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Economic Cooperation Between Malaysia and Vietnam

with China: Impacts and Implications

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 Economic
Southeast Asian Cooperation
Social Science Between
Review Vol. Malaysia
6, No. 2, 2021, and Vietnam
pp. 103-134, with China
ISSN 0128-0406, 103
e-ISSN 2550-2298

Economic Cooperation between Malaysia

and Vietnam with China: Impacts and
Implications

Zaharul Abdullah
Research Officer
Academy of Professors Malaysia
Email: encikzaharul@gmail.com

ABSTRACT
Since the launch of China’s Go Global strategy and its participation in
the World Trade Organization (WTO) in 2001, China has succeeded
in integrating its economy deeply into the global economy particularly
through outbound investment. The integration is intensified with the launch
of China’s Belt and Road Initiative (BRI) in 2013, a giant infrastructure
project to enhance China’s connectivity with almost 140 countries in terms
of policy coordination, infrastructure, trade, finance and people-to-people
connectivity. Through the support of several China-centred financial
institutions, BRI has offered various economic opportunities especially to
developing countries that require substantial infrastructure investments.
In the context of Malaysia and Vietnam, this development raises questions
about the autonomy and capacity of the two countries to enhance their
economic co-operation with China to capitalize on the latter’s economic
rise in general and the BRI in particular. Against the above setting, this
article argues that Malaysia and Vietnam have the policy space and capacity
to enhance their economic co-operation with China even though the two
countries have distinct capacities. This article also shows that Malaysia and
Vietnam’s national autonomy and state capacity are constrained in trying to
manage the trends and impacts resulting from their economic co-operation
with China to create a win-win situation for all parties.

Submitted May 2021 Revised September 2021 Published November 2021

104 Zaharul Abdullah

Key words: China, Malaysia, Vietnam, Belt and Road Initiative (BRI),
national autonomy, state capacity
 Economic Cooperation Between Malaysia and Vietnam with China 105

Introduction
Since the launch of China’s Go Global strategy and its participation in
the World Trade Organization (WTO) in 2001, China has succeeded
in integrating its economy deeply into the global economy especially
through outbound foreign direct investment (OFDI). This strategy
has enabled China to emerge as the world’s largest trading nation in
2013, the world’s second largest source of investment in 2016 behind
the United States (US), one of the world’s providers of development
finance as well as a top source country of contractors. This trend is
intensified with the launch of China’s Belt and Road Initiative (BRI)
in 2013, a giant infrastructure project that includes the overland
Silk Road Economic Belt and the 21st Century Maritime Silk Road.
As of July 2019, the Chinese government has concluded 195 BRI
intergovernmental co-operation agreements with 136 countries and
30 international organizations to enhance five types of connectivity
namely policy coordination, infrastructure, trade, finance and people-
to-people relations.
To realize BRI’s objectives, China has established several new
financial institutions including the Asian Infrastructure Investment
Bank (AIIB) and the Silk Road Fund with a start-up capital of
USD100 billion and USD40 billion respectively. Prior to that, China
together with other BRICS countries namely Brazil, Russia, India and
South Africa had established a New Development Bank (NDB) with
a start-up capital of USD50 billion. The initiative is also supported by
existing Chinese financial institutions especially China Development
Bank (CDB) and Export-Import Bank of China (CHEXIM). Overall,
China is estimated to have spent a total of USD200 billion on all BRI
projects. According to Morgan Stanley, China’s total expenditure
throughout the BRI period will reach USD1.2-1.3 trillion by 2027
(CFR, 28 January 2020).
Supported by several China-centred financial institutions above,
BRI has offered economic and trade opportunities especially to
developing countries including Malaysia and Vietnam that are in
need of substantial infrastructure investments. According to the
Global Infrastructure Outlook (2020), Malaysia and Vietnam require
106 Zaharul Abdullah

infrastructure investments estimated at USD460 billion and USD605

billion respectively from 2007 to 2040. During the period, the gaps
between investment needs with current investments in Malaysia and
Vietnam amount to USD77 billion (Malaysia) and USD102 billion
(Vietnam).
Based on the above settings, do Malaysia and Vietnam have the
autonomy and capacity to enhance their economic co-operations with
China? What are the trends and impact of Malaysia and Vietnam’s
economic co-operations with China? To answer these questions,
this article is organized into five parts namely (i) Introduction; (ii)
Globalization and the role of state; (iii) Malaysia and Vietnam’s
economic co-operations with China; (iv) Trends and impact of
Malaysia and Vietnam’s economic co-operations with China; and (v)
Conclusion. Due to space constraints, the economic co-operations
between Malaysia and Vietnam with China are confined to only trade
and investment from 2000 to 2019 while discussion on Malaysia-
China investment co-operation is limited up to May 9, 2018, which
was before the fall of the Barisan Nasional (BN) government in the
14th General Election.

Globalization and the Role of State

To help answer the research questions above, this section discusses
several approaches in globalization theory – hyperglobalizers,
sceptics and transformationalists – with particular emphasis on the
role of the state in development. According to the hyperglobalizers
and neoliberals, globalization refers to the emergence of a truly
global economy which dominates the world. These groups boast
of the superiority of the free market system and rejects domestic
strategies by the state in managing the national economy. They argue
that globalization is inevitable and totalising, and nation-states are
no longer functioning and out-dated (Ohmae 1995). Unlike the
hyperglobalizers, sceptics such as Hirst and Thompson (1996) argue
that globalization is a myth that hides the realities of the international
economy which is increasingly divided into three major trading blocs
namely Europe, Asia Pacific and North America. According to the
 Economic Cooperation Between Malaysia and Vietnam with China 107

sceptics, the current international economy is yet to form a fully

integrated global market, and it is less integrated than the 1890s. They
argue that what is happening is not globalization but an increased
level of internationalization among the dominant national economies
supported by the strengthened role of the state (Abdul Rahman 2001).
In contrast to the sceptics, the transformationalists such as
Rosenau (1997) argue that globalization does exist because it reflects
unprecedented levels of global connectivity as the world no longer
has a clear distinction between international and domestic affairs.
However, the transformationalists disagree with the hyperglobalizers
regarding the role of the state in development. Instead, under
globalization, the role of the state is restructured to manage its
unfavourable impacts that only created winners among strong and
rich nations, as well as powerful and wealthy minority while the
victims comprising small and weak nations and the majority of the
people, especially the lower class (Abdul Rahman 2001).
To address such negative impacts, it is important for developing
countries to strengthen their state autonomy and policy space. Under
certain conditions, according to Abdul Rahman (2005), developing
countries still have the autonomy to deal with neoliberal globalization
and pursue their development agenda. These developing countries can
pursue the model of ‘state in development’ or ‘developmental state’
i.e. state intervention in the economy to achieve economic growth
and development. To do that, such states need to have the policy
space and autonomy to enable them to undertake economic decision-
making and avoid being dominated by organized and powerful
interests especially from outside.
The state autonomy in itself, however, is not sufficient to
implement the policies effectively. Borrowing from Abdul Rahman
(2005: 42) and Weiss and Hobson (1995: 6-7), state autonomy has to
go together with the existence of a ‘strong state’ equipped with four-
dimensional infrastructural powers, namely penetrative (the ability to
reach into and directly interact with the population), extractive (the
ability to extract resources both material or human), negotiated (the
ability to negotiate, establish and ultimately coordinate co-operation
with various groupings), and governance (the ability to effectively
108 Zaharul Abdullah

