IndexIntroductionThe Chinese EconomyMalaysia's EconomyChina's Investment and Trade Performance with MalaysiaChallenges Federal Government DebtForest City ProjectAnalysisConclusionIntroductionAccording to Bloomberg (2017) , it was reported that “China is already the largest economy in the world” and has surpassed the US.” This implies that China can be considered a formidable superpower in terms of economic supremacy. With GDP growth averaging 10% annually over the past three decades, it is no understatement to suggest that China will remain the world's largest economy for the foreseeable future. This economic growth has sparked much debate around the world, with the availability of investment opportunities and the threats posed by China in terms of the economy and security. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay However, these doubts and concerns were viewed differently by the then Malaysian Prime Minister who was convinced of them. “The growth of China's economy and ongoing WTO membership will amplify challenges and broaden opportunities rather than being seen as a threat to Asian regions in terms of economics and security.” Under the presidency of Tun Mahathir, the current Prime Minister of Malaysia has emphasized that Malaysia will forge better ties with China as this would bring mutual benefits for both sides by focusing on economic development rather than confrontation. This article will attempt to understand and highlight the opportunities and challenges arising from China's economic growth and its impact on Malaysia's economy under the new administration. China's Economy Over the past three decades, China's economy has been impressive. Gross Development Product (GDP) has grown by an average of 10% per year and over 500 million people have been lifted out of poverty (World Bank, 2013). In the first quarter of 2018, China's economic activity is expected to remain resilient, with GDP growth of 6.8%. However, the long-term trend is expected to be slower due to slower investment growth, while consumption remains the main driver of its economy. However, GDP growth is expected to moderate to 6.5% in 2018 and average 6.3% over the next two years (China Economic Update, 2018). Although its economy is expected to remain stable in the foreseeable future, one of the major challenges to China's economic development would be the ongoing trade wars between China and the United States of America. According to the South China Morning Post (2018), China believes that the trade war is a long and challenging battle and stated that the United States sees China as a major threat to its "America First" strategy. Based on this situation, it remains to be seen whether a solution will exist between the two parties. What impact would this situation have on Malaysia's economy?Malaysia's EconomyAmong the ASEAN member states, in 1974, Malaysia was the first country to establish diplomatic relations with the People's Republic of China (hereinafter referred to as the PRC). Through ASEAN, Malaysia has enjoyed a positive economic relationship with the PRC, especially after the entry into force of the ASEAN-China Free Trade Agreement (ACFTA) in 2010. In the beginning, the ACFTA was the largest free trade area in the world with a combined free trade area. a population of 1.94 billion and an overall GDP of more than $9 trillion. The historic result of the recent elections in Malaysia offers an unparalleled opportunity for change. Under the new government, Malaysia's economic policy framework is primarily driven by theBuku Harapan election program. According to the World Bank (2018), Malaysia's economy is expected to grow at a rate of 5.4% in 2018, supported by stronger growth in household consumption. Currently, the main driver of its economy is private consumption. It is expected to accelerate to a rate of 7.0% in 2018. It is also reported that Malaysia is on track to achieve the transition from a middle-income economy to high to a high-income economy within the next two to six years. In 2017, its gross national income (GNI) was $9,650, which is $2,405 below the $12,055 threshold that the World Bank currently sets for high-income country status. Regarding the impact of the trade wars between China and the United States, it has been widely reported that this situation could have a negative impact on Malaysia's economy through pressure on foreign trade volume. At this rate, if the trade war continues to worsen in the next two years, Malaysia could fall into recession and record negative GDP growth. However, according to Tun Mahathir (2018), the Prime Minister of Malaysia was of the opinion that Malaysia is likely to benefit from the situation in terms of attracting foreign investors. Tun Mahathir further said that the economic policies implemented in this trade war would benefit investors who cannot invest in some countries, thus benefiting countries that were not involved in this trade war. China's investment and trade performance with Malaysia Since 2013, China has introduced its “One Belt, One Road” (OBOR), later renamed the “Belt and Road Initiative” (BRI). From Southeast Asia to Eastern Europe and Africa, the BRI includes 71 countries representing half the world's population and a quarter of global gross domestic product. The Belt and Road Initiative is expected to cost more than $1 trillion, although there are differing estimates on the amount spent so far. According to one analysis, China has invested more than $210 billion, most of it in Asia. Nowadays, money flows into Malaysia have seen Chinese investment increase by 1,064% from 2012 to 2015 (see charts 1 and 2). China is expected to continuously influence the growth trends of the Malaysian economy due to its rapid economic growth and size of the economy. . This is evident through an increasing number of Malaysia's capital and investment goods, components, sub-assemblies, parts and primary products imported from China. In essence, China's foreign direct investment is extremely important to Malaysia's economy. According to the Ministry of Trade and Industry (2018), Malaysia's trade with China took up 17.3% of Malaysia's total trade and expanded by 19.4% to RM28. 31 billion in July 2018. Malaysia's exports to China remained strong and recorded the highest monthly export value of RM12. 92 billion, a growth of 37.5% compared to 2017. This was attributed to higher exports of electrical and electronic (E&E) products, chemical products and chemicals, liquefied natural gas, petroleum products and crude oil. In the first seven months of 2018, Malaysia's total trade with China increased by 8.9% to RM177. 49 billion compared to 2017. Total exports to China were stronger by 12.1% at RM77. 48 billion, attributed to increased exports of E&E products, chemicals and chemical products, metal artefacts as well as optical and scientific equipment. Malaysia's imports from China also increased by 6.6% to RM100. 