Introduction:

We are doing this report on Trade Relationship between China and Malaysia. This report is all about the situation of the trade pattern among the two nations and future opportunities. We will try to focus in our report-

1) Country profile

2) Macro-environmental Factors.

3) Goods that are traded in between.

4) Regional economic integration.

5) SWOT analysis of their economic condition.

6) Trade rules and Regulations.

7) International HRM policies

8) Competition analysis within the industries.

Country Profile- CHINA

Formal Name: People’s Republic of China

Capital: Beijing

Independence: The People’s Republic of China was officially established on

October 1, 1949, replacing the Republic of China government on mainland China.

Population: China officially recognized the birth of its 1.3 billionth citizen.

Languages: The official language of China is standard Chinese or Mandarin.

Economy Overview: After more than a quarter century of reform and opening to the outside world, by 2005 China’s economy had become the second largest in the world after the United States when measured on a purchasing power parity (PPP) basis.

Inflation: China’s annual rate of inflation averaged 6 percent per year during the 1990–2002 period. Although consumer prices declined by 0.8 percent in 2002, they increased by 1.2 percent in 2003. China’s estimated inflation rate in 2005 was 1.8 percent.

Economic indicators

GDP: US $3,250.8bn (est.) (2007)

GDP per capita: US $2,461 per capita (est.) (2007)

Annual Growth: 11.9% (2007)

Consumer prices: 7.1% 2007

Exchange rate: 13.7 Renminbi = £1

Main sources of GDP: Agriculture, Forestry and Fishing, Mining & Minerals, Industry & Manufacturing, Energy, Construction, Banking and Finance, Labor, Tourism.

Country profile- MALAYSIA

Formal name: Malaysia

Area: 329,758 sq km (127,317 sq miles)

Population: 27.5m (2008

Capital City: Kuala Lumpur (population: 1.5m); Putrajaya (Administrative Capital)

People: Bumiputra (mostly Malays) (66%), Chinese (25%), Indians (8%), Others (1%)

Languages: Bahasa Malaysia (Malay) is the national language. Other languages include Chinese, Tamil and Iban. English is widely used.

Religions: 55% Muslim, 17% Buddhist, 12% Taoist, 7% Christian, 7% Hindu, 2% Animist/Other

Currency: Ringgit Malaysia (RM)

Economy overview: Malaysia is one of South East Asia's more successful economies and one of UK Trade and Investment's High Growth Markets. Recent GDP growth has raised per capita income to US$6,721 in 2007.

Basic Economic Facts

GDP: US$195bn (2009 EIU estimate)

GDP per head (Nominal): US$6,721 (2007)

GDP per head (Purchasing Power Parity): US$13,314 (2009 estimate).

Annual Growth: 2007: 6.3% (actual); 2008: 4.6% (actual); 2009: 1 and 1% (Govt projected)

Inflation: 2007: 2.0% (actual); 2008: 5.4% (actual); 2009: 1.5-2% (Govt projected).

Exchange Rate: £1=5.26 Ringgit – variable

Major Industries: Electronics, Petroleum & LNG, Chemicals, Textiles, Palm Oil, Timber, Tourism

Trade relation between China & Malaysia

Bilateral relations, formally established with the signing of the Joint Communiqué on May 31, 1974, based on mutual respect have grown from strength to strength and have progressed by leaps and bounds. Those responsible for establishing the relations were ahead of their time and probably did not envision that the relations would flourish and blossom the way they have.

During the 1990-2000 period, trade between China and Malaysia recorded strong growth averaging 23% per annum. Malaysia’s exports to China recorded an impressive average annual growth of 23%. Imports from China too grew significantly at an average annual rate of 24% (Yeoh and Zhao, 2005: 1). During the period, total trade between the two countries grew fivefold, total exports increased fourfold and total imports increased fivefold. This positive trend indicates that there is immense potential for the two countries to further increase bilateral trade. In 2000, China was Malaysia's 8th largest trading partner (11th in 1990), accounting for 3.4% of Malaysia's global trade of US$180.4 billion (2.0% in 1990). China is an important market for Malaysia. Exports to China accounted for 3.0% of Malaysia's total exports while China was Malaysia's 13th largest source of imports, accounting for 1.9% of Malaysia's total imports. (See Appendix-Table: 1)

