The country expects to see some short-term gains in the form of business relocation and trade diversion caused by the dispute, Lim Guan Eng said. But ‘in the long term, everyone is a loser’, he added though China has offered more infrastructure investments under its Belt & Road Initiative.

Malaysia will find it challenging to meet its 3 percent fiscal deficit target for next year because of uncertainties around the US-China trade war, the country’s Finance Minister said on Monday.

Southeast Asia’s third-largest economy is dealing with a debt pile of more than 1 trillion ringgit ($243.13 billion), which the administration of Prime Minister Mahathir Mohamad has blamed on mismanagement by the previous government.

Malaysia is also struggling with slowing economic growth, hurt largely by a global slowdown and the trade war between the United States and China, two of Kuala Lumpur’s biggest trading partners.

Finance Minister Lim Guan Eng said that while Malaysia can meet this year’s fiscal deficit target of 3.4 percent, next year’s target of 3 percent would be harder to meet.

“That will be challenging. Because (of) the uncertainties brought about by the trade war,” Lim said.

“There’s a time lag effect. The full brunt of it, everyone expects it to hit next year.”

Lim said he was “cautiously confident” about meeting the government’s full year growth forecast of 4.3 percent to 4.8 percent.

The central bank in May warned that weakening global demand and the US-China trade war are raising risks for Malaysia. It cut interest rates by 25 basis points, Malaysia’s first since July 2016, amid the growth concerns.

Despite the impact on the economy, Lim said Malaysia could benefit from trade diversion from the trade war.

“In the short term, we expect to gain some benefits in the form of business relocation, trade and investment diversion. We are seeing numbers pointing to that,” Lim said.

“But in the long term, everyone is a loser. There are no winners”

The finance minister, who met Chinese officials on his visit to Beijing earlier this month, said China had offered more infrastructure investments under its Belt and Road Initiative.
“If the pricing is right, we will consider it,” he said.

Malaysia will send an investment mission next month to Shenzhen in a bid to attract technology and other companies who might be looking to move their supply chains in light of the trade war, the minister said.

It will also consider selling bonds in China and another tranche of bonds in Japan to raise funds if the pricing is attractive, he said.

Mahathir, who came to power after an electoral upset last May, had vowed to renegotiate or cancel what he calls unfair Chinese projects authorised by his predecessor.

In April, Malaysia and China agreed to resume construction of a multibillion-dollar rail project after negotiating the cost down by nearly a third.

Lim also said Malaysia and China were in discussions to establish a link between the Shenzhen and Kuala Lumpur stock exchanges, he said.

“This is linking … both in terms of products and infrastructure,” he said, adding that it could be finalised in the next six months.