• China’s “One Belt, One Road” Initiatives in Malaysia

  • On Jan 14th, I attended a conference in Johor Bahru organized by the Johor Bahru Chinese Chamber of Commerce and Industry and had the opportunity to interact with several Mainland Chinese managers and leaders from the private sector who are active in Malaysia.  High on the discussion list was China’s “One Belt, One Road” policy and its implications on Malaysia and Iskandar Malaysia.

    The final weeks of the year 2015 were quite momentous in terms of the Chinese presence in Malaysia.  During a state visit in November, Chinese premier Li Keqiang  pledged to buy Malaysian government bonds, which have been hit by foreign selling as crude oil prices have been falling since late 2014 and by the 1MDB crisis in 2015. This caused a knee jerk uplift in the value of the Ringgit, as the perception was China would step in to stabilize Malaysia’s financial markets.

    This was also the biggest step forward for the financial sector between China and Malaysia since April 2015, when Malaysia became the 2nd country in Asean (after Singapore) to have a RMB clearing center.

    At the same event, China Construction Bank announced the listing of the world’s first 21st Century  Maritime Silk Road bond worth RMB 1 bil (RM667.1mil) on the Bursa Malaysia. Again, this has been widely interpreted as a signal of confidence in Malaysia by the Chinese government.

    Chinese Taking Positions in Various Industries

    In Singapore, we remember China’s investments in Malaysia most clearly via Iskandar Malaysia. In 2012 to 2014, major Chinese property developers such as Country Garden, R&F Properties and Greenland Group bought up large strategic landbanks in the region.  But real estate is not the only sector in which the Chinese presence is being felt. Key developments include:

    • Xiamen University Malaysia opened its doors recently in Sepang, just outside Klang Valley over a planned site measuring 150 acres. It is the first overseas expansion of the renowned Chinese university with a full range of offerings and a targeted student intake of 10,000.

    • The RM7 bil Gemas – Johor Bahru electrified double tracking railway project was also awarded to Chinese state owned China Railway Construction Corp. This track provides capacity for existing trains to move up to 160km/h, improving the transport of goods across the country including to Singapore.

    • The Malaysia – China Kuantan Industrial Park in Pahang which has seen a RM5.6 bil investment to build a steel mill and upgrade port infrastructure. This initiative is jointly owned by both Chinese and Malaysian private and public sector entities.

    • Guangdong Province teaming up with the local Melaka government to promote tourism and manufacturing opportunities in the state. Private Chinese firms have also taken interest to participate in the Melaka Gateway project.

    • The RM18 bil sale (including liabilities) of 1MDB subsidiary Edra Global’s power assets to China General Nuclear Power Corp. Edra Global’s power assets are spread  across Malaysia, Egypt, Bangladesh, Pakistan and the United Arab Emirates.

    • Chinese construction companies have won about RM15 bil worth of contracts in the past 3 years. Many can be seen in Iskandar Malaysia today and increasingly in the rest of Malaysia. 

    Bandar Malaysia and the High Speed Rail

    The biggest item that has just been recently concluded is the RM7.41 billion 60% equity sale of the 1MDB owned Bandar Malaysia project in Kuala Lumpur to a consortium led by Iskandar Waterfront Holdings (the master developer of Danga Bay) and China Railway Engineering Corporation (CREC).

    The 500 acre site is just 10 minutes away from the city center and is one the biggest land parcels for development in prime Kuala Lumpur. It is also the site of the Kuala Lumpur station for the upcoming High Speed Rail (HSR) to Singapore and 2 proposed MRT stations.

    Iskandar Waterfront and CREC’s ambitions likely include taking advantage of their status as the majority owner of  Bandar Malaysia in competing for the mega HSR project this year.

    Singapore’s Land Transport Authority and Malaysia’s Land Public Transport Commission have received strong response on the development options for the HSR as evidenced by their recent request for information which saw worldwide interest. Construction should start after November 2016 as both the Bandar Malaysia and Jurong Country Club sites (the start and end points of the HSR) will be handed back to their respective governments then.

    China has already won the contract for Indonesia’s high speed rail project across Java island, beating rail rivals Japan. China Railway has also entered into an agreement to build a higher speed rail between Bangkok and the northern parts of Thailand.  In decades to come, a HSR network linking Thailand, Malaysia and Singapore to China will become a reality, providing a huge boost to economic activity along its links. This can be seen by the various Chinese economic projects peppered along these countries, from industrial parks to real estate projects and a realization of China’s One Belt, One Road economic plan. 

    What does this mean for Iskandar Malaysia?

    Iskandar Malaysia being the earliest beneficiary of Chinese investments, is a step ahead in terms of development progress. By late 2017, we should see the completion of the first Chinese development projects and also the start of construction for the HSR as well as the Rapid Transit System (RTS) linking Singapore and Johor Bahru. These will bring in the next wave of Chinese investors which will primarily be in manufacturing and service sectors. This is on top of the real estate and construction companies that we tend to focus on today.

    There have already been several trade missions between Chinese private and public sector groups, local Johor chambers of commerce and government parties to facilitate new trade cooperation activities in Iskandar Malaysia. Greenland Group’s joint venture with the Johor government to develop a 3,000 acre site in eastern Johor including major industrial components is one example.

    China’s One Belt One Road initiative has one key distinctive feature, which is to develop industrial capacity and demand outside China. Rather than the traditional method of importing raw materials and producing in China, the initiative seeks to shift certain industries to outside of China and play a bigger role in the production chain by providing infrastructure and services to enable this. This initiative also seeks to increase the purchasing power of locals in various countries and diversify China’s export markets.

    Property investors in Iskandar Malaysia should be comforted by the fact that Iskandar Malaysia has been a big recipient of the outbound flow of investments from China. This should translate into various economic opportunities, which will unfold over the next decade, and ultimately bring a favourable outcome for property assets in the region.

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