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Malaysia’s Tiptoe: Exploiting US-China Rivalry & Pragmatic Diplomacy


Malaysia has been able to walk a tightrope between Washington and Beijing. China has been Malaysia’s largest trading partner. The ASEAN nation is also part of the Belt and Road Initiative (BRI). Interestingly, Malaysia is also emerging as a specially favoured destination for Western semiconductor factories – especially those of the US — for their back-end operations – assembly, testing and packaging. Yet, there are serious differences between Kuala Lumpur and Washington DC. Malaysia’s stance on the Middle East conflict and its linkages with Iran are important ones. Washington, while putting forward its concerns vis-à-vis Malaysia, should adopt a pragmatic approach vis-à-vis Malaysia’s ties with other countries.

Malaysia shares robust economic ties with both the US and China. While it has been critical of the economic policies of the US vis-a-vis Beijing — aimed at containing the latter — it has a strong economic relationship with Washington DC. Like other ASEAN nations, including Singapore, it has repeatedly warned against the perils of China-US conflict.

Malaysia-China economic relations

China has been Malaysia’s largest trading partner. In 2023, bilateral trade between Malaysia and China was estimated at $95 billion. The ASEAN nation is also part of the Belt and Road Initiative (BRI). Malaysian PM, Anwar Ibrahim visited China twice in 2023 (March 30-April 4, 2023 and September 2023). Ibrahim had managed to draw investment commitments of $39 billion from China in several areas including green energy and infrastructure. While hailing the Belt and Road Initiative (BRI), Ibrahim said: “Translating lofty ideals into practical reality, solidarity and cooperation is best exemplified in the realization of the Belt and Road Initiative”. The Malaysian PM, in an interview with the Financial Times earlier this year, also criticised what he dubbed as the “China-phobia”  of the West.

Also Read: Navigating Geopolitical Waters: Assessing Iran-Pakistan Relations Amidst Regional Tensions

The US-China rivalry and how Malaysia has benefitted

Interestingly, while Malaysia has spoken out against Beijing-Washington strains, the former has benefited to some extent from growing strains between both countries. As tensions between the US and China rise, several Western companies — including from the US — seeking to diversify are looking at expanding their operations. Malaysia is emerging as a specially favoured destination for Western semiconductor factories – especially those of the US — for their back-end operations – assembly, testing and packaging. The ASEAN nation has always maintained an edge as it has skilled labour in the above areas and comparatively lower operating costs. Intel had made a commitment of $7 billion, in 2021, for setting up a chip packaging and testing factory in Malaysia.

Earlier this month, Microsoft CEO Satya Nadella met with Malaysian PM Ibrahim Anwar during his ASEAN visit. Microsoft announced, that it would be investing $2.2 billion over four years in Malaysia’s new cloud and artificial intelligence infrastructure.

While Malaysia has managed to balance ties reasonably well and to some extent benefited from the US-China economic tensions, there are serious differences between Kuala Lumpur and Washington DC. Malaysia’s stance on the Middle East conflict and its linkages with Iran are important ones.

While commenting on the situation in Gaza, the Malaysian PM said: “We oppose colonialism, or apartheid, or ethnic cleansing, or dispossession of any country, be it in Ukraine, or in Gaza. We cannot erase 40 years of atrocities, and dispossession, which have resulted in reaction, and anger, from the people,” 

Also Read: A Possible Trump Presidency: Impact On US-ASEAN Ties

Iran’s sale of oil via Malaysia

Iran has also been able to sell large amounts of oil to China — after it has been branded as Malaysian oil – via service providers in Malaysia, through ship-to-ship transfers. The US has also alleged that Malaysia was also being used by Hamas as a “jurisdiction” for fundraising.  In the aftermath of the Middle East crisis, the Biden administration has drawn flak, from several Republican lawmakers, for being lax vis-a-vis Iranian sanctions.

In December 2023, the US sanctioned four companies for assisting Malaysia in drone production. Earlier this month, a US delegation led by Brian Nelson, the U.S. Treasury under-secretary for Terrorism and Financial Intelligence visited Malaysia and met with senior officials including Saifuddin Nasution Ismail. During the meeting, the US officials put forward their concerns regarding Iranian oil being sold to China via Malaysia and alleged fundraising by Hamas in Malaysia. The Malaysian Home Minister categorically stated that his country had a clear stance on counter-terrorism financing — both in the context of ASEAN and globally and apprised the delegation of steps being taken to counter-terrorism. At the same time, he also stated that Malaysia only recognized sanctions imposed by the UNSC and not unilateral sanctions.

In conclusion, Malaysia has been able to walk a tightrope between Washington and Beijing. Washington, while putting forward its concerns vis-à-vis Malaysia, should adopt a pragmatic approach vis-à-vis Malaysia’s ties with other countries and also understand that the ASEAN nation’s approach vis-à-vis Iran can not be identical to Washington. The US also needs to bear in mind, that excessively stringent economic sanctions vis-à-vis Iran have not yielded any significant benefits.

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Tridivesh Singh Maini

Tridivesh Singh Maini is a New Delhi-based Policy Analyst. He is faculty member of OP Jindal Global University, Sonepat, Haryana.

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