address the questions of the new governance system such as

accountability, transparency and good governance). Combined with
the developmental ideology which aims to mobilize various forces in
society and provides a basis for state legitimacy, the developmental
state model, though in modified form, can be implemented.
Based on the above discussion, this article adopts the
transformationalist approach because it emphasizes the role of
the smaller state in capturing globalization – in this case, oriental
globalization – by enhancing their economic co-operations with
its epicentre, China. Three concepts discussed above namely state
autonomy (and policy space), negotiated/coordination capacity and
governance capacity will be applied throughout this article. The
state autonomy measures the relative absence of Chinese economic
influence in Malaysia and Vietnam while the policy space measures
the ability of the two countries in formulating and implementing
their development agenda. Negotiated or coordination capacity
ensures that co-operation between the two countries will bring about
mutual economic gains while governance capacity measures the two
countries’ adherence to preserving accountability, transparency and
good governance. These concepts will be applied to examine the two
countries’ ability to enhance economic co-operation with China and
manage adverse impacts resulting from their economic co-operation
with China.

Malaysia and Vietnam’s Strategies to Enhance

Economic Co-operations with China
This section discusses the policy space and coordination capacity
of Malaysia and Vietnam to enhance their economic co-operation
programmes with China. Five strategies will be discussed here namely
high-level visits, the establishment of special institutions, export and
investment promotion programmes, special economic zones, and the
provision of investment incentives.
 Economic Cooperation Between Malaysia and Vietnam with China 109

High-Level Visits
In order to enhance economic co-operation with China, Malaysia
and Vietnam have exchanged high-level visits with their Chinese
counterparts to deepen their commitment to implement the
high-level consensus that have been made by both the parties and
countries. In addition, this mechanism serves to guide bilateral
relations, mend political relations, formulate co-operation agreements
and form institutions as basis of co-operations. During the period of
2009 to 2020, the Prime Minister of Malaysia made six official visits
to China while a total of 13 official visits to China had been made
by Vietnamese leaders comprising the President, Prime Minister
and Secretary General of the Communist Party of Vietnam (CPV)
(Zaharul 2021).
Although Vietnam’s official visits to China are more frequent
than Malaysia’s, the main purpose of the visit is to mend the strained
political relations caused by the incident of Chinese HYSY981 oil rig
placed in Vietnamese waters in 2014. In several high-level visits, both
Vietnam and China stressed that whatever differences concerning
the South China Sea dispute need to be addressed through open
consultations and discussions based on mutual perceptions and
agreements that have been agreed upon by the leaders of the two
countries. In the case of Malaysia, one main focus of the high-level
visits was also to mend allegedly strained political relations between
the two countries following the missing Malaysian plane MH370 and
the kidnapping of Chinese nationals in Sabah in 2014 during Prime
Minister Najib Razak’s administration (Kuik 2014). This focus was
also emphasized during the second-time Prime Minister Mahathir
Mohamad’s visit to China following negative rhetoric against Chinese
mega projects in Malaysia during the 14th General Election (GE14)
and the Pakatan Harapan (PH) government’s decision to suspend
three Chinese infrastructure projects in Malaysia after taking over
office after winning the election in May 2018 (Zaharul 2021).
Compared to Vietnam, Malaysia has been more active in
leveraging this mechanism to devise and ink economic co-operation
agreements with China. During Najib’s visit to China in 2016, 14
110 Zaharul Abdullah

business-to-business (B2B) agreements and MoUs were signed

valued at RM143.64 billion comprising the East Coast Rail Link
(ECRL), Melaka Gateway and Bandar Malaysia projects. A total of
16 government-to-government (G2G) agreements and MoUs were
also signed. During his visit to China in 2017, among the MoUs
signed were between the Malaysia Digital Economy Corporation, the
Hangzhou municipal government and Alibaba for the Digital Free
Trade Zone (DFTZ) project in Kuala Lumpur.
In the case of Vietnam, though the main focus of the visits is to
mend political relations, economic co-operation between the two
countries has resumed to be promoted. During the visit by Prime
Minister Nguyen Xuan Phuc to China in 2016, Xi Jinping informed
that both sides need to effectively leverage the role of the Steering
Committee for Vietnam-China Bilateral Co-operation in planning
and coordination; expedite the alignment of China’s Belt and Road
Initiative (BRI) and Vietnam’s “Two Corridors, One Economic
Belt” (TCOB); form a new platform for collaboration in production
capacity; and accelerate the development of key infrastructure co-
operation projects and cross-border economic co-operation zones.
The discussion above shows that the two countries have the policy
space and the ability to coordinate programmes with China via
high-level visits. While both countries have been able to mend their
political relations with China, Malaysia has been more active in
signing economic agreements and MoUs with China.
Special Institution
Apart from increasing high-level visits to China, Malaysia and
Vietnam have established several institutions as a mechanism of
coordination to enhance economic cooperation with China. During
Najib Razak’s administration, a position was created namely the
Prime Minister’s Special Envoy to China with a ministerial status.
This position was held by several individuals including Ong Ka Ting
from 2011 to 2018 during the administration of Prime Minister Najib
Razak, Tan Kok Wai from 2018 to 2020 during the administration of
second time-Prime Minister Mahathir Mohamad, and Tiong King
Sing starting 2020 during the administration of Prime Minister
 Economic Cooperation Between Malaysia and Vietnam with China 111

