13 May 2016
Malaysia: Market Profile
Major Economic Indicators
- Malaysia’s economy expanded by 5% in 2015, slowing from 6% in 2014. The IMF expects GDP growth to continue slowing to 4.4% in 2016.
- Malaysian consumer prices recorded a 2.1% growth in 2015, with the central bank keeping the policy rate unchanged at 3.25% in its March 2016 meeting.
- Inward FDI to Malaysia fell to RM36 billion (about US$9 billion) in 2015, with a sharper decline reported in US dollar due to the depreciation of the Malaysian currency.
- In 2015, Malaysia’s exports plunged by 15.9 % YOY to US$175 billion, while imports fell by 13.9% YOY to US$ 149 billion.
- Hong Kong's exports to Malaysia decreased by 2.3% to US$3.74 billion in 2015, while imports fell 7.9% to US$12.06 billion during the same period
Current Economic Situation
Malaysia is the third largest economy of the 10-member ASEAN bloc, trailing Indonesia and Thailand, yet ahead of Singapore. The service, industry and agriculture sectors account for, respectively, 55%, 36% and 9% of Malaysia’s GDP. Major sectors include electronics, automobiles, palm oil processing, construction, finance, Insurance, real estate, wholesale and retail trade.
Malaysia’s GDP growth slowed to 5% in 2015 from 6% in 2014, with the services and industry sectors growing, respectively, by 5.2% and 5.5%. Tourism is a strong growth area in Malaysia’s economy. The Malaysian government expects the tourism sector to generate a receipt of US$24 billion in 2016, contributing around 15% of the GDP.
Concern about US monetary policy tightening and the slowdown of the Chinese economy have dealt a serious blow to the currencies of many emerging economies. The Malaysian Ringgit (RM) hit a 17-year low of RM4.5 to US$ in August 2015, before regaining to RM4.05 to US$ in May 2016.
Malaysian consumer prices recorded a growth of 2.1% in 2015, led by price increases in housing, water, electricity and fuels. Bank Negara (BN), Malaysia’s central bank, expects headline inflation to edge higher 2.5%-3% in part due to a weak ringgit. In the face of quickening inflation and a weakening ringgit, The BN kept its overnight policy rate unchanged at 3.25% in its March 2016 meeting, since last hiking the rate in July 2014. Meanwhile, the employment market deteriorated somewhat in 2015, edging up to 3.15% from 2.8% in 2014.
In 2015, Malaysia’s exports plunged by 15.9% to US$175 billion while its imports also fell by 13.9% to US$149 billion. Major exports included machinery & transport equipment, mineral fuels, manufactured good and chemicals. Malaysia is the world's second-largest exporter of liquefied natural gas (LNG), according to the U.S. Energy Information Administration. Sinking oil and gas prices have affected Malaysian exports, also putting pressure on state finances.
Main imports to Malaysia were intermediate goods, including electronics, machinery and petroleum products. Major import sources included China, Singapore, Japan, the US and Thailand. Despite the decline in exports, Malaysia continued to post a trade surplus in 2015 as imports slowed by an extent similar to exports.
The Economic Transformation Programme (ETP) launched in 2010 targets 12 National Key Economic Areas (NKEA) seen as having the greatest potential to boost overall economic growth, including palm oil cultivation, tourism, financial services and electronics industries. The ETP is a comprehensive economic plan to propel Malaysia's economy to the rank of high income economies (with a per capita income of at least US$15,000) by 2020. The implementation of ETP is still on track, which is further supported by the Eleventh Malaysia Plan (11MP) announced in May 2015, with the 11MP consisting of initiatives for deployment in the last five years before the 2020 deadline for achieving high-income status for Malaysia.
Export-dependent Malaysia is keen to attract FDI and promote high-value manufacturing. Investment incentives including corporate income tax exemption and tax allowance are provided in such industries as advanced electronics, medical devices, bio-technologies and green technologies. More information on investment guidelines and incentives can be found at the website of Malaysian Investment Development Authority (MIDA).
Inward FDI to Malaysia tumbled more than 44% to RM 36.1 billion (about US$9 billion) in 2015, with MIDA attributing the decline to a higher base effect resulting from several high-profile FDI in 2014. The decline was shaper when the FDI inflows were denominated in US dollar due to the depreciating Malaysian ringgit in 2015. Nonetheless, MIDA noted that FDI had already exceeded the target set in the Tenth Malaysia Plan (10MP) for the period of 2011-2015.
The bulk of inward FDI in 2015 came from the US, Japan, Hong Kong, the Chinese mainland, Singapore, Korea and Taiwan, going mostly to the manufacturing sector. Regarding Hong Kong’s FDI in Malaysia, they are tied to some 400 manufacturing projects spanning E&E, basic metal, fabricated metal, garment and textile, wood and related products.
