How China’s slowdown may spill over to Malaysia

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry. — Bloomberg

CHINA’S stuttering economic recovery post-Covid-19 pandemic reopening has stirred concerns that a protracted deep economic slowdown will have global repercussions, given its interconnectedness with each and every economy in this globalised world and transmission to both emerging and developed countries through different channels.

A slowing China economy is a bane for the world economy. While the global economy continues to gradually recover in 2023, the growth remains weak and low by historical standards, and the balance of risk remains tilted to the downside. It is not out of the woods yet.

Global manufacturing and services activities are losing momentum. Global trade, especially exports, remain in the doldrums, weighed down by weak consumer and business spending amid a continued inventory adjustment in the semiconductor sector.

Prices of commodities and energy have also softened. Global monetary tightening has started to weigh down on activity, credit demand, households and firms’ financial burden, putting pressure on the real estate market.

A slew of disappointing economic data for two consecutive months (June and July) from China indicated that the world’s second-largest economy (17.8% of the world’s gross domestic product or GDP) is indeed losing steam.

Falling exports, weak consumer spending, slowing growth in fixed investment and continued concerns about the property sector have dampened the recovery.

The emergence of deflation concerns adds to the complexity of China’s flagging recovery.

The Chinese government has provided a range of strategic measures aimed at targeting specific sectors.

These range from consumption (spending on new energy vehicles, home appliances, electronics, catering and tourism) to the property sector (reducing down-payment ratios for first-time homebuyers, lowering mortgage rates and easing purchase restrictions for buying a second house) and tax relief measures to support small businesses, tech startups and rural households.

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry.

Prior to the Covid-19 pandemic, China was the world’s most important source of international travellers, accounting for 20% of total spending in international tourism (US$255bil overseas and making 166 million overseas trips in 2019).

We consider three channels through which China’s slowdown can have spillover effects on Malaysia via direct and indirect transmissions: trade and commodity prices, services and financial markets.

Overall, the estimated impact of a 1% decline in China’s GDP growth could impact about 0.5% points on Malaysia’s economic growth.

Trade is the most important channel as China has been Malaysia’s largest trading partner since 2009, with a total trade share of 16.8% (exports share: 13.1%; imports share: 21.2%) in the first half of 2023 (1H23).

Spillovers from slower China demand and commodity prices are negative for Malaysia, a net commodity exporter.

After recording seven successive years of increases in exports to China since 2017, Malaysia’s exports to China declined by 8.8% in 1H23.

In sectors such as tourism, China’s tourists are one of the major foreign tourists in Malaysia. In the first five months of 2023, Chinese tourists totalled 403,121 persons or 5.4% of total international tourists in Malaysia, and was only 12.9% of 3.1 million persons in 2019.

According to the Malaysia Inbound Tourism Association, though the number of Chinese tour groups coming to Malaysia has increased in July and August to between 800 and 1,000 for the summer vacation, the number of tourists per group is smaller between 10 and 20 persons.

While direct financial links between China and Malaysia are limited, there will be indirect spillovers through spikes in global financial volatility as investors worry that China’s deep economic slowdown would temper global growth, and also has spillovers to the US economy.

Will China foreign direct investment (FDI) inflows into Malaysia slow?

Capital movements will be influenced by the inter-linking of factors such as economic growth and investment prospects in the host country (Malaysia).

These include stable political conditions and good economic and financial management as well as conducive investment policies.

The US-China trade war and rising trends of geoeconomic fragmentation have witnessed FDI flows among geopolitically aligned economies that are closer geographically as well as geopolitical preferences.

Throughout the period 2015-2022, China’s gross FDI inflows into Malaysia averaged RM7.5bil per year. Even during the Covid-19 pandemic, China’s economic slowdown did not deter the inflows of FDI into Malaysia (RM7.8bil in 2020; RM8.1bil in 2021; and RM9.8bil in 2022).

In 1H23, China’s gross FDI inflows increased by 25.2% to RM2.1bil though it is likely that the full-year FDI will be below the average FDI inflows of RM8.6bil per year in 2020 to 2022.

China was the largest foreign investor in Malaysia’s manufacturing sector in 2016 to 2022 before dropping to second position in 2022 and the fourth position in 2021.

There was a contrasting picture when it comes to China’s approved investment in the manufacturing sector, which saw two consecutive years of decline (2022: 42.5% to RM9.6bil and 2021: 6.5% to RM16.6bil) and declining further by 17.8% to RM4.3bil in the first quarter of 2023.

We believe that Malaysia will remain one of the preferred investment destinations to China, given both countries’ strong established friendship and bilateral ties in trade and investment as well as people-to-people movements.

Malaysia needs to enhance its investment climate with progressive policies to rival regional peers to offer the country as a China Plus One destination for China and foreign companies.

Malaysia can offer investments to build a chip-testing and packaging factory, advanced manufacturing technologies such as robotics and automation, manufacturing electric vehicle supply chain, petrochemicals, renewable energy, agriculture and food processing.

