Economic effects of MH370

Over the past few weeks, Malaysia has received severe and scathing Chinese criticism over the lost MH370 passenger jet. Malaysian officials, media and citizens are now hitting back after being assailed for their alleged incompetence and sometimes confusing public statements being released.

Authorities in Kuala Lumpur have been on the defensive since the Beijing-bound Malaysia Airlines flight went missing on March 8 with 239 people aboard, most of whom were Chinese citizens. The Boeing 777 is believed to have crashed in the southern Indian Ocean.

In a DW interview, the chief Asia-Pacific economist of the analytics firm IHS, Rajiv Biswas, said the MH370 tragedy will have negative repercussions for the economic relations between China and Malaysia in the near term.

DW: Why has most of the anger over the missing plane been targeted at the Malaysian authorities?

Rajiv Biswas: There is an understandable frustration among the general public, not just in China but worldwide, about how a large commercial passenger jet can disappear and about the length of time it is taking for international rescue efforts to locate the aircraft.

Public perceptions have also been negative due to the rather confusing way Malaysian authorities have engaged with the public about the loss of MH370. There is also a sense of incredulity that military air defense systems cannot detect and track a large jet aircraft that is not flying according to its flight plan.

Presumably the military should have the capability to detect unidentified aircraft even if they are not sending out tracking signals, as this could pose a major terrorism or military threat to a nation.

What do many Chinese accuse the Malaysian authorities of?

The response in China is naturally one of highly charged emotions, with the global and Chinese media having round-the-clock coverage of the ongoing media briefings and grief of the relatives over the missing aircraft. This has snowballed into very negative sentiment towards Malaysia for the moment.

How has this incident impacted the bilateral economic ties?

China is the most important trade partner for Malaysia, hence the Southeast Asian nation is vulnerable to any downturn in trade and investment flows from Beijing. Furthermore, the Chinese make up the third largest source of foreign visitors, thus playing an important part in Malaysia's tourism sector, a key contributor to the country's economy.

Tourism flows from China to Malaysia had risen strongly in recent years, with 1.79 million Chinese visiting the country in 2013, up 14.9 percent compared to the previous year. But there have been reports recently of sharply lower Chinese tourism bookings for travels to Malaysia in the aftermath of the loss of MH370, so this will hurt tourism. However, the impact is not expected to be long-lasting, with tourism likely to return to more normal levels later this year.

Many in China have called for a boycott of Malaysian products. Which other sectors of the economy are being affected?

There could be some impact on residential property sales to mainland Chinese buyers, as these investors have been a significant source of demand for the Malaysian real estate market in recent years. The effect, however, is unlikely to be of protracted duration.

It is unlikely that there will be any systematic boycott of Malaysian products in the way that Chinese consumers stopped buying Japanese goods in 2012 in reaction to the dispute between China and Japan over the sovereignty of some small islets. While there may be some emotional reactions by some Chinese consumers, overall trade flows at a business-to-business level are unlikely to be significantly affected.

How strong are economic ties between the two countries?

Malaysia's economic ties with China have grown strongly over the last decade. China has been Malaysia's largest trade partner since 2009, with total bilateral trade reaching $94.8 billion in 2012 and rising further to $106 billion in 2013. The visit of Chinese President Xi Jinping to Malaysia in October 2013 also provided further impetus to bilateral ties.

Bilateral ties are further supported by the strong cultural ties between Malaysia and China, with a large ethnic Chinese community that has been a very important part of the Malaysian economy historically. Despite the MH370 tragedy, the long-term Sino-Malaysian economic ties should continue to strengthen, with deepening links in trade, investment and tourism flows.

Planes and ships hunting for the missing jetliner have zeroed in on a patch of the Indian Ocean, after underwater signals consistent with a plane's black box were picked up. Could confirmation of the fate and whereabouts of the plane ease tensions or could this have a long-term impact on bilateral ties?

The location of the airliner will help to bring some closure to this tragedy and help the gradual process of normalizing ties. However, it should be expected that the process of investigating the cause of the loss of MH370 could take a long time and the full reasons for the disaster may not be identified with certainty.

What are the governments of both countries doing to restore confidence?

While the short-term response from Chinese citizens has been very adverse, the overall political and economic ties between China and Malaysia will be seen from the long-term strategic perspective by the Chinese government, and this single tragedy should not permanently destabilize the long-term economic relationship.

The Malaysian government has also made tremendous efforts to reach out to the Chinese government and people to try to show their goodwill. This is likely to help with eventually defusing the negative sentiment prevailing at the moment.

For more than a month now, search teams from several countries have been scouring the Indian Ocean in search of clues as to where the plane reportedly crashed. What can you tell us about costs of this search itself?

The costs of the international search efforts so far are estimated in the range of around $50 million. However with the search still in progress and eventual recovery operations also likely to be protracted once the missing aircraft is located, the total costs could be well in excess of $100 million.

The governments of the US, UK and Australia have said they are covering the costs of their own military contributions from their own defense budgets. Their main focus is on locating the aircraft and displaying their commitment to global co-operation in such international rescue efforts.

Rajiv Biswas is Chief Asia-Pacific economist at IHS, a global information and analytics firm.

The interview was conducted by Gabriel Domínguez.