Fear grips local traders as Chinese companies and goods flood Malaysia

Growing concerns over China's extensive reach into neighbouring countries at the expense of domestic markets are being replicated in Malaysia, where local traders and industry watchers are warning of "economic colonisation".

It comes as Beijing strengthens its grip on supply chains around the world, thanks to progress under its ambitious Belt and Road Initiative (BRI) to connect the mainland with cities previously accessible only by air and sea.

Today, cheap agricultural produce and consumer goods from China can be easily transported by high-speed trains linking several Southeast Asian countries.

In Thailand, business owners have voiced concern about Chinese products entering the country via the high-speed rail, flooding the market with produce such as apples, grapes, pears, oranges, broccoli, cabbage, peppers and mushrooms at cheaper prices than domestic products.

Just recently, Deputy Prime Minister Ahmad Zahid Hamidi welcomed the launch of a new freight train operated by none other than China Railway, that will enable goods to be transported from Yunnan, China to Petaling Jaya, Selangor in 10 days, half the usual time it takes for cargo ships to travel from Kunming, the Chinese transport hub.

Trade associations, businessmen and academics who spoke to MalaysiaNow said Chinese dominance was now evident not only in the online business, but also in the food and retail sectors, at the expense of small and medium enterprises.

"This is most pronounced in the retail sector," said William Ng, who heads the Small and Medium Enterprises Association (Samenta).

Ng said Chinese dominance in the retail sector is facilitated by the fact that property owners are happy to rent space to foreign companies, which often pay more.

"But many simply disappear after several months of poor business, despite using prepacked, ready-to-serve food made overseas.

"This leaves landlords with unrealistic expectations for rent that local players are not able to afford, while consumers are possibly exposed to food with questionable safety standards," he told MalaysiaNow.

The concerns come amid reports of a spike in the number of Chinese nationals settling down in Malaysia over the past two years, benefiting from a range of incentives such as a 30-day visa waiver and relaxed conditions under Malaysia My Second Home (MM2H), the government's programme to attract foreign wealth in exchange for long-term residency.

The Financial Times recently reported that the number of Chinese citizens settling in the country has doubled in the last two years and is currently between 150,000 and 200,000, up from 82,000 in 2022.

Former prime minister Dr Mahathir Mohamad recently warned that unlike other migrants, the presence of the local Chinese community made it difficult for authorities to track down migrants from China as they could "easily disappear".

"That is the reason why there are so many of them because we cannot distinguish the original citizens from the foreigners," Mahathir said in a recent interview with MalaysiaNow.

Restaurants

A businessman who spoke to MalaysiaNow said there has been a mushrooming of restaurants owned by Chinese nationals.

He cited examples of so-called "mee tarik" (hand-pulled noodles) restaurants that have received the "halal" tag from the government, a certification that requires a lengthy application and tedious compliance process.

"In Setia Alam (Shah Alam), for example, there are two 'mee tarik' restaurants with halal status that are owned by Chinese citizens. They want to attract Malay customers because restaurants that are not halal cannot take off in Malaysia," said the businessman, who wishes to be identified only as Hamdan.

A similar situation in Thailand led to authorities in Bangkok cracking down on restaurants owned by Chinese expatriates that were breaking the law, following complaints that locals were acting as agents for illegal foreign businesses.

Meanwhile, authorities in Indonesia have been forced to take measures to protect local traders who are facing stiff competition due to the flood of Chinese products.

Last year, Jakarta banned online shopping on social media platforms, including TikTok, citing the need to protect small businesses.

It will also introduce protective tariffs of up to 200% on imported shoes, clothing, cosmetics and ceramics.

Earlier this year, Malaysia began imposing a 10% sales tax on low-value goods (LVG), which affects imported goods priced at RM500 or less.

However, Ng said traders use a variety of tricks to avoid the tax.

"Leading e-commerce marketplaces simply bundle the LVG tax into their shipping costs or in fine print, so most Malaysian online buyers are not aware they've been levied this tax for buying from overseas sellers," he said, alluding to the popularity of China-based online shopping apps such as Shopee, Lazada and TikTok Shop.

Mohd Zulariffin Md Maarof, who heads an e-commerce training academy at Universiti Tun Hussein Onn (UTHM), said local online sellers now face another challenge when Chinese manufacturers supplying them set up shop in Malaysia and sell directly to buyers.

"They have warehouses for their goods which they sell on platforms such as Lazada, Shopee and TikTok Shop," said Zulariffin, managing director of Export Oversea Academy.

He said these companies would employ Malay-speaking locals to sell their products in "live" broadcasts.

As an example, he cited a warehouse of a Chinese company in Bangi, Selangor, with more than 20 compartments for live broadcasts.

Zulariffin said local sellers cannot compete with e-commerce companies from China, which have huge capital.

He called for measures to protect local merchants and pointed to the US model, where online sellers from abroad are subject to stricter conditions.

"Without such protectionist policies, we will be affected by economic colonisation by foreign sellers. We do not have high skills and large capital to compete," he said.

Ng agrees and proposes that the government impose a higher paid-up capital for foreign-owned retail companies, from the current RM500,000 to RM2 million.

He said authorities should also not allow proxy shareholder agreements and limit their operations to cities with a population of at least one million.

"Any protectionist policy should be carried out carefully, be subject to compulsory reviews after five years, and must not target businesses from specific countries.

"Our SMEs have no problem competing fairly. But how is it possible for some of these foreign sellers to sell products with free shipping from overseas at costs lower than our domestic courier? 

"This combination of government subsidy, inventory dumping and lower grade products is distorting competition with local sellers," he added.