ACCCIM SURVEY REPORT ON ECONOMIC SITUATION OF MALAYSIA
FOR THE 1ST HALF OF 2008
1. INTRODUCTION
1.1 THE PURPOSE OF THIS SURVEY
In Malaysia, due to the wide participation of the Chinese businessmen in the economic activities, Chinese businessmen play an important role in the economy. This survey can be viewed as a means to gauge the economic situation facing the Chinese businessmen in the 1st half of 2008. This survey covers four major areas in relation to the Chinese business community, namely :
i. The Malaysian economic situation in the 1st half of 2008 ;
ii. Major factors affecting business performance;
iii. Malaysian economic outlook ; and
iv. Current issues facing the Chinese businessmen in relation to trade, investment and industrial development in Malaysia.
1.2 SIGNIFICANCE OF THE SURVEY
Most of the data and statistics in relation to the economic situation available today are collected by the Government through Statistical Department of Bank Negara Malaysia and its agencies. The Malaysian Institute of Economic Research (MIER) did conduct survey on the economic recovery but focused on the consumers and the manufacturing sector.
Given that the Chinese business community plays an important role in the Malaysian economy, ACCCIM, as a national organisation representing the Chinese business community, take the task to assist the Government in gauging the economic situation facing the Chinese business community. It also attempts to collect feedback and opinion on various measures undertaken by the Government to enable them to evaluate the effectiveness of those measures. This would be helpful to the Government either in making adjustments to the existing policies or in the formulation of new policies.
The result of the survey would also provide a basis for ACCCIM to submit relevant memoranda to the Government and serves as a reference for the business community and foreign investors in formulating investment plan and strategy.
2. SURVEY METHODOLOGY
The purpose of this survey is to collate information in relation to the economic situation facing the Chinese business community in the 1st half of 2008. The questionnaire was constructed based on the current economic issues faced by the country and the various measures undertaken by the Government.
ACCCIM represents some 28,000 Chinese businessmen and trade associations in Malaysia. As most of the prominent Chinese businessmen are the committee members of ACCCIM either at the national or state levels, these committee members could be taken to represent the Chinese business community. The total questionnaires sent are 706.
A total of 331 questionnaires were returned, i.e. 46.8% of the total questionnaires sent. These 331 respondents made up the sample of this survey. The 46.8% response rate is reasonable, as other surveys conducted by other organisations are common to have low response rates.
Even though the questionnaires have been sent to Chinese businessmen across all sectors and industries, the respondents are mainly from wholesale and retail, manufacturing as well as professional & business services, which are the major sectors of our economy. This can be depicted as follows:
Sector / Number of questionnaires returned / Percentage(%)
Wholesale and retail / 78 / 24
Manufacturing / 74 / 22
Professional & business services / 32 / 10
Others / 147 / 44
Total / 331 / 100
85% of the respondents are from small and medium-scale enterprises (SME).
On 2 December, 2004 the National SME Development Council has issued a new definition for small and medium enterprises with regard to manufacturing (including agro-based) & manufacturing related services, primary agriculture and services sector (including information and communications technology, ICT).
Primary Agriculture
A small and medium enterprise in primary agriculture is an enterprise with full-time employees not exceeding 50 or annual sales turnover not exceeding RM5 million.
The agriculture, forestry & fishery sectors have been classified under this category in this report.
Manufacturing (including Agro-Based) and Manufacturing-Related Services (MRS)
A small and medium enterprise in manufacturing (including agro-based) and MRS is an enterprise with full-time employees not exceeding 150 or with annual sales turnover not exceeding RM25 million.
The manufacturing, mining and construction sectors have been classified under this category in this report.
Services Sector (including information and communications technology, ICT)
A small and medium enterprise in services is an enterprise with full-time employees not exceeding 50 or annual sales turnover not exceeding RM5 million.
The real estate, transportation, forwarding and warehousing, telecommunications, information technology, wholesale and retail trade, international trade, tourism, hotels, restaurants, recreation and entertainment, finance and insurance, professional and business services have been classified under this category in this report.
