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Opportunities and risks: Malaysia and great powers’ geo-economic plans

Geo-economics is the study of the global movement of capital, markets, and labour. Therefore, the concept of geo-economic plans revolves around how globalisation interacts with variables such as demography, geography, and the after-effects of countries’ international trade and commerce policies.

The idea of dominance and influence projected by state actors has changed since the 1800s. The advancement of technology has seen the projection of power shifting from military power during wartime to economic power during peacetime. Hence, geo-economics, at some point in the 1970s, was considered the beginning of multilateralism, or in modern terms, globalisation.

Geo-economics can be defined as the combination of economic and geographic factors relating to international trade, and the development of logistics and trade networks has led to countries once far apart becoming close trade partners. The peacetime period saw a shift in economics, which triggered a shift in demographics, the ease of labour migration, and the rise of economic opportunities.

Two key players, the United States of America and China, are central to international discussions on modern geo-economic strategies. Smaller states, such as Malaysia, are therefore required to strategise their policies to leverage the great powers, such as the US and China, in terms of these great powers’ geo-economic plans.

The post-Cold War period saw the US presenting itself as the hegemon of world trade, especially through its relations in the Western bloc. This transition led to stable geopolitics evolving into mobile geo-economics. Currently, the US aligns its geo-economic plans through several key mediums such as trade agreements, development assistance, sanctions, and financial measures.

The US has been involved in several key agreements, namely the Build-Back-Better-World (B3W), the United States-Mexico-Canada Agreement (USMCA), the Trans-Pacific Partnership (TPP), inclusive of the Comprehensive and Progressive Agreement for TPP (CPTPP), and the trade agreements between the US and the European Union (EU).

As of 2022, it was recorded that the US had increased both its direct investment abroad from US$3.85 trillion to US$4.02 trillion in Europe alone. They also marginally increased the foreign direct investment (FDI) by European counterparties from US$3.25 trillion to US$3.39 trillion. The sustainability of both direct investments abroad and FDI in the US can also be seen across the board, including in the Asia-Pacific region; Canada; Latin America and the Western region; the Middle East; and Africa.

However, despite the promising returns, US-led programmes such as the TPP, which involved 12 Pacific Rim countries, experienced a significant setback after the US withdrew from the agreement in 2017. This left Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam having to work on a revised version known as the CPTPP.

China’s geo-economic strategy can be seen through its integration into the world economy. China’s geo-economic strategy was made famous with several brandings, such as ‘cheap labour’ and ‘Made in China’. However, China’s domestic market powered the country’s development, attracting FDI, second only to the US during the 1990s. Rivalling the Western bloc, China ran its geo-economic plan through flagship projects within the Belt and Road Initiative (BRI) policies.

The annual inflow of FDI to China between 2012 and 2022 has risen steadily. It has increased significantly, especially after the pandemic years, from US$149.34 billion to US$189.13 billion as of 2022. However, the annual outflow as of 2022 has shown some volatility, with the outflow hovering around US$148 billion in 2022, not surpassing the all-time high reached back in 2016 of nearly US$200 billion.

China’s geo-economic strategy is therefore significantly reflected through the alignment of its BRI, overall trade and investments, and the development of its technology in the countries it has invested in through fronts such as Huawei, Tencent, Alibaba, and Geely.

Malaysia, as a smaller state, strategically positions itself within regional and global economic settings by balancing relationships with great powers like China and the US. This balancing act is often influenced by the prime minister in office, with Malaysia currently leaning towards China, a trend that gained momentum under former Prime Minister Datuk Seri Najib Razak.

Malaysia’s geo-economic strategy is evident through its involvement in agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Indo-Pacific Economic Framework (IPEF). Additionally, domestic plans such as the Madani Economy Framework and the New Industrial Master Plan (NIMP) 2030, launched by Prime Minister Datuk Seri Anwar Ibrahim, aim to significantly boost Malaysia’s GDP, employment, and median salary.

The study highlights Malaysia’s foreign direct investment (FDI) figures with the US and China, noting an increase in US FDI from US$12.59 billion in 2021 to US$13.20 billion in 2022, and China’s FDI rising from US$10.36 billion to US$12.05 billion in the same period. China’s influence is further seen in the automotive sector, with Geely’s acquisition of shares in Proton leading to significant growth in Proton’s sales and expansion into new markets.

To mitigate risks associated with over-reliance on China, Malaysia has sought to engage with US tech giants like Google, Amazon, and Microsoft, securing substantial investments to transform Malaysia into a hub for future industries.

These efforts are part of a broader strategy to maintain a balanced relationship between the US and China, especially considering concerns over China’s Belt and Road Initiative (BRI) and its impact on countries like Pakistan and Sri Lanka. Pakistan and Sri Lanka now account for an estimated 13–23 per cent of their foreign debt to China.

The benefits of Malaysia working with the US in terms of FDI include access to the US’ foreign policy-related programmes. The US’ foreign policies and funding have helped Malaysia better prepare to address issues such as illegal fishing in the South China Sea. This was reflected in the conversion programme of the Royal Malaysian Air Force transport aircraft (CN-235) into Maritime Surveillance Aircraft (MSA). Small states such as Malaysia need to align their foreign policies and geo-economic strategy to remain impartial and hedge between the great powers.

Malaysia has shown indicators of intent to rebalance the dynamics with great powers’ geo-economic plans, particularly through the inclusion of US-based companies such as Google, Amazon, and Microsoft, and their sizable investments in Malaysia. This is to balance China’s own investments through Huawei, Tencent, Alibaba, and Geely.

Malaysia, as a small state, hedges between the great powers, and this translates into its own policy alignment via NIMP 2030 and the Madani Economic Framework. Although Malaysia’s geo-economic plan focuses more on the acceptance of FDIs, Malaysia, as a small state, can play a critical role in balancing the powers of the US and China in the region.

Colonel Khairul Anwar Soib is a senior officer in the Malaysian Army and is currently attending the National Resilience Course at the National Centre for Defence Studies.

The views expressed here are the personal opinion of the writer and do not necessarily represent that of Twentytwo13.