Malaysia's
Biggest Threat
It's not Soros, not competition from neighbours that's Malaysia's biggest threat. It's a five-letter word - China. By Seah Chiang Nee
May 4, 2001

It is easy to stereotype the passengers who sat around me on a recent SIA 7.20 am flight to Kuala Lumpur. Mostly males, in their 30s these Singaporeans were either software engineers, project managers or business consultants.

A few were Malaysians working in Singapore. There were at least 30 or 40 of them, business day-trippers to the Federal capital, who would arrive in time for the start of a working day, conduct their business and fly home later in the same day.

In a way, that flight measures the health of relations between the two countries. If the 7.20 am flight is crowded, trade is good; if things are bad, the flight is empty.

These days it is often crowded. In fact, the day I travelled, First Class seats were all booked out.To make things easier for visitors, the Malaysian immigration has done away with a separate money declaration process.

Malaysia is short of professional skills. This commuting is only one small indication of how bad it is.

Instead of luring foreign talent to settle there, this nation of 22 million seems like it is doing its best to get rid of its own. An example is the failure of 560 ethnic Chinese students, who scored between 7 and 10 A's in its equivalent O-Level exam, to get a university place.

It is not for shortage of places. In fact public universities have 7,168 vacancies this year because there are not enough qualified Malays. Under a quota policy, 55 per cent of seats are reserved for Malays, 35 per cent for Chinese and 10 per cent for Indians. Deprived, bright Chinese and Indian students either go to private universities or get creamed off by Singapore and other countries.

With the economy in decline (low investments and a weak currency), many trained Malaysians are seeking greener pastures abroad, one of the country's biggest bugbears.

Instead of opening its door to skilled foreigners to make up for it, it has let in - legally and illegally - hundreds of thousands of unskilled ones, from Bangladesh, Thailand, Indonesia, Myanmar and the Philippines.

They provide cheap labour for companies without doing anything to upgrade the economy. Worse still it is opiate for local businesses not to automate or become more innovative. Some Malaysian producers are unable to withstand the challenge of efficient importers (especially cars and steel) in their home market. They make no effort to move up the technological ladder.

It is stagnating dangerously at a time when China's capabilities are leaping ahead, their exports now beginning to make an impact on world trade, threatening politically-troubled Southeast Asia.

It will intensify after it joins the World Trade Organisation. Led by its large state corporations it is churning out cheap quality products for the world.

Remember Japan's post-world war "kamikaze" assault on the global market - cars, consumer goods and almost everything else. Well, you ain't seen nothing yet when it comes to China. The next will come electronics, like TV sets, cameras, cars and PCs.

Increasingly the Chinese are winning market shares from the Japanese.

Take South Africa, for example.

Once Sharp and Matsushita dominated the world of air-conditioners, washing machines and refrigerators. Today, Chinese state companies are not only challenging, but overtaking, them. That's bad news for Malaysia. The two Japanese companies have plants in Malacca and Petaling Jaya, producing these goods.

Malaysia was once the world's biggest manufacturer of air-conditioners. Today it is Number Two. It once ordained (by Dr. Mahathir himself) a large area that was to become an "electronics city" That has long gone.

This small nation of 22 million people is very dependent on Japanese investments. If Japan takes a knock, Malaysia will lose jobs and earnings. Factories will close.

As I was writing this, Dr. Mahathir again hit out at foreign companies who relocated out of Malaysia for cheaper places, resulting in 14,000 lost jobs.

China’s emergence as a manufacturer power will burn a hole in its economic future unless it quickly moves out of its current low-tech trap of low cost production and upgrade its work force.

There are, of course, other competitors, like India and Vietnam, with large populations and cheaper land, lean and hungry and pursuing education with zest. These dangers don’t come from the West trying to recolonise Asia. They are Asians who are working a lot harder than many of us in Asean.

But China, equivalent to 20 Vietnams or 60 Australias, is by far the most threatening. If giant Japan is feeling the heat, how can this region escape it?

Its workers are learning as fast as the Japanese did after World War Two. It has a big domestic market that will allow its large state companies to strike out abroad. Malaysia's skills shortfall stems from years of neglect by government.

For two decades, Malaysia was dominated by Prime Minister Mahathir Mohamad's vision of becoming an advanced economy through heavy industries and recently, information technology.

But this has never been supported by a sustained programme to train sufficient high-tech manpower the economy needs.

Today, the multi-media corridor is floundering partly because it hasn't anywhere enough trained people to make it work.

Dr Mahathir often blames the Malays for complacency. They are unable to match the Chinese and Indians in school and in business. This is one of the reasons why he attacks globalisation.

The Malays are unable even to compete with fellow Malaysians, how can they take on the outside world? So how can globalisation - or even free trade - help Malaysia?

Opening up the economy, he fears, would result in the Malays being marginalised and their companies gobbled up by competent foreigners.

Critics of the New Economic Policy (who include capable Malays) attribute this ethnic weakness to the special rights given to Malays. One remarked recently: "The Malays will not advance as a race until these provisions are removed."

Competition, he said, would force them to grow for their own good. "They are too complacent as the Prime Minister said. Malaysia, as a country, must learn to compete - or prepare to lose out."

At any rate, one can impose protective barriers against manufactured goods, but not against ideas and knowledge.

When you sell cars, your products can be kept out by a protective wall, but the same cannot be done to keep out knowledge or ideas which exist in the human mind.

Even if immigration laws are changed to keep the person out he can still sell his ideas, his software, his consultant service, his design or blueprint to another country through the Internet. Protectionism is ineffective.

That's what Malaysia will have to get into. While it is sorting out a host of political and economic problems, it cannot let up on training and retraining of its people. Instead of rising, education has declined in the 1990s.

To date, only seven per cent of university age youths are actually attending university, low compared to Japan and South Korea (50 per cent each), Taiwan (40%), Philippines (30%) and Thailand (20%).

When Dr. Mahathir retires, who succeeds him or what policies the new man brings are critical questions - but irrespective how these turn out, nothing will work without a concerted effort to upgrade the nation's skill.

The battle among nations is over knowledge and ideas.

Seah Chiang Nee