Malaysians have been complacent for too long and must change if the country is to survive competition from China and other regional economies, a senior official warned today.

National Economic Action Council executive director Mustapa Mohamed called for a "total surgery" to the way the private sector and government operate to boost the country's economic competitiveness.

He said the economy had "regained some lost ground" in the last few months, after the country's competitiveness slipped during the 1997-98 Asian financial crisis, but more efforts were required to lure foreign investment.

Despite the success of its manufacturing sector, the country's key economic driver, Mustapa said only 56 multinational companies have based their regional operating headquarters in Malaysia.

"Our interest now is to consolidate on the gains to ensure that we remain on top but this requires a total approach - a total surgery if I may use this radical term - on the way we think, the private sector, the whole country," he told reporters.

"We have been so complacent in Malaysia. We have had everything on the plate for so long, we never faced challenges."

Coping well

Mustapa said China's growing economic stature was challenging for Malaysia but it was "coping extremely well" and few manufacturing firms in the country had relocated.

"We are still competitive despite competition from China. We have been flexible in our ability to adjust but we need to respond faster," he said.

Malaysia's key challenge was to harness its vast resources and integrate its research institutes to work towards boosting its competitiveness, he added.

Foreign investment in Malaysia has dried up amid global economic uncertainties, with only RM2.2 billion worth of approved manufacturing investment in the first half of this year.

This was a far cry from RM18.8 billion for the whole of last year, official statistics showed.

Trade ministry officials last week said five US electronics firms would invest more than US$50 million in the country next year, showing that US investors were still coming, although in smaller numbers.

Malaysia has announced a 10 year tax exemption and loosened financial restrictions in a bid to woo multinational firms to set up their regional bases in the country. AFP