China's Belt and Road Initiative: A flow for both sides to consider

• BRI uses Chinese word for flow and connectivity, representing connecting and enabling flow
• Industries under BRI have to reconfigure their logistics and supply chain to fit the new reality

"FIRST, I don't want your land. Second, I don't your money. Third, I don't want your resources."

This is what Jason Yu, executive vice president of QIDI Tus Holdings, said at a roundtable discussion on the China Belt and Road Initiative held in conjunction with the Global Entrepreneurship Community Summit 2017 (GEC2017).

"What we need is your talent and creativity."

This gives some insight into what China hopes to benefit from their Belt and Road initiative (BRI). Launched by President Xi Jinping in 2013 and grandly lauded by him as the "Project of the Century", the BRI currently includes 60 countries across Eurasia and Africa.

It encompasses 62% of the world population, 31% of the world GDP, and 33% of global trade. Between 2014 and 2016, trade between China and BRI countries amounted to US$3 trillion (RM12.24 trillion).

The BRI is a connectivity and flow

This ambition around the BRI partially stems from an overcapacity of production in China. "The BRI is primarily driven by China's needs to restructure and transform its economy," said Koh King Kee, director of China Belt Road Desk of Baker Tilly (Malaysia). According to him, they need to rebalance regional economic development, while moving up the manufacturing value chain and addressing excess industrial capacity.

"China is no longer a low-cost manufacturing country," continued Koh who shared that wages in the manufacturing sector have tripled during the last 10 years, and now average US$3.60 per hour.

"It has to relocate its labour-intensive industries to other countries as it moves up the value chain," he said, while elaborating that an astounding 85 million labour-intensive jobs will need to be migrated to BRI countries.

Koh took time to explain that the Chinese word通, which means connectivity and flow, was the principle behind the BRI. It's connecting and enabling flow for finances, infrastructure, policies, trade and people.

Helping Malaysian SMEs get ready for industry 4.0

Yu took up that theme. "We are trying to transfer technology from Tsinghua University to all the BRI countries." (Tus Holdings was formerly the Tsinghua University Science Park Development Centre that now develops and operates science parks associated with the university all over the world.)

"We will set Malaysia as one of the headquarters for our Southeast Asia business," promised Yu, adding that they intend to bring with them new innovations, new industries and new financial methods.

"We're actually trying to assist Malaysian SMEs, and help them in their industry transformation to become industry 4.0." Yu also opened the possibility of funding promising Malaysian companies, perhaps in the process even unearthing the next Baidu.

Yu also invited Malaysian companies to consider doing work in China. "As long as there is talent and innovation, the Chinese government will offer lots of policies and funds to assist you to grow your business," he said using the city of Suzhou in Jiangsu Province as an example.

"Just in Suzhou there are 112 research institutes and universities. And, you do not need to pay a single cent, it's all paid for by the Suzhou government," he said, promising the audience, “if you want to come to China and expand your market, I can assist you to land in any single city in China.

The Digital Free Trade Zone (DFTZ)

Another initiative that has been borne of greater cooperation between Malaysia and China is the Digital Free Trade Zone (DFTZ). Calling it a "bridge going to China", Song Hock Koon, director, eCommerce and DFTZ Malaysia Digital Economy Corporation (MDEC) promised that DFTZ would help Malaysian SMEs find export markets overseas everywhere, while positioning Malaysia as the regional hub in e-commerce logistics.

Song announced that the low-cost terminal in Aeropolis [the former AirAsia facilities] has already been renovated into the fulfilment hub and acts as the logistics centre of DFTZ with the satellite services upgraded to meet this new demand.

"A third component is the e-services platform," added Song. "To do their cross-border e-commerce, everything from e-marketing to engaging logistic services, to do e-declarations and including e-payment is being digitised."

Taken together, Song points out that all these services thus "makes it easy for even a first-time SME doing e-commerce to manage its cross-border logistics."

Opportunities for Malaysia

But the DFTZ represents only one area of opportunities made available. Koh also pointed out to other areas.

"You have to reconfigure your logistics and supply chain," he said, given that China plans to move its manufacturing capabilities to other countries.

The impact on Malaysia is that there'll be a reduced supply of cheap labor because the foreign labor Malaysia currently relies on is going to return to work in their own country. “They're not coming here," he predicts. To cope, he suggests that Malaysian companies should also tag along and move to these countries.

Koh stressed that Malaysia should look to its strengths. "We should capitalize on our Muslim status," he feels, referring to sukuk and halal products as examples.

Regardless of what Malaysian industries will decide to do, there is no stopping the flow from the Chinese side. Alibaba's electronic trading hub is already live as part of the DFTZ, and the WeChat mobile payment system will arrive in Malaysia in 2018, the first overseas market for the communications app that is part of the Tencent group.

As to how Malaysia will use its talent and creativity to take full advantage of this, it's yet to be seen but clearly the Chinese have confidence that the Malaysians will rise to the occasion and seize opportunity.

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