Muhyiddin Yassin. The Special Envoy’s role is to assist the Prime

Minister and the government to enhance closer economic and trade
relations between Malaysia-China by helping Malaysian companies to
penetrate the Chinese market, attract FDI from China and represent
the Prime Minister to coordinate concluded projects.
According to the former Secretary General of the Ministry of
International Trade and Industry (MITI), Dr. Rebecca, the Special
Envoy aims to manage the political aspects to facilitate trade and
investment activities. This is due to the fact that many economic
co-operation activities with China involve state-owned enterprises
(SOEs) that are political in nature. In addition, the appointed Special
Envoy consists of Chinese political leaders who speak Mandarin
and understand Chinese culture thereby facilitating communication
with their counterparts and businessmen from China (Interview, 22
October 2018).
Other than the Special Envoy, the Najib Razak’s administration
also established a Special Monitoring Committee to coordinate
and oversee economic activities with China in order to realize
comprehensive strategic partnership achieved by the two countries
in 2013. This committee, serves as a one-stop platform to monitor
bilateral economic activities, is chaired by the Prime Minister and
coordinated by Ministry of International Trade and Industry (MITI),
together with other government agencies.
As a response to China’s BRI, the government has established, at a
lower level, the Belt and Road Initiative National Secretariat (BRINS)
under MITI in 2017 following the signing of an MOU between MITI
and China’s National Development Reform Commission (NDRC) to
promote joint economic development in the Silk Road and the 21st
Century Maritime Route. The main function of BRINS is to monitor
and coordinate BRI projects in Malaysia and monitor BRI projects
in foreign countries involving the participation of Malaysian entities.
While the three institutions above were established at national
level, there was a direct engagement mechanism established by
the two countries namely the Joint Co-operation Council (JCC)
for the Malaysia-China Kuantan Industrial Park (MCKIP) and the
China-Malaysia Qinzhou Industrial Park (CMQIP). The JCC serves
112 Zaharul Abdullah

to oversee the joint development of these twin parks. The council

consists of the two countries’ representatives including ministries,
government agencies, provincial and state governments, owners and
administrators of industrial parks, embassies and business councils. In
the fourth meeting held in June 2019 in Kuala Lumpur, the two sides
acknowledged the progress made by the twin parks and negotiated a
constructive proposal to enhance joint development.
In contrast to Malaysia which has only one direct engagement
mechanism with China via the JCC, Vietnam has at least two direct
engagement mechanisms with China to manage their economic
co-operation. The first mechanism is the Steering Committee for
Bilateral Co-operation (SCBC) at the level of Deputy Prime Minister
formed by the two governments in 2006. The SCBC is the second
most important mechanism for managing and coordinating various
relations between the two governments after the high-level visits
by government and party leaders. It aims to encourage bilateral
communication and mutual trust as well as facilitate co-operation
in various fields and provide effective methods to deal with any
problem or conflict that may affect the entire relationship. From 2006
to 2018, SCBC has held 11 annual meetings alternately between the
capitals of the two countries. Under SCBC, a Committee on Bilateral
Economic and Trade Co-operation (CETC) has been established as
a direct communication mechanism between the Chinese Ministry
of Commerce and the Vietnamese Ministry of Industry and Trade to
coordinate economic co-operation between the two countries.
Unlike Malaysia, Vietnam does not have specialized institutions
such as Special Envoy and BRINS to oversee and coordinate Chinese
and BRI projects in Vietnam. These Chinese projects are managed
directly under the Ministry of Planning and Investment (MPI)
and through the above two mechanisms, SCBC and CETC. This
shows that both Malaysia and Vietnam have the policy space to
set up special institutions to enhance and manage their economic
co-operation programmes with China. However, Vietnam seems to
have a higher coordination capacity in this respect as it has more and
higher level of direct engagement mechanisms with China compared
to Malaysia.
 Economic Cooperation Between Malaysia and Vietnam with China 113

Export and Investment Promotion Programmes

To increase exports to China, Malaysia has strengthened its
coordination capacity through the role of MATRADE to coordinate
and facilitate business networking between Malaysian exporters and
foreign buyers especially through international trade fairs as well
as trade and investment missions to China. The role of MATRADE
is facilitated by five MATRADE offices in China located in Beijing,
Chengdu, Guangzhou, Hong Kong and Shanghai. Among the major
trade fairs coordinated by MATRADE in China is the annual China-
ASEAN Expo (CAEXPO).
According to the former secretary general of MITI Dr. Rebecca,
MATRADE’s involvement in CAEXPO was very successful. Though
at the early stage MATRADE faced difficulties in encouraging the
participation of Malaysian companies in the expo, the Malaysian
companies are now rushing to participate in it (Interview, 13 January
2020). The same opinion was also shared by Aninawati, the Manager
of China and Northeast Asia Section (Export and Market Access
Division) who said that MATRADE typically receives up to 300
company applications to participate in the expo even though only
180 booths are allocated (Interview, 22 January 2020). MATRADE’s
involvement in CAEXPO is considered effective as the numbers
of Malaysian CAEXPO participants are significant over the years,
recorded at 205 in 2016, 172 (2017), 174 (2018) and 167 (2019).
Meanwhile, the total sales by these companies continued to increase
from RM214 million (2016) to RM406 million (2017), RM640 million
(2018) and RM652 million (2019) (Zaharul 2021).
In terms of investment promotion programme, Malaysia’s
coordination capacity has been enhanced through the role of MIDA’s
Foreign Investment Promotion Division as well as three MIDA
offices in China, namely Shanghai, Guangzhou and Beijing. The
support given by these three offices has enabled MIDA to implement
programmes to attract FDI from China including seminars,
roundtable meetings and visits to foreign companies in conjunction
with the Malaysia’s high ranking official visits to China, and to
participate in international exhibitions in China. In addition, MIDA
114 Zaharul Abdullah

also organized five special project missions to China in 2017 and

2018 to promote selected sectors such as the food technology sector
and resource-based industries; building technology and lifestyle;
machinery and metals; as well as business services and supply chain
innovation.
In common with Malaysia, Vietnam has also strengthened its
coordination capacity to increase exports to China through the role
of VIETRADE and three trade offices in China, namely Beijing, Hong
Kong and Chongqing. These three trade offices function to help
VIETRADE coordinate Vietnamese companies’ participation in trade
fairs in China especially the China-ASEAN Expo (CAEXPO). A total
of 137 Vietnamese companies participated in the 15th CAEXPO with
the opening of 235 booths while a total of 150 Vietnamese companies
participated in the 16th CAEXPO with the opening of 250 booths.
Apart from CAEXPO, VIETRADE also leads and coordinates various
parties to participate in Vietnam-China Border Trade and Economic
Exhibition which is held annually and alternately between LaoCai
province (Vietnam) and Yunnan province (China).
According to the Deputy Director of the Export Promotion
Centre (PROMOCEN) in Hanoi, Nguyen Thi Thu Thuy, VIETRADE
demonstrates an effective coordination capacity in organizing export
promotion programmes in China. Since China is a large market for
Vietnam, VIETRADE brings two to three delegates to participate in
three largest trade fairs in China and one trade mission for business
matching sessions in China each year (Interview, 14 January 2020).
Unlike Malaysia, Vietnam does not have investment promotion
offices in China despite having 11 representative offices in nine
countries. However, efforts to attract investment from China are
undertaken directly by the Foreign Investment Agency (FIA)
under the Ministry of Planning and Investment (MPI) through its
participation in the international trade fairs in China. Although both
countries have the policy space to organize promotion programmes
in China, Malaysia has higher coordination capacity than Vietnam
as it has more trade and investment representatives in China while
Vietnam has none in terms of investment representative.
 Economic Cooperation Between Malaysia and Vietnam with China 115

