Image credit: Foreign Policy
PETALING JAYA: While China is set on pursuing a zero-Covid strategy, its trading partners, including Malaysia, are likely to suffer from the fallout.
As Center for Market Education CEO Carmelo Ferlito pointed out, China is Malaysia’s biggest trading partner in terms of both imports and exports.
The strategy to completely wipe out Covid-19 infection through lockdowns in major industrial hubs such as Shanghai will weigh heavily on Beijing’s partners, he told FMT Business.
“The most pertinent question now is how fast will Malaysia be able to reshape its dependence on China,” Ferlito said. Malaysia will know when the next set of trade statistics are released.
Apart from the impact on trade, he believes that China’s strategy has also caused disruptions in the supply chain, high inflation, increased cost of living and food insecurity.
Data from the ministry of international trade and industry (Miti) shows that in the first five months of 2022, trade with China grew 16.2% year-on-year (y-o-y) to RM187.8 billion.
This had been driven by a 16% growth in exports to RM82.7 billion, bolstered by the electrical and electronics sector, liquefied natural gas (LNG) and palm oil related products.
Similarly, imports from the world’s second largest economy rose 16.4% to RM105.1 billion.
On the other hand, Ferlito also sees opportunity in the crisis. For example, he said, Malaysia could be a destination of choice for investors who want to leave China to set up shop elsewhere.
“Whether or not Malaysia can take advantage of the situation is left to be seen,” he said.
Ferlito pointed out that the Malaysian government has been slow in addressing the need for migrant workers and it lacks the political stability essential to making it the haven for the entrepreneurial spirit.
Malaysia University of Science and Technology economics professor Geoffrey Williams said that despite the lockdowns, China remains Malaysia’s single biggest trading partner and its exports have risen by around 15% to 16%.
He sees no evidence of a change in this pattern even though Malaysia has quite a diversified trade portfolio.
Nonetheless, within China this strategy has had a major effect on its economic growth.
Year-on-year (y-o-y), the economy grew just 0.4% in the second quarter of this year, and the gross domestic product (GDP) growth declined to 2.6%.
“This is the Chinese economy’s worst performance since the start of the Covid-19 pandemic in 2020,” Williams pointed out.
He also pointed to the huge underlying risk faced by the Chinese mortgage market, with millions of people refusing to service their loans for unfinished or poorly built properties.
“This poses the risk of a major domestic financial crisis. Already some banks are rationing cash withdrawals,” he said.
Williams said there is no doubt that it would affect global trade and that would have an impact on Malaysia.
“It will hold back growth and trade, and the knock-on effect will be manufacturers in Malaysia losing sales, revenue and cashflow. They will also be building up unsold stocks,” he said.
Over time, he said, this would lead to lower production due to a lack of cash and unsold inventory.
“This will add to the risks that are already built in and will only worsen in the second half of 2022,” Williams said.
“Add the global risks and higher domestic interest rates, it puts downside pressure on growth in Malaysia,” he added.
Source: https://www.freemalaysiatoday.com/category/highlight/2022/07/20/malaysia-feels-the-pinch-of-chinas-zero-covid-game-plan/