CHINESE CORRIDORS inMALAYSIA CHINESE CORRIDORS CHINESE CORRIDORS 2 IN MALAYSIA 2 IN MALAYSIA

KEY TAKEAWAYSKEY TAKEAWAYS • 's Belt and Road Initiative• China's (BRI), Belt launched and Road in 2013,Initiative aims (BRI), to revive launched the in 2013, aims to revive the great Silk Road linking itgreat with SilkEurope Road through linking billionsit with ofEurope dollars throughof billions of dollars of infrastructure investment acrossinfrastructure six economic investment corridors. across six economic corridors. • Over the coming decades,• Over the thedevelopment coming decades, of the builtthe environment,development of the built environment, whether infrastructure or logisticswhether related infrastructure and in the or form logistics of new related townships and in the form of new townships or urban settlements along theor urban Belt Road settlements link, will along be considerable. the Belt Road link, will be considerable. • Malaysia, strategically positioned• Malaysia, along strategically the Belt Roadpositioned link, alongoffers themany Belt Road link, offers many advantages in terms of abundantadvantages resources, in terms good of abundantgrowth potentials resources, and good growth potentials and similarities in culture due tosimilarities historical inties. culture The duecountry to historicalcan be China’sties. The country can be China’s gateway to Asean and beyond.gateway In fact, to Malaysia Asean and has beyond. seen an In upsurge fact, Malaysia of BRI has seen an upsurge of BRI related investments with Chinarelated emerging investments as onewith ofChina its largest emerging foreign as one of its largest foreign investors in recent years. investors in recent years. • In November 2016, the Prime• In November Minister led2016, an entouragethe Prime ofMinister government led an entourage of government ministers and business leadersministers in a visitationand business to China leaders and inrecorded a visitation new to China and recorded new level of of bilateral relationslevel withof of14 bilateral business relations to business with 14 (B2B) business to business (B2B) Memorandums of UnderstandingMemorandums (MOUs) andof Understanding agreements worth (MOUs) RM144 and agreements worth RM144 billion (US$33.8 billion) in variousbillion (US$33.8 areas such billion) as tradein various and investment,areas such as trade and investment, development of technology developmentparks as well ofas technologysupply of goods parks andas well services. as supply of goods and services. • Further to that, another 16• Furthergovernment to that, to anothergovernment 16 government (G2G) MOUs to andgovernment (G2G) MOUs and agreements were also signedagreements and they wereinclude also the signed RM55 and billion they (US$13 include the RM55 billion (US$13 billion) in soft loans by Chinabillion) for the in East soft Coast loans Railby China Link (ECRL) for the andEast also Coast the Rail Link (ECRL) and also the Malaysia-China Kuantan IndustrialMalaysia-China Park (MCKIP) Kuantan in Pahang. Industrial Park (MCKIP) in Pahang. • During the Belt and Road• Forum During held the inBelt Beijing and Roadin May Forum 2017, held another in Beijing nine in May 2017, another nine B2B MOUs with total value ofB2B circa MOUs RM31 with billion total (US$7.2 value of billion)circa RM31 were inked.billion (US$7.2 billion) were inked. • The close ties between the• twoThe countriesclose ties havebetween also theled twoto the countries appointment have also led to the appointment of Jack Ma, founder of China’sof Jack e-commerce Ma, founder giant of China’s– Alibaba e-commerce Group, as giant – , as Malaysia’s digital economyMalaysia’s adviser indigital late 2016economy and adviserthe subsequent in late 2016 and the subsequent formation of the KLIA Aeropolisformation Digital of theFree KLIA Trade Aeropolis Zone (DFTZ) Digital Park Free in Trade Zone (DFTZ) Park in Sepang, Selangor. The latter,Sepang, Alibaba’s Selangor. first regional The latter, hub outside Alibaba’s China, first regionalwill hub outside China, will be a boost to Malaysia’s e-commercebe a boost roadmap. to Malaysia’s e-commerce roadmap. • China's Zhejiang Holding• China's Group's Zhejiang entry Geely as aHolding strategic Group's partner entry of as a strategic partner of Proton Holdings Bhd (49.9%Proton stake), Holdings may reviveBhd (49.9%the ailing stake), national may carrevive the ailing national car company. Geely which alsocompany. owns Sweden's Geely which Volvo alsoCar Group,owns Sweden's expects toVolvo Car Group, expects to make inroad into the expandingmake South-East inroad into Asia the expandingautomobile South-East market via theAsia automobile market via the partnership. partnership. • Moving forward, China investment• Moving will forward,continue China to transform investment Malaysia, will continue particularly to transform Malaysia, particularly in the manufacturing, construction,in the manufacturing,infrastructure, propertyconstruction, and e-commerceinfrastructure, property and e-commerce sectors. sectors. • Melaka is building the RM12.5• Melaka billion is Kualabuilding Linggi the RM12.5International billion Port Kuala (KLIP), Linggi International Port (KLIP), financed by belt-road funds financedfrom China. by belt-roadChinese investorsfunds from and China. contractors Chinese investors and contractors are also involved in the buildingare also ofinvolved the RM8.9 in the billionbuilding Gemas-Johor of the RM8.9 billion Gemas-Johor double-tracking railway anddouble-tracking the RM55 billion railway East Coastand the Rail RM55 Link billion(ECRL). East Coast Rail Link (ECRL). The ECRL acts as a land bridgeThe ECRLbetween acts Port as aKlang land andbridge Kuantan between Port Port and Klang and Kuantan Port and other ports along the East Coastother ofports the alongpeninsula. the East The Coast improvement of the peninsula. of the The improvement of the local infrastructure with thelocal involvement infrastructure of the with Chinese the involvement will strengthen of the Chinese will strengthen economic, cultural and diplomaticeconomic, relations cultural between and diplomatic both nations. relations between both nations. • In the southern state of Johor,• In thethe southernon-going stateUS$100 of Johor, billion the ‘eco on-going city’ project US$100 billion ‘eco city’ project known as Forest City, is billedknown as the as nextForest ‘’. City, is billed Launched as the next in 2014, ‘Shenzhen’. Launched in 2014, the mega project consiststhe of megafour reclaimedproject consists islands ofspanning four reclaimed 2,025 islands spanning 2,025 hectares and is being developedhectares by Country and is being Garden developed Pacific View by Country (CGPV), Garden a Pacific View (CGPV), a Allan Sim Allan Sim joint venture between -based,joint venture between Hong Guangdong-based,Kong listed Country Hong Kong listed Country Executive Director of CapitalExecutive Markets Director of Capital Markets Garden and local partner, GardenEsplanade and Danga local partner,88 over Esplanadea 20-year Dangaperiod. 88 over a 20-year period. Knight Frank Malaysia Knight Frank Malaysia Despite facing scrutiny due toDespite its behemoth facing scrutiny size and due China’s to its capitalbehemoth outflow size and China’s capital outflow The rise in China’s presenceThe across rise thein China’s Asia Pacific presence region across the Asia Pacific region policy, the project continuespolicy, to progress the project albeit continues at a slower to paceprogress backed albeit by at a slower pace backed by is significant. Malaysia’s strategicis significant. positioning Malaysia’s along the strategic Belt positioning along the Belt its developer’s strong financialits developer’s and construction strong foundations.financial and Itconstruction has just foundations. It has just and Road link promises revolutionaryand Road linktransformations promises revolutionary in transformations in entered its second phase. enteredThe international its second project phase. with The a internationalnewly opened project with a newly opened terms of the country’s realterms estate of landscape the country’s as wellreal asestate landscape as well as sales gallery in Kuala Lumpur,sales targets gallery globalin Kuala investors Lumpur, and targets homebuyers global investors and homebuyers significant infrastructure projectssignificant i.e. infrastructure ports, bridges, projects i.e. ports, bridges, from countries / territories likefrom the countries Middle /East, territories India, likeVietnam, the Middle Thailand, East, India, Vietnam, Thailand, railways, etc., with extensiverailways, participation etc., bywith Chinese extensive firms. participation by Chinese firms. Japan, and Taiwan. Japan, and Taiwan. China also plays a pivotal Chinarole in also developing plays a Malaysia’spivotal role in developing Malaysia’s • China’s capital control may• haveChina’s slowed capital down control the mayinflow have of Chinese slowed privatedown the inflow of Chinesedigital private economy, giving risedigital to rapideconomy, development giving rise of to rapid development of capital for investment purposes,capital and for Malaysiainvestment is nopurposes, exception. and In Malaysia the local is no exception.Malaysia’s In the local logistics and industrialMalaysia’s sector. logistics The andteam industrial at sector. The team at property scene, we now propertysee a trend scene, where we therenow seeare morea trend Chinese where there are moreKnight Chinese Frank Malaysia is readyKnight andFrank well Malaysia positioned is readyto and well positioned to developers making inroads intodevelopers the market making via jointinroads ventures into the where market there via is joint ventures wherecapture there this is huge wave of opportunitiescapture this hugedriven wave by the of BRI.opportunities driven by the BRI. less strain on capital flow comparedless strain to on outright capital land flow purchase. compared to outright land purchase. CHINESE CORRIDORS CHINESE CORRIDORS IN MALAYSIA 3 IN MALAYSIA 3