Special Economic Zone

Malaysia continues to enhance its coordination capacity by forming
economic co-operations with China through the establishment of
Malaysia-China Kuantan Industrial Park (MCKIP) in 2013, which
is one of the main BRI projects in Malaysia. MCKIP was developed
as a twin park to the China-Malaysia Qinzhou Industrial Park
(CMQIP) in China where both parks were named ‘National Industrial
Park’ in both countries. MCKIP, which has an area of 3,500 acres,
targets investments in steel and non-ferrous metals, manufacturing
of machinery and equipment, automotive components, clean and
renewable energy technologies, oil, gas and petroleum, electrical and
electronic components and R&D.
To enhance the trade network between MCKIP and CMQIP,
the two governments agreed to strengthen maritime connectivity
between Kuantan Port and Qinzhou Port in China. This involves
the Kuantan Port expansion project to construct a New Deep Sea
Terminal (NDWT) to enhance greater ship handling capacity and
cater higher shipping traffic. Efforts to promote Chinese investment
in MCKIP and Kuantan Port are strengthened with the revived East
Coast Rail Link (ECRL) project which serves as a land bridge between
Kuantan Port and Klang Port on the West Coast of the Peninsular. As
the ECRL connects the MCKIP and major industrial areas along the
East Coast to Kuantan Port, ECRL will also support the growth of
throughput at Kuantan Port.
In comparison with Malaysia, Vietnam has enhanced its
coordination capacity to develop special economic zones with China
much earlier than Malaysia through the framework of regional
economic integration via the Greater Mekong Subregion (GMS).
Under the GMS, there are three economic corridors developed
since 2002, namely the North-South Economic Corridor (NSEC),
the East-West Economic Corridor (EWEC) and the Southern
Economic Corridor (SEC). In the NSEC, Vietnam and China are
involved in developing two sub-corridors namely Kunming-Hanoi-
HaiPhong (NSEC3) and Nanning-Hanoi (NSEC4-I) and Nanning-
Fangchenggang-MongCai-HaLong-HaiPhong (NSEC4-II). In each
116 Zaharul Abdullah

economic corridor, investments have been targeted to develop nine

key sectors namely agriculture, energy, environment, health and
human resource development, information and communication
technology, tourism, transportation, transportation and trade
facilitation, as well as urban development.
The GMS programmes are not only regional but it also contains
bilateral aspects in which Vietnam and China had established ‘Two
Corridors, One Economic Belt’ (TCOB) in 2004. These two economic
corridors refer to the Kunming-LaoCai-Hanoi-HaiPhong-QuangNinh
route and Nanning-LangSon-Hanoi-HaiPhong-QuangNinh route
which aim to enhance economic co-operation between Yunnan
and Guangxi with 12 cities and provinces in Northern Vietnam.
Meanwhile, an economic belt aims to enhance economic co-operation
between the provinces of the two countries located around the Gulf
of Tonkin. As TCOB is built on the concept of GMS economic
corridors, infrastructure projects that support the GMS programmes
also support TCOB initiatives. These two initiatives aim to develop
transportation infrastructure; facilities and cross-border traffic; as well
as investment and business opportunities between Vietnam-China.
To increase investment and business opportunities, the
Vietnamese government has focused on investing in nine border gate
economic zones (BEZs) including four BEZs on the Vietnam-China
border. The four BEZs are located in LaoCai, MongCai, DongDang
and CaoBang that respectively covers an area of 15,930 hectares,
121,197 hectares, 39,400 hectares and 30,130 hectares. These nine
BEZs received 70 per cent of the total BEZs expenditure for annual
plan and 2016-2020 plans. The investment aims to develop various
facilities including international border gates, tariff and non-tariff
areas, industrial parks, financial and administrative centres as well
as urban and non-urban areas. In addition, Vietnam is also working
with China to develop cross-border economic co-operation zones
(CBEZs) at three cross-border centres namely Hekou-LaoCai,
PingXiang-DongDang and Dongxing-MongCai which cover areas of
21km2, 23.7km2 and 23.6km2 respectively that each consists of both
Vietnamese and Chinese territories.
 Economic Cooperation Between Malaysia and Vietnam with China 117

Apart from the creation of BEZs and CBEZs, there are three
industrial parks in Vietnam owned and managed by China namely
Long Jiang Industrial Park in TienGiang province, Yun Zhong
Industrial Park in BacGiang province and Shenzhen Trade and
Economic Co-operation Park in HaiPhong. According to the Deputy
Director of Institute of World Economics and Politics at Vietnamese
Academy of the Social Sciences (VASS), Nguyen Binh Giang, these
three Chinese-backed parks are effective in attracting Chinese
investments while BEZs and CBEZs are ineffective due to strategic
locations of the former (Interview, 20 October 2020). The above
description shows that while both countries have policy space to set
up SEZs with China, Vietnam has higher coordination capacity than
Malaysia as it developed more SEZs with China whereas Malaysia has
only one, the MCKIP.
Special Investment Incentives
To further promote the inflow of Chinese FDI, Malaysia has enhanced
its negotiated capacity in customizing incentives to cater the needs
of Chinese investors. The Malaysian government offered customized
incentives to Chinese-backed projects including MCKIP, Bandar
Malaysia, Forest City, East Coast Rail Link (ECRL), Trans Sabah
Gas Pipeline (TSGP), Multi-Product Pipeline (MPP) and Kuantan
Port. According to Dr. Rebecca, special incentives are indeed given
to joint venture projects involving the Chinese government and
investors as these joint ventures are political and bilateral. In this
respect, the government has room to grant investment incentives
especially when Chinese investments are large in size. Nevertheless,
she stressed that providing special incentives is not something unique
because this practice has been done before with investors from other
countries (Interview, 22 October 2018). This view was also shared
by MIDA’s Assistant Director of Foreign Investment Promotion
Division, Khoo Siao Hooi. In her view, the government does not give
special treatment to Chinese investors, but Chinese investors have
been aggressive in demanding attractive incentive packages from the
government. They have the ability to do so because they bring large
financial flows into the country and implement entire projects such
118 Zaharul Abdullah

