EXECUTIVE SUMMARY

1. • China and Malaysia have jointly established the Malaysia-China Kuantan Industrial Park (MCKIP) and Qinzhou Industrial Park (QIP) to further boost bilateral trade and investment.

2. • Investment promoters see Malaysia as a country for China to reach markets with-in country-of-origin rules; and the state of Pahang where the MCKIP is planned will likely be selected as the gateway for bringing investment and jobs into the Malaysia Eastern Corridor, which covers an economically lagging area on the peninsula.

3. • Sources indicate that the industrial park projects are linked to two significant land deals. The first may relate to the QIP land swap arrangement for land in the Binhai township. The second, at the MCKIP, is said to include the conversion of some state-controlled land for the use of the industrial park.

4. • Country data indicates a large imbalance in FDI flows with the broad conclusion that Malaysia OFDI flows to China exceeds the reverse by a factor of five to eight times or even more. However these statistics may still misrepresent the picture since many Malaysian tycoons use Hong Kong as a base for their investments into China.

5. • To begin to correct this imbalance, Malaysia will quickly need to draw in China OFDI equivalent at least to what it has received in recent years from Germany. Such a rapid transformation in Malaysia- China investment outcomes is unlikely without more significant investment drivers in place.

6. • The relatively small size of the MCKIP (just over a tenth of the size of its twin project in Qinzhou) is suggestive of a continued imbalance in Malaysia-China foreign investments.

INTRODUCTION

China and Malaysia have established two joint industrial parks to further boost bilateral trade and investment. These are government-to-government promoted initiatives, and notably the third such bilateral effort by China after the Suzhou and Tianjin projects with Singapore. The Malaysia-China Kuantan Industrial Park (MCKIP), to be built on 1,500 acres, is located in the less developed Malaysia Eastern Corridor. Announced on 5 February 2013 at a ground-breaking ceremony attended by Jia Qinglin, chairman of China's top advisory body, and Malaysian Prime Minister Najib Razak, this industrial park is the twin project of the 13,600- acre Qinzhou Industrial Park (QIP) being built in Guangxi Province, also a less developed region of China.