China can offer the technology, innovation and technical know-how as well as talent that deepen the country’s industry integration with global supply chains and also links Malaysia and China to South-East Asia.

China can invest in Malaysian manufacturing companies to help them adopt advanced manufacturing technologies and further improve their competitiveness.

The RM170bil prospective investments (comprising RM69.7bil from 19 memoranda of understanding and RM100.3bil from the round-table meeting) concluded during the prime minister’s visit to China are set to provide a massive investment boost to our economy for years to come.

Among these are China’s Rongsheng Petrochemical Holdings, which will invest RM80bil to build a petrochemical park in Pengerang, Johor; and investment from Geely, with an initial investment of RM2bil in the Tanjung Malim Automotive Valley, which will gradually increase to RM23bil in the future.

 LEE HENG GUIE is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.

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INTERACTIVE: Journey to Merdeka

When malware strikes

Knowing what to do can be the difference between a costly trip to the repair shop and a diy fix at home.

MANY of us have been there before – an accidental click or file download that leaves us worrying about whether our passwords have been stolen or our webcam has been compromised.

Or maybe it’s the system becoming slow, erratic, freezing, or crashing, which may hint that something strange is going on with your machine.

But hiring a professional can be an expensive affair, and lugging around an entire desktop computer for troubleshooting is anything but fun, so it’s best to check if you can fix the issue yourself.

Those on Windows 7 or 8 should take note that their operating system (OS) is in end-of-life status, making it especially vulnerable to malware as it no longer receives security updates.

Antivirus 101

One thing to keep in mind is that no antivirus or anti-malware tool is perfect, as one may detect a virus while another misses it completely.

Like seeing a doctor, it’s valuable to have a second opinion in the form of another software scanner. Good options include Malwarebytes, Avast Antivirus, and antivirus programs from Kaspersky.

However, the first thing you’ll want to do is download Rkill (bit.ly/rkill), a handy tool from Bleeping Computer that kills malware still resident in memory and running in the background, also known as “processes”. It will also list them in a text file.

This is vital, as active malware can attempt to trick and hide from antivirus programs.

Then do an antivirus scan – don’t use more than one at the same time, as simultaneous scans can result in the antivirus programs mistaking each other for malware.

If the scans turn up positive, potentially malicious items will be listed, and the antivirus will prompt you on what action to take, such as to quarantine or remove the affected file or folder.

It’s best practice to look up the name listed by the antivirus, as it could be a false positive.

Then switch over to the alternative antivirus tool and run another scan to cover blind spots.

If the antivirus discovered an issue and fixed it, then all is well; otherwise, you will have to get your hands dirty by engaging in a little “digital forensics”.

‘Suite up’, digital detective

Your digital forensics work will require a toolkit to analyse and understand your computer better, especially what’s causing the issue.

Our recommendation is the Sysinternals Suite (bit.ly/sysinternalssuite), a set of utilities from Microsoft that provides a detailed view of what each and every program and process is doing.

Like Rkill, Sysinternals is meant to do the same, except that you will be the one identifying, disabling, and removing the malware manually.

One of the most useful tools it contains is the Process Explorer (procexp64.exe in the Suite folder), which lists all the active processes in a system, one of which could be malware.

In Process Explorer, click on the options tab and enable the options for both “Verify Image Signatures” and “Check Virustotal.com”.

Things to look for here are processes without descriptions or verified image signatures from a third-party vendor to indicate it’s a legitimate program.

The description and signature columns may turn up blank for some Windows processes, so ignore those and focus on the ones labelled “unverified”.

Virustotal.com is a website that collates information from 75 different malware-scanning engines because, you know, who needs a second opinion when you can get 75?

If a process is legitimate, then it should have a proper description, a verified image signature from a third-party vendor (like Microsoft or Adobe), and not be flagged by any of the antivirus engines (0/75).

A side note: users looking to check if a specific file is malware can also upload it directly to Virustotal.com, though the size is limited to 650MB.

Make sure to look up each process to find out more about it before taking action, as there are many different types of malware out there, with some being more difficult to remove. There’s a shortcut to searching online included in the right-click menu to help with this. Process Explorer can also be used to uncover processes that are utilising the resources of your graphic card, RAM, and storage.

For a more granular view of what a process is doing, the Process Monitor (Procmon64.exe) tool includes details like where a process is writing a file and whether it’s making a network connection to upload something.

Do note that it is still not immune to false positives. Two of my legitimate processes are always flagged by Virustotal: Apagent.exe (for an Apple Airport Router that was repurposed as network attached storage) and Gaming services. exe (an official process from Microsoft for its video game platform and store).

When a malicious process is discovered, right-click and view its properties, which will reveal details like how it is being launched and where the file is being stored.

Like with Rkill, you will need to kill the malicious process, though some malware types run multiple processes at once so that they can restart each other as you kill them.