as infrastructure and integrated development projects as illustrated in

the case of Bandar Malaysia (Interview, 11 October 2018).
In contrast to Malaysia, Vietnam does not offer customized
investment incentives to any investor. Both domestic and foreign
companies in Vietnam are generally subject to corporate income tax
(CIT) at a rate of 20 per cent starting in 2016. However, attractive
investment incentives are given to companies based on encouraged
sectors, locations, size of investment and job composition such as
women or ethnic minorities. According to Nguyen Binh Giang from
VASS, there is no such thing as Chinese investors enjoying their own
preferential list due to the fact that the Vietnam-China relationship
is a very sensitive issue and is closely watched by the public which
prevents the central and local governments from acting out of the
ordinary (Interview, 20 October 2020). This shows that Malaysia has
more policy space and negotiated capacity than Vietnam as it has
more room to customize and negotiate incentives to cater the Chinese
needs.

Trend and Impact of Malaysia and Vietnam’s

Economic Co-operations with China
This section discusses the trend and impact of Malaysia and Vietnam’s
economic co-operations with China in terms of trade and investment.
Trade
Trade is the most important aspect of Malaysia-China economic
co-operation. Since 2009, China has been Malaysia’s largest trading
partner, and Malaysia is one of China’s largest trading partners
in Southeast Asia. In terms of trade trends, Figure 1 shows that
Malaysia’s exports to China increased rapidly from USD3.03
billion to USD19.02 billion from 2000 to 2008 while imports from
China to Malaysia were always larger than exports in this period,
and it increased from USD3.24 to USD20.05. These encouraging
performances were contributed by China’s entry into the World Trade
Organization (WTO) in 2001 and the formation of the ASEAN-China
Comprehensive Economic Co-operation Framework in 2002 which
 Economic Cooperation Between Malaysia and Vietnam with China 119

laid the foundation for the establishment of the ASEAN-China Free

Trade Area (ACFTA) within 10 years.
50

40

30
USD Billion

20

10

-10

-20
Year

Malaysia's Exports to China Malaysia's Imports from China Trade Balance

Source: World Integrated Trade Solution & Malaysia External Trade Statistics Online

Despite being hit by the Global Financial Crisis (GFC) in 2008,

exports to China still showed a positive growth while imports from
China showed a slight decline in 2009. From 2009 to 2011, exports
to China showed a greater upward trend compared to imports from
China where Malaysia recorded trade surpluses from USD1.86 billion
to USD5.11 billion. These positive performances were contributed
by the recovery of the United States and European markets after the
GFC and the full enforcement of the ACFTA in 2010. From 2012 to
2019, however, imports from China showed a greater increase than
Malaysia’s exports to China thus contributing to Malaysia’s increased
trade deficit with China from USD0.98 billion to USD8.67 billion.
In terms of trade structure, data from the Malaysia External
Trade Statistics Online (2020) shows that six of the top 10 Malaysia’s
exports to China in 2010 and 2019 consisted of manufactured goods.
The export share of these manufactured goods, however, decreased
from 63 per cent in 2010 to 54.2 per cent in 2019. In 2019, the top
exports consisted of electrical machinery, apparatus and appliances
120 Zaharul Abdullah

accounting for 30.8 per cent; followed by plastics in primary

forms (7.7 per cent); gas, natural and manufactured (7.5 per cent);
petroleum, petroleum products and related materials (7 per cent);
and organic chemicals (4.4 per cent).
The data also shows that almost all of the top 10 imports from
China to Malaysia in 2010 and 2019 consisted of manufactured
goods. The share of imports of these manufactured goods,
however, decreased from 68.8 per cent in 2010 to 59.4 per cent in
2019. In 2019, the top imports consisted of electrical machinery,
apparatus and appliances accounting for 22.7 per cent; followed by
telecommunications and sound recording and reproducing apparatus
and equipment (7.6 per cent); office machines and automatic data
processing equipment (6.1 per cent); petroleum, petroleum products
and related materials (6 per cent); and general industrial machinery
and equipment (5.7 per cent).
The fall in the export share of manufactured goods above can be
explained by the Bilateral Revealed Comparative Advantage (BRCA)
in Table 1. BRCA shows that Malaysia’s export of manufactured goods
(SITC 5 to 8 less 667 and 68) to China is at bilateral disadvantage
position or these products no longer have a comparative advantage
in China in 2018 except for SITC 5. In electrical and electronic
(E&E) industry, although Malaysia has no comparative advantage in
electronic non-parts and components (non-PNC), it has comparative
advantages in E&E parts and components (PNC). For crude materials,
inedible except fuel (SITC 2), agricultural raw materials (SITC 2 less
22, 27 and 28) have the highest BRCA which indicates a high export
potential in China.

Table 1. Malaysia-China Bilateral RCA

Malaysia-China Bilateral RCA 2000 2010 2013 2018

SITC 0 – Food and live animals 0.41 0.38 0.49 0.74
SITC 1 – Beverages and tobacco 0.12 0.13 1.10 0.27
SITC 2 – Crude materials, inedible, except fuels 3.38 2.08 2.42 3.05
SITC 3 – Mineral fuels, lubricants and related materials 1.14 0.41 0.48 0.97
SITC 4 – Animal and vegetable oils, fats and waxes 3.24 1.52 1.38 0.74
 Economic Cooperation Between Malaysia and Vietnam with China 121

SITC 5 – Chemicals and related products, n.e.s. 2.39 1.32 1.60 1.77
SITC 6 – Manufactured goods by materials 1.69 0.93 1.45 0.74
SITC 7 – Machinery and transport equipment 0.69 1.21 1.16 0.98
SITC 8 – Miscellaneous manufactured articles 0.35 0.33 0.28 0.56
SITC 9 – Commodities and transactions not classified 1.08 0.40 0.42 0.51
elsewhere in the SITC
Primary commodities 1.81 0.87 0.93 1.15
All food items 2.17 1.19 1.07 0.69
Agricultural raw materials 3.36 2.03 2.07 2.52
Palm Oil 3.62 1.48 1.36 0.59
Textile fibres, yarn, fabrics and clothing 0.63 0.29 0.37 0.45
Manufactured goods 0.81 1.07 1.05 0.96
Electronic Non-PNC 0.27 0.89 0.83 0.60
E&E, PNC 0.83 1.52 1.46 1.21
Note:
a. Bilateral RCA = Malaysia export i product to China/Malaysia total export to China
Malaysia export of i product to World/Malaysia total export to World

A value above 1 represents that for i export, Malaysia has a revealed comparative advantage in
Chinese market compared to the rest of the world.

