ROOTING IN NANYANG: HOW EFFICIENT ARE CHINESE MANUFACTURING FIRMS IN MALAYSIA?

Abstract

While China’s Belt and Road Initiative (BRI) is widely considered as an attempt to reshape the global geo-political landscape through its massive investment/engagement in capital-intensive infrastructure, an often-neglected topic is the performance of Chinese-funded firms in manufacturing sector. Therefore, this paper sought to examine the efficiency levels of Chinese manufacturing firms in Malaysia. By using firm-level data supplied by Malaysia’s Department of Statistics, this study employs Data Envelopment Analysis to examine the efficiency levels of Chinese manufacturing firms in comparison with local and other foreign firms in 2010 and 2015. The results show that Chinese manufacturing firms show higher efficiency levels than local and foreign firms in 2010 and 2015, implying that these firms have the potential to transfer technology and share managerial skills to local firms. However, the efficiency levels of Chinese firms deteriorated from 2010 to 2015, suggesting that firms’ relocations decision may have been driven by distortions created by incentives and other supports provided by the Chinese government rather than by firms’ efforts to sustain or raise efficiency levels. The findings suggest that Chinese firms have to be careful in making strategic decision to relocate operations abroad to ensure that government initiatives are in sync with firm-level performance.