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As tensions ratchet up between two of Malaysia’s greatest buying and selling companions, the US and China, the south-east Asian nation is more and more seeking to hitch its wagon to its extra profitable neighbour, Singapore.
A particular financial zone straddling the 2 international locations — together with a raft of initiatives to construct stronger ties — has been designed to assist the pair face up to harder world financial buying and selling circumstances.
“We are entering a new era where global tensions are here to stay,” warned Singapore’s Prime Minister Lawrence Wong this month on the signing of an settlement to create the Johor-Singapore Particular Financial Zone. “The world is becoming a more dangerous and troubled place. This is not going to go away in the near term.”
Standing at his facet, his Malaysian counterpart Anwar Ibrahim added: “We have to strengthen ourselves as a regional force to be able to withstand the unpredictable pressures from other areas or groups or regions.”
Malaysia’s nearer ties to Singapore are a part of a broader push by the previous to make use of its chairmanship of the Affiliation of Southeast Asian Nations this yr to forge stronger hyperlinks with its nearest neighbours, as world commerce networks grow to be more and more balkanised.
“[Trade wars] could create opportunities for Asean,” Abdul Rasheed Ghaffour, Malaysia’s central financial institution governor, informed the Monetary Occasions, although he conceded that world progress can be harmed by elevated protectionism.
The 2 international locations haven’t at all times been shut. It has been 60 years since Malaysia expelled Singapore from its federation, forcing the latter into independence as a city-state amid racial tensions and political clashes between each side.
For many of the previous six a long time, the 2 international locations have considered one another with suspicion and been locked in a deep rivalry, one wherein Singapore, Malaysia’s greatest buying and selling accomplice, has been the clear victor. It has established itself as a world buying and selling and finance hub, with GDP a head of $94,000 in contrast with Malaysia’s $14,400.
However Donald Trump’s return to the White Home this week, his promise to implement a spate of tariffs and a slowing Chinese language financial system have made Malaysia and Singapore look to strengthen ties.
“Generations of Malaysian and Singaporean leaders had to manage [this rivalry] and that stopped us from doing what is common sense to everyone, which is to integrate Singapore and Johor better,” Malaysian financial system minister Rafizi Ramli informed the FT, referring to the Malaysian state bordering Singapore. “Operating as nearly an economic unit will offer investors the best of both worlds.”
Modelled on China’s Shenzhen particular financial zone, which borders Hong Kong, however is twice its measurement, the JSSEZ is central to Malaysia’s ambitions to construct on its 5 per cent financial progress final yr.
Malaysia has already positioned its financial system to play a key function within the world demand for synthetic intelligence, from growing one among Asia’s greatest semiconductor hubs within the northern island of Penang over a number of a long time, to extra just lately welcoming huge tech corporations to arrange information centres within the south.
It has additionally benefited from “China plus one”, a technique wherein multinational corporations complement their Chinese language operations with investments in regional international locations to diversify threat and decrease prices.
The federal government hopes the JSSEZ will add $26bn a yr to its financial system by 2030, bringing in 20,000 expert jobs and 50 new tasks.
It has provided beneficiant company tax charges of simply 5 per cent for 15 years for corporations investing in areas akin to AI and quantum computing, in addition to manufacturing high-end gear. That compares with typical charges of 15-24 per cent in Malaysia and lows of 17 per cent in Singapore.
Johor has already been a important engine for the Malaysian financial system in recent times, thanks partially to its pro-business sultan turning into the nation’s king a yr in the past.
The state has emerged as a world hub for information centres, drawing in additional than $25bn of funding from the likes of Nvidia, Microsoft and TikTok proprietor ByteDance and creating 35,000 jobs.
Whereas Johor supplies loads of low-cost land, water, vitality and labour to develop the tasks, Singapore provides an entry level for traders.
“Conceptually [the special economic zone] has the ability to leverage Singapore’s global finance and logistics centre capabilities with Johor’s access to competitive land, labour and energy to deliver a differentiated proposition — especially for supply chains looking for alternatives to north Asia amid the US-China trade war,” stated Maybank analyst Thilan Wickramasinghe.
However it isn’t simply huge tech corporations the JSSEZ is geared toward attracting. Johor additionally hopes to attract all the things from Singaporean banks organising administrative places of work to aerospace, electronics and pharmaceutical corporations constructing manufacturing bases.
The 2 neighbours have talked about nearer collaborations on a variety of areas, together with cross-border electrical energy buying and selling, digitalisation, infrastructure tasks and inexperienced vitality. There are additionally plans to enhance transport hyperlinks throughout the strait separating the 2 international locations, one of many busiest borders on the planet.
“How does a small, non-aligned trading nation like Malaysia wade its way through trade wars and geopolitical tension?” stated Rafizi. “There’s only one option for countries like ourselves and Singapore: we collaborate better with each other and harness our synergy.”
