ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Economy

Malaysia hitches economy to Chinese wagon -- at what cost?

KUALA LUMPUR -- Malaysia's financial markets are gradually settling down, following the disappearance of a Malaysian Airlines jet bound for Beijing in early March.

In late May, Kuala Lumpur was festooned with Chinese flags to mark Prime Minister Najib Razak's visit to China, which began May 27.

     The Kuala Lumpur Composite Index hit a new record high May 19, as concerns over worsening relations with China eased. Malaysian Prime Minister Najib Razak is forging stronger economic ties with China at a time when other members of the Association of Southeast Asian Nations are scrapping with the country over territorial claims in the South China Sea.

     On May 26, thoroughfares in the Malaysian capital were dotted with Chinese flags. Large posters of Najib with Chinese President Xi Jinping were seen in residential districts as well. The publicity was not meant to welcome the Chinese head of state, but to mark the Malaysian prime minister's visit to China the following day.

Unhappy panda

    On March 8, Malaysian Airlines flight MH370 vanished into thin air, and nearly two-thirds of the passengers were Chinese. From the start, Beijing pressured the Malaysian government to speed up the investigation, and signaled its displeasure with the search by postponing a loan of two pandas to Malaysia.

     China is the Southeast Asian country's largest trading partner, and worries that economic ties with Malaysia would suffer over the missing airliner sent the stock market into a tailspin.

     But two and a half months after the incident, the market has shaken off its funk, as the Malaysian government has done all it can to be friendly to China. China, for its part, is embroiled in bitter disputes over islands in the South China Sea with Vietnam and others, but it has shown a gentler face to Kuala Lumpur to prevent anti-China sentiment from spreading in Asean.

     Najib's recent remarks reflect Malaysia's consideration for China. He was reported to have called China Malaysia's most reliable partner when he met Hu Chunhua, head of the Communist Party in Guangdong Province. In an exclusive interview with the Nikkei on May 20, Najib said, "We don't want (the territorial disputes in the South China Sea) to be an impediment to the growing ties between Malaysia and China."

Choose your friends wisely

    The U.S. and China continue to jostle for leadership in Asia. For both countries, building stronger partnerships with big Asean countries like Malaysia is important. U.S. President Barack Obama visited Malaysia in late April, the first visit by an American president in about 50 years. During his stay, Obama laid out plans to boost economic cooperation with Malaysia.

     Obama's courtship got a cool response. Few U.S. flags were seen in downtown Kuala Lumpur and the local media downplayed the president's visit.

     Many Malaysian government officials say relations with China are more important than those with the U.S. The fall in stock prices after the jetliner's disappearance underscores just how much Malaysia's economy depends on its neighbor to the northwest. That dependence is likely to grow.

     But putting all of Malaysia's eggs in the Chinese basket poses a risk to the country's long-term economic growth. Although China is Malaysia's biggest trading partner, the U.S. is still its largest foreign investor. Growing trade with China helps support Malaysia's economy today, but foreign direct investment and the technology it brings is essential to its future.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media