Embracing the semiconductor future: Malaysia’s strategic leap forward in a Sino-US tech rivalry

At stake is more than export revenue or industrial output. What’s unfolding is a structural pivot toward anchoring Malaysia’s place in the 21st-century global supply chain, at the crossroads of innovation, diplomacy, and national security — and increasingly, at the very fault line of the intensifying Sino–U.S. technological rivalry.

The global semiconductor ecosystem is no longer a neutral commercial space.

It is the arena where the United States and China are contesting supremacy in artificial intelligence, quantum computing, space, and digital military-industrial transformation. Semiconductors are the oil of the digital age — and both Beijing and Washington are racing to secure their supply chains, dominate their production, and weaponize their access.

In this new Cold Tech War, chokepoints in fabrication, design software, lithography, and packaging are as strategically significant as missile bases or naval routes.

Against this backdrop, Malaysia’s NSS is not merely a national policy — it is a geopolitical strategy.

Less than a year since the NSS was launched in May 2024, Prime Minister Datuk Seri Anwar Ibrahim has already delivered early results that speak volumes about clarity of vision and execution.

According to data revealed at the ASEAN Semiconductor Summit 2025, Malaysia has secured over RM63 billion in investments, with RM58 billion from foreign direct investors, and RM5 billion from local industry champions. These are not vague pledges.

They are legally-binding, multi-year investments in fabs, foundries, packaging lines, and research centres — projects that root Malaysia into the very core of the global semiconductor race.

Malaysia’s comparative advantage in electrical and electronics (E&E) manufacturing is now evolving into a deeper, more integrated role across the semiconductor value chain. Global players like Infineon are investing in the world’s largest 200mm silicon carbide power fab here.

Carsem, NXP, Syntiant, and Plexus are betting big on Malaysia’s capabilities in energy-efficient AI systems, MEMS sensors, and printed circuit board ecosystems.

These are not low-end assembly operations — they are high-value, mid-to-high-end innovations that redefine Malaysia’s identity in global tech.

This transformation is occurring while the U.S. and China escalate efforts to localize, subsidize, and even militarize their semiconductor supply chains.

The U.S. CHIPS Act and Export Control Regime have tightened the flow of advanced chips and manufacturing tools to China. In response, China has doubled down on its indigenous innovation drive, channelling hundreds of billions into domestic production, design, and lithography through its “Made in China 2025” and “dual circulation” strategies.

The outcome is a bifurcating global semiconductor order, fraught with vulnerabilities, sanctions, and selective interdependence.

In this context, Malaysia’s geographic neutrality and political stability make it a natural semiconductor partner to both powers.

Already, Malaysia supplies roughly 25% of America’s chip imports and remains a key link in China’s technology sourcing network.

Rather than choosing sides, Malaysia is quietly — but effectively — positioning itself as the bridge between two techno-industrial giants, a strategy of dual engagement and strategic ambiguity.

Crucially, this positioning is underpinned by the rise of local champions.

Thirteen Malaysian firms have emerged as key players across the chip value chain, with Inari Amertron, Pentamaster, ViTrox, and Kelington Group each projected to surpass RM500 million in annual revenue.

Meanwhile, IC design houses like Oppstar, SkyeChip, Infinecs, and Experior are growing by over 25% annually — a rare trajectory in a market long dominated by giants from Taiwan, South Korea, and the U.S.

But the brilliance of Malaysia’s semiconductor ambition lies not merely in hosting foreign capital or riding global demand curves. The true genius of the NSS is in architecting an ecosystem to foster 10 Malaysian companies with over US$1 billion in revenue and another 100 companies nearing RM 1 billion.

This requires not just industrial policy, but strategic statecraft — and Malaysia is rising to the challenge.

To support this ambition, the government has committed RM1.2 billion over five years to produce 60,000 engineers through partnerships with CREST and HRD Corp.

Talent is the critical bottleneck in the chip economy. Without a deep bench of engineers and technologists, no country can hope to climb the value chain. The NSS is addressing this constraint directly, and urgently.

Equally significant is Malaysia’s provision of catalytic capital — more than RM2 billion committed — to early-stage R&D, fabless startups, and prototyping facilities. Institutions like Khazanah Nasional, KWAP, and Bank Negara Malaysia have aligned under the GEAR-uP initiative to fund next-generation breakthroughs in chiplets, compound semiconductors, and advanced packaging.

These efforts will determine whether Malaysia becomes merely a cog in others’ machines — or an inventor of its own.

In parallel, semiconductor diplomacy is now a pillar of Malaysia’s foreign policy. Bilateral frameworks with the U.S., China, Japan, and the EU are being tailored to ensure continuity of trade and insulation from supply chain coercion.

The objective is to embed Malaysia as a "trust anchor" in an era of techno-nationalist fragmentation — a role that only a few middle powers can credibly claim.

The implications of this are profound. In the event of a full-scale technological decoupling between the U.S. and China, countries like Malaysia — with access to both ecosystems — could serve as neutral platforms for modular cooperation, layered manufacturing, and multilateral arbitration.

In other words, Malaysia could become the semiconductor Switzerland of Southeast Asia.

But this future is not guaranteed. Regional competitors like Vietnam, India, and the Philippines are fast advancing.

India, in particular, is using geopolitical tailwinds and mega-subsidies to lure global chipmakers. The Philippines has wrapped its semiconductor strategy into broader defence-industrial cooperation with the U.S. Malaysia cannot afford complacency.

Thus, the NSS must be accelerated, institutionalised, and strategically internationalised. Malaysia’s chip ecosystem must be too integrated — too crucial — to be bypassed or sanctioned. That is the essence of economic statecraft in an era of strategic volatility.

Semiconductors are no longer just an industry. They are the operating system of the global economy, the fuel of digital intelligence, and the nervous system of modern warfare. The nation that masters semiconductors, masters the future.

Malaysia has a unique window of opportunity to become a key semiconductor node in the new bipolar world — not as a pawn, but as a platform.

The NSS opens this path. But to walk it, Malaysia must act with unflinching resolve, foresight, and unity of purpose — not just as an assembler of parts, but as a co-architect of the global digital order.

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Phar Kim Beng, PhD, is Professor of ASEAN Studies and Director of the Institute of Internationaliation and ASEAN Studies (IINTAS) at the International Islamic University Malaysia.