Introduction
A state-owned enterprise (SOE) priority in any developing country is improving social welfare. Many developing countries in the Asian continent have facilitated the public sector to make capital investments to provide people’s necessities and make their living conditions better. They have a crucial role in employment creation in rural areas, wages production, and even regional development (Lin et al., 2020). On the contrary, politicians and government bureaucrats control the management of these public sector units, thereby causing them to underperform. The era of China reforms started in 1978; since then, the country has risen globally in the modern world economy. One strategy launched by the Chinese government is Zou Chu Qu – going global. It has had a tremendous impact on both the world economic development and the growth of the Chinese Company (Gomez, 2020). The country’s most significant initiative is China’s Belt and Road Initiative. It facilitated the global economy through a project spanning sixty-five countries (Lin, 2021). Further, it is necessary to analyze in more detail the activities of Chinese organizations on the territory of Malaysia.
China SOEs in Malaysia
China has aggressively ventured into investing in Malaysia for profit-making due to favorable business conditions and existing good relationships. In 1974, Malaysia was the first ASEAN country to create a diplomatic relationship with China (Gomez, 2020). The economic exchange between the two countries preceded the diplomatic relations inform of remittances and migration. There are more than 150 Chinese state-owned enterprises in Malaysia. RRC corporation is the CRRC Rolling Stock Center Sdn, Bhd (CRM). It has a total investment of about RMB 400 million (Gomez, 39). Its roles revolve around rail solutions such as Mass Rapid Transit, Diesel Locomotive, testing, overhaul and refurbishment for Electric Locomotive, and production. CRRC Zhuzhou locomotive company is another state-owned enterprise that focuses on a new technology of public transport vehicles. They include electromechanical general contracting services, energy storage trams, and essential parts. Besides, roles are associated with urban rail vehicles, electric locomotives, maglev trains, battery-electric locomotives, and EMU/DMUs. Below effectiveness of Chinese enterprises in Malaysia will be considered.
Chinese Localized Strategies Used in ASEAN Countries
The way towards internationalization is associated with acquisition, mergers, equity investments, joint ventures, and green fields. The Chinese firm learns and acquires assets to tackle their competitive disadvantage. Usually, they get insights to manage a global enterprise brilliantly through technical knowledge and leading international brand (Lin, 2021, p. 77). They partner and engage in joint ventures with multinational enterprises from the developed countries operating in China. Several chine firms are enlightened about the global markets and have achieved a significant part of Chinese outward investment projects through equity joint ventures, mergers, and joint ventures (Shawtari et al., 2017). Many Chinese SOEs prefer a small representative offices route to determine the business venture before expanding the business.
Cultural Preference
China’s state-owned enterprises have invested heavily in Asia since many countries share identical cultural values enhanced by the Confucian philosophy and close to home. The basic dynamic in the personalized network of influence is the Chinese business culture of guanxi; it affects the choice of location made by the state-owned enterprise when they carry out their outward development initiatives (Lin, 2021). China prefers transacting in less codified regimes of network capitalism to the impersonality of markets and codified formality (Li et al., 2022). The root advancement of the Chinese firms results from established brand names, advanced technologies, and a large customer market. More investment activities are taking place in Asian developing countries, and these firms are pursuing their long-term globally-oriented strategies.
Challenges of Chinese SOEs in ASEAN Countries and Malaysia
It should be emphasized that Chinese organizations have certain difficulties in Malaysia. From August 17-21, 2018, Malaysian Prime Minister Mahathir Mohamad paid an official visit to China. Shortly before it, the new head of state, who took office just 100 days ago, signaled that he was ready to reconsider his policy toward China. This was signaled by his decision to impose a moratorium on three infrastructure projects involving China. It is a difficult decision, given China’s contribution to Malaysia’s economy, which ranks second on its list of Southeast Asian trading partners with a $70.6 billion trade turnover in 2017, up 20.6 percent from the previous year (Lin, 2021, p. 77). China is Malaysia’s second export market after the European Union and India.
Chinese investment in Malaysia is also growing rapidly, what is the reason for the spread of influence of organizations in the analyzed region. In the last decade alone, they have increased by 700% to $2.4 billion in 2017 (Lin, 2021, p. 77). This is the highest figure among Southeast Asian countries, a clear indication both of Malaysia’s own interest in attracting Chinese investment and of the special role China assigns to it in its overseas projects in Southeast Asia. China’s position in this small but strategically important country has noticeably strengthened in recent years.
