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Joseph Sipalan

Malaysia has big semiconductor ambitions.
The Southeast Asian nation is already a major cog in the global supply chain, feeding about 13 per cent of demand in the packaging and testing space.
But it wants to be more.
Global semiconductor firms have been shopping around the region for suitable locations to either expand or shift their operations out of China, to “de-risk” from sanctions imposed by the US in an increasingly testy tech war.
This involves tens of billions of dollars in investments and the building of highly coveted wafer fabrication plants, or fabs, which developing nations believe will help fast track their growth towards becoming hi-tech economies.
Malaysia – much like Vietnam, Indonesia and India – wants in on the fab action.

Southeast Asia has already seen a flurry of fresh investments, amounting to billions of US dollars. But these have mostly focused on back end processes, as Washington looks to keep the more lucrative, and highly sensitive, front end wafer manufacturing among its closest allies in Europe and Japan.
Last week, in his strongest pitch yet, Prime Minister Anwar Ibrahim told a regional semiconductor industry conference in Kuala Lumpur that Malaysia was their best bet to avoid getting caught in the US-China crush, leveraging the country’s long-held policy of neutrality and non-alignment.
It’s arguably an attractive proposition. Anyone who sets up shop in “friend to all” Malaysia can conceivably claim that they are not acting for or trying to undermine any side.
This stance theoretically enables companies to engage with and sell to any party seeking to do business in the country – barring those entities or nations facing multilateral sanctions – allowing Malaysia to maximise the opportunities and profit.
For Malaysia, a surge in semiconductor investments would help speed up its transition to developed nation status, as more plants mean more jobs, including high-skilled roles that will boost per capita income.

But nations, like people, tend to have different motivations.
Malaysia is heavily reliant on external trade, which was a key driver of its rapid industrialisation from the 1980s to 1990s and remains an important contributor to economic growth.
Its often stated position of neutrality has been useful in paving the way for establishing bilateral ties, especially economic links, with numerous nations across the globe.
What happens when one of your biggest partners starts pressuring you to pick a side?

But what happens when one of your biggest partners starts pressuring you to pick a side?
Just last year, the US and EU envoys to Malaysia sent a letter to the government warning of national security risks associated with allowing Chinese tech giant Huawei to develop 5G infrastructure.
Analysts only expect such pressure from the US to intensify, especially if it escalates its sanctions and policy responses against China’s access to high-end chips that can be used to run supercomputers and develop sophisticated artificial intelligence.
The US began unilaterally imposing sanctions on China in the form of export controls under the 2022 Chips Act, which bars chip makers that have interests in the US from expanding semiconductor manufacturing in China or any country deemed by the Americans as posing a national security risk.

Malaysia has made it clear that it will not recognise any sanctions unless approved by multilateral bodies such as the United Nations.
Prime Minister Anwar himself has repeatedly said that Malaysia will not allow itself to be pressured into taking a position for or against any country.
But balancing Malaysia’s interests with the US, its biggest investment partner, and China, its top trade partner for 15 years as of 2023, will need more than bold public pronouncements.
As Anwar’s government pursues the reforms he long championed while in opposition, he will also need to consider putting the right people in the right positions to craft a convincing and actionable policy of engagement to manage ties with the two superpowers going forward.


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Malaysia

Why Malaysia’s big chip dreams hang in the US-China balance

A worker inspects semiconductor chips at a plant in Ipoh, Malaysia, in 2021. Photo: Reuters 

Global semiconductor firms have been shopping around Southeast Asia for suitable locations to either expand or shift their operations out of China. Photo: Shutterstock

Technicians work at a semiconductor plant in Kuala Lumpur. More plants mean more jobs, including high-skilled roles that will boost per capita income. Photo: AFP

Malaysian Prime Minister Anwar Ibrahim has repeatedly said his country will now allow itself to be positioned into taking a position. Photo: AFP

‘Neutral’ Malaysia is best bet for chipmakers seeking haven from US-China tech war, Anwar says

Malaysia’s Prime Minister Anwar Ibrahim speaking during the KL20 Tech Forum in Kuala Lumpur. Photo: Bloomberg

A worker inspects semiconductor chips at the chip packaging firm Unisem (M) Berhad plant in Ipoh. Photo: Reuters

The Samajaya Light Industrial Zone in Kuching, Sarawak, Malaysia where major electronics, solar and semiconductor plants are located. Photo: Shutterstock

Is Malaysia set to become a global start-up hub that can compete with Singapore?

The skyline of Kuala Lumpur. Economy Minister Rafizi Ramli said last May that the Malaysian government plans to make the capital a regional hub for start-up companies. Photo: Bloomberg

US chip giant Nvidia CEO Jensen Huang speaks during a media round-table session in Kuala Lumpur in December 2023. Photo: EPA-EFE

Malaysia has big EV ambitions. It wants to liberalise markets to achieve its goal

People inspect Tesla’s new Model 3 electric car during an official launch event in Malaysia last month. Photo: EPA-EFE

Malaysia’s Investment, Trade and Industry Minister Tengku Zafrul Aziz. Photo: Handout

Tesla Model Ys are seen during a launch event in Kuala Lumpur, Malaysia, in July - the same month that the US EV-maker opened its first Southeast Asian office in the country. Photo: Bloomberg

Former Malaysian prime minister Najib Razak (centre) greets supporters outside a court in August last year, the same month he started serving a 12-year sentence related to a corruption scandal. Photo: EPA-EFE

Transmission lines are seen near a power plant on the outskirt of Kuala Lumpur. Photo: AP Photo

Malaysia faces pressure to ‘innovate’ chip sector as US-China rivalry gives Vietnam a boost

A worker inspects semiconductor chips at a plant in Ipoh, Malaysia. Photo: Reuters

Malaysia is a key link in the global semiconductor supply chain, having built up its local semiconductor industry and ecosystem over the past 50 years to now supply an estimated 13 per cent of demand for packaging and testing. Photo: Shutterstock

A worker inspects semiconductor chips at chip packaging firm Unisem in Ipoh, Malaysia. Photo: Reuters

An industrial zone in Sarawak, Malaysia, where major electronics, solar and semiconductor plants are located. Photo: Shutterstock

Malaysia secured 121 billion ringgit in inbound foreign direct investments over 2021 and 2022, according to government data. Photo: Shutterstock

Vietnam is in prime position to attract manufacturers looking to diversify their supply chains outside China with its relative political stability, competitive labour costs, and proximity to China, analysts say. Photo: Bloomberg

Western friendshoring benefits Malaysia amid US-China rivalry, but could hurt global economy: trade minister

Malaysian Trade Minister Tengku Zafrul Aziz speaks during an interview in Singapore on March 29. Photo: Handout

Malaysia’s Prime Minister Anwar Ibrahim. Photo: Prime Minister Office via AP

Malaysia’s trade minister Tengku Zafrul Aziz says the possibility of a global banking contagion after the collapse of the Silicon Valley Bank is unlikely. Photo: Getty Images/TNS

This Week in Asia

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Asia

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Malaysia really wants semiconductor investments. But what happens when one of your biggest partners starts pressuring you to pick a side?


Semiconductors

US-China tech war

US sanctions on China

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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My Take | Why Malaysia’s big chip dreams hang in the US-China balance

Malaysia really wants semiconductor investments. But what happens when one of your biggest partners starts pressuring you to pick a side?