01billion. Despite Malaysia's generally favorable attitude towards increasing foreign direct investment and positive trade performance, there is considerable internal dissent towards the growing presence of Chinese investment in the country. Federal Government Debt Challenges Apart from the growing trend of dissent towards Chinese investment, another challenge would be the growing amount of debt and liabilities of the Malaysian federal government exceeding RM1 trillion. As shown in chart 3 below, the federal government's debt stood at RM686. 8 billion (50.8% of GDP), state guarantees consisted of RM199. 1 billion (14.6% of GDP) and rental fees for public-private projects of RM201. 4 billion (14.9 percent of GDP). Regarding this large amount of debt, Tun Mahathir blamed his predecessor Dato' Seri Najib Razak for pushing Malaysia into a debt trap and said the following: “They borrowed huge sums of money and now we have problems try to repay the money they are owed. This is not a foreign direct investment. The largest example is the East Coast Railway Line (ECRL). State-owned China Eximbank will provide MYR55 billion for the project. Malaysia will only begin repayment after seven years, when construction is expected to be completed, and over a period of 20 years. The Malaysian government will act as guarantor to Malaysia Rail Link Sdn Bhd, a special purpose vehicle created by the Malaysian government to receive the soft loan and oversee the delivery. However, it has already been announced that the main contractor in charge of building the ECRL is another PRC state-owned enterprise, the China Communication Construction Company (CCCC). The CCCC is expected to subcontract some parts to local companies, but the bigger picture remains that Malaysia is borrowing money from the PRC and will immediately use a large sum of that money to pay a PRC company. After seven years, Malaysia will still have to repay the loan plus interest to the People's Republic of China. Not only does the PRC immediately recover a substantial portion of its money in the form of payment for work performed by the state-owned CCCC enterprise, but it will receive more money when repayment begins with interest. Ultimately, in the long term, there will still be an outflow of funds from Malaysia to the PRC. This will happen even if the ECRL is not profitable, because the risks and liabilities will be borne by Malaysian taxpayers through the state guarantee of the loan. Tun Mahathir further said that the government will look again at these loans and related projects which in any case would not be beneficial to Malaysia's economy. Malaysia should avoid the situation that happened to Venezuela. China gave Venezuela a soft loan of $63 billion between 2007 and 2014, and the repayment was supposed to be with oil. When the price of oil more than halved in that period, the cost of repaying Venezuela doubled. China has refused to renegotiate the terms of what was supposed to be a soft loan, leading one commentator to say that “Venezuela’s road to disaster is littered with Chinese money. Since 2013, Venezuela's economy has been in a dire state, with high inflation and difficulty repaying its debts. If China wants the BRI to succeed in countries like Venezuela and Malaysia, it must ensure that expensive infrastructure projects do not harm the economies of these countries. Otherwise, trade and investment between them and China will suffer. According to The Guardian (2018), the Center for Global Development found that eight more Belt and Road countries are at serious risk of being unable to repay their loans.These nations include Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Pakistan and Tajikistan, all of which are among the poorest in their respective regions and will owe more than half of all their external debt to China.Forest City ProjectAccording to Bloomberg (2017) , the Forest City project in Johor is a Malaysian version of Shenzhen, largely backed by Chinese developers and buyers with hotels, offices, golf courses, technology parks and large numbers of new apartments. The 20-year project was announced in 2006 and involved a total investment of RM383 billion (US$87 billion). This metropolis is expected to be home to 700,000 people, initially expected to be mostly from China. At the end of 2016 it opened its second international sales office in an upscale neighborhood of Kuala Lumpur and further sales galleries are planned in Taiwan, Myanmar, Dubai and Indonesia. Middle-class Chinese who cannot afford housing in China's expensive urban centers such as Beijing and Shanghai have been the main target customers of this development. Recently, Tun Mahathir made a comment against the Forest City project developments and said he would support the desire for houses in the Forest City project to be sold to foreigners if the developer wants Malaysians to live in wooden houses. This remark indicates that Tun is genuinely concerned about developers' priorities in producing affordable homes for Malaysians. The Edge Markets (2018) reported that Forest City will explore building affordable housing tailored to local needs. Builders are expected to produce such affordable homes for locals in the next three years. However, it still remains to be seen whether such affordable housing projects will bear fruit without any action plan. South China Sea Both China and Malaysia dispute parts of the South China Sea north of Borneo. It has been widely reported that China has militarized at least three points in the Spratly Islands chain. As for Malaysia, it is particularly active in drilling near those islands for underwater oil and natural gas. China is expected to take a pragmatic approach to Malaysia's new position instead of opposing it. Both countries would like their joint investments to work. If China became more aggressive at sea, Tun Mahathir would likely publicize the act rather than let it go. The more aggressive China is in the disputed area, the more Malaysia will make itself felt on the international stage. Going forward, Malaysia should be bold in calling for the demilitarization of occupied zones, the suspension of permanent stationing of warships near claimed areas, and a moratorium on conducting provocative naval exercises in the South China Sea. That said, analysts said Tun Mahathir's more assertive stance on the South China Sea is unlikely to pose a challenge to Beijing, which is Malaysia's largest trading partner. Analysis China, with its enormous size and rapid economic growth, is both a competitor and an ally within the Southeast Asia region. It is a competitor because of its low labor costs and abundant supply of quality labor. However, China also offers ample opportunities for Southeast Asia to be a partner in economic growth. First, Southeast Asia is richly endowed with natural resources that China lacks. With its rapid economic growth, China's demand for natural resources, especially energy, is increasing and in this sense Southeast Asia plays a complementary role in China's economic development. Conventionally, foreign direct investment”..