66% of the respondents are domestic market oriented whereas 34% focuses on export or both domestic and export markets.
3. SURVEY FINDINGS
3.1 THE MALAYSIAN ECONOMIC SITUATION IN THE 1ST HALF OF 2008
3.1.1 Sales performance
Sluggish sales
Overall sales were sluggish for the period under review. The number of respondents who were satisfied with their sales has reduced significantly from 72% in the 2nd half of 2007 to 58% in the period under review. Further, the number of respondents who registered poor sales has increased significantly from 16% in the last period to 30% in the 1st half of 2008.
Consistently, 61% and 60% of the manufacturers and wholesalers & retailers were satisfied with their sales compared to that of 77% and 81% respectively in the the 2nd half of 2007. The number of manufacturers and wholesalers & retailers who registered poor sales has increased significantly from 10% each respectively in the last period to 26% and 24% respectively in the current period.
As a whole, the readings suggest that the overall market condition has deteriorated in the 1st half of 2008 and the respondents might not have benefited despite a resilient economic growth in the first half of the year.
3.1.2 Production volume
Output slowed down
Consistent with the sluggish sales, 58% of the respondents in the period under review (reduced significantly from 71% of the last period) indicated that they were able to maintain their output. Further, 26% of the respondents reduced their production volume, increased significantly from that of 14% in the last period.
With regard to the manufacturing sector, 57% of the manufacturers managed to maintain their production in the period under review compared to that of 72% in the 2nd half of 2007. Further, 20% (17% in last period) of the manufacturers reduced their production volume.
3.1.3 Stock of unsold products
Drawdown of inventory
The stockpiles of 70% of the respondents remained unchanged for the period under review, lower than that of 73% in the 2nd half of 2007, while 19% of the respondents indicated a drop in inventory, an increase from 12% during the same period.
In this connection, 69% and 82% of the manufacturers and wholesalers & retailers surveyed indicated that they maintained their stock level (72% and 78% respectively in the previous period).
This suggests that majority of businessmen preferred to draw down their stocks to meet sales given the uncertainty conditions.
3.1.4 Collections
Poor collections
Almost one third (32%) of the respondents faced difficulty in collections, up from 21% in the 2nd half of 2007. Only 57% of the respondents were satisfied with their collections, a drop from 64% in the last period.
Consistent with the above, the number of manufacturers and wholesalers & retailers who experienced poor collections has increased significantly to 31% and 27% respectively from that of 17% and 20% respectively in the previous period. Further, manufacturers and wholesalers & retailers who were satisfied with their collections have reduced significantly to 57% and 55% respectively from that of 77% and 67% of the last period.
This suggests that the overall market conditions have deteriorated in the 1st half of 2008 and businessmen were facing cash flow difficulties.
3.1.5 New orders for our products / services from abroad
New orders from abroad shrank
38% of the respondents received lesser overseas order compared to that of 26% in the previous period. The number of respondents who managed to maintain their overseas orders also decreased to 44% from 55% in the previous period.
In the manufacturing sector, 40% (38% in previous period of the manufacturers surveyed indicated that their overseas orders has declined in the current period. 46% of the respondents (48% in the previous period) managed to maintain their new orders from abroad.
If new orders are any indication, this suggests that Malaysian Chinese manufacturers’ export sales are likely to weaken going forward.
3.1.6 New orders for our products / services from local
Local orders dropped
About one third (34%) of the respondents received lesser local order in the current period under review, increased significantly from that of 18% in the last period. 57% of the respondents (decreased from 70% in the last period) received same amount of local orders.
Consistently, the manufacturers and wholesalers & retailers who saw lower local orders have increased significantly to 36% and 25% from that of 16% and 15% respectively in 2nd half of 2007. Further, 56% and 66% (71% and 77% in the last period) of the manufacturers and wholesalers & retailers respectively received the same amount of local orders.