Bilateral trade between Malaysia and China reached $39.06 billion in 2008 an increase of 10.3 percent compared with 2007. Two-way trade was less than $100 million in 1974 when Tun Razak made the historic visit. China is now Malaysia's fourth largest trading partner and fourth largest export market. Most of Malaysia's imports come from China. China is also a very important destination for Malaysian investments. Last year Malaysia was the 19th largest foreign investor in China. There are numerous opportunities for Chinese investors in Malaysia. China welcomes them and encourages their participation in their success. China recently announced two packages of economic reforms relating to the services and financial sectors. These measures will make foreign investment easier and more attractive, and Malaysia would like to see an increase in the number and profile of Chinese investments.

(See Appendix-Table: 2)

Regional economic integration

In Malaysia

Malaysia’s rapid economic development is going to deliver real benefits rather than pose threats to its Asian neighbors, including ASEAN countries. Malaysia has become a very active participant in regional economic co-operation and integration in recent years. The objective of the initiatives is to let other Asian countries share the economic achievements that Malaysia has made in the past decades. The country has demonstrated its strong willingness and commitment to regional integration such as establishing a free trade area with ASEAN (Association of Southeast Asian Nations) countries and proposing such an area with Japan and South Korea in recent years. Regional economic integration is a kind of sharing that Malaysia wants to show its responsibility to create common prosperity and development in Asia.

In China

Economic development has generally been more rapid in coastal provinces than in the interior, and there are large disparities in per capita income between regions. The three wealthiest regions are along the southeast coast, centred on the Pearl River Delta; along the east coast, centred on the Lower Yangtze River; and near the Bohai Gulf, in the Beijing–Tianjin–Liaoning region. It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole, and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions.

Economic Integration Between the countries

China and Malaysia have much in common. The two nations share similar aspirations and objectives to ensure lasting peace and stability in the region. China has demonstrated that it is a responsible economic power. It won the appreciation and trust of Asian nations during the financial crisis in 1997-1998 by not depreciating its currency. If it had it would have made the already difficult situation even worse for the affected nations, including Malaysia.

Today, the two countries can work together to deal with the global economic recession. There are several ways in which this can be done. Among them is to ensure that the domestic demand in both our countries remains high. An increase in Chinese domestic demand will help the export sectors of countries in the region and their recovery.

Major trade items between Malaysia and China

China and Malaysia share a long history of trade tracing back to antiquity, when the famous navigator of the Ming Dynasty, Zheng He, sailed the Indian Ocean. Chinese merchants exchanged silks and satins, cloth, ceramic ware and other goods for the local products of the Malay Peninsula such as rhinoceros horn, ivory, bird's nest, and spices. Since the establishment of diplomatic ties between China and Malaysia in 1974, trade relations have improved steadily and in 1985, the first inter-governmental protocol on avoiding double taxation was sealed. This was followed by bilateral agreements relating to science, technology, education, economy, trade and others in quick succession. These protocols form a steady foundation for the further development of bilateral exchanges, and trade relations have since experienced fairly rapid progress.

During the last three decades, the composition of Chinese exports to Malaysia has changed considerably. Whereas agricultural products, cotton fabrics, and similar items made up the major exports in the past, the proportion of machinery and electronic products has been increasing in recent years. In 2007, machinery and electronic products made up two-thirds of the Chinese exports to Malaysia. Similarly, Chinese imports from Malaysia, consisting largely of primary products such as palm oil, plastics, logs, crude oil, refined oil, and rubber, are shifting increasingly towards electronic and manufactured products. In 2007, China spent $3.8 billion on machine and electronic products or 62 per cent of the total imports from Malaysia (People's Republic of China Customs Dept., 2007). (See Appendix-Table: 3)

Trade between the two countries could be further enhanced in terms of volume and range of products traded. Malaysia has over the years broadened and deepened its manufacturing base and Malaysian companies are capable of producing quality products competitively. Products that can be sourced from Malaysia include:

- Computer software and hardware;

- Processed food; machinery, parts and components;

- Telecommunication products;

- Plastic household products;

- Medical products;

- Construction materials such as plywood, sawn timber, interior decoration products;

Macro-environmental Factors

China

Ø Promote sustained and rapid development of national economy;

Ø Constantly improve social security and assistance system;

Ø Achieve more harmonious development of economy and nature;

Ø Build modern infrastructures following a guidance of “industry promoting strategy, urban areas promoting rural areas”;

Ø Improve physical conditions for rural development and increase labors income;

Ø Develop social undertakings, and bring up new type of business opportunities;

Ø Gradually realize a coordinated socio-economic development in urban and rural areas.

