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

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.

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.

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.

But what happens when one of your biggest partners starts pressuring you to pick a side?

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