Suppose that AFTA(ASEAN free trade area) is expanded to include China.

This will
increase both Malaysian iports of land!intensi"e and labor!intensi"e China#s products
and China#s iports of capital!intensi"e Malaysian products. $iscuss the short!run and
lon%!run effects this would ha"e on land rents& wa%es& and payents to capital in
Malaysia.
Malaysia's (esponse to the China Challen%e)
Malaysia is a rapidly growing and resource-rich country that has been industrializing
since the late 1960s. Its industrialization has relied on the growth of labor-intensive
industries, particularly the electronics and electrical-products industries, which have
contributed significantly to the growth of the anufacturing sector. !he growth and
opening up of "hina has raised concerns about Malaysia#s loss of copetitiveness to
"hina and the diversion of foreign direct investent to "hina.
Abstract
!he eergence of "hina as one of the largest trading nations in the world provides
challenges and opportunities to its neighboring $%&$' countries. In the face of the rise
of the "hinese econoy, there were concerns that $%&$' econoies ay be
adversely affected with the loss of copetitiveness in the international ar(et. )ne of
the concerns is that the world e*port ar(ets of labor-intensive goods will be threatened
if "hina turns into the world low-cost anufacturing factory. Meanwhile, trade between
"hina and $%&$' countries increased draatically during the past decades. 'ot
surprisingly, "hina#s accession to the +!) and the future establishent of a free trade
area ,-!$. between $%&$' and "hina will further change the trade relations in the
region. !he paper first analyzes the past trade patterns between "hina and $%&$'
countries and assesses the ipact of the rising "hinese econoy on $%&$' countries,
in particular, the ipacts on specific industries in each individual $%&$' country.
%econd, the paper e*aines the ever-increasing role of foreign direct investent
between the two regions and, finally, it analyzes and assess the policy responses of the
$%&$' countries thus far and their possible conse/uences.
In response to the econoic rise of "hina, one way is to e*ploit one0s coparative
advantage and create a niche area where "hina has no place to copete. %ingapore is
a classic e*aple. $part fro integrating with the "hinese econoy, %ingapore also
attepts to e*ploit its 1state brand2 which can readily serve as a bridge between "hina
and the +est, as well as a bridge between "hina and India. )wing to its cultural affinity
1
with "hina, its &nglish spea(ing population as well as ulti-racial population,
%ingapore will be able to forge a strong lin( aong these networ(s. Moreover, with its
strength in governent, corporate and ban(ing governance, %ingapore is the ost
suitable candidate to serve as a trustworthy iddlean aong countries with different
business cultures.
In response to the econoic rise of "hina, one way is to e*ploit one0s coparative
advantage and create a niche area where "hina has no place to copete. %ingapore is
a classic e*aple. $part fro integrating with the "hinese econoy, %ingapore also
attepts to e*ploit its 1state brand2 which can readily serve as a bridge between "hina
and the +est, as well as a bridge between "hina and India. )wing to its cultural affinity
with "hina, its &nglish spea(ing population as well as ulti-racial population, %ingapore
will be able to forge a strong lin( aong these networ(s. Moreover, with its strength in
governent, corporate and ban(ing governance, %ingapore is the ost suitable
candidate to serve as a trustworthy iddlean aong countries with different business
cultures.
*+. Suppose that AFTA(ASEAN free trade area) is expanded to include China.
This will increase both Malaysian iports of land!intensi"e and labor!intensi"e
China#s products and China#s iports of capital!intensi"e Malaysian products.
$iscuss the short!run and lon%!run effects this would ha"e on land rents& wa%es&
and payents to capital in Malaysia.
Malaysia is strategically located in a high growth region. In 3004, bilateral trade between
Malaysia and "hina was 5%678.7 billion, a 179 increase over 300:. Malaysia0s
geographic location and its endowents help to attract -6I;-<I fro "hina as these
country see( currency stability through diversity, access to natural resources, and niche
ar(ets that reinforce bilateral ties. our country0s strategic location, coupled with its
well-developed infrastructure, will serve
to attract investent to build transportation and logistics hubs. )ur infrastructure is
currently augented with odern industrial par(s and developent corridors, which are
eant to favour innovative and high value added businesses.
"hina is investing heavily in infrastructure and people to consolidate their advantages in
size and scale. !he copetition will be fierce and foridable, even in areas where
Malaysia has coparative advantages. Malaysia is already a global leader in electronic
and electrical e*ports and pal oil, as well as being richly endowed in tropical forests,
arine reefs and talented people. =iven our natural heritage, we can be a world leader
in selected areas of biotechnology. +e ust ta(e advantage of geography, tiing,
and people, by e*panding trade and further strengthening our ties with regional global
growth engines, while consolidating our ties with the advanced and other eerging
ar(ets.
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$lthough Malaysia0s incoe tra>ectory continues to e*hibit a gradual upward trend, it
reains far below the ?high incoe0 boundary. %everal countries have been able to
a(e the transition to the ?high incoe0 status, including @orea, <oland, %lova(ia, and
the
"zech Aepublic. In $sia, @orea bro(e out of the iddle incoe trap after 1993 but
regressed
in the afterath of the $sian financial crisis. %andwiched between a rising "hina and a
high-tech Bapan, @orea recognised that its econoic structure doinated by chaebols
,politically connected faily-controlled large congloerates. could no longer sustain
growth.
%ubse/uently, they ebar(ed on a painful but far-sighted transforation prograe
that
propelled the bac( into the high incoe category.
Malaysia is strategically located and should leverage its geography and e*cellent
infrastructure to benefit fro regional growth. Malaysia could position itself to attract
ore. activity in design, research and developent, custo anufacturing, logistics
delivery, support services and order generation as ultinational copanies becoe
ore wary of property rights violations in "hina or siply as the second pole in a "hina
C1 $sian strategy of ultinationals in the anufacturing sector. Malaysia should
aggressively leverage its over 80 years of anufacturing e*perience
in precision engineering, autoation, and anufacturing anageent to bridge into
niche
areas such as edical devices, electronics devices for the renewable energy industry,
devices and sensors for high perforance agriculture, nano-electronics and other
specialized electronics and services.
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