Malaysia

Ø The quality of national leadership is a crucial factor.

Ø Major improvements in education and health.

Ø Increased female enrolments.

Ø Effective and efficient utilization of progressive technology.

Ø Excellent environmental condition.

Ø Friendly cultural environment.

Ø Malaysia is among the most friendly and hospitable places in the world to work and live in.

Ø Malaysians are warm, friendly people who easily accept foreigners into their circle of society.

Ø Supportive government policies.

Ø Educated and trainable workforce.

SWOT analysis in terms of economic condition

China

Strength

Key Money Recipient and Direct Foreign Investment

·         Leads world in direct foreign investment - $135 billion.

·         Foreign invested companies represented 31.5% of all China's exports (or about $46.9 billion).

·         Will be one of the world's six largest economies by 2020 with Japan, Indonesia, India, and Korea and the U.S., according to the World Bank.

Large Population Base and Potential Customers

·         World's most lucrative market of which China represents one-sixth of the world's population.

·         Per capita consumption is low, but with a large population, opportunity is incredible, especially for low-end products. Also represents large future potential as buying power is increasing rapidly.

Available Labor Base

·         Surplus labor in rural areas and impoverished farm lands (Gao, 1994) and growing 10 million per year. Estimated to reach 250 million by 2000.

·         Lower wages than Japan and Taiwan.

Favorable Government Policies

·         Committed to economic growth at the national policy level.

·         Overseas-funded enterprises are granted equal status as domestic enterprise

Weakness

Bottlenecks

·         Hard to control distribution of products.

·         Some disorder in the financial sector.

·         Energy, transportation, and important raw materials have remained issues slowing growth.

·         Agriculture lacks staying power. Production in cities has displaced rural workers.

Infrastructure

·         Railways, roads, communications, and power supply are below standard.

·          Employees need customer service training.

·         Lack of electricity, fuel, and raw materials.

·         Lack of modern pollution control. Sewage, industrial waste, and pollution are growing problems, and China is home to four of the world's ten dirtiest cities.

Opportunities

Direct Investments or Joint Ventures

·         To provide advanced technology that can be mastered by the Chinese.

·         Equity and contractual ventures provide quicker access to the market. Partners in China can help with the bureaucracy, customer base, and distribution.

Financing Infrastructure Projects

·         Opportunity to increase the available electricity to more than 120 million rural citizens without electricity.

·          Need for overseas investment in coastal ports since more than 90% of exports are carried by sea.

Threats

Long-Run Success

·         Effectiveness of investments in China will only be evident in the long-run and policies make it hard for non-China companies to make money.

Reporting and Accounting Standards

·         Fall behind Western requirements.

Malaysia

Strength

Developed Infrastructure

• Malaysia's persistent drive to develop and upgrade its infrastructure has resulted in one of the well-developed infrastructure among the newly industrializing countries of Asia.
• The transport facilities offered are on par with the best the world over.

Efficient Seaports

• International trade, especially seaborne trade, has traditionally been the lifeblood of Malaysia.
• Today, more than 90% of the country's trade is by sea via Malaysia's seven international ports.

International Airports

• Malaysia's central location in the Asia Pacific region makes her an ideal gateway to Asia.
• Cargo import and export procedures are fully automated at the Airports to cut down delivery time.

Developed Industrial Parks

• Industries in Malaysia are mainly located in over 200 industrial estates or parks and18 Free Industrial Zones (FIZs) developed throughout the country.
• Fully equipped with infrastructure facilities such as roads, electricity and water supplies, and telecommunications, are continuously being developed by state governments as well as private developers to meet demand.

Specialized Parks

• Specialized parks have been developed in Malaysia to cater to the needs of specific industries.
• Technology Park Malaysia is among the worlds most advanced and comprehensive centers for R&D by knowledge based industries.