Source: Tham & Kam (2019); UN COMTRADE

Apart from that, Malaysia also showed an increasing trend of

export dependence on direct and indirect import contents following
Malaysia’s deepening involvement in the global value chain (GVCs).
According to OECD TIVA (2020), the domestic value added (DVA)
content for overall exports and manufacturing exports to China
increased from 48.2 per cent to 57.5 per cent and 43.1 per cent to
51.2 per cent respectively from 2005 to 2015. During this period, the
average DVA content for food, beverage and tobacco products was
high at 70.4 per cent, while the average DVA content for computer,
electronics and optical equipment products was low at 39.1 per cent
although both showed increasing trends. This limited contribution of
DVA content is accompanied by the increasing trend of inputs from
China for Malaysia’s domestic exports, compared to other foreign
sources such as the US, Japan, Singapore, Korea and Taiwan. The
OECD TIVA (2020) shows that the US’s share in imports for exports
122 Zaharul Abdullah

from 2005 to 2015 decreased from 15.7 per cent to 10.3 per cent while
China’s share increased from 10.1 per cent to 20.8 per cent.
Likewise, trade is also the most important aspect of Vietnam-
China economic co-operation. China has been Vietnam’s main
trading partner since 2004 – five years earlier than Malaysia – while
Vietnam is China’s largest trading partner in Southeast Asia in
2018. As shown in Figure 2, imports from China to Vietnam always
outperformed Vietnam’s exports to China from 2001 to 2019. Since
the Global Financial Crisis (GFC) in 2008, imports from China
grew rapidly from USD16.67 billion to USD75.45 billion from 2009
to 2019. Meanwhile, Vietnam’s exports to China grew slowly from
USD5.4 billion in 2009 to USD21.95 billion in 2016, before soaring
to USD35.39 billion in 2017 and USD41.41 billion in 2019. This surge
was contributed by the full implementation of the ASEAN-China Free
Trade Area (ACFTA) among the four newer ASEAN countries and
China in 2015. In terms of trade balance, Vietnam recorded a large
trade deficit with China from USD0.19 billion to USD34.04 billion
from 2001 to 2019.

Figure 2. Vietnam’s Trade in Goods with China, 2000-2019

100

80

60
USD Billion

40

20

-20

-40
Year

Vietnam's Exports to China Vietnam's Imports from China Trade Balance

Source: World Integrated Trade Solution & General Department of Customs

 Economic Cooperation Between Malaysia and Vietnam with China 123

In terms of trade structure, Vietnam has relatively diversified

its export products and increased its exports of higher value-added
products to China. Data from the Vietnam’s General Department
of Customs (2020) shows that, of the top eight Vietnam’s exports to
China in 2011 and 2019, the number of primary commodity products
decreased from five to one, and manufactured goods increased
from two to six while food products remained one. In the form of
percentage, the primary commodity’s export share declined from
48.7 per cent to 3.7 per cent, while that of the manufactured goods
increased from 14.4 per cent to 60.8 per cent which is contrary to
Malaysia’s downward trend. In 2019, Vietnam’s top exports to China
were computer and electrical products accounting for 23.1 per cent;
followed by telephones and mobile phones (20 per cent); fruits and
vegetables (5.9 per cent); yarn (5.8 per cent); and shoes (4.3 per cent).
The data also shows that almost all of the top eight imports from
China to Vietnam consisted of manufactured goods, and have a
higher added value. From 2011 to 2019, manufactured goods’ import
share increased from 62.2 per cent to 70 per cent. In 2019, key
imports were machine, equipment, tools and instruments accounting
for 19.7 per cent; followed by computers and electrical products (16.1
per cent); fabrics (10.3 per cent); telephones and mobile phones (10
per cent); as well as iron and steel (4.4 per cent).

Table 2. Vietnam-China Bilateral RCA

Vietnam-China Bilateral RCA 2008 2012 2017

SITC 0 – Food and live animals 0.61 1.29 1.44
SITC 1 – Beverages and tobacco 2.24 1.76 1.13
SITC 2 – Crude materials, inedible, except fuels 7.00 4.09 3.21
SITC 3 – Mineral fuels, lubricants and related materials 1.40 1.76 1.56
SITC 4 – Animal and vegetable oils, fats and waxes 4.24 1.07 0.48
SITC 5 – Chemicals and related products, n.e.s. 1.86 2.39 1.48
SITC 6 – Manufactured goods by materials 0.84 0.91 0.87
SITC 7 – Machinery and transport equipment 0.76 0.75 1.06
SITC 8 – Miscellaneous manufactured articles 0.13 0.20 0.52
SITC 9 – Commodities and transactions not classified 4.15 5.67 0.00
elsewhere in the SITC
124 Zaharul Abdullah

Primary commodities 2.30 2.31 2.09

All food items 0.67 1.30 1.43
Agricultural raw materials 7.44 4.22 3.43
Textile fibres, yarn, fabrics and clothing 0.22 0.46 0.61
Manufactured goods 0.47 0.63 0.87
Electronic Non-PNC 1.51 0.78 0.43
E&E, PNC 0.94 0.90 1.25
Note:
a. Bilateral RCA = Vietnam export i product to China/Vietnam total export to China
Vietnam export of i product to World/Vietnam total export to World

A value above 1 represents that for i export, Vietnam has a revealed comparative advantage in
Chinese market compared to the rest of the world.

