How Malaysia and China can deepen ties amid South China Sea disputes and US-China rivalry

Both countries must look beyond trade and investment as their bridges, diversifying their areas of close cooperation. Technology, sustainability and culture are vital avenues

Brian Y. S. WongandSyed Nizamuddin Bin Sayed Khassim

Published: 1:28pm, 1 Oct 2023

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As a linchpin of China’s economic presence in Southeast Asia, Malaysia enjoys long-standing trade ties with the world’s second-largest economy, with trade volumes nearly doubling from US$106 billion in 2013 to US$203.6 billion last year.

Malaysia is China’s second-largest trading partner in a region that is increasingly important in Beijing’s foreign policy vision and initiatives, including the Belt and Road Initiative and Global Development Initiative.

Yet challenges remain, and both Beijing and Kuala Lumpur should know this.

Amid intensifying geopolitical rivalries and pressures on countries to take sides, Malaysia has long sought to hedge between China and the United States. Territorial disputes, historical misfortunes and tensions between ethnic groups, and a complex history of dealing with communism in Malaysia have driven policymakers to avoid becoming excessively dependent on Beijing.

Five years ago, the Mahathir administration halted a raft of China-backed projects in Malaysia, including the East Coast Rail Link. Rounds of renegotiations took place before project work resumed. China knows not to take Malaysia’s openness to investment for granted.

As Prime Minister Anwar Ibrahim noted in a recent interview, “given the new challenges in global geopolitics, it is important that Malaysia interacts more with China, an important neighbour and trading partner”. China and Malaysia must look beyond trade and investment as their bridges – technology, sustainability and culture are also vital avenues for deeper cooperation.

A construction site of the East Coast Rail Link in Kota Bharu, Malaysia, is seen on April 26. After several bumps, the 665km rail link is now under construction and is expected to start operation in 2027. Photo: Xinhua

For a start, Malaysia’s young and promising technology ecosystem can provide an alternative manufacturing hub for Chinese companies wary of being caught between trade curbs or US restrictions.

Chinese and Malaysian companies would also benefit from bolstering technological cooperation, specifically in advanced manufacturing, cloud computing, nanotechnology, biotechnology and health technology.

Rather than importing top scientists and engineers to work in China – causing a brain drain in Southeast Asia – tech giants and unicorns should invest in technological infrastructure and research facilities in Malaysia, cultivating home-grown capabilities and genuinely disseminating knowledge.

Both governments must take the lead in carving out free trade zones. Leading joint ventures such as the Malaysia-China Kuantan Industrial Park epitomise the value of bottom-up public-private partnerships between state governments (e.g. Pahang) in Malaysia, their provincial partners (e.g. Guangxi) in China, and private investors.

Local governments in China and Malaysia must also further reduce the barriers to entry, including business registration regulations and tax laws. This applies especially to vast regional markets with high consumer power, such as the Greater Bay Area or the Yangtze Delta Region.

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This would enable small and medium-sized enterprises and innovators in Malaysia to develop a greater understanding of and appreciation for the Chinese market. China’s growing middle class also stands to gain from a wider range of consumer products and innovation.

Such innovation would also be essential in both countries’ shared drive to transition away from non-renewables towards a more sustainable future. Malaysia is a rapidly rising player in green finance, with over 90 per cent of its financial institutions offering at least one sustainable product. China also has a world-class green bond market, with Hong Kong leading the charge.

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The Asian Infrastructure Investment Bank should step up to support, advise and collaborate with Kuala Lumpur’s newly established US$430 million green energy fund, which aims to support energy transition projects. Chinese investors and funds can do more to contribute towards the development of the green technology ecosystem in the resource-rich Eastern Malaysia, as marked by the Sarawak Corridor of Renewable Energy.

People-to-people exchanges, through academic and cultural exchanges, are key in broadening the relationship. While a recent poll found that 67 per cent of ethnic Chinese in Malaysia had a strongly “favourable” view of China, only a minority of all the other ethnic groups felt the same.

The Chinese diaspora in Malaysia, and their familial and fraternal ties with relatives in China, have long served as a pivotal bridge-building foundation. But it is equally imperative that a more nuanced understanding of China is fostered among other Malaysians too.

Divers dressed as the God of Fortune a Chinese lion perform as part of Lunar New Year celebrations at the Aquaria KLCC underwater park in Kuala Lumpur, Malaysia, on January 18. Photo: AP

Significantly increasing the numbers of Chinese and Malaysians studying and researching in each other’s countries will improve mutual understanding in the educated middle classes.

With its high concentration of world-class universities and research institutions, Hong Kong has a role to play here. Working closely with universities and private corporations in Malaysia and Hong Kong, the Hong Kong government should consider establishing bonded scholarships for promising talent in STEAM (science, technology, engineering, the arts and mathematics), the social sciences and beyond.

Hosting more regular collaborations and exchanges between art groups and independent artists could be a helpful start.

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There is, of course, an elephant in the room: Sino-Malaysian disputes in the South China Sea. Both powers must seek to strengthen mechanisms for clear, unfettered communication over competing claims – following through on Premier Li Qiang’s promise that Beijing would avoid actions that risked escalation.

More frequent dialogue between the foreign policy communities of China and Malaysia is pivotal in clearing up misunderstandings and preventing accidental altercations.

Ultimately, deepening Sino-Malaysian ties amid geopolitical tensions, climate change and political polarisation requires diversification of the areas of cooperation, and an amplification of convergence in the interests of both countries.

Brian Y.S. Wong is an assistant professor in philosophy at the University of Hong Kong, and a Rhodes Scholar and adviser on strategy for the Oxford Global Society

Syed Nizamuddin Bin Sayed Khassim is an assistant secretary at the Ministry of Foreign Affairs, Malaysia. This article reflects his personal views and is not a statement of the Malaysian government’s position