He stressed that despite a number of risks, the RCEP agreement represents an important opportunity for economies that have suffered damage during the pandemic. Mydin stressed that the free trade agreement could lead to a risk of foreign dependence on countries with lower production capacity. China first proposed the idea of a free trade area in November 2000. The leaders of ASEAN and China therefore decided to discuss economic integration measures in the region the following year In Brunei, they supported the creation of an ASEAN-China free trade area.  From a supply-side perspective, Malaysia is a typical semi-industrialised nation, where inputs for production are still largely imported and are not produced domesticly due to the lack of economies of scale; z.B. automotive industry, chemical and allied industrial production and textile manufacturing. The cost of business inputs may increase after currency devaluation. However, our RFID analysis did not have a clear inflationary or deflationary effect after the shock in the real Malay ringgit. And the delayed variables from price to production were statistically insignificant in modeling VECMX errors. Malaysian and Chinese producer prices are relatively exogenous, as the VDC analysis shows. Initially, the results indicate that the negative effects of the higher cost of inputs imported from China (due to the devaluation of Ringgit) do not dominate the production momentum due to lower relative prices for products traded on the domestic market.
In other words, China is not yet the main source of inflation imported by Malaysia. “It also allows consumers to obtain imported products at a lower cost. But the agreement allows local producers to expect damages as long as they do not participate in this competition. That is why India withdrew from the RCEP negotiations. In the current phase, China has shown complementary characteristics and supported regional trade. In mid-August 2010, China began trading with Malaysian ringgit against the yuan in its domestic foreign exchange market to promote bilateral trade between the two countries and to facilitate the use of the yuan for the settlement of cross-border trade. Nevertheless, the potentially contradictory (competitive) aspect of trade relations cannot be ignored. In 2006, the manufacturing sector accounted for 92.4% of China`s goods exports and the trend continues. Malaysia remains competitive in the machinery, electronic equipment and energy sectors, but is not competitive in the clothing and textile, food, agriculture and leather and transport sectors. Malaysia needs to improve its export structure and reduce production of low-end and labour-intensive production. Malaysia should focus on the high value-added production, design and services sectors before China overtakes it in these areas. Given that the two countries now encourage different service sectors, continued bilateral liberalization and strategic cooperation in services trade should be an important priority for trade between Malaysia and China.
These services may include education, medical tourism, transportation and construction, as well as financial services.