Weaknesses

• Weaknesses in the external environment, the need for Malaysia to drive economic growth through domestic demand and domestic growth engines cannot be overemphasized.
• Malaysia has the lower capacity to leverage its supply side and demand side of the to further Strengthen the domestic economy and sustain economic growth.
• The services sector is expected to sustain relatively low growth in 2008 due to lower disposable income and slighter support from various services sub-sectors such as tourism, transportation, banking and finance, information and communications technology (ICT) and manufacturing-related services

Opportunity

• APEC, the Asian Pacific Economic Cooperation Forum, leaders have a vision to create the world's biggest free trade region for developing countries in Asia by 2020.

·         Tariffs cut on computers, semiconductors, and telecommunications equipment and other information equipment to boost competitiveness.

·         Substantially eliminate technology trade tariffs for the $1 trillion of information technology produced each year of which50% is exported.

·         Easy-to-target bottleneck industries of energy, communication, and transportation.

Threats

• The main threats for Malaysia as an outsourcing haven mainly comes from the fact that she is loosing her competitiveness as a low-cost, low-wage producer.
• Malaysia is increasingly facing the threat from lower cost producers within the region. These include nations such as Thailand, Myanmar, Indonesia, and China.

·         Cultural Differences and Tradition.

Trade rules and regulations and restrictions

Trade rules in Malaysia

Tariffs have continued to be the main border measure affecting Malaysia's import trade throughout the post-independence period. By the mid-1990s, only a 4.5 per cent of all tariff lines had non ad valorem tariffs, and this declined further to 0.7 per cent by 2002 because of the further rationalization of the tariff structure following the signing of the WTO Agreement in 1995. There are no tariff quotas or variable import levies.

Malaysia has bound only 65 per cent of its tariff lines as part of its WTO commitments. Moreover, the bound rates are much higher than the applied MFN rates (WTO 2002). Both these features of the tariff structure have provided the government with scope to raise applied tariffs, imparting a degree of uncertainty to applied tariffs. The tariff increases introduced in 1998 have resulted in a mild, yet notable, reversal in the declining trend in the average nominal tariff rate maimed from the mid-1980s. 

Effective Protection for Import-Competing Production

As noted in the previous section, the tariff structure in Malaysia is "cascading", that is, tariffs are generally higher on final goods than on production inputs (intermediate and capital goods). An important implication of this cascading tariff structure is that the nominal tariff rates do not provide an accurate picture of the resource allocation effects of the overall tariff system. Under a cascading tariff structure, the resource allocation effects of the tariff structure on a given product sector depend not only on the tariff rate applicable to that sector but also on tariffs on all other sectors which provide production inputs (intermediate and capital goods) to the sector, both directly and indirectly. The analytical tool used for this purpose is the effective rate of protection (ERP). The ERP measures the proportionate increase in per unit value added of a given industry/sector due to the complete system of tariffs. More specifically, it takes into account the protection on output and the cost-raising effects of protection on inputs. 

Export Taxes and Subsidies 

Some primary products, notable forest products, crude oil, and selected palm oil products are subject to export duties. In 2000 these duties contributed to about 2 per cent tax revenues. A few agricultural products are also subject to prohibitions, restraints, and licensing requirements. There are no export duties on manufactured products. On the contrary, assistance is provided to manufactured exports through import tariff concessions, tax exceptions, export credit, export insurance and export credit guarantees, export promotion, and marketing assistance. In addition, Malaysia maintains two types of facilities for export processing with minimum customs formalities; licensed manufacturing warehouses and free trade zones. Malaysia is committed to phasing out these export subsidies in the manufacturing sector over eight years, to bring them in conformity with the WTO Agreement.

Non-tariff Barriers (NTBs) 

There are no import quotas in Malaysia and the existing import prohibitions are limited only to those implemented for national security reasons. The average NTB-coverage of import trade is relatively low by the regional standards. However, some agricultural and industrial products have continued to remain under import licensing. Consequently, the number of tariff lines subject to non-automatic import licensing requirements increased from 17 per cent in 1996 to 27.3 per cent in 1997 (WTO 2002). There are no estimates of the actual import restraining effect of these controls. 

Non-border Measures Affecting Foreign Trade

The services sector, which accounts for over half of GDP, is not as open to trade as agriculture and manufacturing. Foreign commercial presence is by and large confined to joint ventures in which combined foreign ownership cannot normally exceed 30 per cent, although there has been modest relaxation of foreign ownership restrictions in telecommunications. Moreover, there are tight restrictions on the involvement of non-citizens in professional services and the recognition of overseas professional qualification. 

