China's exports of engineering machinery to Malaysia plunged in the first quarter of 2016.
Given the slowdown in Malaysia's economic growth and property industry, and its financial pressure, its demand for the engineering machinery in 2016 will likely fall, which may trigger the rise in credit risk, warned by a report of the Sinosure, a state-funded policy oriented insurance company in China.
China's exports of engineering machinery to Malaysia increased to 52.92 billion U.S. dollars in 2015 from the 22.496 billion U.S. dollars in 2010. During the period, the compound average growth rate was up to 18.7 percent. However, the exports in the first quarter of 2016 plunged by 30.3 percent, the worst performance since 2010.
The plunge in exports of the components, hoisting machinery and forklift trucks also reflected Malaysia's sluggish demand, poor exports and difficult recovery in its manufacturing industry.
In April, 2016, Malaysia's purchasing managers' index (PMI) fell to 47.1, under the 50-percent level demarcating growth from contraction for the 13th consecutive month.
Despite the plunge in China's exports, there are both opportunities and challenges in Malaysia's engineering machinery market in 2016. The economic growth and persistent investments in infrastructure construction have made Malaysia the most attractive emerging infrastructure market.
Despite impacts of the fall in oil prices and Ringgit depreciation, Malaysia still ranks top in the ranking list of the "global infrastructure investment index" released by the Arcadis and becomes the globally fifth largest country attracting the infrastructure investment.
Given the role of the construction industry in driving up the GDP, the Malaysian government will continuously support the infrastructure construction projects in 2016.
According to the Department of Statistics, Malaysia, in 2015, growth of Malaysia's construction industry was up to 8.2 percent, and the industry added 4.4 percentage points to the country's GDP.
However, factors including the slowing demand, foreign exchange depreciation and growth in taxes and dues will likely hinder expansion of the country's engineering machinery market.
Due to the increasingly severe macro economy and market environment, since 2014, climate in Malaysia's engineering machinery market has been weak. Its domestic demand growth in the engineering machinery market fell to 5.2 percent in 2015. The downtrend is expected to continue in 2016 with the growth further down to 3.2 percent.
The strict and diversified access system and tariff costs are another key issue to hamper the engineering machinery imports and add operation costs to the local enterprises. Meanwhile, the exchange rate has been one of the important obstacles and risks for China's exports of the engineering machinery to Malaysia. The depreciation pressure on the Ringgit still exists from the perspective of the internal and external bases. Therefore, it will exert an obvious effect in suppressing the country's engineering machinery imports.
Besides, the low in loan availability and the rise in interest rate will also affect sales of the engineering machinery in Malaysia. According to statistics, the loan-to-deposit ratio in many Malaysian banks have already surpassed or neared 95 percent.
Given the above factors, the slowdown in China's exports of engineering machinery to Malaysia this year will be a high probability event. Accordingly, the Chinese enterprises should also be on high alert for the rise in credit risk, said the Sinosure report.
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