Moving Up the Value Chain

Bilateral relations between China and Malaysia are deepening, with an active presence of Chinese companies in the construction and infrastructure industry. What is your assessment of this development?

China joined the WTO in 2001. Before that, people in China were basically cycling, but today it is the biggest automotive manufacturers in the world, producing 24.3 million cars in 2015 compared to 12 million in the US or 9 million in Japan. China is our biggest trade partner, with an annual volume of USD100 billion. We signed an MoU with China called the Malaysia-China Five Year Program for Economic and Trade, one of whose goals is to achieve USD160 billion in total bilateral trade by 2017. To achieve this, we cannot rely on conventional sectors such as commodity exports. We must look into industrial cooperation and car manufacturing. For example, Malaysia’s Proton manufactures about 100,000 cars a year, while China produces over 24 million. The automotive industry also needs a big market like China to gain sophisticated R&D. FTAs not only facilitate trade and services, but also bring the integration of technology. For example, the Chinese company Geely acquired Volvo from Sweden. Sweden is innovative, but does not have the sheer market size of China. Before this transaction, Volvo had total sales of about 250,000; however, after Geely came into the picture, sales have already surpassed 500,000. As I said, Malaysia is a small country and we have no choice but to integrate into the world economy: we want market access and we want technology. Trade agreements provide us market access and help us move up the value chain by gaining knowledge and technological sophistication.

What are your focus areas for technological advancement in Malaysia?

In 2015, 80% of our total exports, or MYR625.46 billion, were manufactured goods. In the old days, Malaysia was a commodity-based country, responsible for 80% of our income. Today, this accounts for only 15%, including palm oil, crude petroleum, natural rubber, and LNG. We are transforming ourselves into a manufacturing-based country. Selling raw rubber will not make as much revenue as surgical gloves, for example. Palm oil can be processed into chemicals, bio fuels, and diesel to get better prices. Malaysia used to be a low-income nation as we depended on these commodities. By transforming into a manufacturing-based economy, we will be able to improve the living standards for our people. We are working hard on this, but still we export more individual components, for example to the US, where the final product is manufactured. We are lucky to be strategically located, with consistent climate conditions. Because of these conditions, we attract very interesting investments, such as in the aerospace industry. Malaysia is ideally located for aircraft maintenance; therefore, we have Boeing and Airbus here. Rather than selling our commodities, we must look into developing these sectors. To get there, we have to educate our people, bringing up the level of our universities. We must pursue high technology. This is the direction we are going and we will sign a many FTAs to facilitate this goal.

In 2015, your administration launched the Eleventh Malaysia Plan. How does this plan influence the policy of MITI?

The center of attention is still the urban areas, such as Kuala Lumpur, the Southern Corridor of Johor, and Penang in the north. This is where our graduates go, i.e. places with about 11,000 people per square kilometer, where in other areas there are just 100. One strategy for us to improve this disparity imbalance is to deurbanize. We promote SMEs to base them in smaller areas, rather than the major urban centers. This should create a great deal of economic activities in these areas rather than congesting the urban areas.