The possible policy responses to current economic downturn in Malaysia are actually quite limited. Private consumption has turned negative and is unlikely to recover as consumer confidence is weak and the consumer debt to GDP ratio of over 60% in Malaysia is already high by Asian standards. Export growth is likely to remain weak (exports down 30% y-o-y in May 2009) as long as highly leveraged US consumers continue to deleverage which could last over a decade if the Japanese experience is repeated. The only real solution is fiscal spending and private investment; on this front, we have to choose projects wisely especially as our budget deficit to GDP to also among the highest in Asia.
Japan undertook a series of unsuccessful fiscal stimulus to boost its economy which raised government debt to GDP from 60% in 1990 to 180% in 2008. In Japan, building bridges to nowhere has not generated long-term economic benefits but has instead burdened future generations. In Malaysia, building a double tracking railway from Ipoh to the Thai border for RM12bn can never generate as much economic benefits as a high speed rail (HSR) from KL to Singapore for around the same price tag.
Malaysia appears to be far behind in HSR development. China has completed six high speed rail projects with design speeds of up to 250km/h and in July 2008, it completed the 108km Beijing to Tianjin HSR with a design speed of 350km/h. This would be equivalent to travelling from KL to the Malacca border in 30 minutes. The 1302km Beijing to Shanghai HSR will be ready next year and will reduce travelling time by rail from 10 hours to 5 hours. In total China is planning 25 HSR lines between now and 2013!
China’s HSR network of 6,000km by 2013 will exceed Japan’s current HSR network of 2459km. Japan, famous for its Shinkansen bullet trains, was the first country to introduce HSR in 1964 starting with speeds of 210km/h for service between Tokyo and Osaka. The French TGV (Train à Grande Vitess) is the fastest conventional train in the world with an experimental speed of 574.8km/h while the Japanese JR-Maglev, which floats on magnetic fields, achieved 581km/h. France, with an HSR network of 1700km, has the most extensive HSR network among European countries followed by the UK (1400km), Germany (1290km) and Spain (1272km). Even the US is jumping on the HSR bandwagon with Obama unveiling plans for 10 potential high speed intercity corridors.
Other Asian countries that have successfully built HSR include South Korea and Taiwan. Interestingly, the 335.5km Taiwan HSR from Taipei to Kaohsiung is approximately similar in distance from KL to Singapore. I personally had the pleasure of riding the train recently. It was possible to buy tickets and board the train 10 minutes before departure. The train ride was very smooth and the speedometer on the train showed train speeds of close to 300km/h. The train reached Kaohsiung in the south of Taiwan from Taipei in the north in just 90 minutes after a stop in the central city of Taichung. As in Taiwan, the HSR in Malaysia could have direct services from KL to Singapore and also services that cover KLIA, Malacca and Johor. Malacca’s tourist potential will be enhanced while Iskandar’s viability will be improved by fast and efficient connectivity which will alleviate a shortage of manpower there.
The positive economic impact from the HSR from KL to Singapore would be tremendous. It would anchor KLIA-LCCT-Changi as the top airline hub in SE Asia where foreign and domestic passengers will have a choice of full service or budget airlines. Unlike Taiwan, which only have slightly more than 4m visitors a year, Malaysia and Singapore together have over 30m visitors a year. Therefore, the HSR may attract additional visitors to the KL-Singapore hub due to the clustering effect. Furthermore, it would boost the number of Singaporean and foreign visitors (from Singapore) visiting Johor, Malacca and Kuala Lumpur. Airline frequency between KL and Singapore may decline but airlines could generate additional traffic from the cementing of KL-Singapore as the premier transportation hub of the region.
Property prices in Kuala Lumpur should also benefit from greater demand from Singaporeans and foreigners who are attracted by the improved accessibility of KL. This would help generate demand for the large supply of condominiums in KL. With better accessibility, foreign companies may be attracted to place their operations in KL or Iskandar where operating costs are lower. The better accessibility would also make it easier to attract talent to work in KL or Iskandar. For example, the Taiwan HSR has allowed white collar workers easy access to Hsin Chu (Taiwan’s Silicon Valley) from all major cities in Taipei. Increased tourist arrivals and business activities will also boost the sagging rental market arising from lower occupancy rates. Singapore will also benefit from greater accessibility for its integrated resorts and higher tourist arrivals, both from Malaysia and overseas.