Trade rules in China

Continued trade liberalization has remained an integral part of the China's long-standing structural reform strategy, which is aimed at establishing an outward-oriented "socialist market economy" that can deliver sustained economic growth and facilitate poverty reduction.  The ongoing structural reforms coupled with unabated export growth has resulted in real GDP growth rates in excess of 10% since China's previous Trade Policy Review in 2006.  As a result, it ranks as world's third largest economy and the third largest trader. The rapid rise in GDP per capita and decline in people living in poverty demonstrate clearly the value of integrating more liberal trade and foreign investment policies into broader macroeconomic and structural reforms in order to promote economic development.

Trade Policies & Restrictions

1)      China’s Government's attention is now turning to services (and, to a lesser extent, agriculture), which tend to be much more labor-intensive than manufacturing.  If sufficiently competitive, services have the potential in the long run to generate new jobs for surplus labor currently located in rural areas.  Progress has been especially noteworthy in the financial services sector (including banking), whose development is essential for the establishment of a smooth-functioning capital market, which can contribute to a more efficient allocation of investment across all sectors of the economy and thereby to improved productivity and growth.

2)      Agricultural policy has traditionally been aimed at ensuring an adequate supply of food at stable prices.  To meet this goal, procurement, distribution and marketing restrictions are used in addition to measures such as price controls and import and export restrictions. China continues to use state trading to manage trade of some products.  Despite liberalization, direct management remains an important instrument of Chinese policy making.  In particular, the domestic prices of some products are subject to controls, principally to maintain the stability of supply and prices.  Furthermore, to achieve a high degree of grain self-sufficiency, and thus food security, procurement of grain is, to some extent, controlled by the Government.

3)      China's energy policy is also aimed at self sufficiency by supplementing domestic supplies of primary energy through imports and by encouraging state-owned enterprises (SOEs) to invest in energy-rich countries, and more recently through the establishment of strategic oil reserves to stabilize domestic supply and prices.  China's markets for energy products are at different stages of reform.  While the Government has, in general, adopted a more liberal approach to economic policy, it regards energy as a strategic commodity and has therefore adopted a gradual approach to reforming the sector.  As a result, consumers remain insulated from the global markets, while trade restrictions and regulatory barriers protect domestic producers from international competition.

4)      While the Government's intention is to open the services sector further to private and foreign participation as a means of boosting growth and providing alternative employment to agriculture, the pace of liberalization has been slower than that for manufacturing.  As a result, most services sectors are still subject to a high degree of state control and, therefore, lack of competition.

5)      Since 2006, China has issued various regulations and rules concerning telecommunications, including:  those aimed at clarifying licensing requirement for foreign investment in value-added telecommunication business, and stipulation that e-mail service providers must obtain approval or register before actually providing the service.  Prices have been liberalized considerably, except for a few items, such as monthly rental charges and local call charges, and foreign participation limitations exist.

6)      Limitations to foreign participation still exist for maritime and air transport, legal and accounting, tourism, and postal services.  As an important step in the reform of the latter, the China Post Group Corporation was formally established on 29 January 2007, marking the formal separation of business activities from the administrative functions of the State Postal Bureau.

Internatinal HRM Policies

In China

HR policies in China are divided in accordance with national laws and local laws. This format has made the implementation of HR policies complicated and thus, varies between firms. In recent years, Chinese labor laws have undergone certain changes in accordance with the laws of developed countries like USA and UK. HR policies in China for general HR issues like Recruitment, Termination is as follows:

Recruitment policies in China 

Types of employees recruited by companies/firms in China include on a broad category of – Locals, Non Resident Chinese seeking jobs in China, foreign nationals trying to establish themselves in China. 

Recruiting Locals Various firms, particularly outsourcing, joint ventures or Multi Nationals prefer local population because of the lower cost to company even for high ranking management positions. 

Recruiting Non Resident Chinese Non Resident Chinese are often preferred by companies because of a mixed combination of local knowledge and foreign expertise. 

Recruiting foreign nationals Foreign companies setting up branches in China seek foreign nationals in the beginning. More precisely people from Hong Kong and Taiwan are preferred. 