Just like overseas new orders, a drop in new domestic orders suggests that local demand is expected to soften in anticipation of an economic slowdown.
3.1.7 Sales prices
Lower local sales prices
About one third (34%) of the respondents were forced to cut their sales prices, increased significantly from that of 18% of the last period. In particular, 42% and 36% (21% and 17% in previous period) of the manufacturers and wholesalers & retailers respectively reported a drop in their sales price in local market.
The number of the respondents who managed to maintain their sales prices has decreased to 55%, from that of 66% of the previous period. In particular, 48% and 51% (decreased significantly from 72% and 69% respectively in previous period) of the manufacturers and wholesalers & retailers respectively maintained their sales prices.
It appears that businessmen were forced to cut prices to compete for new local orders, which were shrinking in the softer market conditions, and to sustain their sales, which have turned sluggish. The reduction in sales prices might have helped to moderate the increase in consumer price index.
3.1.8 Number of employees
Employment remained soft
The employment market remained soft as employers were generally still cautious in recruiting and there were very few job openings in most of the industries surveyed. A total of 79% (same with last period) of the respondents maintained their existing workforce and 12% reduced their staff in the current period under review, slightly lower than the 13% reported in the previous period. It should be noted that only 5% (3% in the last period) of the respondents increased their number of employees for the period under review.
Similarly, in the manufacturing industry, 77% (78% in the previous period) maintained their existing workforce whilst 16% (20% in the previous period) of them reduced their staff. Only 3% (2% in 2H2007) of the factories’ enlarged their workforce.
3.1.9 Wage cost per unit of output
Wages were at a downward trend
The soft domestic employment market in the deteriorating market conditions has pushed wages into a downward trend as employees have less bargain power. 27% (15% in the previous period) of the respondents has reduced their wages. In particular, 18% and 37% (17% and 15% in the previous period) of the manufacturers and wholesalers and retailers respectively have done the same.
Overall, 54% (69% in the last period) of the respondents managed to maintain the wage cost per every unit of output or services for the period under review. Only 7% of the respondents were forced to increase wages (8% in the previous period). 57% and 49% respectively (70% and 65% respectively in the previous period) of the manufacturers and wholesalers & retailers polled said that the wage cost remained unchanged for the period under review.
As a whole, the downward trend in wages could help to reduce inflationary pressures in the country.
3.1.10 Capacity utilisation
Undesired capacity utilisation
Overall, 89% (84% in the previous period) of the respondents utilized less than 80% of their capacity. Only 6% (7% in the previous period) of the respondents polled achieved 81% to 100% capacity utilization whereas 36% of them said that their capacity utilisation was 61-80%. It is noted that only 7% of the manufacturers utilised 81%-100% of the capacity.
As a whole, the overall capacity utilisation was still well below the desired level of 80% and above. This points to an excess capacity in the market, given that the deterioration in market conditions has eroded demand for products and services. This has resulted in keen competition and businesses were forced to cut prices of products and services for survival.
3.1.11 Investment in new resources or plant
Investment in new resources or plant shrank significantly
As capacity utilisation rate remained not high, 46% of the respondents cut their investment, while only 3% said that they have increased their investment in the period under review, compared with 27% and 3% respectively in the last period. The investment in new resources and plant of 28% of the respondents remained unchanged as compared to 45% of the last period.
Similarly, 40% of the manufacturers reduced their capital budget, while only 3% increased their capital investment (23% and 2% respectively in the previous period). The excess capacity and deterioration in market conditions might have resulted in companies holding back their investments.
3.1.12 Economic situation in Malaysia
The Malaysian economy had deteriorated in the 1st half of 2008
70% (significantly increased from the 26% in the last period) of the respondents indicated that the Malaysian economic condition had deteriorated in 1st half of 2008.
At the same time, one quarter (26% vs 62% in the last period) of the respondents was of the view that the Malaysian economy had remained unchanged in the period under review. Only 3% of respondents said that the economic condition was growing in the current period, dropped from that of 11% of the last period.