Sarkunan SubramaniamSarkunan Subramaniam Managing Director Managing Director Knight Frank Malaysia Knight Frank Malaysia China’s BRI is the catalyst thatChina’s will turn BRI theis the balance catalyst of thatpower will towards turn the balance of power towards the east. Its BRI policy comesthe ateast. a time Its BRI that policy many comes of its neighbours at a time that many of its neighbours need China’s capital to boostneed their China’s economy. capital Whilst to boostthe capital their controlseconomy. Whilst the capital controls will slow China’s private capitalwill slow investments China’s privatein the capitalBRI, the investments State in the BRI, the State owned companies continueowned their companiesplan to invest continue in Port their and plan Rail to invest in Port and Rail infrastructure to ensure ‘all infrastructureroads now lead to ensureto China’. ‘all roadsTrade nowas we lead to China’. Trade as we know it will change in less thanknow 10 it willyears change from nowin less as thana result 10 yearsof the from now as a result of the CHINA CHINA BRI with China’s dominance.BRI Malaysia’s with China’s strategic dominance. location Malaysia’s in the BRI strategic location in the BRI route can propel it to a keyroute regional can allypropel to China’s it to a keyBRI regionalplan reaping ally to China’s BRI plan reaping economic benefits for itself ineconomic the process. benefits for itself in the process.

There is no question that ForeignThere isDirect no question Investment that (FDI) Foreign inflows Direct into Investment (FDI) inflows into Malaysia have been seeing Malaysiaa recovery have of late. been According seeing a torecovery data from of late. According to data from the Department of Statisticsthe MalaysiaDepartment (DOSM), of Statistics FDI surged Malaysia from (DOSM), FDI surged from RM35,600 million in 2014RM35,600 to RM43,435 million million in 2014 in 2015. to RM43,435 Despite million in 2015. Despite significant decline in globalsignificant FDI and decline FDI inflowsin global to developingFDI and FDI inflows to developing economies of 13% and 20%economies respectively of in13% 2016, and Malaysia 20% respectively continued in 2016, Malaysia continued to remain attractive amongstto investors, remain attractive recording amongst RM41,176 investors, million recordingin RM41,176 million in FDI inflows, only circa 5% lowerFDI inflows, than 2015. only circa 5% lower than 2015.

FDI INFLOWS TO DEVELOPING ECONOMIESFDI INFLOWS TO DEVELOPING ECONOMIES

RM Million RM Million

50,000 50,000

40,000 40,000

30,000 30,000 43,435 43,435 41,176 41,176

20,000 20,00038,175 38,175

MALAYSIA MALAYSIA 35,600 35,600

10,000 28,537 10,000 28,537

0 0 2012 2013 2014 20122015 20132016 2014 2015 2016 Source: Department of Statistics MalaysiaSource: (DOSM) Department of Statistics Malaysia (DOSM)

In 2016, the services sectorIn recorded2016, the higher services FDI sectorinflows recorded to RM20.9 higher FDI inflows to RM20.9 billion (2015: RM12.6 billion)billion while (2015: for the RM12.6 manufacturing billion) while sector, for FDIthe manufacturing sector, FDI inflows declined from RM17.1inflows billion declined in 2015 fromto RM11.0 RM17.1 billion billion in in2016. 2015 to RM11.0 billion in 2016. As for total approved investments,As for total it increased approved circa investments, 8% to register it increased at circa 8% to register at RM207.9 billion in 2016 (2015:RM207.9 RM193.0 billion billion) in 2016 with (2015: domestic RM193.0 and billion) with domestic and foreign investment ratio of 72%foreign to 28%.investment The services ratio of 72%sector to led 28%. with The services sector led with investment of RM141.2 billioninvestment (68%), followedof RM141.2 by the billion manufacturing (68%), followed by the manufacturing sector with RM58.5 billion (28%).sector with RM58.5 billion (28%). In the manufacturing sector,In China the manufacturing (RM4.7 billion) sector, and the China Netherlands (RM4.7 billion) and the Netherlands (RM3.2 billion) were the main(RM3.2 sources billion) of wereFDI inflows,the main followed sources by of FDI inflows, followed by Germany, the UK and RepublicGermany, of Korea the (source: UK and MalaysiaRepublic Investment of Korea (source: Malaysia Investment Development Authority [MIDA]).Development Authority [MIDA]). INTRODUCTION INTRODUCTION CHINESE CORRIDORS CHINESE CORRIDORS 4 IN MALAYSIA 4 IN MALAYSIA

CHINACHINA - THE - RISING THE RISING TIDE TIDE China has been aggressivelyChina investing has beenoutside aggressively of its waters. investing In the outside fifth issue of itsof waters.an Ernst In & the Young fifth (EY)issue of an Ernst & Young (EY) report “China Go Abroad”, 2016report was “China a record Go Abroad”, year for China’s 2016 was outward a record FDI, year recording for China’s a total outward of US$188.8 FDI, recording a total of US$188.8 billion. This accounts for a 30%billion. year-on-year This accounts growth. for a Chinese30% year-on-year enterprises growth. in 2016 Chinese also announced enterprises 622 in 2016 also announced 622 overseas mergers and acquisitionsoverseas (M&As), mergers totalling and acquisitions US$221.7 billion,(M&As), a totalling147% year-on-year US$221.7 billion, growth. a 147% year-on-year growth.

CHINA’S OUTWARD AND INWARDCHINA’S FDI DURING OUTWARD 2010-2016, AND INWARD BY VALUE FDI DURING(US$ BN) 2010-2016, BY VALUE (US$ 2016BN) 2016 net capital net capital outflow outflow was was 2013 20132015 further 2015 further Capital Capitalrealizing enlarged realizing enlarged 200 200 outflow netoutflow capital net capital exceeding exceedingoutflow outflow US$100 US$100for the for the billion for billionfirst time for first time 150 150 the first the first time time

100 100

50 50

Inward FDI Inward FDI

Outward FDI Outward FDI 0 0 2010 2011 20102012 20112013 20122014 20132015 20142016 2015 2016

Source: EY Report - China Go Abroad (5thSource: Issue) EY Report - China Go Abroad (5th Issue)

China’s 13th Five Year Plan China’s(2016 – 13th2020) Five set Yeara shift Plan in the(2016 country – 2020) economic set a shift focus, in the from country heavy economic industry focus, from heavy industry and manufacturing towards andmore manufacturing sustainable oriented towards economic more sustainable forms through oriented innovation, economic service forms throughand innovation, service and retail, infrastructure and overseasretail, infrastructureexpansion. This and creates overseas boundless expansion. opportunities This creates for boundlessboth its domestic opportunities for both its domestic and foreign focused businesses.and foreign focused businesses. The devaluation of the RenminbiThe devaluation (RMB) and of stock the Renminbimarket turbulence (RMB) and had stock also market contributed turbulence to market had also contributed to market uncertainty, which has led touncertainty, investor wariness which has of further led to policyinvestor intervention. wariness of With further this, policy Chinese intervention. investors With this, Chinese investors have realised a need for diversification,have realised in aparticular, need for overseas.diversification, in particular, overseas. Malaysia is one of the key beneficiariesMalaysia is oneof FDI of thefrom key China beneficiaries as part of of its FDI expansion from China in the as regionpart of throughits expansion in the region through the Belt Road Initiative (BRI).the Belt Road Initiative (BRI). Besides investing heavily in Besidesthe country’s investing manufacturing heavily in the sector, country’s we are manufacturing also seeing significantsector, we Chineseare also seeing significant Chinese investments in the infrastructure,investments logistics, in construction,the infrastructure, and reallogistics, estate construction, segments. and real estate segments. CHINESE CORRIDORS CHINESE CORRIDORS IN MALAYSIA 5 IN MALAYSIA 5

