Malaysia-China trade: old and new routes

Abstract

The opening up of China and its subsequent rapid integration into the global economy provided opportunities for Malaysia to increase trade with China through their respective participation in global value chain activities. This paper aims to examine the nature of Malaysia-China trade and the contributory factors to this bilateral trade pattern and to assess the prospects and challenges for this bilateral trade, with the new Silk Road initiatives. 

The main findings of this paper show increased information and communications technology and palm oil trade between the two countries. But the trade pattern also indicates Malaysia’s trade in electronics and palm oil with China is facing either stagnating or declining revealed comparative advantage. Instead, China’s rise has also raised severe competitive pressures as each country tries to shift up the global value chain. Internal weaknesses also contributed to the weakening competitiveness of Malaysia’s electrical and electronics sector so that the share of this sector’s manufacturing and exports fell substantially, while the share of resource based manufacturing activities gained ground. 

Malaysia is trying to tap the promises of the new Silk Road initiative for enhancing its trade and investment relations with China. However, realizing this potential faces several hurdles, such as the viability of this initiative and internal challenges within China and Malaysia. The most urgent of the three challenges is for Malaysia to overcome its domestic challenges, since without the requisite domestic changes, no investor, including China, will venture into the country.

JEL classification: F10, F14, N75