As the SAR’s leaders – both opposition and government – attempt to guide Hong Kong through its latest squall, the uncertainty provides a superb opportunity for Malaysia and Singapore to seize the economic initiative away from the Pearl Delta region of Southern China.

Political storms in Hong Kong are matched by a remarkable rapprochement in cross-Causeway ties brought about by the change of administration in Kuala Lumpur.

This in turn has opened up substantial commercial opportunities in both countries as the economic integration gathers steam. Certainly, the flow of cross-border mergers and acquisitions has been noteworthy and is a harbinger of increased activity.

To date, the Singapore government’s investment arm, Temasek Holdings, has acquired a stake of slightly above 5% in Telekom Malaysia, something that would have been unthinkable a year ago. At the same time, negotiations are under way for the purchase of a Malaysian commercial bank and various other tie-ups in logistics, property and transportation.

Indirectly, enhanced ties also represent an important challenge to the Pearl Delta region and especially Hong Kong – just as the SAR is grappling with a bout of political uncertainty and an increasingly testy relationship with Beijing. Rising costs, concerns about China’s macro-economic health and infrastructural snafus are also impacting on the region’s competitiveness.

Globally, the combination of a fully integrated economic region encompassing both Malaysia and Singapore (straddling one of the world’s busiest international waterways) is almost unbeatable – witness the ever-increasing investment from multinationals such as BMW, Maersk and Hewlett-Packard.

Political risk in the two countries – unlike in Hong Kong – has dropped substantially since the incumbent Malaysian government (led by Datuk Seri Abdullah Ahmad Badawi) was returned to power in March this year with a thumping parliamentary majority and after wiping out the country’s Islamists.

In Singapore, the city-state is awaiting a smooth and uneventful transition from Premier Goh Chok Tong to Lee Kuan Yew’s son, Hsien Loong.

In this respect it is hard to fault the enthusiasm of men like Manu Bhaskaran, a leading Singapore-based business consultant when he argues: “The two countries have to work together. Together we are powerful and we can out-compete anyone.”

Certainly, the “hardware” in the two countries is impressive. After decades of staggering investment in infrastructure, there is a network of highways, airports and ports that puts the first world to shame.

Shipping costs, for example, have plunged, given the cut-throat competition between the various players ranging from Johor Baru’s Tanjung Pelapas Port, Port Klang, not to mention the Port of Singapore.

However, costs in the Pearl River Delta region are mounting so much so that some manufacturers are considering relocating in pursuit of cheaper labour and lower overheads.

For instance, Hong Kong-listed Yue Yuen Industrial Holdings, the world’s largest shoe maker which makes shoes for Nike, Reebok and Hush Puppies, is moving production inland and is planning a base in Jiangxi. Labour and utility costs there are 30% lower than in the Pearl River Delta and new roads have halved transport times to southern China’s Yantian Port to around six hours.

Shenzhen, which already has China’s highest minimum wage, raised its minimum monthly pay in May by 10 yuan to 610 yuan (RM4.60 to RM280) in the inner zone nearest to Hong Kong and by 15 yuan to 480 yuan (RM6.90 to RM220) a month in outer areas. Even South Korea’s Samsung Electronics said this month it might move microwave oven production from China, where it faces competition from low-cost Chinese rivals, to Malaysia or Thailand.

Of course, the Pearl River Delta is likely to remain the world’s workshop for the foreseeable future. However, the readjustment could be painful as the region moves up the value chain and the low-end stuff relocates elsewhere in China.

The advantages of Malaysia-Singapore extend beyond the issue of costs. The “software” is equally vital. An important legacy of the British colonial experience has been the thriving system of common law that provides a relatively clear, simple process for resolving commercial disputes on both sides of the causeway.

Similarly, an efficient system for the management of property rights has enhanced the confidence of foreign investors. Such transparency is entirely unlike the situation in Indonesia, China or Thailand where property rights and other legal issues can become a major headache.

An additional competitive factor is the extraordinarily rich mélange of cultures and languages present in both Malaysia and Singapore. This has meant that it is still possible to find affordable bilingual and trilingual staff (Chinese, Malay and English).

At the same time, the pools of Hindi, Tamil, Indonesian, Malay and Cantonese speakers makes the two countries an ideal location for multinationals to place their regional (Asia-wide) headquarters.

Malaysian and Singaporean leaders must capitalise on this extraordinary opportunity to return their two countries to the very forefront of global investing.

Karim Raslan is a regionally syndicated columnist

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