WHY MALAYSIA?WHY MALAYSIA? Strategically positioned alongStrategically the Belt Road positioned link, Malaysia along can the beBelt China’s Road newlink, Malaysiagateway canto Asean be China’s and new gateway to Asean and beyond - providing tremendousbeyond opportunities - providing to accesstremendous new markets opportunities and diversify to access local new products markets and and diversify local products and services. Through strong historicalservices. ties Through and good strong bilateral historical relations ties cementingand good bilateralclose co-operations relations cementing close co-operations between the two countries, Malaysiabetween continues the two countries, to benefit Malaysiafrom economic continues growth to benefit and the from upsurge economic of growth and the upsurge of BRI related investments. BRI related investments. Since 2009, Malaysia has maintainedSince 2009, its pole Malaysia position has as maintained China’s largest its pole Asean position trading as China’s partner. largest As of Asean trading partner. As of 1H2017, Malaysia-China bilateral1H2017, trade Malaysia-China expanded 28% bilateral to RM139.2 trade billion expanded supported 28% toby RM139.2 a 41% surge billion supported by a 41% surge in exports to RM59.8 billion – inmainly exports in the to RM59.8electrical billion & electronic – mainly (E&E) in the products, electrical petroleum & electronic products, (E&E) products, petroleum products, chemicals and chemical products,chemicals rubber and products chemical and products, liquefied rubber natural products gas (LNG) and (source: liquefied Malaysia natural gas (LNG) (source: Malaysia External Trade Development CorpExternal [Matrade]). Trade Development Corp [Matrade]). From November 2016 till MayFrom 2017, November a total of2016 23 businesstill May 2017, to business a total of(B2B) 23 businessMemorandums to business of (B2B) Memorandums of Understanding (MOUs) totallingUnderstanding some RM175 (MOUs) billion totalling(US$20.2 some billion) RM175 were billioninked (US$20.2between thebillion) two were inked between the two countries in various areas suchcountries as trade in and various investment, areas such development as trade and of technology investment, parks development as well as of technology parks as well as supply of goods and services.supply This ofis ingoods addition and toservices. another This 16 governmentis in addition to to government another 16 (G2G)government to government (G2G) MOUs and agreements that includeMOUs theand RM55 agreements billion (US$13that include billion) the in RM55 soft loans billion by (US$13 China for billion) the Eastin soft loans by China for the East Coast Rail Link (ECRL) and alsoCoast the RailMalaysia-China Link (ECRL) Kuantanand also Industrialthe Malaysia-China Park (MCKIP) Kuantan in Pahang. Industrial Park (MCKIP) in Pahang. In the real estate segment, InMalaysia the real continues estate segment, to attract Malaysia Chinese continues investors toseeking attract aChinese cheaper investors seeking a cheaper alternative to Australia, Hongalternative Kong and toSingapore. Australia, FromHong 2002 Kong till and June Singapore. 2017, some From 9,283 2002 Chinese till June 2017, some 9,283 Chinese citizens (or 27% of approved applications,citizens (or 27% the ofsingle approved biggest applications, nationality) thehave single been biggest granted nationality) residency have been granted residency under the Malaysia My Secondunder Home the (MM2H) Malaysia programme. My Second Other Home foreign (MM2H) citizens programme. who have Other benefited foreign citizens who have benefited from this policy include 4,303from Japanese, this policy 3,656 include Bangladeshis 4,303 Japanese, and 2,465 3,656 British Bangladeshis / Irish. and 2,465 British / Irish. It is noted that many ChineseIt contractorsis noted that are many also Chineseinvolved contractorsin major infrastructure are also involved and construction in major infrastructure and construction projects across the country. projects across the country. As for the tourism industry, Malaysia’sAs for the visa tourism exemption industry, and Malaysia’s eVisa programme visa exemption for Chinese and eVisa tourists programme in for Chinese tourists in 2016 has led to a surge in visitor2016 arrivals. has led China to a surgeis ranked in visitor third arrivals.in terms China of tourist is ranked arrivals third to Malaysia, in terms of tourist arrivals to Malaysia, after Singapore and Indonesia.after The Singapore number of and arrivals Indonesia. from China The number surged offrom arrivals 1.68 frommillion China in 2015 surged to from 1.68 million in 2015 to 2.12 million in 2016. For the 2.12first eightmillion months in 2016. of For2017, the Malaysia first eight welcomed months of a 2017,total of Malaysia 1.52 million welcomed a total of 1.52 million visitor arrivals from China. visitor arrivals from China. All in all, the above developmentsAll in areall, thepositive above for developments Malaysia as the are country positive stands for Malaysia to reap as enormous the country stands to reap enormous benefits from the successful roll-outbenefits of from China’s the successful‘project of theroll-out century’. of China’s ‘project of the century’. China has continued to investChina heavily has in continued the country’s to invest manufacturing heavily in thesector country’s although manufacturing we are also sector although we are also seeing significant Chinese investmentsseeing significant in other Chinese market investmentssegments, notablyin other infrastructure, market segments, logistics, notably infrastructure, logistics, construction, and real estate.construction, and real estate. CHINESE CORRIDORS 6 IN MALAYSIA CHINESE FOOTPRINT ON MALAYSIAN REAL ESTATE

In the built environment, Chinese participation comes in the form of investors, developers and construction companies. Besides the strong bilateral relations between the two countries, other pull factors that attract the Chinese interest to Malaysia include tightening of China’s housing policies and its moderating economy, the BRI as well as Malaysia’s strategic position within the Asia Pacific and Asean region and its proximity to Singapore, supported by a stable government, good growth potential, investor friendly guidelines, and lower entry cost for property development. Four of the top 10 Chinese developers in 2017, by contracted sales value have made inroads onto the Malaysia property market. They are (ranked first with 581 billion yuan); China (No. 3); Greenland Group (No. 6) and China Overseas Land & Investment (No. 7). China Fortune Land Development, ranked at eighth position and , ranked tenth, have also indicated interest in the Malaysia property development industry including the Bandar Malaysia. The combined sales of the top 10 Chinese developers amounted to 3.19 trillion yuan.

Greentown China China Fortune Country Land Dev 4.5% % Garden .6 18 Group Longfor 4 .2 Properties % % .9 4 China

Overseas

Land & % 3 20172017 Investment .

6

TOP 10 TOP 10

CHINESECHINESE %

Greenland 1

6 6

Group .

. 8

DEVELOPERSDEVELOPERS 0

BYBY CONTRACTEDCONTRACTED SALESSALES %

China Evergrande TotalTotal SalesSales ofof TopTop 1010 DevelopersDevelopers ==

9 RMBRMB 3.193.19 trilliontrillion .9 Poly Real % Estate

% 5.7 11 1 China .3% Vanke Sources: China Guandian Index, SCMP

Other notable Chinese developers with presence in the country are Guangzhou R&F Properties, Macrolink International Land (Malaysia) Sdn Bhd and Holdings Ltd. The majority of these Chinese companies have formed joint ventures with local builders to jointly undertake property developments involving resorts, mixed-use components, retail space, and residential products. However, the sheer size of selected projects has stoked overcapacity concerns amid a weak property market environment. The following lists notable real estate projects with Chinese Companies’ participation, some of which are on-going whilst others are in the planning stage. CHINESE CORRIDORS IN MALAYSIA 7

NOTABLE REAL ESTATE PROJECTS WITH CHINESE COMPANIES’ PARTICIPATION

Projects / Approximate Gross Development Year Parties Location Type of Development Land Size (acres) Value (GDV) / Investment

WILAYAH PERSEKUTUAN KUALA LUMPUR

Four Seasons Place China Railway Construction Corp (contractor) Estimated GDV: RM3 billion 2013 KLCC 2.7 Mixed Development & Venus Assets Sdn Bhd (Slated for completion by end of 2017)

Agile Mont' Kiara Agile Real Estate Development (M) Sdn Bhd Estimated GDV: RM1.4 billion 2014 Mont’ Kiara 10 High-End Residential & PJ Development Holdings Berhad Investment: RM186 million

Pavillion Treasures Land Development Sdn Bhd Redevelopment of Plaza Rakyat Estimated GDV: RM6-RM8 billion 2015 (subsidiary of Debao Property Development Ltd) Jalan Pudu 15.3 Serviced Apartment Investment: RM740 million & Gabungan Tiasa Sdn Bhd (JV 82:18)

3rdNvenue CREC Development (M) Sdn Bhd Embassy Row, Estimated GDV: RM2.1 billion 2016 6.06 Mixed Development & Titijaya Land Berhad (JV 30:70) Jalan Ampang (4 phases in 7 years)

China Vanke Co Ltd 2017 Development Land Jalan Raja Chulan 7.4 Purchase of Land: RM500 million & City Centre Sdn Bhd

SELANGOR

Country Garden Holdings Estimated GDV: Country Garden Diamond City Phase 1: 100 2013 & Malaysia Land Properties Sdn Bhd Semenyih Plot A: RM710 million Township Development Phase 2: 158 (Mayland Group) (JV 55:45) Plot B: RM1.7 billion

Serendah Project Country Garden & Malaysia Land Properties 2014 Serendah 167 Estimated GDV: RM535.92 million Integrated Development Sdn Bhd (Mayland Group) (JV 55:45)

MCC Overseas (M) Sdn Bhd Paragon @ KL Northgate 2015 & Harvest Court Construction Sdn Bhd Selayang 18 Estimated GDV: RM3.6 billion Mixed Development & KL Northgate Sdn Bhd (developer)

