Amid rising US tariffs on select Chinese products, Chinese firms are considering relocating production to Malaysia to avoid hefty taxes.
They have requested assurances from the Malaysian government that their products will not be subject to US tariffs if manufactured locally. According to reports from the Financial Times and The Edge Malaysia, US President Joe Biden announced plans in May 2024 to increase tariffs on Chinese semiconductors, batteries, solar products, and other critical minerals, with semiconductor tariffs expected to rise from 25% to 50% starting in 2025.
Malaysia: China's tariff-free heaven?
Sources indicate that Chinese semiconductor and battery companies have requested that the Malaysian government lobby the US to exempt products manufactured in Malaysia from these tariffs.
A Malaysian official revealed that the Chinese company Energy Very Endure (EVE) had meetings with Malaysian ministers and the Malaysian Investment Development Authority (MIDA). EVE expressed interest in expanding in Malaysia but sought assurances that products manufactured locally would not be subjected to US tariffs.
20% of the EVE's export products are sold to the US. However, Malaysian officials believe that obtaining such guarantees is unlikely.
While lobbying the US government is possible, the direction of US tariff policies remains uncertain. This issue needs resolution if Malaysia aims to attract Chinese companies to establish manufacturing facilities.
Chip in, chip out
Additionally, another Malaysian official mentioned that in 2024 alone, dozens of Chinese semiconductor executives visited Malaysia. These executives sought confirmation that expanding operations in Malaysia would allow them to legally export products to the US.
Some even inquired whether setting up companies in Malaysia or Singapore would enable them to acquire high-end US chips. Data from the US Census Bureau shows that Malaysia accounted for 20% of US semiconductor imports in 2023, surpassing Taiwan, Japan, and South Korea.
Over the past 18 months, the number of Chinese factories in Penang has significantly increased. Johor, known for its manufacturing industry, has received numerous similar inquiries from Chinese companies.
No promises
Industry experts suggest that due to the ever-changing US tariff policies, Malaysia finds it challenging to offer guarantees to Chinese firms. Malaysia must continue to emphasize its neutral and non-aligned stance to boost Chinese companies' confidence while avoiding getting on the US's bad side.
Wong Siew Hai, chairman of the Malaysia Semiconductor Industry Association (MSIA), noted that the US has previously imposed tariffs on Malaysian solar products, highlighting the uncertainty of Washington's policy.
Wong stated that the outcome would be positive if Chinese companies aim to serve the global market by establishing factories in Malaysia. However, he believes that if the primary goal is to evade tariffs, it might not be beneficial, and Malaysia may not be able to provide the desired assistance.