Source: UN COMTRADE

Although Vietnam’s export share of manufactured goods to

China is increasing, the Bilateral Revealed Comparative Advantage
(BRCA) in Table 2 shows that Vietnamese manufactured goods is at
bilateral disadvantage position or that these products do not have a
comparative advantage in China in 2017 except for chemical products
(SITC 5), and machinery and transport equipment (SITC 7). In
SITC 7, electronic non-parts and components have no comparative
advantage while E&E parts and components (PNC) have comparative
advantage. In contrast to manufactured goods, products of primary
commodities, all food items and agricultural raw materials have
comparative advantages in China.
Akin to Malaysia, Vietnam is also facing an increasing trend of
export dependence on direct and indirect import content following
Vietnam’s involvement in the global value chain (GVCs). The OECD
TIVA (2020) shows that Vietnam’s domestic value added (DVA)
content for overall exports and manufacturing exports to China from
2005 to 2015 declined from 67.7 per cent to 55.1 per cent and 55.4
per cent to 50 per cent respectively, which differs from Malaysia’s
increasing trend. During the same period, the average DVA content
for food, beverage and tobacco products was relatively high at 63.7
per cent while the average DVA content for computer, electronics and
optical equipment products was low at 45.4 per cent. Both of these
 Economic Cooperation Between Malaysia and Vietnam with China 125

products showed a declining trend of DVA content from 2005 to 2015

which is contrary to the Malaysian case.
At the same time, there is an increasing trend of input from China
for Vietnam’s domestic exports compared to other foreign sources
such as Korea, Japan, the US and Taiwan. The OECD TIVA (2020)
shows that China’s share in imports for Vietnam’s exports from 2005
to 2015 jumped from 13.6 per cent to 31.7 per cent, in which the
share is much bigger than the Malaysian case. Meanwhile, Japan’s
share decreased from 11 per cent to 7.4 per cent. The increasing
trend of Chinese import contents for both Malaysia and Vietnam is
due to the fact that the economies of scale and competition between
manufacturers in China allow the inputs to be imported at cheap
and competitive prices. For the Vietnamese case, the increased
bilateral trade with China is accompanied by an increasing trend of
transnational organized crimes such as drugs, wildlife, timber and
counterfeit goods (UNDOC 2019). The influx of low quality Chinese
consumer goods into the Vietnamese market had resulted in the
deepening of negative perceptions among the Vietnamese towards
China (Le 2017).
Investment
According to the MOFCOM (2018), Malaysia has become the top
three destinations for Chinese FDI flows and stocks in the Southeast
Asian region since 2016. This trend, however, does not mean that
China is the top investor in Malaysia. In 2019, China is only the
eighth largest investor in Malaysia in terms of FDI flows, and the
10th largest investor in Malaysia in terms of FDI stocks. Nevertheless,
Figure 3 shows that Chinese FDI stock in Malaysia began to increase
in the period of 2013 to 2015 from USD1.67 billion to USD2.2 billion.
It then jumped to USD3.63 in 2016 and continued to soar to USD8.39
billion in 2018. The surge of Chinese FDI was attributable to several
BRI mega projects in Malaysia which led China to become the largest
investor in Malaysia’s manufacturing sector since 2016.
In terms of FDI distribution, Table 3 shows that the main
industries that received large-scale Chinese investments (worth
USD100 million and above) from 2010 to 2018 were energy industry
126 Zaharul Abdullah

amounting to USD6.9 billion, followed by real estate (USD4.5 billion)

and transportation (USD3.1 billion). However, it is important to note
that large-scale Chinese investments have been focusing on the real
estate and transportation as Chinese investments in Malaysia’s energy
sector was largely due to the takeover of energy assets, Edra Global
Energy Bhd worth USD5.96 billion by China General Nuclear Power
Corp LtD (CGN Group) in 2015.

Figure 3. Chinese FDI Stock in Malaysia dan Vietnam, 2003-2018

9000

8000

7000

6000
USD Million

5000

4000

3000

2000

1000

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Year

Chinese FDI Stock in Malaysia Chinese FDI Stock in Vietnam

Source: Ministry of Commerce, China

Although Chinese FDI generally had a positive impact, Chinese

investments to take over some of Malaysia’s strategic assets brought
about some negative implications. The first impact is that Chinese
investments in Malaysia’s energy, transportation and real estate could
potentially erode the latter’s sovereignty. Apart from the above energy
takeover, vast parcels of land had been sold to Chinese investors,
especially in Iskandar Malaysia, an economic corridor in the southern
part of Peninsular Malaysia. These included the purchases of land
worth USD3.76 billion by four Chinese investors namely Zhouda
Real Estate Group, Country Garden Holdings Ltd, Guangzhou R&F
Properties Co Ltd, and Greenland Holdings Group Ltd (Zaharul
 Economic Cooperation Between Malaysia and Vietnam with China 127

2020). A huge parcel of land had also been sold to two consortia
each comprising Chinese companies to develop Melaka Gateway
and Bandar Malaysia respectively although the latter project did not
materialize during the Barisan Nasional (BN) government. All these
projects share similar characteristics namely freehold ownership of
land by China and the preference of employing Chinese companies
and workers rather than local ones, thereby indicating that the BN
government was not committed and firm in its negotiation to protect
Malaysia’s national interests and autonomy.

Table 3. Chinese FDI in Malaysia by Industry (USD Million)

Industry/ Metals Real Transport Energy Technology Tourism Others

Year Estate
2010 350
2011 1,040 790
2012 330 130
2013 650 1,370 610 380 190
2014 940 200
2015 530 280 6,060 370
2016 140 210 1,970 340 1680
2017 280 110 140 400
2018 440
Total 2,180 4,450 3,100 6,920 810 1680 790
Note: The table above only records transactions worth USD100 million and above.

Source: China Global Investment Tracker

The second impact is that Chinese investments in real estate

also generate potential security issues with the creation of satellite
cities through the Forest City project in Johor and Melaka Gateway
in Melaka. The USD100 billion Forest City project is expected to be
inhabited by 700,000 people. To date, 70 per cent of residential unit
buyers are from China, Hong Kong, Taiwan and Macau, 30 per cent
are from Malaysians and Singaporeans and the rest are from 22 other
countries (EdgeProp, 7 October 2018). This satellite city is likely
to form a special diaspora of Chinese nationals and aims to meet
128 Zaharul Abdullah