MELAKA

Melaka Gateway PowerChina International Group Ltd 1,366 2014 Melaka Estimated GDV: RM42 billion Mixed Development – Harbour Project & KAJ DevelopmentSdn Bhd (JV 49:51) (Melaka Gateway)

JOHOR

Country Garden, Danga Bay 57.11 2012 Country Garden Holdings Danga Bay Estimated GDV: RM18 billion Integrated Development (23 hectares)

Greenland Jade Palace, Danga Bay Estimated GDV: RM2.2 billion 2013 Greenland Group Danga Bay 13.96 Resort Hotels and Residential Developments Investment: RM600 million

Hao Yuan Investments Pte Ltd (Singapore-based Danga Bay ~ 37 2013 mainly owned by mainland Chinese shareholders) Danga Bay Estimated GDV: RM8 billion Integrated Development (15 hectares) & Iskandar Waterfront Holdings (IWH) (JV 60:40)

Princess Cove @ Tanjung Puteri (6 sites) 116 2013 Guangzhou R&F Properties Tanjung Puteri Estimated GDV: RM24.5 billion Integrated Development (46.94 hectares)

Estimated GDV Zhuoyuan Iskandar Sdn Bhd (subsidiary of Paradiso Medini (Phases 1 & 2) Phase 1: RM400 million Zhouda Real Estate Group) & Medini Iskandar Phases 1 & 2: 16 Luxury Condominium Phase 2: TBC Malaysia Sdn Bhd (JV 80:20) 2013 Medini Development Period: > 7 years

Phase 3 Zhuoyuan Group Phase 3: N/A Estimated GDV: RM1.5 billion

The M-Macrolink Medini Macrolink International Land 2014 Medini (Zone B) 11.7 Not available Integrated Development (Malaysia) Sdn Bhd

Forest City Country Garden Group Near Tanjung Kupang 5,004 Estimated GDV: RM420 billion 2014 Integrated Development & Esplanade Danga 88 Sdn Bhd (JV 66:34) (4 reclaimed islands) (2,025 hectares) Development Period: > 20 years

Greenland Tebrau Bay Greenland Group 2015 Tebrau Bay, 128 Estimated GDV: RM20 billion Integrated Development & Iskandar Waterfront City Berhad (JV 80:20)

2015 Seafront Land (Project Name: TBC) China Vanke Co. Ltd Johor Bahru ~148 (60 hectares) Investment: US$1.12 billion

Central Park @ Tampoi Country Garden Management Sdn Bhd 2016 Tebrau Corridor 53 Estimated GDV: RM4.6 billion Integrated Township & Damansara Realty Bhd (JV 70:30)

PAHANG Kuantan Waterfront Resort City CCCC Dredging Group Ltd Bina 2016 Kuantan 500 Estimated GDV: RM15 billion Integrated Development & Puri Holdings Bhd

NEGERI SEMBILAN Seremban 2 China Railway Liuyuan Group 2016 Seremban 77 Estimated GDV: RM650 million Integrated Development & Paramount Blossom

SABAH The Shore CREC Development (M) Sdn Bhd 2017 Kota Kinabalu 1.82 Estimated GDV: RM575 million (total) Mixed Use Commercial Development & Titijaya Land Berhad (Joint project)

Source: Knight Frank Research / various sources CHINESE CORRIDORS 8 IN MALAYSIA

COUNTRY GARDEN: Country Garden Group is one of the first Chinese developers to debut in Malaysia with its maiden project, Country Garden Danga Bay in 2012/2013. The 57-acre WHAT'S NEXT? integrated development with an estimated gross development value (GDV) of RM18 billion won the Asia Pacific Property Award 2014 - 2015 for Commercial Landscape Architecture, Malaysia. To date, the group has no less than five projects in Malaysia with GDV totalling some RM445 billion. Its mega project, the US$100 billion Forest City development, launched in 2014, is administered by Country Garden Pacificview Sdn Bhd (CGPV), a joint-venture between Guangdong-based Country Garden Holdings Co Ltd, China’s third largest homebuilder, and Esplanade Danga 88 Sdn Bhd, a Malaysian company. CGPV seeks to attract diverse Image Source: multinationals, investors and property companies for Country Garden Pacificview Sdn Bhd the development of eight key industries in Forest City - education, e-commerce, foreign investment, tourism, MICE (meetings, incentives, conferencing and exhibitions), entrepreneurship, financial services and retirement destination. Last year, the international project reportedly sold 17,000 apartments to buyers from 23 countries, including Malaysia. The recent capital outflow restriction imposed by the Chinese government, however, has inevitably affected sales of the project, which counts Chinese buyers as its primary source of customers. To diversify its target market, the company is setting up show galleries in the Middle East, India, Vietnam, Thailand, Japan and Taiwan to attract global investors and home buyers. Country Garden Pacificview Sdn Bhd has also recently opened a new sales gallery for its Forest City developments at UBN Tower in Kuala Lumpur to strengthen the developer's presence in the international market. Despite facing scrutiny due to its behemoth size and China’s capital outflow policy, the project continues to progress albeit at a slower pace backed by its developer’s strong financial and construction foundations. The project has just entered its second phase with proposed components that will include a Jack Nicklaus designed 18-hole golf course and a 5-star hotel. Country Garden’s latest project, a joint-venture with Damansara Realty Bhd, is the 53-acre Central Park@Tampoi development in the Tebrau corridor of Johor. This low-mid to mid-price range project is targeted at the local Malaysian market. In the short term, China’s curb on capital flight may have impacted foreign investment by its home-grown companies and nationals. With Beijing’s tightening of regulations leading to slower inflow of Chinese private capital, we now see more developers from China making inroads into the local development scene via joint-venture (JV) arrangements where there is less strain on capital flow rather than outright purchase of land. Vice versa, more small and mid-sized local companies continue to look to China for capital support amid the challenging property market condition. Moving ahead, we expect to see continued interest from Chinese developers partnering local developers in mixed use and township projects that target a wider pool of potential buyers, comprising more locals. Malaysia remains on the radar of Chinese buyers whose choice of property locations includes Johor Bahru, Penang and Melaka. The country offers a good proposition for Chinese investors supported by its MM2H programme, lower entry cost of property, similarities in food, culture, and language, and well established education hubs that also include Xiamen University Malaysia Campus, China’s first overseas university. The BRI is an important investment driver for Malaysia as it is being promoted by the Chinese government. According to Juwai.com, China’s largest international property website, the average price of Malaysian residential real estate that Chinese buyers are most interested in ranges between RM1.2 million and RM3 million with the majority of buyers looking for individual homes and apartments. Chinese demand for Malaysian residential property reportedly increased 138 per cent in the first half of this year compared to one year earlier, and going forward, demand is expected to continue growing.

CHINA’S CAPITAL CONTROL: • In the long run, we wish to 2016 2017 2017 reiterate our view that the Late August 18 December capital controls will not be a permanent measure in the • China stepped up • China’s State Council and the National Development • China’s capital controls Middle Kingdom, as the measures to stem and Reform Commission issued new rules on overseas have proven to be highly continuation of capital controls capital outflows mergers and acquisitions where investments are effective. The yuan will prevent China from following sharp categorized under three categories: banned, restricted, appreciated to 6.51 against achieving its long term devaluation of its and encouraged. This is in line with the state policy the dollar (January 2017: ambition, which is to yuan currency amid initiatives. Examples of industries under the three $1=6.94 Chinese yuan internationalize the Renminbi a slowing economy categories include the following: renminbi) while the and to make its financial and also to curb country’s foreign-exchange market more international and the rapid decline Banned Restricted Encouraged reserve posted an eleventh market-oriented. of the nation’s Industries Industries Industries straight month increase to capital reserve. • Military • Real estate & • BRI related USD3.14 trillion (January • In 2016, the renminbi joins the IMF's special drawing rights • Gambling hotels • Industries that 2017: USD2.99 trillion). (SDR) basket, which • Film & improve China’s • Sex determines currencies that entertainment technology / countries can receive as part of research & • Sports IMF loans. This clearly shows development that China has a strong desire • Oil, mining, to internationalize the renminbi agriculture and over time and capital control fishing related will not be part of the nation's long term agenda. CHINESE CORRIDORS IN MALAYSIA 9

BANDAR MALAYSIA:

Image Source: WHO WILL LEAD? 1 Malaysia Development Berhad

Bandar Malaysia, the redevelopment of the Sungai Besi Air Force base that was once Malaysia’s first international airport, continues to hog the limelight. The mega development spanning 486 acres and its twin Date Progress project, Tun Razak Exchange (TRX) - the new financial district for Kuala 1 Malaysia Development Berhad (1MDB) sold 60% of its equity in Lumpur, to be undertaken by master developer, 1Malaysia December 31, 2015 Bandar Malaysia Sdn Bhd to IWH-CREC Sdn Bhd, which is a 60:40 joint-venture (JV) between Iskandar Waterfront Holdings Sdn Bhd (IWH) Development Berhad 1MDB will change the cityscape. and China Railway Engineering Corporation for RM7.41 billion.