HR Termination Policies 

Although laid down very briefly in both national and local legislations, termination policies have been a complicated issue in China. However, in recent years implementation of these laws has been more rigorous owing to a rise in labor rights consciousness. The laws for termination include the following primary guidelines: 

1) A 30 days notice citing the cause of termination has to be given.

2) The causes for termination will include: incompetence, violation of company rules or criminal offence, bankrupting the employer and redundancy.

3) The following reasons are not applicable for termination: Pregnancy/nursing, disabilities, injuries, illness. 

HR policies in China are undergoing gradual positive up gradation. 

In Malaysia

HR policies in Malaysia, to a large extent are responsible for the rising growth rate. The labor force in Malaysia ranges around 10 million people. Among all the sectors, Hospitality and Tourism are the largest employers, employing a major chunk of the total labor force. Employment rates are very low in Malaysia. However, in the services sector, particularly in IT, and other hi tech jobs.

Recruitment Policies 

As per Labor Laws of Malaysia, employers can only hire local Malay citizens for a particular post. A contract of services has to be signed between the employer and employees. Foreign workers recruited should contain all the legal papers and work permit required for working in Malaysia. Foreign companies are allowed to hire expatriates only if there are no skilled persons available locally. 

Termination Policies 

As per Labor Laws of Malaysia, an employee’s service can be terminated only in the occasion of breach of the contract of services and in the occasion of negligence or misconduct. An employee on the other hand can terminate his/her services upon the non payment of salary after seven days from the last date of salary payment. Termination can also take place at the end of contract of services. 

Pension and other Benefits 

The pension system in Malaysia is carried through the Employee’s Provident Fund, which is entitled to monthly contributions by both employer and employee during the service period. After attaining retirement, the employee is eligible to receive he pension funds. Also, the employee can only receive his/her pension only if he or she has contributed to the Provident Fund for a minimum period of five years. 

For foreign workers, the Human Resources Ministry has also chalked out a benefit plan. According to this plan all the employees are required to provide insurance to their foreign employees through one of the four insurance companies operational in Malaysia.

Diagnosis the competition within industries

Judging from the current favorable situation in bilateral relations, the total volume of China-Malaysia trade is likely to rise steadily. The Chinese embassy in Malaysia envisages that in the next ten years the composition of bilateral trade will consist largely of mechanical, electronic, "high-tech", chemical, and precision medical products as well as resource, agricultural, and textile products.

The current trade pattern is such that electronic products account for more than 60 per cent of Malaysian imports and exports. However, despite its fairly solid industrial foundation, Malaysia's ability in research, design and development of new products is rather limited. Similarly, Malaysian industries generally do not engage in the production of complete sets of machinery or other manufactured products. China, on the other hand, is relatively advanced in heavy industries and exports heavy mechanical equipment and machineries to many countries. 

In steel industry, the RCA index of China is much higher than that of Malaysia, meaning that China enjoys distinctive comparative advantage over Malaysia. Malaysia's annual iron-smelting capacity is only 1.9 million tons, steel-making capacity 7.7 million tons, and steel-rolling capacity 9.8 million tons. (Department of Statistics, Malaysia, 2007).

With respect to primary commodities, Malaysian palm oil, natural rubber, and tropical timber account for a considerable share of the global market. Malaysia is fairly rich in petroleum and natural gas but deficient in coal. On the other hand, petroleum, natural gas, and timber are relatively scarce in China, while reserves of coal are enormous. Hence the potential market for primary and energy products is both large and promising. China is a growing market for Malaysian palm oil and imports have increased steadily from 2.4 million tons in 2002 to 3.0 million tons in 2005. With its large population and rapid development, it is certain China will need increasing quantities of palm oil in the future. In the area of energy, given the rising cost of natural gas and petroleum, Malaysia may gradually reduce its reliance on these energies and turn to coal instead. It is estimated that the Malaysian demand for coal may double the current level to reach 19 million metric tons in 2010. By then coal is estimated to account for 37 per cent of the Malaysian energy structure (Analytical Report on Chinese Foreign Trade Services. 2004). Malaysian coal output is too low to meet domestic needs. It imported 4.2 million tons of coal and related products in 2001, and China's export only accounted for 5 per cent of this volume. It is obvious that there are bright prospects to raise this share. Additionally, Malaysia is rich in oil but relatively weak in the petrochemical industry (Department of Statistics Malaysia, 2004).

