Thursday, May 5, 2011

The China Effect

Penang is afflicted with what Time magazine calls the China Effect. “After ferociously sucking jobs and investment out of Southeast Asia over the past two decades, the China Effect is now lifting once declining industrial hubs like Penang out of their long economic slump” (April 25, 2011, p 40).

"Penang’s nascent boom is partly fueled by Western manufacturers wary of China’s rising costs; it also stems from dramatic changes in China’s economy that are redirecting trade flows across the region. Not all the companies relocating to places like Penang are Western multinationals; in fact, many are Chinese firms. As salaries and spending power in China rise, the Chinese are importing more goods from the rest of Asia. At the same time, those rising salaries are forcing China to outsource more of its low-end manufacturing” (ibid).

Penang topped the investment charts in Malaysia last year, with the highest ever inflow of investments totaling RM12.2 billion, a 465 per cent hike from 2009. “We’ve worked our butts off to get investment in,” said Penang chief minister Lim Guan Eng to Time (p 42).

Wow, this success by Penang in drawing in RM12.2 billion is an extraordinary vote of confidence for DAP’s Lim Guan Eng and the PR state government of Penang. But lest we get carried away, the above also tells us that our wages are still abysmally low. I cannot defend low-end manufacturing in Malaysia because this means low wages. For sure, I do not support low wages! We should be moving up the value chain. And Penang should lead the way.

Another way of looking at this new-found success of Penang is not just from a purely cost perspective. ‘The Pearl of the Orient’ has a host of additional competitive advantages in the new manufacturing race, from logistics to geography. As Time highlights, the island of Penang, for instance, has wide roads, a steady stream of university science graduates, an efficient power supply and a modern airport from which goods are flown around the world. As Purushothaman of National Instruments claimed “From Penang, we can get our products anywhere in 48 hours.” Plus the fact that Penang has inherited the British legal system from their former colonial masters. “…companies feel comfortable with the intellectual protection measures and legal system in Malaysia,” says Lee Kah Choon, chairperson of Invest Penang, a government-run investment promotion agency (ibid).

Economic growth should never depend on the perpetuation of a low-wage regime. Regrettably, Malaysia does. It is time that Malaysians are equitably rewarded for work done. Indeed, Malaysian workers deserve fair wages. Over to you, Lim Guan Eng!


Frankie said...

All things being equal, you cannot take away the credit that is due to the Lim Guan Eng and his state government in reviving Penang's economy. Johore could have gotten a lion's share of the foreign investment considering its logistical infrastructure (eg. Tanjung Pelepas, Senai Airport, etc) but it did not. I think you have missed out the single most important factor why Penang is successful to-date, which is, an honest and transparent state government. Investors will only invest in a state or country if the investors have confidence they will be treated fairly.

Glam said...

Certainly, I won't dispute your contention that Penang is what you have described - i.e. it is blessed to have a government that is honest and transparent.