While TRX aspires to be the new icon for the financial world leveraging China Railway Group Ltd pledged to invest US$2 billion to build a regional March 21, 2016 on Malaysia’s leadership in global Islamic finance, Bandar Malaysia will centre in Malaysia. involve urban redevelopment to transform the old Sungai Besi Air Force The Malaysian government agreed to provide the master developers of base into a sustainable liveable city. Bandar Malaysia and its subsidiaries with incentives such as income exemption for 10 years, exemption from stamp duty (eight years), real June 17, 2016 Envisioned as a world-class city-within-a-city, Bandar Malaysia will be property gains tax (eight years), withholding tax (eight years) and exemption the country’s first transit-oriented mixed-use cluster offering seamless from import duty on selected constructed materials not manufactured locally. connectivity via a high speed rail (HSR) terminus to Singapore, the TRX City Sdn Bhd announced that the Bandar Malaysia development Express Rail Link (ERL), KTM Komuter and Mass Rapid Transit (MRT) May 3, 2017 agreement with IWC CREC Sdn Bhd has lapsed and will be inviting lines 2 and 3. The development will also strive to be a global business expressions of interest for the role of master developer of Bandar Malaysia. hub, retail lifestyle destination, creative enterprise hub and the preferred China’s property giant Dalian is considering to take a May 9, 2017 destination for Gastronomy, Learning, Entertainment and Wellness major stake in the Bandar Malaysia development. (GLEW) Tourism. Wanda Group’s chairman reiterated that Wanda has the desire to participate in the Bandar Malaysia project during a joint press May 14, 2017 Whilst there have been significant progressions at TRX; little has conference with Prime Minister Datuk Seri Najib Tun Razak at the changed at Bandar Malaysia since the project was unveiled in 2011. Sofitel Beijing Hotel owned by Wanda Group. The relocation of the air force base is only scheduled to commence in The Ministry of Finance is issuing the request for proposal (RFP) for December 2017. companies interested in taking part in the Bandar Malaysia project. st To qualify for selection, the candidates must fulfil the following criteria: As of 31 December 2017, the behemoth project had yet to identify a July 5, 2017 1. Must be a Fortune 500 company new master developer. However, the government had reiterated that a 2. Have a cumulative revenue over three years of RM50 billion from new master developer will be identified soon. Hence, it will be entire value chain of real estate and associated business interesting to see if this will come into fruition in 2018. 3. Have experience in international real estate development projects July 25, 2017 Dalian Wanda has reportedly abandoned its bid for the Bandar Malaysia project. Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah asserts August 23, 2017 that six companies are vying to be the master developer for the Bandar Malaysia project. CHINESE CORRIDORS CHINESE CORRIDORS 10 IN MALAYSIA 10 IN MALAYSIA CHINESECHINESE INFLUENCE INFLUENCE ON ON MALAYSIANMALAYSIAN INFRASTRUCTURE INFRASTRUCTURE

In a country’s road to becomingIn a country’sa developed road economy, to becoming infrastructure a developed plays economy, a vital role infrastructure in that development. plays a vital role in that development. The lack of said infrastructureThe would lack ofhinder said infrastructurethe growth of wouldthe nation. hinder The the same growth can of be the said nation. of Malaysia. The same can be said of Malaysia. With Malaysia aiming to becomeWith Malaysiaa developed aiming nation to become by the year a developed 2020, much nation more by hasthe toyear be 2020, done muchto build more has to be done to build up the infrastructure of the nation.up the infrastructure of the nation. To this end, Chinese companiesTo this have end, seen Chinese much companies potential in have the sector. seen much It is a potentialknown fact in the that sector. Malaysia It is still a known fact that Malaysia still requires higher levels of infrastructurerequires higher than itlevels has now,of infrastructure in particular than areas it hasoutside now, of in Greater particular Kuala areas Lumpur. outside of Greater Kuala Lumpur. With this, development in Withtransport this, infrastructuredevelopment isin beingtransport stepped infrastructure up in the is country.being stepped By 2022, up thein the country. By 2022, the scheduled completion of somescheduled 140km completion rail link from of somethe completed 140km rail / on-goinglink from /the proposed completed Mass / on-goingRapid / proposed Mass Rapid Transit (MRT) and on-going LightTransit Rail (MRT) Transit and (LRT) on-going line 3 Lightwill greatly Rail Transit enhance (LRT) mobility line 3 willand greatly connectivity enhance within mobility and connectivity within the Greater KL region and helpthe Greatertransform KL it regioninto a sustainableand help transform and liveable it into metropolis. a sustainable and liveable metropolis. The proposed 350km High-SpeedThe proposed Rail (HSR) 350km line, High-Speedlinking Kuala Rail Lumpur (HSR) and line, Singapore, linking Kuala billed Lumpur as a “game and Singapore, billed as a “game changer” for both countrieschanger” is a step for closerboth countriesto reality isfollowing a step thecloser signing to reality of the following Memorandum the signing of of the Memorandum of Understanding (MoU) betweenUnderstanding the governments (MoU) ofbetween Malaysia the and governments Singapore inof JulyMalaysia 2016. and The Singapore rail project, in July 2016. The rail project, which has a target completionwhich date has of a 2026, target has completion attracted date strong of 2026,interest has from attracted China-based strong companiesinterest from China-based companies and those from other countriesand suchthose as from Japan, other South countries Korea, such France as Japan, and Germany. South Korea, France and Germany. Along with increased participationAlong with in the increased real estate participation sector, state-owned in the real estateChinese sector, companies state-owned have alsoChinese companies have also aggressively expanded theiraggressively footprints in expandedthe country’s their construction footprints in sector. the country’s This is causingconstruction concern sector. among This is causing concern among local contractors and developerslocal contractors as competition and heightensdevelopers amid as competition lower volume heightens of construction amid lower contracts volume of construction contracts and competitive pricing as foreignand competitive players are pricing at the asadvantage foreign players with certain are at incentives.the advantage with certain incentives. According to the ConstructionAccording Industry to Development the Construction Board Industry (CIDB) Developmentstatistics, foreign Board contractors (CIDB) statistics, clinched foreign contractors clinched 15.4% (or RM19 billion) of total15.4% construction (or RM19 projectbillion) ofvalue total in construction Malaysia during project the valueyear 2015.in Malaysia Among during foreign the year 2015. Among foreign contractors, Chinese contractorscontractors, clinched Chinese the lion contractors share of 42% clinched or RM8 the billion. lion share of 42% or RM8 billion.

VALUE OF PROJECTS BY FOREIGNVALUE CONTRACTORS OF PROJECTS IN BY % FOREIGN(2015) CONTRACTORS IN % (2015)

42% China 42%

25% South Korea25% South Korea

14% Japan 14% Japan

5% Singapore 5% Singapore

5% Indonesia 5% Indonesia

5% Others 5% Others

4% Hong Kong 4% Hong Kong CHINESE CORRIDORS CHINESE CORRIDORS IN MALAYSIA 11 IN MALAYSIA 11

China’s participation in the infrastructureChina’s participation and construction in the infrastructure industry of and Asia construction (including Malaysia) industry isof in Asia line (including with the BRI Malaysia) as its futureis in line is closelywith the tied BRI to as Asia. its future Another is closely tied to Asia. Another reason why Chinese firms arereason keen why to expand Chinese in firmsAsean are is keenalso dueto expand to the factin Asean that they is also already due topossess the fact a thatstrong they presence already possessin Africa anda strong Middle presence East and in Africathis and Middle East and this makes Asean a viable destinationmakes for Asean diversification a viable destination purposes. for diversification purposes.

