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MH370 may cost the Malaysian economy

Written by Ashley Boncimino

Flight MH370 may dampen Malaysia’s tourism industry in addition to its international reputation, as officials expect at least 30,000 tourists from China to cancel trips due to the tragedy. The Malaysian Association of Tour and Travel Agents told The New Straits Times that a sudden spike in cancellations was “unprecedented,” and estimate losses of up to MYR 120 million. But the cost may not stop with tourism. Hard feelings could spill over to real estate development, foreign direct investment and even business decisions.

Nearly two-thirds of the 239 people aboard flight MH370, which vanished while flying between Kuala Lumpur and Beijing, were Chinese. Families of these passengers were urged to react “rationally” to crash evidence after many voiced frustration, concern and skepticism with Malaysia’s handling of the incident.

The MH370 incident is the first wrinkle in the otherwise friendly relationship between the two countries. Last year, Malaysia’s total bilateral trade with China equaled over MYR 202.23 billion, a 12.5% increase from 2012, according to the a representative from the Malaysian External Trade Development Corporation, Ong Yew Chee in The New Straits Times. He also said they expected trade between the two countries to continue with double-digit growth.

While neither government has made any indications of intentional changes to the trade relationships, a change in sentiment towards Malaysia by the Chinese people could have certain ramifications for Malaysia’s economy as a whole. Outside of tourism, foreign direct investment in Malaysia from China could fall short of the USD 5 billion Malaysian officials hope to attract in the next five years. If hard feelings continue, effects of MH370 could be felt next in the property development sector, which has been seen as a profitable and attractive market for Chinese real estate developers. “For now, marketing homes in Malaysia is going to be a bit awkward. It’s just like how we don’t market homes in Japan to Chinese customers,” said an unnamed Beijing-based real estate consultant to The Wall Street Journal. According to the paper, the source was referring to China’s political spat with Japan in the East China Sea.

Chinese institutional and retail investors poured a total of USD 1.9 billion into real estate in Malaysia, which exceeded the USD 867 million invested in Hong Kong and the USD 1.8 billion invested in Singapore, wrote The Malay Mail.

“It is unclear the extent of the damage, MH370 will ultimately deal to the property sector in Malaysia, but parallels are being drawn between the missing plane and the China-Japan tension in 2012 that saw buyers in the former country organize concerted boycotts of products from the latter, which hit its automotive sector hard,” according to the journal.

MYR 1.00 = USD 0.31

–Edited by Mohamed P.Hassan

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