As of 2015, Hong Kong’s cumulative FDI in Malaysia stood at US$6.8 billion, while that of the Chinese mainland reached about US$862 million. Hong Kong’s cumulative FDI in Malaysia had increased by RM3.4 billion from 2014 to 2015. The slight fall in FDI stock from Hong Kong in US$ terms reflected the substantial depreciation of the Malaysian ringgit in 2015.
In 2013, China and Malaysia jointly developed the Malaysia-China Kuantan Industrial Park (CMKIP) on the east coast of the Malaysian Peninsula. The Malaysian government, apart from providing the infrastructure support to CMKIP, has recently approved a special incentive package for all park investors, including 100% income tax exemption for up to 15 years.
Malaysia is a member of the World Trade Organisation (WTO), and it adopts a liberal trade regime. Companies are allowed to trade freely without special restrictions.
Import tariffs, where applicable, are mostly imposed on an ad valorem basis. The average applied duty rate was 6% in 2013. For non-agricultural products, import duty ranges between 0%-50%, and about 65% of the non-agricultural imports were duty-free. Raw materials, machinery and essential foodstuffs are generally non-dutiable or subject to duties at lower rates. The trade regime has been progressively liberalised to encourage integration at the regional and global level.
Malaysia has abolished import tariffs on a wide range of items, including raw materials, components equipment and machinery that are directly used in manufacturing process.
ASEAN Economic Community
Further, as Malaysia is a member of ASEAN, the country is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only. At present, Malaysia has already eliminated duties on over 95% of its tariff lines to other ASEAN countries. In 2015 Malaysia adopts the rotational chair of ASEAN, at end of the same year the ASEAN Economic Community was established.
Free trade agreements
Malaysia has continued to participate in various free trade arrangements (FTAs). Bilateral FTAs include those forged with Japan, Pakistan, New Zealand, India, Chile and Australia. Lower import duties are applied to imports originated from the trading partners under different arrangements. Also, bilateral negotiations are on-going with Turkey and the EU.
At the regional level, Malaysia together with ASEAN has concluded agreements with China (i.e. ACFTA (or CAFTA), which was signed in November 2002), Korea (signed in November 2004), Pakistan (signed in November 2007), Japan (signed in April 2008), Australia-New Zealand (signed in February 2009) and India (signed in August 2009). Effective January 2010, under the ASEAN-China (ACFTA) and ASEAN-Korea Free Trade Agreements, duties on 90% of the concerned products were eliminated. Several regional FTAs are still under negotiations, including Trade Preferential System-Organisation of Islamic Conference (TPS-OIC) and Developing Eight (D-8) Preferential Tariff Agreement (PTA).
Malaysia is among the four ASEAN member countries participating in negotiations of the Trans-Pacific Partnership (TPP), a trade agreement among 12 Pacific Rim countries that was concluded in October 2015.
Malaysia was Hong Kong’s eleventh largest trading partner in 2015, yet ranking fourth among ASEAN countries in its trade with Hong Kong. Hong Kong started to negotiate an FTA with ASEAN in 2014, with a view to concluding the FTA in 2016.
In April 2012, Hong Kong and Malaysia reached a Comprehensive Double Taxation Agreement, which came into force in December 2012.
Hong Kong’s Trade with Malaysia
Hong Kong's exports to Malaysia decreased 2.3% to US$3.74 billion in 2015. Major export items included telecom equipment & parts (US$863 million, 23% share, +9.5% YoY), semi-conductors, electronic valves & tubes (US$520 million, 13.9% share, -8.1% YoY), electrical apparatus for electrical circuits (US$375 million, 10% share, +11.1% YoY), and computers (US$256 million, 6.8% share, +30.8% YoY).
On the other hand, Hong Kong's imports from Malaysia fell 7.9% to US$12.06 billion in 2015. Major imports included semi-conductors, electronic valves & tubes (US$7,513 million, 62.3% share, -5.6% YoY), computers (US$815 million, 6.8% share, +16.8% YoY), parts and accessories of office machines/ computers (US$581 million, 4.8 share, +4.5% YoY), telecom equipment & parts (US$556 million, 4.6% share, +13.3% YoY) and electrical machinery and apparatus (US$367 million, 3% share, +3.5% YoY).
Malaysia’s Involvement in Hong Kong Economy
According to the Census & Statistics Department of Hong Kong, Malaysian companies had set up 7 regional headquarters, 21 regional offices, and 35 local offices as at June 2015.
In Jan-Mar 2016, a total of 89,431 Malaysian visitors came to Hong Kong, with no significant change from the same period in 2015.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.
Related information: Malaysia infographics
 Theses 12 countries include: Australia, Brunei Darussalam, Chile, Japan, Malaysia, Peru, Singapore, the US, Vietnam, Mexico, Canada and New Zealand.