NOTABLE INFRASTRUCTURE PROJECTSNOTABLE WITHINFRASTRUCTURE PARTICIPATION PROJECTS BY CHINESE WITH COMPANIES PARTICIPATION BY CHINESE COMPANIES

ProjectsTimeline Projects Parties PartiesLocation LocationBrief Description Brief Description

Contractor: Communication Contractor: Communication Target Completion Length / Distance: 620 km Length / Distance: 620 km East Coast Rail Link (ECRL) East CoastConstruction Rail Link (ECRL) Company Ltd (CCCC) Construction CompanyPort Klang Ltd (CCCC) - Port Klang - 2024 Estimated Cost: RM55 billion Estimated Cost: RM55 billion Financing: Export-Import Bank of ChinaFinancing: (EXIM) Export-Import BankTumpat of China (EXIM) Tumpat

Contractor: A consortium of three China-basedContractor: companies A consortium – of three China-based companies – Gemas - Gemas - Target Completion China Railway Construction Corp LtdChina (CRCC), Railway ConstructionGemas Corp - Ltd (CRCC), LengthGemas / Distance: - 197 km Length / Distance: 197 km Johor Electrified Johor Electrified 2021 China Railway Engineering Corp (CREC)China and Railway EngineeringJohor Corp Bahru (CREC) and EstimatedJohor Bahru Cost: RM8.9 billion Estimated Cost: RM8.9 billion Double Tracking Rail Double Tracking Rail China Communications ConstructionChina Corp (CCCC)Communications Construction Corp (CCCC)

Enhancement of the New Deep WaterEnhancement of the New Deep Water IJM Corp Bhd & IJM Corp Bhd & Target Completion Gebeng, Terminal Gebeng,(NDQT) - Double capacity toTerminal (NDQT) - Double capacity to Kuantan Port Expansion KuantanGuangxi Port Expansion Beibu International Port GroupGuangxi Beibu International Port Group 2018 Kuantan 52 millionKuantan freight weight tonnes (FWT)52 million freight weight tonnes (FWT) (JV 60: 40%) (JV 60: 40%) Estimated cost: RM4 billion Estimated cost: RM4 billion

KAJ Developments Sdn Bhd & ChineseKAJ port Developments operators - Sdn Bhd & Chinese port operators - Improved port targeted to handle Improved port targeted to handle Target Completion Penang Port (Revamp) PenangShenzhen Port (Revamp) Yantian Port Group Co LtdShenzhen Yantian PortPenang Group Co Ltd up toPenang 100,000 ships a year up to 100,000 ships a year 2020 and Rizhao Port Group Co Ltd (JV) and Rizhao Port Group Co Ltd (JV) Investment Value: RM6.3 billion Investment Value: RM6.3 billion

A development which will include A development which will include KAJ Developments Sdn Bhd & KAJ Developments Sdn Bhd & international cruise terminal, integratedinternational deep sea cruise terminal, integrated deep sea Target Completion PowerChina International Group Ltd andPowerChina InternationalPulau Panjang,Group Ltd and Pulau Panjang, Melaka Gateway Melaka Gateway port, container and bulk terminal, shipbuildingport, container and bulk terminal, shipbuilding 2025 2 partners Shenzhen Yantian Port Group2 partners Co Ltd Shenzhen YantianMelaka Port Group Co Ltd Melaka and ship repair, maritime industrial parkand and ship more. repair, maritime industrial park and more. and Rizhao Port Group Co Ltd (JV) and Rizhao Port Group Co Ltd (JV) Total Development Cost: RM42 billionTotal Development Cost: RM42 billion

Expansion of Kuala Linggi Port whichExpansion opened of Kuala Linggi Port which opened Linggi Base Sdn Bhd Linggi Base Sdn Bhd in 2001 – existing facilities mainly servein 2001the O&G – existing industry facilities mainly serve the O&G industry KualaTarget Linggi Completion Kuala(port’s Linggi project owner: TAG Marine) & (port’s project owner:Kuala TAG Linggi, Marine) & Kuala Linggi, Expansion will provide large scale servicingExpansion facilities will provide large scale servicing facilities International2025-2027 Port (KLIP) InternationalChina Port Railway(KLIP) Port Channel China Railway PortMelaka Channel Melaka aimed at approximately 100,000 shipsaimed a year at approximately 100,000 ships a year Engineering Group Co. Ltd (JV) Engineering Group Co. Ltd (JV) Estimated Cost: RM12.5 billion Estimated Cost: RM12.5 billion

To be developed on 404 hectares of landTo be consisting developed on 404 hectares of land consisting RoboticExpected Future toCity, kick off Robotic Future JohorCity, Corp and Johor Corp and Johor of robotics factory, R&DJohor centre and salesof robotics marketing factory, unit. R&D centre and sales marketing unit. Johorby 2017 JohorSiasun Investment Co Ltd (JV) Siasun Investment Co Ltd (JV) Estimated Cost:RM15 billion Estimated Cost:RM15 billion

Expected to kick off Expected to kick off Terminal set to be a base for tuna fishingTerminal boats set to be a base for tuna fishing boats Kedah Integrated Kedah IntegratedKedah Government and Kedah Government and by 2017 to be by 2017 to be Kedah operatingKedah in the Indian Ocean. operating in the Indian Ocean. Fishery Terminal (KIFT) Fishery TerminalLu (KIFT) Hai Feng Ltd (JV) Lu Hai Feng Ltd (JV) developed over 10 years developed over 10 years Estimated Cost: RM3 billion Estimated Cost: RM3 billion

China Communications ConstructionChina Communications Construction Engineering, Procurement & ConstructionEngineering, Procurement & Construction MRT Line 2 SungaiAwarded Buloh – MRT Line 2 Sungai Buloh – Company Ltd & George Kent (Malaysia)Company Ltd & GeorgeKlang Kent Valley (Malaysia) Contract Sum:Klang RM1.01 Valley billion (Work Package:Contract Sum: RM1.01 billion (Work Package: Serdang -Putrajaya2016 (SSP) Line Serdang -Putrajaya (SSP) Line Sdn Bhd (JV: 51:49) Sdn Bhd (JV: 51:49) trackworks, maintenance vehicles andtrackworks, work trains) maintenance vehicles and work trains)

TRX City Sdn Bhd and TRX City Sdn Bhd and Major traffic dispersion and Major traffic dispersion and Tun Razak Exchange Tun RazakGadang Exchange CRFG Consortium Sdn BhdGadang CRFG Consortium Sdn Bhd 2017 Jalan Tun Razak, KL Jalanimprovement Tun Razak, KLjob worth improvement job worth (TRX) (Gadang(TRX) Holdings Bhd JV China Railway(Gadang Holdings Bhd JV China Railway RM327.91 million RM327.91 million First Group Malaysia Bhd on (JV: 51:49)First Group Malaysia Bhd on (JV: 51:49) Source: Knight Frank Research / variousSource: sources Knight Frank Research / various sources

One notable fact about theOne RM12.5 notable billion fact Kuala about Linggi the RM12.5 International billion Port Kuala LinggiIn AugustInternational 2017, Port Prasarana MalaysiaIn August Bhd 2017, awarded Prasarana a major Malaysia contract Bhd worth awarded a major contract worth (KLIP) that Melaka State is building(KLIP) that is that Melaka it is beingState isfinanced building by is BRIthat fundsit is being financedRM1.56 by billion, BRI funds marking the RM1.56start of the billion, Light marking Rail Transit the start(LRT) of line the 3 Light project Rail Transit (LRT) line 3 project from China. The completionfrom of the China. BRI willThe alter completion trade routes of the in BRI the willregion, alter trade routesto a Chinese-German-Malaysian in the region, to a Chinese-German-Malaysian consortium. The consortium consortium. consisting of The consortium consisting of which may divert hundreds ofwhich billions may worth divert of hundreds trade from of Singapore. billions worth A large of trade fromCRRC Singapore. Zhuzhou A large Locomotive CRRC Co Ltd,Zhuzhou Siemens Locomotive Ltd China Co andLtd, TegapSiemens Ltd China and Tegap part of this is due to cargo andpart goods of this within is due the to cargoregion andheading goods for within China the or region Dinamikheading forSdn China Bhd orwill design,Dinamik supply Sdn and Bhd commission will design, 42 supplysix-car andlight commission rail 42 six-car light rail vice-versa may bypass the Portvice-versa of Singapore may bypass with the the completion Port of Singapore of KLIP. with the completionvehicles for of the KLIP. 37km stretchvehicles linking for Bandar the 37km Utama stretch in Damansara linking Bandar and Utama in Damansara and Johan Setia in Klang. Johan Setia in Klang. The KLIP is important becauseThe KLIP the portis important will be ablebecause to serve the portmaritime will be able to serve maritime services such as ship repair,services bunkering such and as maintenance, ship repair, bunkering which are and facilities maintenance, For which the sector, are facilities moving forward,For thewe willsector, likely moving see China forward, keeping we willa close likely eye see China keeping a close eye that Pork Klang currently is unablethat Pork to Klangprovide currently due to limitations.is unable to provide due to limitations.on other Malaysian mega infrastructureon other Malaysian projects, mega which infrastructure includes the projects, Kuala which includes the Kuala Lumpur-Singapore High SpeedLumpur-Singapore Rail (HSR) via Malaysia High Speed and theRail Pan (HSR) Borneo via Malaysia and the Pan Borneo Other than that, Chinese partiesOther arethan already that, Chineseinvolved partiesin the buildingare already of the involved in the building of the Highway in East Malaysia. BRIHighway related in investmentsEast Malaysia. (BRI), BRI which related are investments linked (BRI), which are linked Gemas-Johor double-trackingGemas-Johor railway, as double-trackingwell as the highly railway, impactful as wellEast as the highly impactful East to the Chinese state-ownedto enterprisesthe Chinese (SOEs), state-owned are not enterprises affected by (SOEs), the are not affected by the Coast Rail Link (ECRL) projectCoast worth Rail RM55Link (ECRL) billion. projectIn particular, worth theRM55 ECRL billion. In particular, the ECRL capital control. capital control. will act as a land bridge betweenwill act Portas a Klang land bridgeand Kuantan between Port Port and Klang other and Kuantan Port and other ports along the East Coast ofports the alongpeninsula. the East Coast of the peninsula. As what is consistent with mostAs what infrastructure is consistent projects with mostof similar infrastructure nature, the projects of similar nature, the projects are expected projectsto improve are theexpected connectivity, to improve bring theout connectivity, bring out This connection will enable China-boundThis connection goods will enablefrom Port China-bound Klang, inland goods and from Port Klang, inland and socio-economic impact andsocio-economic a trickle-down domino impact effectand a for trickle-down business. Thedomino effect for business. The the north to be moved to theKuantan north Port,to be withoutmoved havingto Kuantan to stopover Port, without at having to stopover at projects will also facilitate investmentprojects will particularly also facilitate in fast investment growing andparticularly key in fast growing and key Singapore and taking the reverseSingapore of the and same taking route. the Malaysia-bound reverse of the same goods route. Malaysia-bound goods industries such as manufacturing,industries renewable such as energymanufacturing, and biotechnology. renewable energy and biotechnology. from China could stop atfrom Kuantan China Port,could now stop being at Kuantan deepened Port, and now being deepened and Infrastructure is the foundationInfrastructure of which business is the foundation builds upon of which for growth. business builds upon for growth. expanded, after plying the Southexpanded, China after Sea. plying the South China Sea. In addition, the improvementIn of addition, local infrastructure the improvement with the of localinvolvement infrastructure of with the involvement of For Malaysia, the Port Klang-ECRL-KuantanFor Malaysia, the routePort Klang-ECRL-Kuantanwill not only boost trade route will not only boost trade the Chinese will strengthenthe economic, Chinese culturalwill strengthen and diplomatic economic, relations cultural and diplomatic relations volume for the peninsula volumebut will forimprove the peninsula the economic but will and improve tourism the economic and tourism between the countries. between the countries. landscape for the East Coast.landscape for the East Coast. CHINESE CORRIDORS 12 IN MALAYSIA