In this case, it’s best to “suspend” the target processes first before terminating them.

Then move on to the Autoruns (Autoruns64.exe) tool to disable it from starting up automatically when the machine turns on.

Avoid deleting the entry right away since it could be a misidentified process; instead, disable it first to confirm it is indeed malware.

Once sure, navigate to the folder hous usually ing the malware – these are “user folders” like Temp or Appdata, as administrative rights are not required for malware to access them – and delete the source file to end your woes.

Though, for more complex malware, manual removal may be difficult or downright impossisure ble, so make to check what is involved.

In the worst scenario, case there’s always the nuclear option of doing a clean install of Windows, but this will wipe out your entire system.

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DIGITAL WAVE of deception

DIGITAL WAVE of deception

DIGITAL WAVE of deception

3 Reasons Why AI Generated Deepfakes Are a Growing Concern The Era of Digital Deception

Sophisticated scam technology harnessing artificial intelligence is capable of deceiving even the most vigilant.

COMPUTER-GENERATED children’s voices that fool their own parents. Masks created with photos from social media deceive a system protected by face Id.

They sound like the stuff of science fiction, but these techniques are already available to criminals preying on everyday consumers.

The proliferation of scam tech has alarmed regulators, police, and people at the highest levels of the financial industry. artificial intelligence (ai) in particular is being used to “turbocharge” fraud, US Federal Trade Commission chair Lina Khan warned in June, calling for increased vigilance from law enforcement.

Even before ai broke loose and became available to anyone with an Internet connection, the world was struggling to contain an explosion in financial fraud.

In the United States alone, consumers lost almost Us$8.8bil (Rm40.9bil) last year, up 44% from 2021, despite record investment in detection and prevention. Financial crime experts at major banks, including Wells Fargo and Co and deutsche Bank ag, say the fraud boom on the horizon is one of the biggest threats facing their industry.

On top of paying the cost of fighting scams, the financial industry risks losing the faith of burned customers.

“It’s an arms race,” says James Roberts, who heads up fraud management at the Commonwealth Bank of australia, the country’s biggest bank.

“It would be a stretch to say that we’re winning.”

The history of scams is surely as old as the history of trade and business.

One of the earliest known cases, more than 2,000 years ago, involved a greek sea merchant who tried to sink his ship to get a fraudulent payout on an insurance policy.

Look back through any newspaper archive, and you’ll find countless attempts to part the gullible from their money.

But the dark economy of fraud, just like the broader economy, has periodic bursts of destabilising innovation.

new technology lowers the cost of running a scam and lets the criminal reach a larger pool of unprepared victims.

Email introduced every computer user in the world to a cast of hard-up princes who needed help rescuing their lost for tunes.

Crypto brought with it a blossoming of Ponzi schemes that spread virally over social media.

The future of fake

The ai explosion offers not only new tools but also the potential for life-changing financial losses.

and the increased sophistication and novelty of the technology mean that everyone, not just the credulous, is a potential victim.

The Covid-19 lockdowns accelerated the adoption of online banking around the world, with phones and laptops replacing face-to-face interactions at bank branches.

It’s brought advantages in lower costs and increased speed for financial firms and their customers, as well as openings for scammers.

Some of the new techniques go beyond what current off-theshelf technology can do, and it’s not always easy to tell when you’re dealing with a garden-variety fraudster or a nation-state actor.

“We are starting to see much more sophistication with respect to cybercrime,” says amy Hoganburney, general manager of cybersecurity policy and protection at Microsoft Corp.

Globally, cybercrime costs, including scams, are set to hit US$8 trillion (RM37.18 trillion) this year, outstripping the economic output of Japan, the world’s third-largest economy.

By 2025, it will reach US$10.5 trillion (RM48.8 trillion), after more than tripling in a decade, according to researcher Cybersecurity Ventures.

In the Sydney suburb of Redfern, some of Roberts’ team of more than 500 spend their days eavesdropping on cons to hear firsthand how ai is reshaping their battle.

a fake request for money from a loved one isn’t new. But now parents get calls that clone their child’s voice with ai to sound indistinguishable from the real thing.

These tricks, known as social engineering scams, tend to have the highest hit rates and generate some of the quickest returns for fraudsters.

Today, cloning a person’s voice is becoming increasingly easy.

Once a scammer downloads a short sample from an audio clip from someone’s social media or voicemail message – it can be as short as 30 seconds – they can use ai voice-synthesising tools readily available online to create the content they need.

Public social media accounts make it easy to figure out who a person’s relatives and friends are, not to mention where they live and work and other vital information.

Bank bosses stress that scammers, who run their operations like businesses, are prepared to be patient, sometimes planning attacks for months.

What fraud teams are seeing so far is only a taste of what ai will make possible, according to Rob Pope, director of new Zealand’s government cybersecurity agency, CERT nz.

He points out that ai simultaneously helps criminals increase the volume and customisation of their attacks.