the needs of the Chinese population (Evers 2017). In addition, the

Chinese are also expected to flood residential units in the Melaka
Gateway project which targets property and commercial development
on the first and second artificial Islands. Thus, the potential influx
of large Chinese nationals into Malaysia in one place will bring
imbalance to the existing Malaysian population. This is another
example of the government’s failure to protect the country’s national
interests and its people.
The third impact is that Chinese investment in the real estate has
led to environmental degradation and loss of income for the local
community especially the fisherfolk. In the case of Forest City, the
project was approved and launched without the implementation of a
detailed environmental impact assessment (DEIA). Although DEIA was
later implemented by the developer followed by some improvements on
the environment, the construction of a causeway and land reclamation
activities to build four artificial islands had a negative impact on the
largest sea grass in Peninsular Malaysia (Serina 2017). The government
also failed to demand Chinese developers to implement socio-
economic impact assessments as Forest City and Melaka Gateway
projects had badly affected the local community’s livelihood which
mostly depend on fishery activities. According to Dr. Rebecca, both
projects had not only led to the loss of income of the local community
but also loss of culture as well as the relocation of locals from their
traditional village (Interview, 22 October 2018).
Like in Malaysia, China is not a major investor in Vietnam and
only ranked fifth in FDI stocks in 2018 following Japan, Korea,
Singapore and Hong Kong (GSO 2018). However, Figure 3 shows
that Chinese FDI began to increase consistently from USD254 million
in 2006 to USD1.6 billion in 2012. It then increased rapidly from
USD2.2 billion in 2013 to USD5.6 billion in 2018 after the launch
of BRI in 2013. In terms of investment by sector, Figure 4 shows
that the majority of Chinese investments have been concentrating
in the manufacturing sector from 2006 and 2014 with an average
investment of 82 per cent. A small portion of Chinese investment has
concentrated in the services and construction sector followed by real
estate, as well as agriculture and mining.
 Economic Cooperation Between Malaysia and Vietnam with China 129

Figure 4. Share of Chinese New Projects in Vietnam by Sector, 2006-2014

100

90

80

70
Percentage (%)

60

50

40

30

20

10

0
2006 2008 2010 2011 2012 2014

Agriculture & Mining Manufacturing Construction & Real Estate Services

Source: Central Institute of Economic Management (CIEM)

While Chinese FDI generally brings positive impacts such as job

creation and revenue to the central and provincial governments, it
has been accompanied by some negative impacts. The first impact is
environmental pollution. This is due to the fact that the Chinese FDI
is concentrated on potentially polluting industries such as textiles,
shoes, fiber, energy and mining industries. A widely cited occurrence
was a joint venture between the Vietnamese and Chinese SOEs
formed since 2006 to extract bauxite in the Central Highlands which
polluted the water supply and agricultural industry, and affected
the health and safety of the surrounding population. In addition,
the project also caused air pollution due to the usage of obsolete
technology, and caused road damages due to the high frequency
of traffic by small trucks transporting goods (Nguyen Van Chinh,
interview, 25 April 2018). This incident shows the limitation of
Vietnamese government’s governance capacity to compel Chinese
companies to adhere to its environmental laws and regulations.
The second impact is the increased competition between domestic
and Chinese companies on the input market. Since Vietnam’s
participation in the Trans-Pacific Partnership (TPP) negotiations
130 Zaharul Abdullah

in 2010, the Chinese FDI flow into Vietnam has increased to take
advantage of the TPP market (Nguyen 2016) as China is not a
member of the TPP. Although the TPP had been transformed into
a Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) following the US withdrawal in 2017, China
continues to seek to access the CPTPP market through Vietnam
(Thanh 2019). The Chinese FDI flow into Vietnam is intensified by
the US-China trade war that is resulting in the relocation of foreign
investors including Chinese to Vietnam to avoid US tariff on Chinese
imports. This is leading to increased competition between Vietnamese
domestic companies and Chinese companies to obtain good land and
local workers, causing domestic companies to close down (Tran Toan
Thang, interview, 27 April 2018).
The third and the last impact is the increased competition among
the provinces in Vietnam to attract Chinese FDI. Since Vietnam is
made up of 63 provinces and cities that are relatively close to each
other, there is an increased competition among the provinces to
seize the Chinese FDI in order to provide more jobs to the locals and
generate incomes to the government (Do Tien Sam & Van Hong Thi
Ha, interview, 4 May 2018). Existing Chinese companies are aware
of such competition and they are also informed that small-scale
projects worth less USD5 million only require approvals from the
provincial governments. This led the Chinese companies to relocate
their projects from one province to another that can provide more
incentives. This situation leads to the increased environmental
pollutions as competing provincial governments would lower the
environment regulation and standard which are vague and subject
to the provincial government’s interpretation (Nguyen Binh Giang,
interview, 10 October 2020). This shows the Vietnamese government’s
limited capacity in coordinating efforts to attract FDI between the
Ministry of Planning and Investment and the provincial Department
of Planning and Investment, and Investment Promotion Centres in
several cities.
 Economic Cooperation Between Malaysia and Vietnam with China 131

Conclusion
Based on the research questions posed, this article has three main
findings. First, Malaysia and Vietnam have been able to capture
Oriental Globalization to some extent by enhancing their policy space
and coordination capacities in their strategies to enhance economic
co-operations with China. Out of the five strategies discussed,
Malaysia has a higher coordination capacity than Vietnam in signing
economic co-operation agreements during high-level visits, export
and investment promotion programmes and investment incentives
while Vietnam has a higher coordination capacity than Malaysia in
the establishment of special institutions and special economic zones.
The discussions also show that both countries have policy space to
formulate and implement economic strategies towards China.
Second, in terms of the trends of economic co-operation with
China, Malaysia and Vietnam’s exports to China generally show
an increasing trend. This demonstrates the effectiveness of export
promotion programmes organized by both countries in China.
However, imports from China to both countries show a higher
increasing trend than exports thus increasing Malaysia and Vietnam’s
trade deficits with China. The article also shows that both countries’
exports of manufactured goods generally are at bilateral comparative
disadvantages in China. Nevertheless, both countries’ export of
primary commodity and agricultural raw materials generally have
bilateral comparative advantages while only Vietnam’s export of
all food items has comparative advantage in China. Both countries
– especially Vietnam – also show increasing dependence on
Chinese inputs for their domestic exports. In terms of investment
co-operation, China is not the top investor in both Malaysia and
Vietnam. However, Chinese FDI flow into both countries generally
shows an increasing trend especially after the launch of the BRI
in 2013 and following the US-China trade war since early 2018.
Although external circumstances play an important role, both
countries’ capacities to attract Chinese FDI have been buttressed by
the establishment of special economic zones.
132 Zaharul Abdullah

Third, both Malaysia and Vietnam have limited autonomy and

capacity to manage the trends and negative impacts resulting from
their economic co-operations with China. For Vietnam, these
negative impacts include increased transnational organized crimes,
influx of low-quality Chinese consumer products into Vietnamese
market, environmental pollution, increased competition between
domestic and Chinese companies and increased competition among
provinces to attract Chinese FDI. For Malaysia, these negative
impacts include erosion of sovereignty and security, and deterioration
of environment and livelihood of the local community. This article
shows that Malaysia and Vietnam have the policy space and capacity
to enhance their economic co-operation with China but have limited
autonomy and capacity to manage the negative trends and impacts
resulting from their economic co-operation with China.
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 134 Zaharul Abdullah

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