We focus on political economy news update, giving interest reference to Malaysian Chinese businesses.
Date: August 2007 Issue: 0001
Current Economic Data & Analysis
(For full report click here to download pdf)
Malaysia
The KLCI registered stronger performance in June and July due to positive factors such as the pay rise for civil servants and favorable corporate earnings results.
The Inflation rate moderated to 1.4% in near term. Ringgit recorded a mixed performance and stood around US$1 = RM3.40.The Bank Negara reserves totaled RM 339 billion as of 29 June 2007. However, note that 67.4% of the reserves are from the citizen’s deposits at the financial institution. This indicates that shocks to the liquidity level in the financial system could be faced with another credit crunch for Malaysia.
Current Global Economy Situation
US
The economy growth is seen to be slowing. The housing market has dragged down the economy growth of America. The US Dollar is traded weak against major currencies. The sub prime mortgage losses could hit US$100 billion and threaten consumer spending. Investors worried that the problem will spill over to other credit market.
China
The GDP growth is revised up to 11.1% and will pass Germany as the 3rd largest economy. While China’s trade surplus with the world stood at US$177.5 billion in 2006, China incurred a trade deficit of US$87.5 billion with East Asian Countries over the same period. Malaysia is ranked as 4th largest exporters to China.
Japan
The economy sentiment is still dominated with the upcoming election of the Japan upper house. Prime Minister Shinzo Abe’s coalition is forecast to lose the election with the issues of missing pension records and series of gaffes and scandals. Outspoken Foreign Minister Taro Aso looks to be the frontrunner to take over if Abe resigns. Japan was hit with a massive earth quake early July, causing their manufacturing industry to slow.
Dialog with the Industry
MCECC
On 18 July, MCA Minister briefed MCECC, MRA, MRCA, PPK, REHDA, ACCIM, FeCAM and 7 Clans regarding the new distributive trade guideline. The new distributive trade guideline will affect about 13.8% of the Malaysia’s GDP for the wholesale and retail trade services.
Feature Article
China's trade deficit with East Asia hits $87.5b
Although China has an overall foreign trade surplus, it had a deficit of $87.5 billion in 2006 with East Asian countries. Economic and trade exchanges between China and East Asian countries have been growing very fast. The combined trade volume is reaching $502.4 billion in 2006, accounting for 32.5 percent of China's foreign trade for the year.
China has become the largest export market for the Republic of Korea, the no. 2 export market for Japan, the no. 3 export market for Thailand, and the no. 4 export market for Indonesia, Singapore, the Philippines and Malaysia. Malaysia’s position in the trade with China is crucial to the country’s economy development. The great market demand in China has been a good opportunities for Malaysia. The table below shows that Malaysia’s export to China gained around US$ 3.5 billion for first 5 month.
The top item that was exported to China was crude palm oil, manufacturing spare parts, micro processor, natural rubber, crude oil and natural gas, and edible oil. These exported items are usually categorized as the raw material. Malaysia is still losing out to their competitiveness in value added industries.
Since Malaysia only export the raw material to China, the economy of the country will only be based on the value of the item and not on the value added of the finished products. The export value of Malaysia product will be very low, compared with China that exports industrial finished goods to other countries.
This could be a serious problem in the long run where China uses Malaysia’s raw material to gain the value added by manufacturing end products for export, while Malaysia are still losing out the advantage in manufacturing of final products. China is paying close attention to the regional economic cooperation with the Association of South East Asian Nations (ASEAN), and will set up free trade zone with ASEAN in 2010.
Subsequently, Malaysia will be losing out in the economy ,we will need to reform the mechanism, in advancing the manufacturing industries to meet the 2010 deadline.