ChineseInvestmentsinMalaysiaandItsImpactontheSMELabourMarket

NATIONALECONOMICOUTLOOKCONFERENCE(MIER)22November2017WanSaifulWanJanChiefExecu1ve,IDEAS

TheNewEconomicModel

•  ThetopicshouldbeexaminedinthecontextoftheNEM

•  NEMaimstomakeMalaysiaadevelopedandcompeKKveeconomywhosepeopleenjoyahighqualityoflifeandahighlevelofincomeresulKngfromgrowththatisbothinclusiveandsustainable.

•  TheMalaysianeconomywouldbemarket-led,well-governed,regionallyintegrated,entrepreneurialandinnovaKve.

ChineseInvestmentsinMalaysia

-  In2017,ChinaremainedasMalaysia’stoptradingpartnerfortheeighthyearinarow

-  ChinaisthehighestFDIinvestorinMalaysia,surpassingtheUS,SingaporeandJapan

-  ChinasurpassedSingaporeasthelargestinvestorinMalaysia’srealestate

-  ChinaisoneofthelargestforeigncontractorsinMalaysia

AreChineseinvestmentsleadingustoNEM’sdeveloped,compe11ve,highincomeeconomy?

CaseStudiesofChineseInvestmentsinAfricaandItsImpactontheLabourMarket

OVERVIEW

-  ChineseinvestmentsintotheAfricanconKnenthasbeenontheupswingsince2009.

-  A2014WorldBankReportindicatedthatthereare450ChineseownedprojectsinAfrica.46%inmanufacturing,40%inservicesand9%inresourcerelatedindustries.

-  ThenumberofChineseworkersinAfricaisjustover252,000asof2004.StaKsKcsdonotaccountforSMEworkerswhichesKmatesbelievewouldtakethefiguretowards750,000.

-  HighestdensityofChineseworkerscurrentlyinAlgeria(70,542)andAngola(50,231).LowestnumberofworkersarefoundinMaliandTogorespecKvely.

Kenya:CaseStudy

-  Ina2014SACEsurvey,itwasreportedthat93%ofChinesecompaniesinKenyahiredKenyanworkers.

-  Amongstthecompaniessurveyed,itwasreportedthatKenyanscomprise78%offullKmelabourand95%ofpart-Kmelabour

-  63%ofChinesecompaniesinKenyareporthavingapolicytoreplaceChineseworkerswithlocalsatallechelonsoftheworkforce.

-  LocalemployeesarealsoaffordedtrainingbyChineseemployeestopreparethemfortakingoverofseniorposiKons.

DatatakenfromtheChineseCompanies’Percep1onSurveyofDoingBusinessinKenya2014

SouthAfrica:CaseStudy-  StellenboschUniversitystudy(2012)found160ChinesefirmsinSouthAfrica.

Only49supplydata,andtheycreateatleast13,000jobsforlocals.

-  Chineseinvestmentcreatesnewjobsforlocal'upstream'and'downstream'firmssuchasrawmaterialsuppliers,logisKcsfirmsandadverKsingagencies.

-  HiSensehascreatednearly300indirectjobssinceitbegunthedevelopmentofitindustrialpark.ThisisknownasindirectjobcreaKonofFDI.

-  ZTEhascreated5000indirectjobsforlocaltelecomoperators,contractorsofprojectsandsuppliersoftelecomproducts.

-  StrictlawsbySAgovernmenthavequotasinplacethatrequireforeignfirmstohirelocalemployees.Onlywherethereisaskilldeficiencycanalocallabourerbereplacedbyforeigncounterpart.

Africa:PosiKveEffects

-  Ingeneral,ChineseinvestmentsinAfricacreatesincreasedtrade,FDI,andimprovementintheinfrastructuresector.

-  TheconKnenthasseenanincreaseinemploymentopportuniKesforlocals,withtheexcepKonofNorthernAfricawheretheeffectswereinsignificant.

-  China’saidandfinancingfillsavoidlegbytheWestandpromotesthedevelopmentofAfricancountries.

-  ManyChineseprojectsrequirelargeinvestmentandallowsforlongtermrepaymentthattradiKonaldonors/financiersarereluctanttoprovide.

Africa:NegaKveEffects

-  BacklashagainstChineseinvestmentisrisingacrossAfrica.

-  LocalresidentsaccuseChineseofstealingjobsandisolaKngthemselvesbybuildingworldsthatrepresentChina

-  EgyptandAngolahaveKghtenedlabourlawstoensurerestricKonsonthenumberofChineseworkersentering.

-  Egyptlawcurrentlyallowsoneforeignworkerforeveryninelocalsemployed.Angolarequires70%ofafirm’slabourforcetobelocal.