“It’s a fair bet that over the next two or three years we’re going to see more ai-generated criminal attacks,” says Pope,

a former deputy commissioner in the New Zealand Police who oversaw some of the nation’s highest-profile criminal cases. “What AI does is accelerate the levels of sophistication and the ability of these bad people to pivot very quickly. AI makes it easier for them.”

To give a sense of the challenge facing banks, Roberts says right now the Commonwealth Bank of Australia is tracking about 85 million events a day through a network of surveillance tools.

That’s in a country with a population of just 26 million.

The industry hopes to fight back by educating consumers about the risks and increasing investment in defensive technology.

New software lets CBA spot when customers use their computer mouse in an unusual way during a transaction – a red flag for a possible scam.

Anything suspicious, including the destination of an order and how the purchase is processed, can alert staff in as few as 30 milliseconds, allowing them to block the transaction.

At Deutsche Bank, computer engineers have recently rebuilt their suspicious transaction detection system, called Black Forest, using the latest natural language processing models, according to Thomas Graf, a senior machine learning engineer there.

The tool looks at transaction criteria such as volume, currency, and destination and automatically learns from reams of data what patterns suggest fraud.

The model can be used on both retail and corporate transactions and has already unearthed several cases, includone ing involving organised crime, money laundering, and tax evasion. 

Wells Fargo has overhauled its tech systems to counter the risk of Ai-generated videos and voices. “We train our software and our employees to be able to spot these fakes,” says Chintan Mehta, Wells Fargo’s head of digital technology. But the system needs to keep evolving to keep up with the criminals. Detecting scams, of course, costs money.

The digital dance

One problem for companies: Every time they tighten things, criminals try to find a workaround.

For example, some US banks require customers to upload a photo of an ID document when signing up for an account.

Scammers are now buying stolen data on the dark web, finding photos of their victims on social media, and 3D-printing masks to create fake IDS with the stolen information.

“And these can look like everything from what you get at a Halloween shop to an extremely lifelike silicone mask of Hollywood standards,” says Alain Meier, head of identity at Plaid, which helps banks, financial technology companies, and other businesses battle fraud with its ID verification software. Plaid analyses skin texture and translucency to make sure the person in the photo looks real.

Meier, who’s dedicated his career to detecting fraud, says the best fraudsters, those running their schemes as businesses, build scamming software and package it up to sell on the dark web.

Prices can range from US$20 (RM95) to thousands of dollars.

“For example, it could be a Chrome extension to help you bypass fingerprinting or tools that can help you generate synthetic images,” he says.

As fraud gets more sophisticated, the question of who’s responsible for losses is getting more contentious.

In the United Kingdom, for example, victims of unknown transactions – say, someone copies and uses your credit card – are legally protected against losses.

If someone tricks you into making a payment, responsibility becomes less clear.

In July, the US top court ruled that a couple who were fooled into sending money abroad couldn’t hold their bank liable simply for following their instructions.

But legislators and regulators have leeway to set other rules: The government is preparing to require banks to reimburse fraud victims when the cash is transferred via Faster Payments, a system for sending money between UK banks.

Politicians and consumer advocates in other countries are pushing for similar changes, arguing that it’s unreasonable to expect people to recognise these increasingly sophisticated scams.

Banks worry that changing the rules would simply make things easier for fraudsters.

Financial industry leaders around the world are also trying to push a share of the responsibility onto tech firms.

The fastest-growing scam category is investment fraud, often introduced to victims through search engines where scammers can easily buy sponsored advertising spots.

When would-be investors click through, they often find realistic prospectuses and other financial data. Once they transfer their money, it can take months, if not years, to realise they’ve been swindled when they try to cash in on their “investment”.

In June, a group of 30 lenders in the UK sent a letter to Prime Minister Rishi Sunak asking that tech companies contribute to refunds for victims of fraud stemming from their platforms.

The government says it’s planning new legislation and other measures to crack down on online financial scams.

The banking industry is lobbying to spread responsibility more widely, in part because costs appear to be going up. Once again, a familiar problem from economics applies in the scam economy, too.

Like pollution from a factory, new technology is creating an externality, or a cost imposed on others. In this case, there’s a heightened reach and risk for scams.

Neither banks nor consumers want to be the only ones forced to pay the price.

Chris Sheehan spent almost three decades with the country’s police force before joining National Australia Bank Ltd, where he heads investigations and fraud.

He’s added about 40 people to his team in the past year with constant investment by the bank.

When he adds up all the staff and tech costs, “it scares me how big the number is”, he says.

“I am hopeful because there are technological solutions, but you never completely solve the problem,” he says. It reminds him of his time fighting drug gangs as a cop.

Framing it as a war on drugs was “a big mistake”, he says.

