Cover Story: Chinese Chipmakers Look to Malaysia to Sidestep U.S. Tariffs

Chinese chipmakers are ramping up efforts to expand production abroad to circumvent potential trade barriers in response to President Donald Trump's re-election and subsequent policies. Malaysia, with its strategic advantages, is emerging as a favored location. Penang, often referred to as the "Silicon Valley of the East," has become a hub for integrated circuit design and research and development (R&D) firms, reflecting its ambition to grow as a chip design and technology center. [para. 1][para. 2][para. 3][para. 6]

The threat of U.S. trade policies against China under Trump's administration, specifically regarding the potential 60% tariff on Chinese goods, is pushing Chinese chipmakers to consider foreign expansion. This urgency is echoed by industry leaders like Jensen Huang of NVIDIA, advocating for a decentralization of production to bolster global supply chains. Malaysia has positioned itself to seize this "golden opportunity," as stated by Liew Chin Tong, the deputy minister of Investment, Trade, and Industry. The rising demand for computational power driven by artificial intelligence (AI) further highlights the critical role of semiconductor packaging in future innovations. [para. 8][para. 9][para. 11][para. 12]

Malaysia is keen to attract Chinese entities and capitalize on tech transfers amid U.S.-China tensions. Penang, in particular, has become central to this strategy. China's semiconductor market share increased from $100 billion in 2016 to $150 billion in 2023, accounting for almost 30% of the global market. Although Chinese firms explore international ventures, challenges remain. The deliberate expansion into Southeast Asia underscores these efforts, also including regions like the Middle East and North America. The return of Trump might create new opportunities for Southeast Asia, benefiting from intensified semiconductor market competition among Singapore, Malaysia, and Vietnam. [para. 14][para. 16][para. 20][para. 22][para. 23]

Inari Amertron, a Malaysian company, is adapting to serve both U.S. and Chinese clienteles, reflecting the need for broader engagement. The expanding global presence of Chinese semiconductor firms, catalyzed by tightening domestic competition and market saturation, aims at cost reduction and tapping new markets. Observers like Wang Zhilong highlight the strategic expansions initiated during Trump’s first term; a trend expected to continue due to overcapacity concerns and challenging local markets. However, restructuring supply chains remains a significant hurdle for Chinese companies. [para. 41][para. 42][para. 43][para. 51]

Amid the geopolitical complexities, Malaysia aims to fortify its semiconductor sector with significant investments, committing 25 billion ringgits ($5.6 billion) under its National Semiconductor Strategy. Notable developments include Intel’s $7 billion investment for advanced packaging in Penang and Infineon’s €7 billion investment in a Kulim wafer fabrication plant. Despite the promising advances, local companies exercise caution towards collaborations with Chinese counterparts, mindful of the geopolitical environment, especially regarding U.S. sanctions. Malaysia’s significant contribution to the semiconductor industry is marked by its extensive investment ecosystem, standing as the world’s sixth-largest chip exporter. [para. 26][para. 27][para. 33][para. 54][para. 65]

The narrative suggests an inherent drive within Chinese companies to assimilate better into global supply chains, moving beyond acquisitions to integration. Geopolitical uncertainties persist, yet Malaysia's commitment to fostering local and foreign semiconductor ventures illustrates a strategy of growth through collaboration and adaptation, informed by shifting market demands and technological developments. While the broader geopolitical and economic landscapes evolve, Malaysia’s emphasis on enhancing competitiveness appears firmly rooted in product innovation and strategic partnerships, signaling a cautious optimism for the semiconductor sector's future. [para. 78][para. 80][para. 88][para. 96]