Africa:NegaKveEffects

-  UnhappinesswhenconstrucKonoftheCapeCoastStadiuminGhanahadChineselabouraccountfortwo-thirdsofthelabourforce.

-  Chineseemployerstendtopaythelowestsalaries/wagesinAfrica,notgranKnganymeaningfulbenefittoAfricanworkers.

-  InmostpartsofAfrica,majorityofChinesefirmsemploylocallabourintolowskilledposiKons.

-  Academicsurvey(2014)among400companiesin40African

countriesfoundthatlowskilledroleswere80-97%occupiedbylocals.

LessonsFromAfrica

-  ChinesecompaniesbringmanyworkersfromChina,paylowwages,provideminimalbenefits,andminimaltrainings.

-  Wagesvaryamongdifferentcompanies.Somehigherthanothers,butgenerallysKlllow.

-  Chinesecompaniesarequicktoadaptthemselvestothehost’ssocio-legalcontext.

-  Theydocreatenewjobs.Butmainlylow-skilled.

TheMalaysianCaseWhatWeKnowThusFar...

Whatwedid

-  FocusedontheEasternCorridorEconomicRegion(ECER).

-  InterviewedkeypersonnelfromMCKIP,ECERDCandMCCC.

-  MCKIP,withanareatotaling3000acres,hasajractedalargeamountofChineseinvestments.

-  NarroweddownthestudytoMCKIP

BackgroundofMCKIP

-  Malaysia’sfirstNaKonalIndustrialParkjointlydevelopedbyMalaysiaandChina.SisterparkistheChina-MalaysiaQinzhouIndustrialParkinQinzhou,China.

-  51%ownedbyIJMLand,SimeDarbyPropertyandthePahangStateGovernment.49%byBeibuGulfPortGroupandQinzhouInvestmentDevelopmentCo.Ltd.

-  TheindustryclustersinMCKIPare:i.  Steelandnon-ferrousmetalsindustryii.  Machineryandequipmentmanufacturingiii.  Cleantechnologyandrenewableenergyiv.  Oil&gasandpetrochemicalenergyv.  Electricalandelectronicindustryvi.  Researchanddevelopment

MapofMCKIP

InvestmentsinMCKIP

-  Asof2015,MCKIPhasajractedRM15.08billionininvestments.

-  AllianceSteelisthefirstinvestor,bringinginatotalofRM5.6billioninMCKIPphase1.

-  Buildingisongoingfora710-acresteelmillthatcanproduce3.5milliontonnesofsteelannually.

-  Thetargetamountofinvestmentsfor2017isRM10billion.

LabourinMCKIP

-  Immediatelyfoundchallengeswithdata.NopubliclyavailabledataonnumberofChineseandMalaysianworkersinMCKIP.

-  TherearelocalcompaniesconstrucKngtheAllianceSteelfactory,forexampleindoingtheearthworks.

-  ButmanyjobsrequiringhigherskillsareundertakenbyChineseworkersbroughtinbytheinvestors.

DoesMCKIPfitintotheNEM?

-  TheMCKIPpromiseshigh-valueinvestments,andcanhelpgrowMalaysia’seconomy.

-  Immediatejobsaremainlylow-skilledinconstrucKons.Laterjobsarefactory-based.

-  UncertainhowtotransiKonhigher-leveljobstolocals.

-  Uncertainifthelevelofwages/incomeoftheworkersare“high-income”.

Keychallenges

-  Immediateterm:ShortageoflocallabourMalaysiansareunajractedtolabour-typejobseventhoughECERDChassetan80:20labourraKo.

-  Immediate–Midterm:LocallabourunproducIveChineselabourismoreproducKveandefficient.Theyworklongerhours,workonweekendsandpublicholidaysforthesamepay,adheretostrictersafetyandoperaKonalstandards.MalaysianlabourturnoverishigherandlessproducKve.Inshort,locallaboursarenotajracKvetoemployers.

Keychallenges

-  Long-term:Wherearethehigh-incomejobs?Thereisnoquotaforhigher-skilledjobs.Vastmajorityofthejobscreatednowarelower-skilled.Inthefuturetheyaremainlyfactory-based.

SomepolicyquesKons

1.  DowehaveaplanonhowtoensuretheinvestmentsfitintoourNEM?OristheNEMnownolongerthe“masterplan”?

2.  Willtheannouncedinvestmentsreallycreatehigh-incomejobs?(notforgerngthatsomejobsmaybenew,suchasonlineretailers)

3.  DowehaveenoughskilledmanpowertotakeovertheprojectsagertheChinesehavecompletedthem?IsoureducaKonsystemgoodenough?

4.  WhyisourlabourerssounproducKve?.

Thankyouwww.ideas.org.my

wansaiful@ideas.org.my