In the trade of agricultural products, China has very strong complementarily with Malaysia because China has a vast territory capable of producing a variety of temperate and subtropical crops and fruits. China is turning increasingly to agricultural science and technology to improve the quality of agricultural products and to reduce production cost. Many products enjoy price competitiveness in the Malaysian market. Many Chinese agricultural products such as maize, garlic, peanut, and mushroom have traditionally enjoyed a fair share of the Malaysian market. 

Chinese export of medical products to Malaysia offers prospects for substantial expansion too. With the fairly large population of Chinese in Malaysia, the market for traditional Chinese medicine is considerable. Traditional medicine including health products account for 20 per cent of Malaysian market in medicinal and pharmaceutical products (China Medical Health Products Import-Export Association, 2002). So the prospects for an increase in the export of medicinal products to Malaysia, especially patented Chinese medicine, are optimistic.

Conclusion

The basic reason for the rapid expansion of economic and trade relations between China and Malaysia since the establishment of diplomatic relations lies in mutual political trust, economic complementarily and market expansion. Bilateral co-operation plays a crucial role in deepening economic ties among countries by eliminating obstacles and formulating enabling rules within a broad institutional framework. Two-way ties will be further enhanced by the trend towards regional co-operation in East Asia especially under the constructive framework of CAFTA. As CAFTA reaches full maturity, China-Malaysia relations will enter a new phase of development characterized by an unprecedented level of economic interdependence.

China and Malaysia complement each other in the fields of machinery and electronics, textile and clothing, steel, crude oil and mining products. Trade complementarily serves as a solid base for economic co-operation between China and Malaysia. Judging from the current favourable situation in bilateral exchange, the total volume of China-Malaysia trade is likely to rise steadily. Both countries should play their respective roles in promoting two-way trade, as well as to improve the trade structure and innovate new forms of bilateral co-operation.

Recommendation

Since the trade complementarily between the exports of China and the imports of Malaysia is relatively small, the trade balance has always worked to the disadvantage of China. The trade deficit may be reduced as the structure of trade changes. On the one hand, China can continue to expand the export of its products that are competitive such as clothing, fabrics, "high-tech" products, coal, steel, maize, and garlic. These industries should seek further expansion through improvement of quality and standardization. Additionally, research to understand trends of the Malaysian market must be intensified in order to create trade opportunities for existing and new products and to open up new market avenues through trade fairs and other means.

An area in which China & Malaysia needs to pay attention is improvement of the quality of their exports through branding and advertisement to improve market competitiveness. The first requirement would be the standardization of products and the elimination of inferior and fake goods and greater attention to such issues as the expiry date of products. Adoption of an agent system in foreign trade would also reduce unfair competition and to guarantee the quality of all the products. Improvements in design and packaging of products to enhance their "image" are essential in winning consumer acceptance

In the near future, there is also the possibility of trade flows comprising of oil and natural gas through shipping or pipelines from Malaysia and other Southeast Asian countries to China. As a country with rich reserves of petroleum and natural gas that is physically close to China, the construction of pipelines linking China and Malaysia to meet China's mounting demand for oil and gas seems to be a distinct possibility.

References

1)      http://www.malaysian-chinese.net/e/action/ShowInfo/?classid=13&id=999

2)      www.encyclopedia.com/doc/1P2-16587751.html

3)      www.fas.org/sgp/crs/row/RL31403.pdf

4)      www.allbusiness.com/business_planning/.../3776349-1.html

5)      www.chinadaily.com.cn/china/2009malaysia/.../content_7961842.htm

6)      www.unescap.org/tid/projects/tradeissue_s2fung.pdf

7)      www.eai.nus.edu.sg/BB460.pdf

8)      www.highbeam.com/doc/1P1-73576798.html

9)      www.encyclopedia.com/doc/1P2-16587751.html

10)  www.dur.ac.uk/resources/china.studies/Emile%20Yeoh.pdf

11)  www.aseansec.org/3003.htm

12)  www.thestar.com.

13)  www.hku.hk/cas/cap/China-ASEAN%201999/Ahmad.pdf

14)  www.cftc.org.cn/en/zhuanti/view.asp?id=3600