“I will never phrase it in that framework – of a war on scams – because the implication is that a war is winnable,” he says. “This is not winnable.” – Bloomberg

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When malware strikes

When malware strikes

Fukushima discharge worries Malaysians, Unknown human health, marine life and the environment concern many

 

Activists in Fukushima protest against discharge plan

Save the oceans: Ho Sin Leng, 13, adding her signature to the ‘Raise Your Voice, Stop the Discharge of Nuclear Wastewater into the Ocean’ mass petition event at the Nirvana Memorial Garden in Semenyih. — ART CHEN/The Star

Unknown impact on human health, marine life and the environment concern many

HULU LANGAT: As Japan began to release contaminated wastewater into the Pacific Ocean last Thursday, voices of concern among Malaysians are being heard.

A large number of them have shared their reservations about the scheduled discharge of 1.3 million tonnes of wastewater from the Fukushima nuclear plant despite assurances of safety from the Japanese government and scientists including the International Atomic Energy Agency.

A 9.0-magnitude earthquake in 2011 had triggered a tsunami that hit three reactors of the plant located about 250km north of Tokyo.Malaysians are worried about the effects the water release – to be conducted in phases over the next 30 years – would have on human health, marine life and the environment.

Among those who are strongly against Japan’s action is philanthropist Tan Sri David Kong Hon Kong, who is also Nirvana Asia Group founder and executive chairman.

He said the released radioactive substances could spread and “cast a long shadow over the entire world”.

“Since this is the first large-scale release of nuclear wastewater in the world, the extent of its harm is unknown, and no one can guarantee its safety,” he said.

He also questioned the long time frame needed for the wastewater release, saying that it showed there were concerns and uncertainties about its possible effects on humanity.

Kong was present at the launch of the “Raise Your Voice, Stop the Discharge of Nuclear Wastewater into the Ocean” mass petition event held at the Nirvana Memorial Garden in Semenyih, Selangor, yesterday.

It was held concurrently with the company’s annual Zhong Yuan enlightenment ceremony, an event to remember the ancestors, advocate filial piety and pay tribute to the departed.

Kong said the petition has so far received tens of thousands of signatures from Malaysians spread across three huge banners.

He called on more Malaysian companies and individuals to speak out against the matter.

“Being in business does not mean we don’t care. We have our social responsibilities to fulfil. Furthermore, the world is still grappling with the hardship and disarray caused by the pandemic.

“This time, everyone should unequivocally protest the release of nuclear-contaminated water into the ocean to prevent the world from another crisis,” he said.

Kong added that Japan’s action runs contrary to the environmental, social and governance (ESG) principles that are growing in importance and prominence in the country and the rest of the world.

“I call upon everyone and all corporations to participate in this and petition the Japanese government to stop the wastewater release,” he said.

Kong said more petition zones will be put up by his company at its upcoming enlightenment ceremonies at other locations.

They include Nirvana Center Kuala Lumpur on Sept 2 and 3, Nirvana Memorial Park in Klang on Sept 3 and in Shah Alam on Sept 9 and 10.Kong said all the signatures collected will be handed over to the Japanese Embassy in Kuala Lumpur.

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China is a good and reliable ally for Malaysia; Chinese are not outsiders, They were invited here

 

China is a good and reliable ally’

Johor Ruler: Crucial for Malaysia to maintain ties with key trading partner

PETALING JAYA: It’s crucial for Malaysia to maintain friendly relations with China, says Johor Ruler Sultan Ibrahim ibni Almarhum Sultan Iskandar (pic).

Describing the Asian superpower as a “good and reliable” investment partner, His Majesty said Johor has had a long-standing good relationship with China since the time of his ancestors.

“A Chinese emperor once presented the ‘Double Dragon Precious Star’ award to my great-great-grandfather.

“After that, the Chinese were invited to Johor to cultivate gambier and pepper.

“That’s why I have been reiterating that the Chinese in Johor are not outsiders. They were invited to be here,” the Ruler said in an interview published in Sin Chew Daily yesterday, following a recent meeting at the palace in Johor Baru.

The Ruler’s great-great-grandfather Sultan Abu Bakar received the “Imperial Order of the Double Dragon” award from the Chinese emperor during the Qing Dynasty in 1892.

The award was first presented as a gift to foreigners in 1882. From 1908, it was also conferred on Qing Dynasty officials.

The year 2024 marks the 50th anniversary of Malaysia-China diplomatic ties, and Sultan Ibrahim has been closely following developments since the unity government was formed.

The Sultan took a jibe at a former leader who claimed that his visit to China was unsuccessful despite receiving a warm welcome in the country. 

“Do you want them to stop buying our palm oil?” Sultan Ibrahim said of the leader, whom His Majesty did not name, adding that “it is better to pick a fight with someone of equal stature”, the Chinese daily reported.

Sultan Ibrahim is confident of the reputation he has built in China, as many heads of Chinese corporations had wanted to meet His Majesty.

The Ruler revealed that he had advised a company to collaborate with Chinese partners to engage in the processing, producing, refining and export of palm oil.