Mega Projects
Recently, some Chinese mega projects have also been undergoing difficulties. Mahathir imposed a moratorium on the construction of the 688 kilometer East Coast Rail Link across the peninsula from east to west, from the South China Sea to the Strait of Malacca (Zhou et al., 2019). The cost of the facility, carried out as part of China’s “New Silk Road” project, is estimated at $20 billion (Zhou et al., 2019, p. 980). The contractor for the construction is China Communication Construction, a Chinese state-owned company. The lending institution is the Export-Import Bank of China, which provided a loan of $14 billion (Zhou et al., 2019, p. 983). Similar issues have arisen with two energy projects involving Chinese state-owned companies and financed by a loan from the Export-Import Bank of China, these projects have also been put on hold.
However, with China’s extreme interest in Malaysia for the implementation of ambitious “New Silk Road” and “New Sea Route” projects, M. Mahathir could count on strengthening his negotiating position. His goal was the same – to achieve a balance in economic relations with China. China agreed to increase its purchases of palm oil and agricultural products from Malaysia, and to open its market to Malaysian-made cars (Zhou et al., 2019). As for the frozen infrastructure projects, the intrigue remained until the last day of the visit. The parties agreed to cancel the disputed projects on the condition that Malaysia would pay compensation to the Chinese side.
Influence on Effectiveness
As a result of such actions of the Malaysian government, it is worth emphasizing that the efficiency of the income of state organizations in China is declining. The fact is that, in addition to budget cuts, there is also a decrease in the authority of corporations (Zhou et al., 2019). As a result, the Chinese side loses the advantage, and in some situations even freezes assets in order not to go bankrupt. At the same time, before the events described above, organizations developed quite rapidly, increasing their capital. The Malaysian market was under Chinese control by about 45%, which is an extremely successful indicator of economic activity (Zhou et al., 2019, p. 981). Probably, in order to regain the success of its activities, China needs to take into account the interests of the local government and the economic sector, and therefore make concessions. Otherwise, state corporations will soon begin to suffer losses, which means they will have to leave the country.
However, it must be emphasized that the presence of Chinese organizations for the Malaysian economy is ambiguous. On the one hand, this undermines the independence of the state and creates dependence on China (Zhou et al., 2019). On the other hand, local organizations receive an influx of funding, which strengthens the middle class of society, as well as expanding opportunities for entrepreneurship (Lin, 2021). State organizations of China are aimed not only at independent profit, but also at the interest of the Malaysian side in complicity in business processes (Zhou et al., 2019). Based on this, it is worth emphasizing that it is not worth breaking off relations between the two states, but the agreements should be reviewed. The most likely outcome would be the resumption of the projects described above.
Conclusion
For Malaysia, the Chinese organizations are not so much economic as political. However, the Malaysian government is trying to resist Chinese influence on the territory of its state, as can be seen from the actions of the head. However, it is clear that China’s economic expansion faces many challenges in Malaysia. This makes it very difficult for Chinese companies to carry out their activities and reduce their profits.
References
Gomez, E., Tham, S., Li. R., & Cheong. K. (2020). China in Malaysia. State-business relation and the new order of investment flows. Palgrave Macmillan, Singapore.
Kim, H., & Chung, K. (2018). Can state-owned holding (SOH) companies improve SOE performance in Asia? Evidence from Singapore, Malaysia and China. Journal of Asian Public Policy, 11(2), 206-225.
Lin, J. (2021). State-owned enterprise reform in China: The new structural economics perspective. Structural Change and Economic Dynamics, 58, 106-111.
Lin. J. K., Lu. X., Zhang. J., & Zheng. J. (2020). State-owned enterprises in China: A review of 40 years of research and practice. China Journal of Accounting Research, 13(1), 31-55.
Lee, K. (2017). Chinese firms and the state in the Reform Era.
Li, X., Bo. L., Shen. D., Soobaroyen. T., (2022). Bridging ‘Home’ political and economic rationalities with ‘Host’ demands and constraints: The case of regional Chinese state-owned multinational corporations. British Journal of Management, 1-13.
Shawtari, F., et al. (2017). Board characteristics and real performance in Malaysian state-owned enterprises (SOEs). International Journal of Productivity and Performance Management, 66(8), 1064-1080.
Siew, Y. (2017) Examining the shift to services: Malaysia and China compared. Journal of Contemporary Asia, 47(5), 728-751.
Zhang, C., Cheong, C., & Rasiah, R. (2018). Board independence, state ownership and stock return volatility during Chinese state enterprise. Corporate Governance International Journal of Business in Society, 18(7), 220-232.
Zhou, W., Gao, H., & Bai, X. (2019). Building a market economy through WTO-inspired reform of state-owned enterprises in China. International and Comparative Law Quarterly, 68(4), 977-1022.