CHINA LEADS MANUFACTURING: 2016 SOURCES MANUFACTURING INVESTMENTS OF FOREIGN DIRECT INVESTMENT (FDI)

China IN MALAYSIA

4.7 Malaysia’s manufacturing sector continued its strong growth momentum. In September 2017, manufacturing RM Billion sales grew 11% to RM65.4 billion compared to RM59.1 billion reported a year ago. The three sub-sectors that contributed some 81% to the manufacturing sales value are the electrical & electronic products; petroleum, chemical, rubber and plastic products; and non-metallic mineral, basic metal and fabricated metal products. Netherlands In the manufacturing sector, China became the main source of FDI in 2016. Together with The Netherlands, 3.2 Germany, the United Kingdom and Republic of Korea, these countries collectively contributed more than half RM Billion of the country’s total approved foreign investment. In 2016, China invested a total of RM4.77 billion in 33 Malaysian manufacturing projects, compared to 2015 where the figure stands at RM1.87 billion in 17 projects. These projects are expected to generate 10,147 job Germany opportunities. The approved investments from China made up the largest FDI for the period. 2.6 RM Billion APPROVED MANUFACTURING PROJETCS WITH CHINESE PARTICIPATION, 2010 TO 2016

Investment Employment UK (RM in Billion) (No.) 2.6 6.00 12,000 RM Billion 10,147 5.00 5,534 10,000 Korea, Rep 4.00 8,000 3,660 5,127 2.2 3.00 6,000 RM Billion 3,835 2.00 3,481 4,000 2,069 1.00 2,000 Singapore 0.64 1.19 1.98 3.02 4.75 1.87 4.77 0 0 2.1 2010 2011 2012 2013 2014 2015 2016 RM Billion Source: Malaysia Investment Development Investment (RM) Employment Authority (MIDA) / Knight Frank Research

Japan Among the manufacturing projects, the top industries with Chinese participation are the electronics and 1.9 electrical products (37.2%); non-metallic mineral products (29.9%) and basic metal products (27.4%). RM Billion

2016 USA Industry Number Employment Foreign Investment (RM) 1.4 Electronics & Electrical Products 8 5,299 1,774,490,000 RM Billion Non-Metallic Mineral Products 4 1,351 1,428,977,557 Basic Metal Products 1 1,660 1,307,991,280 Fabricated Metal Products 3 615 148,399,650 India Wood & Wood Products 4 389 40,237,365 1.3 Paper, Printing & Publishing 3 333 24,203,144 RM Billion Plastic Products 3 264 14,170,521 Chemical & Chemical Products 1 43 12,700,000 Miscellaneous 2 50 10,569,191 Belgium Transport Equipment 2 30 7,369,662 0.6 Scientific & Measuring Equipment 1 22 5,518,000 Leather & Leather Products 1 91 192,500 RM Billion Total 33 10,147 4,774,818,871 Source: Malaysia Investment Development Authority (MIDA) Source: Malaysia Investment Development Authority (MIDA) / Knight Frank Research Certainly, the increasing interest of Chinese investors in the Malaysian manufacturing sector has much to do with CHINESE CORRIDORS industrial parks and free trade zones. Notable on-going projects with Chinese investors are tabulated below. IN MALAYSIA 13

NOTABLE CHINESE INVESTMENTS IN THE MANUFACTURING / UTILITY SECTORS

Year Project Description Parties Location Estimated Employment Estimated Investment

PAHANG

3.5 million tonne Alliance Steel (M) Sdn Bhd (subsidiary of 2014 3,500 RM5.6 billion capacity steel mill Guangxi Beibu Gulf Iron and Steel Co Ltd)

Clay porcelain Guangxi Zhongli Enterprise 2015 N/A RM2.0 billion manufacturing Group Co Ltd Group Co

Manufacturing of renewable Zkenergy (Yiyang) New Resources Science Malaysia-China 2015 N/A RM215 million energy applications & Technology Co Ltd Kuantan Industrial Park Crystalline silicon 2016 Wuxi Suntech Co Ltd (MCKIP) 5,194 RM4.0 billion solar cells and modules

Aluminium component Guangxi Investment 2016 N/A RM580 million manufacturing facility Group Co Ltd Production of concrete panels and LJ Hightech Material 2016 N/A RM1.0 billion activated rubber particles from scrap tyres Sdn Bhd

Manufacturing Plant Beijing Goldenway 2014 Jengka N/A RM600 million (Bio-stimulant for soil reconditioning) Biology Tech Co Ltd

TERENGGANU

Steel Mill Eastern Steel Sdn Bhd, JV Hiap Teck Kemaman Heavy 2011 Unknown RM1.8 billion (Production Capacity 700,000 tonne) Venture Bhd and China Shougang Group Industrial Park

PENANG Solar Panel Factory Bayan Lepas Existing: 1,332 Existing: RM310 million 2015 Jinko Solar Co Ltd (PV Cells and Modules) Industrial Park Additional 2,552 Additional: RM482.8 million

2015 Solar Panel Factory (Solar and PV Panels) JA Solar Malaysia Sdn Bhd Batu Kawan Industrial Park 200 RM400 million

JOHOR

Phase 1: 2014 Shandong’s D&Y textile and Sedenak Phase 1: 300 Phase 1: RM300 million Textile Factory Phases 2 & 3: 2016 Garment Group Industrial Park Phases 2 & 3: 1100 Phases 2 and 3: RM500 million

PERAK

Manufacturing and China South Locomotive and Phase 1: 2013 Batu Gajah 800 Maintenance Centre Rolling Stock Corporation Ltd, (CSR) RM400 million

SELANGOR

2016 Tyre Factory Qingdao FullRun Tyre Corp Ltd Port Klang Free Trade Zone N/A RM894 million

NEGERI SEMBILAN Construction of Halal Vaccine GB Asiatic Ventures Group 2015 and Pharmaceutical Plant and China Machinery Engineering Bandar Enstek N/A GDV: RM330 million (for AJ Pharma Holding Sdn Bhd) Corporation (CMEC)

MELAKA

Manufacturing (Clear and coated Xinyi Solar (Malaysia) 2015 Melaka 600 RM379.4 million photovoltaic functional glass) Sdn Bhd of China

