November 15, 2017 12:30 pm JST

Malaysia seeks Chinese fillip to reach high-income status by 2020

Alibaba, Huawei move in for e-commerce project

CK TAN, Nikkei staff writer

Alibaba founder Jack Ma Yun, left, and Malaysian Prime Minister Najib Razak launch the DFTZ e-commerce platform on Nov. 3.

KUALA LUMPUR -- The clock is ticking on Malaysia's drive to become a high-income country by 2020, and it has turned to China for some extra momentum.

The country's self-imposed development goals, originally set by the government of then-Prime Minister Mahathir Mohamed in 1991 and refined by current leader Najib Razak in 2010, include achieving gross national income per capita of at least $15,000. The latest data projects 42,777 ringgit ($10,233) for 2018, suggesting the country is about two years away from hitting the target -- no small feat considering the figure was $7,600 in 2010.

In China, the government appears to have found a partner to provide a final push through e-commerce.

Malaysia has identified e-commerce as the fastest growing sector, and with state intervention, it believes the sector's contribution to gross domestic product could rise to 20.8% in 2020, from 12.8% in 2015.

"We have made it," Najib said on Nov. 3, as he launched an e-commerce project with China's Alibaba Group Holding. "We have proved to Jack that the Malaysian government can work just as fast as Alibaba," the prime minister continued, referring to Alibaba founder and Executive Chairman Jack Ma Yun, who was present.

In the zone

The project, a combination of virtual and physical elements known as the Digital Free Trade Zone, or DFTZ, was conceived a year ago. It is tied in with Ma's Electronic World Trade Platform -- an effort to lower barriers and simplify regulations, supporting small and midsize enterprises that buy and sell goods online.

For a start, Malaysia said the minimum value of imported goods taxable in the DFTZ will be raised to 800 ringgit, from 500 ringgit, next year. This should speed up customs clearance.

Ma is serving as an adviser to Malaysia -- free of charge -- to help the country achieve its goal of becoming the e-commerce hub of Southeast Asia.

The DFTZ includes a fulfillment center for storage and logistics at Kuala Lumpur International Airport, which is being used by Lazada Group, an online shopping operator controlled by Alibaba. Eventually, the warehouse will be folded into a larger facility at the same location, to be developed by Malaysia Airports Holdings and Cainiao Smart Logistics Network, a wholly owned Alibaba unit. The government has allocated 83.5 million ringgit to build infrastructure in the DFTZ.

Upon completion in 2020, the 24,000-sq.-meter facility is expected to reduce customs clearance times by half, to three hours, and speed up cargo terminal procedures from the current four hours to 90 minutes. Malaysia envisions the DFTZ creating 60,000 jobs and handling $65 billion worth of goods by 2025.

BMI Research, a unit of Fitch Ratings, said Malaysia is the "most attractive" e-commerce market among emerging economies under its watch, noting that 36% of the country's population is expected to be between the ages of 20 and 39 by 2021. Studies show that this young age group is more likely to shop online than buy at retail outlets.

From Alibaba's perspective, the DFTZ offers a gateway for further penetration into Southeast Asian markets, and could serve as the transshipment point for Chinese goods.

Cybersecurity allies

China's role in Malaysia's digital economy also includes collaboration in e-payments and cybersecurity.

Ant Financial Services, another Alibaba subsidiary, has entered into agreements with two Malaysian banks -- Malayan Banking and CIMB Group Holdings -- to develop local Alipay mobile payment services. The lenders will serve as settlement banks for transactions conducted with Alibaba's e-money system.

Meanwhile, the Malaysian government recently tied up with Huawei Technologies to strengthen the country's online defenses. State agency CyberSecurity Malaysia will set up a joint committee with the Chinese telecommunications company to look into technical standards and strategies for identifying threats.

The partnership came about after Malaysian authorities said they were probing a data leak involving more than 46 million mobile users. Databases belonging to companies and state agencies appeared to have been hacked and offered for sale online.

Apart from the latest partnership on cybersecurity, Huawei has been working with another government agency to develop an advanced video and facial analysis system for use by the country's security offices. The system is capable of tracking and analyzing moving objects in video recordings, enabling law enforcers to detect abnormal behavior and take preemptive action, said Home Minister Ahmad Zahid Hamidi at a recent conference.

Lax security has often been blamed for the country's high number of illegal migrants and crime rate, including the murder of Kim Jong Nam, elder half-brother of North Korean leader Kim Jong Un, at Kuala Lumpur International Airport earlier this year.

Huawei, which has had a hand in Malaysia's high-speed broadband connections for the past 16 years, said it will share its best security practices with local players. It will also launch an OpenLab in Malaysia; these innovation hubs, which already exist in China, Dubai, Mexico, Germany and Singapore, are designed to forge partnerships with local companies and leverage Huawei's information technology.

Asia300

Alibaba Group Holding Ltd.

China

Market(Ticker): NYS(BABA)
Sector:
Industry:
Retail Trade
Internet Retail
Market cap(USD): 485,210.46M
Shares: 2,555.89M
Asia300

Malayan Banking Bhd.

Malaysia

Market(Ticker): KLS(1155)
Sector:
Industry:
Finance
Regional Banks
Market cap(USD): 24,168.99M
Shares: 10,778.92M
Asia300

CIMB Group Holdings Bhd.

Malaysia

Market(Ticker): KLS(1023)
Sector:
Industry:
Finance
Regional Banks
Market cap(USD): 13,431.25M
Shares: 9,225.54M
Asia300

Malaysia Airports Holdings Bhd.

Malaysia

Market(Ticker): KLS(5014)
Sector:
Industry:
Transportation
Other Transportation
Market cap(USD): 3,324.44M
Shares: 1,659.19M

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