China’s role in Malaysia’s economic landscape
By Goh Lim Thye
The Trump administration’s trade war with China, characterised by aggressive tariffs and shifting policies, sent shockwaves through the global economy. Initially aimed at countering China’s economic rise, its repercussions extended far beyond the US-China trade dynamic. Malaysia, as a key player in global supply chains, found itself navigating both opportunities and risks brought about by increased Chinese investment amid shifting global trade patterns.
China’s Investment: Boon or Burden for Malaysia?
China’s economic presence in Malaysia has grown significantly, offering both opportunities and challenges. According to the Malaysian Investment Development Authority (MIDA) 2024 Investment Report, Malaysia approved investments totalling RM3,785 billion (approximately USD 858 billion), marking a 14.9% increase from 2023. Foreign direct investment (FDI) accounted for 45% of this total, with China emerging as Malaysia’s third-largest investor at RM282 billion, trailing only behind the US (RM328 billion) and Germany (RM322 billion).
These investments are primarily focused on high-value industries such as semiconductor manufacturing, the digital economy, green energy, and artificial intelligence (AI). Notably, companies like China’s Semiconductor Manufacturing International Corporation (SMIC), which has expanded its assembly and testing facilities in Malaysia since 2022, have strengthened global supply chain stability. Huawei, a key player in Malaysia’s 5G infrastructure, has also established AI innovation hubs in Kuala Lumpur to promote technology development and digital transformation.
While these investments drive economic growth and industrial upgrading, they also introduce competitive pressures for domestic companies. The Malaysian government has urged Chinese firms to avoid using Malaysia as a transshipment hub to bypass US tariffs. Additionally, local manufacturers face price pressures, market share erosion, and increased dependence on Chinese technology, particularly in the electronics, construction materials, and steel industries.
Talent Distribution: Addressing the Local-Expat Divide
One of the pressing issues linked to Chinese investment is the preference for hiring Chinese expatriates in key managerial and technical roles. Surveys indicate that 36.3% of Chinese firms in Malaysia predominantly employ Chinese nationals in crucial positions, citing language barriers and skill gaps as the main reasons for this trend.
To address this imbalance, policymakers and industry leaders should implement targeted initiatives to develop local expertise. One approach is to set a national goal of increasing Malaysian representation in senior management and core technical roles through structured talent development programmes. Companies investing in workforce localisation could benefit from incentives such as tax breaks or government support for upskilling initiatives.
Additionally, fostering university-enterprise collaboration—such as the Tsinghua University-Universiti Malaya partnership on AI-driven industrial solutions—would ensure graduates possess industry-relevant skills. Finally, cross-border talent exchange programmes could provide Malaysian employees with short-term placements in Chinese headquarters to enhance their expertise in multinational business operations.
These measures would help Malaysia maximise the long-term benefits of Chinese investments while strengthening its domestic talent pipeline.
Adapting to New Employment Trends
The influx of Chinese investment is reshaping Malaysia’s labour market, particularly in high-tech sectors. However, Malaysia’s global ranking in technical skills and digital proficiency has declined, as highlighted by the World Economic Forum’s 2024 Global Talent Competitiveness Index, which saw Malaysia drop seven spots to 34th place. Meanwhile, approved investments in 2024 are expected to generate over 207,000 jobs, yet the local workforce may struggle to meet industry requirements.
To bridge this gap, Malaysia must take proactive steps. Expanding Technical and Vocational Education and Training (TVET) programmes to align with industry demands is crucial. Additionally, fostering stronger partnerships between universities and corporations can enhance internship and training opportunities in high-growth fields.
For instance, the 2023 Memorandum of Understanding between Malaysia’s Penang Skills Development Centre and China’s Huawei Academy aims to upskill local talent in telecommunications and AI. Furthermore, offering financial incentives for graduates entering key industries such as AI and semiconductor engineering could attract and retain local talent, reducing reliance on foreign professionals.
Managing Foreign Investment Risks
Despite the economic benefits of Chinese investments, Malaysian businesses must be mindful of associated risks, such as supply chain dependency, technology reliance, and market dominance by foreign companies. To mitigate these risks, businesses should adopt three key strategies.
First, expanding supply chains by exploring alternative markets can help mitigate risks associated with external economic fluctuations. Second, strengthening research and development (R&D) capabilities would allow local businesses to create proprietary technologies. A key example is Malaysia’s National Semiconductor Roadmap, launched in 2023, which seeks to promote domestic chip design and lessen dependence on foreign companies. Finally, establishing investment risk assessment frameworks would enable the monitoring of foreign investment patterns and help protect Malaysia’s economic sovereignty.
Policy Reforms: Strengthening Malaysia’s Investment Framework
Malaysia’s foreign investment policies have traditionally prioritised attracting capital, generating employment, and driving economic growth. However, with China’s growing influence, regulatory adjustments are necessary to balance opportunities with potential risks. Several policy refinements could support this objective.
First, improving investment incentives for local collaboration—such as tax breaks, grants, or partnership incentives—could encourage foreign investors to integrate Malaysian businesses into their supply chains. Second, reinforcing technology transfer agreements would promote knowledge-sharing, ensuring that foreign investments strengthen domestic capabilities rather than fostering dependency.
Additionally, implementing flexible talent policies by providing financial incentives to companies that train and employ local professionals in high-skilled roles could help develop a more competitive workforce. Lastly, introducing an investment impact assessment framework would enable Malaysia to systematically evaluate the long-term economic effects of foreign investments, ensuring sustainable growth.
The Road Ahead
China’s investment in Malaysia presents a dual reality. On one hand, it accelerates industrial transformation and economic growth. On the other, unchecked reliance on foreign capital and expertise could limit Malaysia’s ability to build independent economic resilience. Moving forward, a strategic approach—one that embraces foreign capital while prioritising local competitiveness—is essential.
As geopolitical tensions continue to shape global trade, Malaysia’s ability to navigate these challenges will determine its long-term economic positioning. A well-calibrated policy framework, coupled with proactive business strategies, will be crucial in ensuring Malaysia remains a competitive and resilient player in the evolving global economy.
Dr Goh Lim Thye is a senior lecturer at the Department of Economics, Faculty of Business and Economics, Universiti Malaya, and may be reached at ltgoh@um.edu.my
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