The slowdown in China has sent a ripple effect throughout the world with Malaysia among the victims, recording decline in GDP growth of a full percentage point last year.
The economy expanded by 5% in 2015, a decent performance by most standards, but was down from 6% the year before. The rate for this year is forecast to moderate in a range between 4% and 4.5%. However, the government is still aiming for 5-6% in the longer term, according to Mustapa Mohamed, the Minister of International Trade and Industry.
"Growth in 2016 will be due to domestic and external factors," he told a recent briefing for journalists. "Domestic demand will remain the key driver, led by private-sector spending as the industrial sector undertakes transformation from agriculture to manufacturing and services."
Back in 1970, manufacturing contributed 12.8% of GDP but its share is now 24.8%. Services contribute 55.4%, while agriculture has shrunk from 33.6% in 1970 to just 6.9% today.
Mr Mustapa attributed Malaysia's slowing growth since 2014 to two main factors. First is the slowing Chinese economy which expanded by a 25-year low of 6.9% in 2015, though still growing at higher rate than other maturing economies.
"That affects demand for products and prices of commodities, and many countries in the world are affected by this slowdown in the Chinese economy," he said.
Second, the decline in global oil prices has shrunk government revenue in Malaysia, the only net oil and gas exporter in Southeast Asia. However, the imposition of the goods and services tax (GST) since the beginning of last year has helped to offset the decline and create a more diversified revenue base.
"We are not a member of Opec and we are not a big producer of oil," the minister said. "Oil and gas contribute only about 10% of total exports, but we have been perceived to be a player in oil."
The government has been gradually reducing its dependence on oil revenue, and the GST was part of that strategy of diversification. Oil-related revenue this year is forecast at 14% of the total, down from 40.3% in 2009 when world prices were far higher.
Despite political and economic hiccups in the past years, Malaysia with 31 million people continues to enjoy economic fundamentals that are appealing to many businesses. Notably, it is one of the biggest producers and consumers of halal products.
With the formation of the Asean Economic Community (AEC), Malaysia hopes to strengthen closer ties with other countries especially Thailand, its second largest trading partner in Asean and fifth largest globally.
"I can see progress in our ties is moving ahead. Things are getting better in terms of bilateral economic relations between Malaysia and Thailand. Trade and investment are growing, as well as tourism," Mr Mustapa said.
Bilateral trade between Thailand and Malaysia was worth US$22.1 billion last year, down 10% from $24.4 billion in 2014. However, sharp depreciation of the ringgit against the US dollar resulted in an 8% gain in local-currency terms to 86.2 billion ringgit.
In terms of investment, Mr Mustapa said Malaysia wanted to attract new players especially companies in agricultural processing, logistics and IT, while encouraging existing players to bankroll more projects. "The private sector knows what our priorities are, and we hope there are new players," he said.
There are currently about 100 Thai companies in Malaysia in manufacturing, mining and quarrying, and financial and insurance services. Thailand's investments in Malaysia in 2015 amounted to $496 million, down from $527 million a year earlier.
In turn, Malaysia's investment in Thailand in 2015 amounted to $362 million. Despite being down sharply from $537 million a year earlier, Malaysia still ranks among the top three foreign investors in Thailand.
Big Thai players in Malaysia include Berli Jucker Plc investing in Malaya Glass Products Sdn Bhd, BJC Foods (Malaysia) Sdn Bhd, and Westin Hotel; Charoen Pokphand (CP) Malaysia which has invested around $233 million in agriculture, food and aquaculture businesses; Tipco Asphalt Plc with $201 million in the oil and gas venture Kemaman Bitumen; and PTT Chemical which has invested $170 million in a joint venture with the plantation giant Sime Darby.
"It is obvious there is growing interest on the part of Thai companies to invest in Malaysia," he said, raising CP as an example of company that is using Malaysia as a production hub for halal food products. "They are not looking not only at the Malaysian market, but at the Asean market, the Arab market and the world."
In Malaysia, CP has raised 620 million ringgit ($150 million) in share capital and owns fixed assets of 1 billion ringgit ($241 million). A $120-million feed mill in Johor Bahru is planned to be a major feeder to Singapore.
"This is the right time to invest in Malaysia," said Sompop Mongkolpitaksuk, vice-chairman of Charoen Pokphand Group. "The business sector is slowing down, opening opportunities to invest as costs get cheaper. And petroleum is, of course, cheaper than in Thailand."
The AEC, he said, hadn't done any wonders yet for the business and investment landscape, but the finalisation of the US-led Trans-Pacific Partnership agreement, among 12 countries which represent around 40% of global GDP, will make a big differences.
Although Indonesia, the Philippines and Thailand are expressing interest in joining the TPP, new participants will not receive the same privileges as founding members that include Malaysia, he added.
There is no doubt that these trade agreements will bring opportunities to Malaysia, but there remain several challenges to better accommodate the influx of investors.
Some of the key hindrances have to do with customs regulation and registration, incentives, as well as infrastructure such as customs facilities. Such problems need to be sorted out to increase the flow of traders at the border points, and at the same time reduce congestion. Other issues include standards such as the types of lorries allowed in various countries.
"The private sector can smell the opportunity. The key issue is to create ease of doing business for them," the minister said.