Malaysia’s finance minister on Friday announced fresh incentives to lure foreign investors looking for safe havens in Asia amid the US-China trade war , as he unveiled a budget containing “pre-emptive” measures to deal with the gathering economic dark clouds. Among the plans was a “special channel” to attract investment from China – which in the first half this year was second to the United States as a source of manufacturing foreign direct investments (FDI) to the country. “The protracted trade war creates a unique opportunity for Malaysia to again be the preferred destination for high value-added foreign direct investments,” Lim Guan Eng told lawmakers in parliament. His budget statement has been highly anticipated, as the government of Prime Minister Mahathir Mohamad comes under increasing pressure for making policy U-turns and dithering on pledges made before last year’s election. The 18-month-old administration has also come under fire amid heightened racial and religious tensions in the country, and a lack of clarity on when 94-year-old Mahathir will hand over power to his named successor, Anwar Ibrahim. The budget was well received by local economists. Yeah Kim Leng, an economics professor at the Sunway University, cheered the effort to spur growth through “targeted measures” such as policies for small and medium enterprises to thrive in the new digital economy. Funders, keepers: Malaysia’s cunning plan for start-up dominance In his speech, the finance minister painted an optimistic picture as he stressed that the Malaysian economy could be resilient to external headwinds with reforms and the right economic policies. Chief among them were the opportunities that arose from companies relocating to escape the trade war. “The shift in the global supply chain investments has witnessed approved FDI increasing by 47 per cent to 80.1 billion ringgit (US$19.1 billion) in 2018, from 54.4 billion ringgit in 2017,” Lim said. “For the first half of this year, approved FDI increased by 97 per cent to 49.5 billion ringgit, from 25.1 billion ringgit in the same period last year,” he added. The approved manufacturing FDI from China in the first six months of 2019 stood at 4.8 billion ringgit compared with 11.7 billion ringgit from the US. “As China is our largest trading partner, FDI from China should be comparable with the US,” Lim said. Keeping with the government’s plan to attract investments in higher-income industries, the finance minister said 1 billion ringgit worth of “customised packaged investment incentives” over five years would be made available to attract Fortune 500 companies in sectors such as high technology, manufacturing and in the creative industries. Mahathir lauds Huawei deal with Malaysian telco Maxis as ‘vital’ For the electrical and electronics sector – among the hardest hit by the trade war – Lim said the government was proposing the introduction of a 10-year income tax exemption in selected “knowledge-based services”, as well as a special investment tax allowance to spur research and development. The government is forecasting expenditure of 297 billion ringgit (US$70.9 billion), six per cent lower than last year’s figure. That budget statement was the Pakatan Harapan coalition’s first following its shock election victory over the Barisan Nasional bloc that had governed the country for 61 uninterrupted years. The 2019 spend was higher because the government had allocated a one-off payment to offset unpaid GST refunds carried over from the previous administration helmed by Najib Razak, Lim said. In his speech, Lim flagged a key concern of many Malaysian economic observers – the country’s small tax revenue relative to GDP. Its 2017 tax revenue came in at 13.1 per cent relative to GDP, compared with 19 per cent in Vietnam, 17.4 per cent in Chile, 16.8 per cent in Poland, and 15.4 per cent in South Korea. For the second year running, Malaysia’s education ministry received the lion’s share of the budget, at 64.1 billion ringgit (US$1.5 billion), nearly four billion ringgit higher than the 2019 figure. Top Mahathir adviser to recover US$2 billion from Chinese firm over axed pipelines Allocation to the education, health and finance ministries made up 44.6 per cent of total expenditure. Lim also announced a slew of measures to boost employment conditions of workers, including increasing maternity leave from 60 to 90 days from 2021, extending overtime eligibility to those earning up to 4,000 ringgit from 2,000 ringgit currently, and new measures to prohibit “discrimination on religion, ethnicity, and gender”. The government will also implement measures to limit reliance on foreign labour by offering Malaysian employers monthly incentives of 350 or 500 ringgit for two years, for every foreign worker replaced with a local one. Lim said the government was continuing to repair the damage done by the previous administration – which was embroiled in the multibillion 1MDB financial scandal . Najib, a former Mahathir protégé, along with several of his lieutenants, is currently on trial for the saga. Prosecutors say some US$4.5 billion was looted from the state fund. Najib and the others facing criminal charges have all pleaded not guilty. Jho Low, the billionaire businessman believed to have orchestrated the plunder, is wanted in Malaysia and neighbouring Singapore over the case. He has also denied culpability. Lim said the government would “continue to leave no stone unturned in our attempt to recover the stolen funds and assets from around the world”. The minister said this effort included going after Goldman Sachs – which helped to raise bonds for 1MDB – as well as 17 of its directors “for their complicity in the 1MDB scandal”. The company has vigorously pushed back against assertions it played any part in the theft. On the trillion-dollar debt left by the Najib administration, estimated last year to amount to about 75.4 per cent of GDP, Lim said efforts were ongoing to reduce it further. The government will target a fiscal deficit of 3.2 per cent in 2020, up from its earlier forecast of 3.0 per cent, he said. An expansionary budget was needed to deal with the “heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration”, Lim said.