Are China and Malaysia friends?

In several respects, most definitely!

Are China and Malaysia adversaries?

In some cases such as the South China Sea disputes, the answer is unfortunately once again affirmative. Business as usual in the world of geopolitics, some might say, and there is ample sociological evidence which makes this state of affairs crystal-clear. For example, Pew Research Center data indicates that roughly two of three Malaysians are worried about territorial disputes that revolve around China somehow degenerating into an actual armed conflict. This does not however mean that they are somehow opposed to Malaysia having a strong economic relationship with China, with survey data telling us that 7 of 10 Malaysians appreciate the presence and especially investments of China in their country.

Moving on from sociology to economics, it is worth noting that since the Great Recession, Malaysia has been China’s top ASEAN trading partner. As is the case with China’s modus operandi, Chinese presence is Malaysia cannot help but be felt at all levels of the economy due to the heavily infrastructure-oriented investments of China in Malaysia. Now, of course, it is not all sunshine and rainbows, as case studies such as a recent 2018 one involving a $2.8 billion oil industry contract cancellation make clear, a cancellation that revolved around funding misappropriation concerns surrounding the Exim Bank of China (the infamous 1MDB case study).

All things considered, however, the economic facts speak for themselves and the economic cooperation between China and Malaysia is here to stay. From commodities to tourism, China is more than serious about establishing a firm economic grip on the region and it is highly unlikely that players such as the United States can step in aggressively enough to curb this trend. On the contrary, the situation on the ground seems to indicate a reality that revolves around the US taking its foot off the proverbial pedal when it comes to gaining geopolitical influence in China’s vicinity, with China of course embarking on the exact opposite journey.

Challenges, however, do exist.

For example, the current diplomatic narrative tends to highlight the fact that Malaysia doesn’t manifest explicit concern with respect to China’s territorial ambitions in the South China Sea and elsewhere. On the contrary, Malaysian authorities have actually criticized the proverbial West in general and the United States in particular for trying to turn the countries that are geographically close to China against it.

Beneath the surface, concerns do pop up every now and then. For example, the Malaysian authorities are indeed worried about the nation becoming increasingly dependent on Chinese investments and occasionally display skepticism rather than unconditionally embracing the increasing economic presence of China in the country. The same way, leaving more or less appeasing diplomatic rhetoric aside, the fact remains that Malaysia and China can be considered opponents in many respects as far as the South China Sea situation is concerned and the list could go on and on.

As a conclusion, it is vital to find the right balance between acknowledging China’s (at the very least economic but also more and more so geopolitical) domination in countries such as Malaysia and making it clear that even the most seemingly robust relationships should not be seen with rose-colored glasses exclusively. Yes, the trend seems strong as far as China’s geopolitical ambitions are concerned and Malaysia can be considered an important piece in this puzzle.

However, Machiavelli himself would be envious of today’s remarkably complex geopolitical landscape. As such, as strong as a trend may seem, there is no such thing as an irreversible one. China might be just one economic calamity away from a major geopolitical setback, for example. On the other hand, the current trend may very well accelerate. For these reasons and many others, keeping your finger on the geopolitical pulse of the region is a must and if you need any kind of assistance in this respect, simply reach out to the ChinaFund.com team by visiting the Consulting or Contact section of our website.

Since then, China went from a $1.3 trillion GDP in 2001 to over $14 billion at this point and some countries (with the United States in the spotlight, we pretty much everyone knows by now) believe the rules have not been followed in the spirit of the WTO. In other words, China kept enjoying the perks associated with having access to worldwide markets but has been too slow in implementing measures through which it returns the favor.

It this true?

Well… yes and no.

Former WTO director-general Pascal Lamy summed it up quite nicely in that China is indeed respecting the commitments it took when joining the WTO… but not more. Think of it as the difference between the letter of the law and the spirit of the law. If you make the legal system work in your favor by exploiting various loopholes, you’re not doing anything illegal, as in against the law. However, you’re acting against the spirit of the law, against the principles which led to the law being implemented in the first place.

Can anyone blame China, however?

At the end of the day, this is what geopolitics is all about if one were to leave hypocrisy outside: respecting the status quo international framework but always keeping the interests of your population in mind and prioritizing those over the interests of everyone else.

Make no mistake, significant progress has been made with respect to international companies being allowed to access the Chinese market. There’s even a huge yearly event called China International Import Expo, which focuses on just that: imports and import-related solutions.

Furthermore, even when it comes to China’s most vocal critic (the United States), one cannot help but notice that certain industries have reaped tremendous benefits as a result of having access to China’s domestic market. For example, since China became a WTO member, the value of its agricultural exports increased by a whopping 1,000%, even all the way to 1,300% when it comes to soybeans. The same way, one out of every three iPhone owners is Chinese and it’s next to impossible to walk around a Chinese city and not notice major international chains, in some cases without decent local competition (Starbucks, for example).

But, alas, there’s more to statistics than individual case studies and the fact remains that a lot of rich nations have a horrible trade DEFICIT with China. Thinking about the potential ramifications of this state of affairs persisting indefinitely, it’s understandable why they feel uneasy and sometimes decide to be quite vocal.

However, it’s also important to understand that it takes time for a domestic consumer market such as that of China to mature. A few decades ago, the idea of international goods consumption contributing to China’s GDP as much as it does now would have been considered nothing short of ludicrous.

As a conclusion, it should be fairly obvious why China’s relationship with the WTO is… well, complex. Think of it as trying to find the right balance between not rocking the boar too much and making sure your international trade partners tolerate you and keeping the interests of your population as the #1 priority of your administration. Economics 101, (geo)politics 101, human nature 101 and the list could go on and on.