The high-speed Eurostar train link from London to Paris in just 2.5 hours has helped narrow the discount of Parisian property prices to London property prices. The ease of getting to Paris from London has encouraged the British to consider second homes in Paris and have even encouraged some British workers to consider Paris as a permanent base. Likewise, the KL-Singapore HSR could boost KL property prices and promote greater economic integration between Malaysia and Singapore as a catalyst for ASEAN integration. The differential between KL and Singapore property prices remains large with high-end condos in Malaysia going for around RM1,000 psf while high-end Singapore condos are at least 5 times more expensive at over S$2,000 psf.
Based on an estimated built up area of 1.8bn sq ft in the Klang Valley, property values could be boosted by a massive RM180bn if property values rise by RM100psf and the gain could rise to RM360bn if property prices appreciate by RM200psf. This excludes the potential gains for Johor and Malacca property. Prices of property in Taiwan and HK have risen due to Chinese demand and the yields of high end residential and commercial property in Taipei is only slightly over 2% (compared to rental yields of 6-7% in Malaysia) due to good demand and low interest rates. Greater demand for properties arising from the KL-Singapore HSR and lower Malaysian interest rates would help improve property prices in the Klang Valley. The positive wealth effect is an important ingredient for better consumer confidence, especially so as residential property accounts for around 80% of property stock in the Klang Valley. Of course, besides the HSR, other factors like better connectivity within Klang Valley, an investment friendly climate and a stable and safe environment are also important factors.
As Malaysia and Singapore squabble over long standing issues, Asian giants like China and India are increasing dominating the economic field. Hence, there is a greater urgency for Malaysia and Singapore to work together to carve out a niche (while it still exists) as the indisputable destination for investments, tourism, services and selected manufacturing in the ASEAN region. Hopefully the pain of deep recessions will numb the pride of both countries and enable closer economic integration that will benefit the people of both countries and promote better understanding.
Since the energy consumption per person using a train is less than those for cars and planes, the HSR will lead to lower carbon dioxide production, which contributes towards global warming. For example, the Taiwan HSR is estimated to produce a quarter of carbon dioxide emissions per individual compared to that for a regular four-wheeled vehicle. The KL-Singapore HSR will reduce the number of cars and planes plying between KL and Singapore. Greater use of trains will also reduce road accidents and improve productive time as passengers can comfortably carry on work their work or reading on a train.
Should the Malaysia and Singapore governments decide to carry on with the HSR, it is important for the project to be implemented by a group that can build the HSR within the stipulated cost and as quickly as possible. We cannot afford another Port Klang Free Zone (PKFZ) where massive cost overruns and accusations of misdemeanors in a privatized project have burdened taxpayers without any tangible economic benefits. The Taiwan HSL was plagued with delays and severe cost overruns. The final cost at a staggering US$15bn (RM55bn) equates to a cost of US$45m per km compared to US$27m per km in Korea and only US$12m for the Express rail link (ERL) to KLIA which was built by a YTL-led consortium. The YTL Group, backed by its ERL experience and strong financial resources, remains keen on the KL-Singapore HSR project. YTL Group is also believed to have a good relationship with the Singapore government as evidenced by its investments in Singapore property and power plants.
As a Malaysian consumer, I am very keen on being given the choice to travel on HSR to Singapore even if it costs more than a bus fare. As a taxpayer, I am keen on taxpayers money being spent on infrastructure projects that generate economic returns. It is no rocket science to know that a mainly private funded KL-Singapore HSR will generate more economic benefit than a government funded RM12bn double tracking railway from Ipoh to the Thai border. Economically viable private sector funded investments should be encouraged at a time when government finances are tight. As a property owner KL, I am keen to see better property prices and KL becoming a vibrant international city with excellent connectivity. What do you think? Please vote or express your views on the blog by clicking on comments below.