Another Shenzhen in Sight a Few Decades down the Road
On Jan 7 2025, Singapore and Malaysia signed and exchanged an agreement on the Johor-Singapore Special Economic Zone (JS-SEZ). Following the official announcement of the JS-SEZ plot in Oct 2023, a Memorandum of Understanding was signed in Jan 2024; it was officially signed under the witness of Malaysian and Singaporean Prime Ministers during the recent Malaysia-Singapore Leaders' Retreat. It is considered a landmark collaboration initiative between Singapore and Johor to be competitive in the ASEAN region, utilizing Singapore's technological and expertise advantages and Johor's land, labor, and natural resources. This is even considered by some to be a demonstration of the China+1 strategy and to be a replica of Shenzhen SEZ's success. It was founded in 1980 with 300,000 residents, but now has more than 13.4 million residents, making it the world's biggest high-tech and manufacturing hub, not only in China but also worldwide.
Plenty of Space with Favorable Incentives
JS-SEZ is divided into 9 flagship zones with a total area of 3,571 sq km (app. 1,378 sq miles), 4 times larger than Singapore, or nearly double the size of Shenzhen. The officials mentioned that JS-SEZ would benefit from a) improving cross-boarder goods connectivity between 2 countries, b) enabling freer movement of people and c) strengthening the business ecosystem within the region. They aim to set up 50 projects and create 20,000 skill jobs within 5 years; then increase to 100 projects in 10 years, with high value industries such as digital economy, aviation's, manufacturing and financial services being targeted.
Malaysian government promised a special 5% corporate tax rate for up to 15 years for companies investing in high-value activities such as artificial intelligence and aerospace manufacturing in designated flagship zones. “Knowledge Workers” could also enjoy a 15% income tax rate as incentives. The 4 km Johor-Singapore Rapid Transit System (JB-Singapore RTS) started to lay the track at the end Dec 2024 and expected to be operational by Dec 2026. Currently, commuters rely heavily on the Causeway between Johor Bahru (the southern city of Johor state) and Singapore to cross the boarder in each direction, making the light rail link a feasible alternative to ease congestion. Due to heavy commuter demand, the Causeway, which spans the Johor Straits and is about 1 km long, continues to have capacity problems despite being built in 1923.
New Partnership with an Old Relationship
Singapore and Malaysia have very close economic and civilian ties. The two countries' bilateral trade was SGD 123.6 billion/ $91 billion in 2024, and 1.13 million Malaysians working in Singapore (2022), about 60% of Malaysians working overseas. Singapore will shift its business focus towards research, development, and services to attract new investment because of its strong background in high-tech and financial infrastructure. At the same time, Malaysia’s high availability of labor forces, lands, and natural resources benefits investors by lowering costs while setting up facilities a stone's throw from Singapore.
The electronics and semiconductor sector, healthcare and wellness, and technology services would be the most promising sectors for JS-SEZ. Corporations in the electronics and semiconductor segment have shown interest in relocating their supply chains to Johor to support data centers and high-tech industries.
Beautiful Visions, Tough Realities
While the initiative provides a very prospective future for both countries, there are still some concerns. Unlike typical Special Economic Zones elsewhere, SEZ operators usually have a certain degree or plot plan arrangement of buildings and infrastructure ready before attracting investment; for the JS-SEZ, the Malaysian Economy Minister stated they would take a "project-by-project" approach. The Built-To-Order concept might sound suitable for marketing but creates concerns as building from a greenfield could have the risk of progress and completion time. In addition, the initiative puts a lot of emphasis on new and high-technology, such as AI. Still, few mention the less sophisticated and labor-intensive industries, which are essential for providing several jobs. Some analysts are calling for more information on this.
Forest City was assigned as SEZ for financial services within the nine flagship zones. Forest City concept was initiated as early as 2006, and Country Garden, Chinas 2nd biggest real estate conglomerate, joined and kicked off the project in 2014 with an ambitious plan of building an eco-friendly metropolis featuring a golf course, waterpark, offices, bars, and restaurants to home nearly one million people finally. However, due to COVID-19 and the debt crisis of the real estate segment in China, only 15% of the entire project has been built, and very low single-digit percent of occupancy by 2023. Forest City was once called “Ghost City” because of low occupancy, and Country Garden could not make much progress on new development as they were experiencing severe financial difficulty. Malaysian authorities claimed that the situation was improving, with occupancy ramping up after COVID-19 and ongoing project development. The government decided to include Forest City as one of the flagship zones in the JS-SEZ initiative (initially six zones, now expanded to 9 zones) last September. Some view this as a property market boosting campaign rather than a real financial services zone.
Possible Win-Win for Both Countries
Malaysia and Singapore separated 60 years ago and have survived the pain of separation; today, they have close ties and need to form complementary partnerships with common goals to compete in ASEAN and internationally. Singapore is considering JS-SEZ as a strategic opportunity to overcome the physical and structural limitations of land and labor. Although it only targeted a 0.2% GDP growth contribution over 5 years, JS-SEZ provided a cost-competitive base for Singapore-based businesses (especially mid-sized firms) operating and producing. Still, the high-value activities and core competencies, such as R&D, remained in Singapore so that investors would continue investing in the country. Malaysia targets the zone to bring $35.5 billion in additional GDP annually by 2030. Addressing past complaints about bureaucratic delays for similar initiatives, a one-stop business center in Johor will handle investment applications and approval to facilitate the project's speed.
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