SABAH

2014 Wood Pulp Mill China CEC Engineering Corporation Sipatang 1,000 RM8.9 billion

SARAWAK Manufacturing solar 2013 Comtec Solar Systems Group Ltd 1,300 RM1.2 billion ingots and water slicing Sama Jaya Integrated manufacturing facility Longi (Kuching) Sdn Bhd of High Tech Park 2016 2,360 RM1.07 billion (Solar ingot, water cells and modules) Xi'an LONGI Materials Corporation

Integrated Steel Plant (Five million tonne steel plant, Hebei Xinwuan Steel Group Samalaju 2014 a cement plant, a coke oven plant, a cold N/A RM13 billion and MCC Overseas Ltd Industrial Park, Bintulu rolling plant, and welded pipe plant in three phases)

OTHERS

Malaysia Hengyuan International Ltd Purchase of a 51% equity stake in Dec 2016 (Owned by China’s Shandong N/A N/A RM296 million Shell Refining Company Hengyuan Petrochemical Co Ltd)

Purchase of power assets China General Nuclear Feb 2016 N/A N/A RM9.83 billion under Edra Global Energy Bhd Power Corporation (CGN)

Source: Knight Frank Research / various sources

For the sector moving forward, we predict that we will see more interest and alongside a sound legal system will continued to create opportunities for the investments coming from Chinese investors into the Malaysian manufacturing Chinese to invest within and beyond the manufacturing sector. sector. This future development will be on the back of increasing bilateral Meanwhile, the e-commerce boom will put Malaysia on the global logistics relations between Malaysia and China and the BRI by the China government. map. The appointment of Jack Ma, founder of China’s e-commerce company With the success current Chinese investors are seeing in the basic metal, – Alibaba Group, as Malaysia’s digital economy adviser, leading to the electronics and electrical, textiles and textile products and chemical and formation of the KLIA Aeropolis Digital Free Trade Zone (DFTZ) Park in chemical products industries, it is expected that this will entice more Chinese Sepang, Selangor is expected to put Malaysia on the global logistics map. investors to come in, so long as operational costs, incentives among other Alibaba’s first regional hub outside China augurs well for Malaysia’s factors remain attractive. e-commerce roadmap and its related industries. It is expected to motivate more Chinese manufacturers to set up production facilities here, with further Malaysia’s highly diversified economy, strong manufacturing foundation, incentives and savings the driving force. developed infrastructure and connectivity, proactive government policies CHINESE CORRIDORS 14 IN MALAYSIA

MALAYSIA: CORRIDORS OF OPPORTUNITY

REAL ESTATE PROSPECTS

OFFICE: The oversupplied office market, particularly in the Klang Valley region coupled with the recent property freeze, continues to dampen prospects in this sub-sector. With negative net absorption amid rising supply, there is growing pressure on both rental and occupancy levels and this makes the office segment unattractive in the short to medium term.

RETAIL: Similar to the office market, the retail property sub-sector is also impacted by a growing mismatch in supply and demand. The situation is exacerbated by weak consumer sentiments with shoppers cutting back on discretionary spending. With the exception of established malls which are mainly situated in prime locations, we foresee that mall operators will continue to struggle with sluggish occupancy rates and rental income.

INDUSTRIAL: The industrial sub-sector is a bright spot in the property market – the biggest beneficiary in the e-commerce boom. With growing demand for logistics and warehousing space, there is favourable prospect for this sub-sector.

HOSPITALITY: The prospect for the hospitality sector remains positive supported by Malaysia’s thriving tourism industry. The allocation under the 2018 Budget, to further spur the growth of medical tourism industry in the country, will also be supportive of the hospitality sector.

RESIDENTIAL: Despite the recent luxury property freeze, local demand for residential properties remains buoyant. Developers will continue to review and re-plan their proposed products to cater to the different market segments of homebuyers. Hence, the prospect for the residential sub-sector remains bright as opportunities are still present.

INFRASTRUCTURE: The Malaysian government remains committed to develop and upgrade the country’s infrastructure as the nation makes strides towards becoming a developed economy status by year 2020. The implementation of various mega-scale projects to expand existing ports and to improve the rail / transport networks, will bring much economic and social benefits to the country. There are strong foreign and local interests in these mega projects.

Most Favourable

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Office Retail Industrial Hospitality Residential Infrastructure Least Favourable CHINESE CORRIDORS IN MALAYSIA 15

Looking into 2018 and beyond, we expect to see greater capital inflow from China’s BRI into Malaysia. Despite China’s curb on capital flight, we continue to see keen Chinese interest in the country’s rail and port projects as well as in other segments of the market, namely manufacturing, logistics, construction, and real estate. According to UBS Investment Bank, Malaysia is likely the biggest beneficiary of the BRI in Asean, and second only to Pakistan in all of Asia. In its survey of Chinese corporates investing overseas, UBS found 15 to 25 per cent of 500 large Chinese corporates highlighted that they were looking to invest in Asean – and within Asean highlighted Malaysia as their most preferred destination. And of these large companies wanting to invest in Asean, 90 per cent said they were looking into investing in Malaysia. Malaysia will continue to attract Chinese investments in the manufacturing sector supported by tariff-free access to regional markets, lower operational costs, tax incentives, amongst other factors. The recent capital control measures are not likely to adversely impact genuine investments and the projects under the G2G initiatives, such as the on-going MCKIP project. Malaysia’s highly diversified economy, strong manufacturing foundation with well-developed transport infrastructure and good connectivity, proactive government As for the residential segment in the real estate policies alongside a sound legal system will continue to create opportunities for market, with the capital control measures Chinese players to invest within and beyond the manufacturing sector. impacting sales of properties in selected Already, there is significant existing Chinese investment in the country’s major projects targeting mainly Chinese buyers, we infrastructure and port projects such as the East Coast Rail Link (ECRL); now see developers such as Country Garden Gemas-Johor Electrified Double tracks; Kuantan Port and Kuala Linggi International Pacificview Sdn Bhd (CGPV), shifting their Port expansions. The Chinese are also looking to participate in the proposed high focus to the wider global market to boost speed rail (HSR) project connecting Kuala Lumpur to Singapore as well as in the revenue. In the meantime, however, the urban regeneration of the former Sungai Besi air force base that will house the growing number of Chinese citizens granted OUTLOOK terminus for the eagerly awaited HSR line. The multi-billion Ringgit Bandar Malaysia residency under the Malaysia My Second Project on 486 acres on prime land at the city fringe is expected to be developed over Home (MM2H) programme, the single biggest a 20 to 25-year period. nationality, is seen as positive for the property segment. More Chinese developers are also seen to be participating in smaller and niche projects targeting the domestic market. We believe that this curb is temporary and with more Chinese investments flowing into Malaysia due to its strategic position along China’s BRI corridor, the spillover effects into various market segments will continue to benefit the country. MALAYSIA CONTACTS Eric Y H Ooi Executive Chairman +603 228 99 668 eric.ooi@ my.knightfrank.com

Sarkunan Subramaniam Managing Director +603 228 99 633 [email protected]

VALUATION Chong Teck Seng Senior Executive Director +603 228 99 628 [email protected]

Keith H Y Ooi Executive Director +603 228 99 623 [email protected]

Justin Chee Executive Director +603 228 99 672 [email protected]

RESEARCH & CONSULTANCY Judy Ong Mei-Chen Executive Director +603 228 99 663 [email protected]

INVESTMENTS / CAPITAL MARKETS James Paul Buckley Executive Director +603 228 99 608 [email protected]

Chelwin Soo Associate Director +603 228 99 737 [email protected]

INDUSTRIAL / DEVELOPMENT LAND Allan Sim Song Len Executive Director +603 228 99 606 [email protected]

CORPORATE SERVICES Teh Young Khean Executive Director +603 228 99 619 [email protected]

RETAIL CONSULTANCY & LEASING Rebecca Phan Associate Director +603 228 99 618 [email protected]

PROPERTY / FACILITIES MANAGEMENT Matthias Loui Executive Director +603 228 99 683 [email protected]

Natallie Leong Executive Director +603 228 99 638 [email protected]

RESIDENTIAL SALES & LEASING Kelvin Yip Associate Director +603 228 99 612 [email protected]

RESIDENTIAL PROJECT MARKETING Dominic Heaton-Watson Senior Manager +603 228 99 741 [email protected]

PENANG BRANCH Tay Tam Executive Director +604 229 3296 Knight Frank Research Reports are available at www.knightrank.com.my [email protected] JOHOR BRANCH © Knight Frank 2018 Ricky Lee This report is published for general information only. Although high standards have been used in the preparation of the Executive Director information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight +607 3382 888 [email protected] Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or SABAH BRANCH projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research. Alexel Chen Resident Director Publisher: Knight Frank Malaysia Sdn. Bhd. (585479-A) +608 8279 088 Suite 10.01 Level 10, Centrepoint South, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur. [email protected]