China's accession to the World Trade Organization (WTO) is a threat to the Malaysian economy, especially its electronics industry, a senior minister and industrialists said Tuesday.

Human resources minister Fong Chan Onn said China's status as an emerging economic power has become a great concern to many economies.

The shift of East Asia's manufacturing base to China accelerates with each passing month, he said.

"China is a threat. Malaysia must learn to cope with this emerging trend and rectify weaknesses to remain competitive in critical industries such as electronics," he told reporters at a forum on the electronics industry.

China joined the WTO in December last year.

Fong said the government had allocated RM2.6 billion to support industrial development to enhance the competitiveness of the industries with focus on skills upgrading, technology development and improving infrastructure.

The electrical and electronic industry is a major contributor to Malaysian exports, consisting about 60 percent of total manufactured earnings.

Rosey outlook

C B Teh, president of the Malaysian American Electronics Industry, said China was a major challenge to Malaysia.

"The global electronics industry must learn to survive alongside China instead of competing with it," he said.

But Teh described a rosey outlook of the Malaysian electronics industry for 2002 amid recovery in the world economy.

The electronics industry is expected to grow 5-10 percent this year, compared to a contraction of 30 percent in 2001, Teh said.

"The worst is over for the electronics sector. Generally, our assessment is that the electronics industry in Malaysia will grow 5-10 percent this year." he said.

"We are starting to see orders going up in the first quarter. We believe the second half of the year will be better."

Teh said electronics companies are "selectively re-hiring" workers, particularly those involved in the technical aspects, adding the re-hiring will be on a larger scale in the second half of the year.

He added optimism for the sector was due to prices stabilising and a rise in output as well as exports.

Teh added there would be no large retrenchments of workers in the sector in future, but that rationalisation of global companies may result in downsizing.

Other challenges

P Y Lai, Motorola country president for China warned that besides China, Malaysia faced other challenges.

"Malaysia may miss the second wave of globalisation in the electronics sector. Our future is not very good. It looks like all the investments are going to China," he said.

Lai said in 2000, 61 percent of foreign investment in Asia when to China while only 18 percent when to Southeast Asia.

The situation was the reverse in the early 1990s, he said.

Lai said in Malaysia multinational companies were slowing down investments, labour intensive industries were moving out coupled with slow growth in the hi-tech industry and shortage of research and software engineers in the country.

To address the challenges, he said Malaysia should among others, review tax incentives and loosen immigration rules to attract talents.

"We need to provide incentives to boost the electronics industry," he said.