His Majesty said he would like to “go everywhere” when visiting China, adding that the country holds a special place in his heart as it reminds him of his son, the late Tunku Abdul Jalil, who was the third prince of Johor.

While battling cancer, Tunku Abdul Jalil underwent liver transplant surgery in Guangzhou, China, in 2014 under a special permit from the Chinese government.

This arrangement helped to enhance the warm relations between the Johor royal family and China.

As Sultan Ibrahim strived to foster closer friendship with China, His Majesty’s efforts to bring in Chinese developers, however, drew criticism, as some assumed that land was being taken away.

His Majesty said this is a misconception, adding that land cannot simply be taken away.

“Under the land ownership law, if you want to convert a leasehold (99-year tenure) land to freehold status, fees and fines will be imposed. Why is this an issue?”

Sultan Ibrahim said Johor, with its neighbour Singapore and three states along its borders, is more adept at dealing with foreigners and building mutually beneficial relationships.

“By offering better incentives to foreign investors, our products can go further, reaching more markets,” His Majesty added.

Sultan Ibrahim said providing more incentives to foreigners will not disadvantage locals in Johor.

Instead, Johoreans can benefit from more businesses and job opportunities that will be available, His Majesty added.

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The development of China will shatter all bad-mouthing voices: Global Times editorial

One second, they may be exaggerating China's economic development, saying it is too fast and too good, posing a threat to their interests. The next second, they start talking about China's economic decline and the suffering it will bring to the world.

• 

The development of China will shatter all bad-mouthing voices: Global Times editorial

One second, they may be exaggerating China's economic development, saying it is too fast and too good, posing a threat to their interests. The next second, they start talking about China's economic decline and the suffering it will bring to the world.

US 'satisfied' with Japan's dumping nuclear-contaminated water betrays its image as global leader in environment protection: observers

US 'satisfied' with Japan's dumping nuclear-contaminated water betrays its image as global leader in environment protection: observers

Reversing declining R&D investments

 The country's gross expenditure on the segment has been on downtrend in the past couple of years. More investments are needed in high-growth areas that will yield strong returns.

CLICK TO ENLARGE

SIX decades ago, Malaysia was richer than South Korea and Taiwan.

But today, the country is behind these two technology superpowers and is still trying to break out of the middle-income trap.

Taiwan overtook Malaysia’s gross domestic product (GDP) per capita in the mid-70s, and not long after that, South Korea overtook Malaysia in the mid-80s.

A major reason for Malaysia lagging behind Taiwan and South Korea is the failure to invest adequately in research and development (R&D) that ultimately resulted in low local technology creation.

This is reflected in the number of patents granted, as mentioned in the World Intellectual Property Indicators report.

In 2022, a total of 6,876 patents were granted in Malaysia, out of which almost 85% were granted to non-residents.

In contrast, South Korea granted 145,882 patents in 2022. Three out of four patents in that year were granted to residents.

Official figures show that Malaysia’s gross expenditure on R&D (GERD) has been declining in the past several years, even before the Covid-19 pandemic.

In fact, the country’s GERD per GDP dropped to just 0.95% in 2020, which was the lowest since 2010.For comparison, countries like South Korea, the United States and Japan spent 4.81%, 3.45% and 3.26% of their GDP in 2020 for R&D, respectively.

Notably, China’s GERD per GDP stood at 2.4% in 2020, significantly higher than Malaysia despite having an almost similar GDP per capita.

It is noteworthy that Malaysia is well behind its GERD per GDP target of 3.5% by 2030. The intermediate target is 2.5% by 2025, which is just two years’ away.

Science, Technology and Innovation (Mosti) Minister Chang Lih Kang

In a reply to StarBizWeek, Science, Technology and Innovation (Mosti) Minister Chang Lih Kang acknowledges that the gap to achieve the 2030 target is “stark and significant”.

He also adds that there is a funding shortfall of RM40bil to achieve the 2025 target.

“The slump in GERD before 2020 primarily stems from a dwindling contribution from the business sector, which started around 2016.

“While the government has consistently provided substantial R&D funding, it’s imperative for the business and industry sectors to substantially participate.

“After all, these sectors stand to gain the most from R&D innovations, utilising outcomes to enhance products, refine business processes, and overall drive competitive advantage,” says Chang.

Malaysia’s long-delayed ambition to become a high-income nation relies on the country’s ability to effectively spend on R&D efforts in high-potential areas.

Increased R&D efforts that would lead to greater technology adoption in the country are highly necessary, considering that Malaysia is set to become a super-aged country by 2056.

Amid declining fertility rates, more of the country’s workforce must be automated and mechanised to avert any crisis in the future.

Mosti Minister Chang also says that a higher expenditure on R&D serves as a foundational indicator in many global indices like the Global Innovation Index (GII) and the Global Competitiveness Index (GCI).

In the Madani Economy framework unveiled by Prime Minister Datuk Seri Anwar Ibrahim last month, these two indices were mentioned as some of the key performance indicators (KPIs), moving forward.

