Vantage | How Malaysia is winning the US-China chip war

In the scope of technology and geopolitics, a new battleground has emerged – the global chip war. Chips, once mere components in electronic devices, have now become strategic assets coveted by nations worldwide. The epicentre of this conflict lies primarily between two giants: the United States and China. At its core, the US aims to sever China’s stronghold on the semiconductor industry by imposing stringent restrictions, a move that reverberates across borders and significantly impacts global chip manufacturers.

A shift in power

Countries around the world are scrambling to position themselves as alternative chip manufacturing hubs. Vietnam, Thailand and India have all thrown their hats into the ring. However, the unexpected victor in this high-stakes competition is Malaysia, an old player in the chip-making game.

As of today, Malaysia stands as the favoured destination for chip manufacturing investment. Major players in the industry, including Intel, German chipmaker Infineon, and NVIDIA, are pouring billions into the country’s economy. Other notable firms such as Austria’s AT&S, Texas Instruments, Ericsson, Germany’s Bosch and America’s Lam Research are also investing heavily in Malaysia.

Malaysian advantage

But why Malaysia? What sets this Southeast Asian nation apart in the fierce competition for chip dominance? The answer lies in Malaysia’s long-standing presence in the semiconductor industry.

Malaysia began its journey as a chipmaking hub over half a century ago when Intel established its first overseas factory in Penang in 1972. Attracted by Malaysia’s incentives such as free trade zones and tax breaks, Intel’s decision paved the way for subsequent investments by companies like AMD, Hitachi and Hewlett-Packard.

While initially chosen for low-tech assembly work, Malaysia’s strategic location, cost-effective labour and English-speaking workforce have made it an attractive destination for advanced manufacturing ventures. Intel’s recent $7 billion investment in an advanced chip packaging site for 3D packaging underscores Malaysia’s growing importance in the global semiconductor supply chain.

The political game

Beyond its technological prowess, Malaysia’s diplomatic finesse has played a crucial role in attracting investments from both the US and China. Embracing a policy of “active neutrality,” Malaysia maintains friendly relations with both superpowers, positioning itself as a safe haven for chip manufacturing amidst escalating tensions.

Chinese firms, wary of potential US sanctions, have sought refuge in Malaysia through joint ventures, exploiting the country’s neutrality to circumvent trade restrictions. With the US already importing over 20 per cent of its chips from Malaysia, the Southeast Asian nation has become indispensable to global chip supply chains.

Future outlook

Yet, as Malaysia basks in its newfound prominence, questions linger about the sustainability of its dual-sided approach. Will the delicate balancing act between the US and China eventually unravel, leaving Malaysia caught in the crossfire? Only time will tell whether Malaysia’s gamble in the ’70s will continue to pay dividends or whether the global chip war will ultimately disrupt its lucrative position in the semiconductor industry.

In the ever-evolving landscape of technology and geopolitics, Malaysia’s ascent as a key player in the global chip war serves as a testament to the intricate interplay between innovation, diplomacy and strategic foresight. As nations vie for control over this critical industry, Malaysia stands at the forefront, navigating the turbulent waters of international relations while cementing its status as a linchpin in the world of semiconductors.

Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.