Johor-Singapore SEZ on radar of China firms eyeing lower costs, improved connectivity

The upcoming Johor-Singapore Special Economic Zone (SEZ) is not only drawing interest from companies in Singapore, it is also attracting plenty of attention from Chinese businesses looking to expand their operations.

Even before the formal agreement to establish the SEZ – expected to be signed on Tuesday (Jan 7) during the 11th Malaysia-Singapore Leaders’ Retreat in Putrajaya – Johor has already been on the radar of many Chinese companies.

The southern Malaysia state has become a hotspot for Chinese businesses setting up operations, said Lee Ting Han, the chairman of Johor’s investment, trade, consumer affairs and human resources committee.

“As far as Johor is concerned, we are recording many Chinese companies moving over, particularly in (the) semiconductor materials, speciality chemicals and electrical and electronics sectors,” said Lee.

He was speaking to reporters in Johor Bahru on the sidelines of a recent Johor-Singapore SEZ event organised by OCBC.

Chinese companies cited Johor’s proximity to Singapore’s market and infrastructure, coupled with lower costs, as major factors behind its appeal, they told The Business Times.

But rather than specific financial incentives, these companies hope for improved movement of people and goods across the Causeway, which is the busiest land border crossing in the world.

Johor already offers generous tax incentives for foreign companies that are likely to meet or exceed what the SEZ can provide, noted Yang Hui, managing director of Tianma Precision Machinery.

However, better flow of people and goods across the Causeway could enable manufacturers to access Singapore’s logistical facilities more efficiently, and facilitate easier travel for business partners.

Yang’s company, a Chinese bearings manufacturer, is investing US$100 million in its first manufacturing facility outside China.

The 30-acre (12.1 hectare) facility in Johor’s Pasir Gudang is targeted for completion by early 2026 and will increase output by up to 15 per cent, primarily supplying wind turbine clients globally.

“We hope for optimised and consistent tax systems, customs procedures and simplified cross-border trade processes to lower business costs,” said Zhao Jingwei, founder of Cedar Lifetech Ventures, in Mandarin.

“Additionally, policies supporting the production of Singapore’s local innovation brands in the SEZ, particularly regarding rules for certificates of origin, would be beneficial,” he added.

Another factor drawing Chinese companies to Johor is its cultural familiarity. Ethnic Chinese make up 29 per cent or 1.2 million of Johor’s total population of 4.2 million, indicated data from the Department of Statistics Malaysia.

Xu Pengfei, general manager of Huirui Polymers, shared that the manufacturer had considered Spain and Brazil before deciding on Johor for the firm’s overseas expansion last year. The culture, food and language were among the deciding factors, he said.

External pressures

The US-China trade war, in which Washington has imposed tariffs on Chinese goods since 2018, is another key factor influencing Chinese companies to shift manufacturing abroad.

With incoming US president Donald Trump set to be sworn in on Jan 20, the tariff rhetoric has intensified. During his election campaign, Trump proposed tariffs of 60 per cent on all goods from China and blanket tariffs of 10 to 20 per cent on other imports.

However, following his Nov 5 election victory, Trump scaled back his threats in a Nov 26 social media post, suggesting “an additional 10 per cent tariff, above any additional tariffs” on China. His actual policies upon taking office remain to be seen.

“The US-China trade war escalation is an external factor that’s beyond everybody’s control,” said Lee. “But at the same time, we see that South-east Asia may be a net beneficiary of that kind of situation.”

Still, as OCBC chief economist Selena Ling pointed out, tariffs are just one piece of a larger puzzle.

“For the Chinese, if they are trying to avoid the trade tariffs, they’ve been doing that for quite a while,” said Ling, referencing the “China Plus One” strategy.

This strategy, which involves diversifying operations beyond China, has gained traction in recent years as manufacturers seek to sidestep tariffs and reduce risk.

Ling also noted that weak domestic demand and consumption in China have pushed companies to explore alternative markets.

“Asean makes sense because it’s nearby, they understand the markets, and it’s easy to do,” she said. “Instead of going to very far-flung markets (like the) Middle East or Latin America, South-east Asia can both function as a manufacturing hub for them, as part of their whole value chain, and also (offer) markets here.”

Source: Business Times © SPH Media Limited. Permission required for reproduction.

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