Anwar envisages Malaysia to be among the top 20 countries in GII by 2025. As for GCI, Malaysia aims to rank in the top 12 within the next 10 years.

It is understandable why Anwar hopes to improve Malaysia’s ranking in such indices.

“These indices are meticulously scrutinised by foreign investors when determining potential investment destinations,” according to Chang.

Spending it right

A similarity between South Korea and Malaysia is the fact that both governments have in the past invested significantly in building local industries, including for R&D efforts.

“Chaebols” or South Korean mega-conglomerates were once small businesses that received generous support from the government since the early 1960s. This has helped to nurture internationally recognised brands such as Samsung and Hyundai.

Similarly, Malaysia has also channelled billions of ringgit into profit-driven entities such as car manufacturer Proton and semiconductor wafer foundry Silterra.

However, unlike in South Korea, these heavy industrialisation projects that were introduced during the administration of Tun Dr Mahathir Mohamad failed to sustain commercially and continued to depend on government handouts.

These two projects have since been privatised. Proton Holdings Bhd made a rebound after China’s Zhejiang Geely Holding emerged in the carmaker with a 49.1% stake.

Meanwhile, Silterra was sold to Dagang NeXchange Bhd (Dnex) and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership) – also known as CGP Fund.

Dnex holds a 60% stake in Silterra, while CGP Fund owns the remaining 40%.

An analyst explains that the failure of Proton and Silterra was the result of continued government funding in the past, even if the management did not achieve tangible results.

“South Korea was different. You have a set of KPIs outlined along the timeline. If you don’t perform, you won’t get the money,” the analyst says.

Like it or not, the government has a big role to play in stimulating R&D efforts in the market.

The US government, for instance, is a major funder of R&D and is also a major user of the new innovations that may have yet to receive demand from the public.

It is noteworthy that the Internet and the global positioning system (GPS) began as projects under the US Department of Defence.

It is typical of the private sector to innovate and to create new products only when they foresee market opportunities.

With shareholders’ ultimate focus being on profit, the private sector may have its limitations when it comes to risk-taking.

In the case of Malaysia, businesses do not reinvest an adequate amount of their profits into R&D, despite the fact that Malaysian companies retain high operating profits.

In 2022, the gross operating surplus of businesses constituted 67% of GDP, which increased from 62.6% in 2021.

The easy supply of cheap foreign workers, particularly before the pandemic, has further allowed Malaysian companies to avoid R&D and automating a large part of their operations.

Distinguished professor of economics Datuk Rajah Rasiah agrees that the domestic private sector does not invest adequately in R&D.

“As firms move up the technology trajectory towards frontier innovations, they expect strong support from the embedding ecosystem, especially the science, technology, and innovation (STI) infrastructure.

“Although Malaysia did attempt to create the STI infrastructure after 1991, almost all of them (such as Mimos, Science and Technology Parks and the incubators in them as well as the Malaysian Technology Development Corp) were not effectively governed, and hence, they have become white elephants.

“Given the lack of such support and ineffective governance of incentives and grants in the selection, monitoring and appraisal of their output, private firms are unconvinced that attempts to upgrade to participate in R&D will materialise,” he says.

Techpreneur Tan Aik Keong also points out that Malaysian companies face fundraising difficulties for R&D purposes, especially small and medium enterprises and unlisted companies.

Tan was recently appointed as a member of the National Digital Economy and Fourth Industrial Revolution Council. He is also the CEO of ACE Market-listed Agmo Holdings Bhd.

“Investors and lenders may hesitate to support R&D initiatives due to the inherent risks and uncertainties associated with these endeavours.

“The lack of a guaranteed correlation between R&D investment and immediate revenue generation can lead to doubts about the return on investment (ROI),” he says.Tan opines that the lack of “proven success stories” whereby R&D investments in Malaysia resulted in significant ROIs contributed to the scepticism.

In addition, he says that companies with no prior experience in R&D investments would find it challenging to start investing heavily in R&D.

“For listed entities, there is relatively more flexibility in terms of fundraising for R&D purposes.

“Capital market instruments such as private placements and rights issues can be leveraged to raise larger sums of funds to support R&D initiatives.

“Fortunately, the availability of matching grants from agencies like Mosti, MDEC, Miti, and MTDC can provide much-needed financial support and incentive for companies to invest in R&D activities,” he says.

Acknowledging the challenges, Mosti Minister Chang says that alternative financing mechanisms are being considered

A notable example is the Malaysia Science Endowment (MSE), which has set an ambitious goal of raising RM2bil.

“MSE is more than an alternative R&D funding for the nation.

“The working model is to utilise its interest, which will be generated from the investment.

“The fund would be optimised further through a matching fund mechanism – bringing quadruple helix stakeholders together to focus on solution-driven R&D and prioritising based on the nation’s needs,” he says.

Mosti, with Akademi Sains Malaysia, is currently actively developing a fund-raising mechanism to establish the MSE.

