. The government is paying the tax; credit goes to the contractor. It is like ‘Jindle eats food; and Kindle gets fat.’ The government claims credit by transferring money from book pocket to hip pocket. Moreover, some clever political contractors are showing losses after satisfying tax department. What a wonderful system!
Tax Collection
Another great source of revenue for tax collection of government is court fee of cases filed by people and land document taxes. Though, this is not directly under NBR. But, this is the highest non-NBR source of tax collection for the government. More than Tk 200 billion ($ 2.86 billion) of revenue comes every year from this sector. On the other hand, the expenditure of government and people for the lawyers, clerks, judges, and barristers incurs 50 times greater than this. The more the poor countrymen sell off their lands, the more marginal and landless poppers turn into day laborer or non-resident worker, the more people are getting involved into lawsuits-cases, killing-assassinations, chaos-confrontations, the more government earns. What a wonderful way to convert the national shame into pride of the ruler.
According to the study of Ministry of Legal Affairs, among all the law suits filed in the country, 85 percent are filed related to land property. In spite of simplifying the process for land, government is complicating systems for government is earning huge amount of money. Budget is growing with that sinful money. This, in other sense, is making the lower, middle class and the economy popper and penniless. The more there are cases, the more people become losers. This is also implied in cases of sell of lands.
Economic Development
In a survey of the Ministry of labor and Foreign Employment it has been observed that the poor people tormented by inflation, unemployment, and injustice mainly sell out their residential property, move from one region to another region of the country or become non resident laborer. However, in five years, the remittance they bring is less than the selling value of their residential property. The related personnel believe that the government is paying more attention on increasing and expanding taxes in spite of converting the country into a stable and civil one by permanently reducing cases and lawsuits.
The critics opine that the NBR and government, in stead of contributing to real economic development, may suddenly declare impose tax on thieves, robbers, deceivers, and immoral personnel and will validate their misfeasance and increase the revenue earning of the government. They will not care the national ignominy.