In addition, Chang says the government will continue to deploy a myriad of fiscal incentives that include tax exemptions and double deductions on R&D expenditures.“The overarching goal is to promote a symbiotic relationship where both the private sector and the government collaborate seamlessly to advance Malaysia’s R&D aspirations,” he says.

Lack of quality researchers?

R&D efforts are not just about investing a large sum of money. They will only yield best results if they are supported by qualified, world-class researchers.

Unfortunately, in the case of Malaysia, brain drain has become a major challenge in pushing for greater R&D.

The ongoing decline in interest among schoolchildren in science, technology, engineering and mathematics (STEM) studies will only worsen the situation in the future.

Agmo’s Tan notes that the declining interest in science subjects among students threatens the availability of skilled researchers, scientists, and engineers needed for a thriving R&D ecosystem.

“The potential for brain drain is a legitimate concern if Malaysia does not foster an environment conducive to R&D growth,” he says.

In 2020, Malaysia saw a decline in the number of researchers per 10,000 labour force at only 31.4 persons, as compared to 74 persons in 2016.

At 31.4 persons, this was the lowest level since 2010.

Rajah says that Malaysia lacks quality R&D researchers, as well as engineers and technicians to support serious R&D participation.

“Malaysia’s researchers and R&D personnel in the labour force fall way below that of Japan, South Korea, Taiwan, Singapore, and China.

“In fact, this is one of the major reasons why national and foreign firms participate little in R&D activities in Malaysia,” he adds.

When asked about the commercialisation of research done by Malaysian universities, Rajah says the commercialisation ratio against grants received in Malaysia is very low.

This is compared to the Silicon Valley and Route 128 in the US, the science parks in Taiwan, and the Vinnova targeted areas in Sweden.

However, Rajah says the blame for the low rate is mistakenly placed on the scientists.

“Most universities in Malaysia focus on scientific publications, which is a major KPI for them. Malaysia does well on scientific publications.

“Mosti and the Higher Education Ministry should make intellectual property (IP) and commercialisation equally important.

“In doing so, the government must tie grants and incentives to link researchers and firms by offering matching grants so that the research undertaken by the scientists are targeted to the pursuit of IPs and monetary returns.

“Firms in this case will ensure that the 1:1 sharing of funds with the government brings returns for them – widely undertaken successfully in Japan, the Netherlands and Taiwan,” he says.

At the same time, Rajah suggests a critical appraisal of previous grants approved to ensure that mistakes are not repeated.

CLICK TO ENLARGE

In further strengthening the country R&D expertise, there are calls to improve universities’ curriculum more holistically.

Technology consultant Mohammad Shahir Shikh said there is a gap and misalignment between industries’ requirements versus theoretical research in new knowledge discovery by the universities.

He calls for greater partnership between universities and the industry, including for improving business operations via the integration of new technologies.

Mohammad Shahir has previously served as an engineer with chipmaker AMD for 11 years.

He raises concerns about the severe shortage of STEM graduates in Malaysia to serve the needs of the industries.

“The country’s target was to have 500,000 STEM graduates by 2020, but we now have only 68,000 such graduates.

“Even then, the highest number of unemployed graduates here is from the STEM stream.

“My proposal to the government is to start assisting potential schools and STEM students become familiar with scientific terms in English and improve their communication skills,” he adds.

Mohammad Shahir points out that about 30% of Finland’s workforce consists graduates from the STEM stream.

“This is a priority that needs to be addressed if we want to achieve our national innovation goals,” he says.

National STEM Association president and founder Prof Datuk Dr Noraini Idris laments that only about 15% of form four students take pure science subjects, namely physics, chemistry, biology and additional mathematics.

The percentage has fallen from abogaut 19% back in 2019.

“This is alarming. We need more students to take pure sciences if we want to create more scientists, data analysts and researchers for the future.

Noraini calls for a complete revamp in the national education system, whereby “STEM culture” is fostered among children from a very young age.

“My team and I have proposed the “cradle-to-career” model which instils the interest for STEM from nurseries and preschool to tertiary education.

“It also needs formal and informal support, whereby informal refers to family, peers and community to foster the interest in STEM.

“For this to happen, we need the effort of various ministries and not just the Education Ministry,” she says.

It is high time, according to Noraini, to set up a department for STEM directly under the Prime Minister’s Department to coordinate the joint-efforts across ministries.As the country works towards improving STEM’s acceptance, Agmo’s Tan says Malaysia must put more emphasis on R&D efforts in emerging technologies such as artificial intelligence, blockchain, extended reality and cloud computing, among others.

“We must encourage the establishment of R&D centres by high-tech companies through attractive incentives,” he adds.

Looking ahead, the government has a lot of issues on its plate to address.

To reboot the economy, it is not only about spending more money on R&D.

More importantly, every ringgit invested must be spent efficiently in high-growth research areas that will yield strong ROIs.

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