China-Malaysia Closer Economic Ties and Opportunities

• In 2023, total bilateral trade between China and Malaysia reached US$190.24 billion, reaffirming China’s position as Malaysia’s largest trading partner for 15 consecutive years. With its advantageous geographical location, lower transit costs, and favorable trade policies, Malaysia has increasingly become an ideal hub for Chinese enterprises.
• Chinese foreign direct investment in Malaysia has grown significantly, focusing on sectors such as manufacturing, infrastructure, renewable energy, and digital technology.
• The strategic partnership between China and Malaysia continues to offer abundant opportunities for cooperation in high-potential areas such as green energy, electrical and electronics manufacturing, artificial intelligence, and healthcare. These areas align with both nations’ shared goals of sustainable development, digital transformation, and fostering economic growth in the ASEAN region.

China and Malaysia formally established diplomatic relations on May 31, 1974, making it the first such relationship among the Association of Southeast Asian Nations (ASEAN). Since then, bilateral relations have generally progressed smoothly. In 1999, the two countries signed a joint statement outlining a framework for future bilateral cooperation. In 2004, leaders from both sides reached a consensus on developing a strategic partnership. This partnership was elevated to a “comprehensive strategic partnership” in 2013. In 2023, the two nations announced the establishment of a China-Malaysia community with a shared future.

Malaysia is strategically located at the heart of Southeast Asia and serves as a gateway to ASEAN’s 650 million people and a combined GDP of US$3.2 trillion. Its geographical advantage positions it as a hub for accessing ASEAN markets and connecting to the Middle East, Australia, and New Zealand.

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In 2023, bilateral trade between China and Malaysia amounted to US$190.24 billion. Of this, China’s exports to Malaysia totaled US$87.38 billion, while imports from Malaysia reached US$102.86 billion. China has remained Malaysia’s largest trading partner for 15 consecutive years. Major imports from Malaysia include integrated circuits, computers and their components, palm oil, and plastic products. Key Chinese exports to Malaysia consist of computers and their components, integrated circuits, apparel, and textiles.

Chinese enterprises have rapidly increased their investments in Malaysia, with a growing diversification of sectors. Chinese companies operate extensively across the country, with major ongoing projects concentrated in railways, bridges, hydropower plants, and real estate. New developments are also emerging in highways, metro systems, light rail, and telecommunications.

China has implemented a unilateral 15-day visa exemption policy for ordinary Malaysian passport holders, while Malaysia offers 30-day visa-free entry for Chinese citizens. According to Malaysian statistics, over 1.47 million Chinese tourists visited Malaysia in 2023, maintaining China’s position for the seventh consecutive year as Malaysia’s largest source of tourists outside ASEAN.

China-Malaysia bilateral trade

Malaysia was China’s 10th largest global trading partner and the second largest within ASEAN. However, due to factors such as the decline in international commodity prices (including palm oil and natural gas), uncertainties arising from geopolitical conflicts, and a high base from the previous year, China-Malaysia bilateral trade experienced a slight decline in 2023, decreasing by 5.2 percent year on year.

Despite these fluctuations, China remains Malaysia’s primary source of imports and second-largest export destination, underscoring the deep economic ties between the two nations and Malaysia’s pivotal role as China’s second-largest ASEAN trading partner.

China-Malaysia Trade Value, 2019-2023

Source: Ministry of Commerce of China

China exports to Malaysia

China’s key export products to Malaysia primarily include electrical machinery, machinery, furniture, plastics, steel products, vehicles and parts, mineral fuels, and textiles. Since 2019, these traditional export categories have consistently ranked among the top 10 in export value, with significant growth in each category.

Top exports from China to Malaysia

Source: ITC

What has increased during 2019-2023:

• Natural or cultured pearls, a 117 percent increase;
• Articles of apparel and clothing accessories, a 70 percent increase;
• Preparations of meat or fish, a 53 percent increase.

Malaysia exports to China

Malaysia’s exports to China have been stable and robust in recent years with electrical and electronics (E&E) products accounting for the largest share of total exports. The primary export categories from Malaysia to China encompass electrical machinery, mineral fuels, plastics, and medical photographic machinery, demonstrating the diversity of goods traded with the world’s second-largest economy.

Top exports from Malaysia to China

Source: ITC

What has increased during 2019-2023:

• Paper and paperboard, a 95 percent increase;
• Residues and waste from the food industry, a 41 percent increase;
• Edible fruit and nuts, a 39 percent increase.

China-Malaysia bilateral investment

Benefiting from the diversification of global and regional supply chains and the adoption of ‘China+1’ strategies, net foreign direct investment (FDI) inflows into Malaysia have surged in recent years. To mitigate the impacts of trade tensions with the US, China has been looking to relocate some supply chains or establish new plants in Southeast Asia, including Malaysia. This has led to a steady influx of investment from both Chinese and US companies, making Malaysia one of the fastest-growing hubs for data centers, which are essential for powering artificial intelligence systems.

The China-Malaysia Qinzhou Industrial Park and the Malaysia-China Kuantan Industrial Park, jointly developed by China and Malaysia, are thriving and have established a new model of international cooperation known as the “Two Countries, Twin Parks” initiative.

This initiative exemplifies the close and dynamic trade relationship between the two nations, highlighting their shared vision for future collaboration. Launched under the China-ASEAN strategic framework, it integrates the Qinzhou and Kuantan parks as sister industrial hubs.

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These parks provide industry-specific infrastructure strategically located near major Malaysian ports and transportation hubs, optimizing logistics for high-value sectors such as manufacturing, electronics, and smart technology. Favorable policies, including tax incentives, tariff reductions, and subsidies, enhance cost efficiency, while joint ventures with Malaysian companies facilitate localized market penetration and access to broader ASEAN markets. Additionally, the initiative promotes technology and knowledge transfer, driving innovation and aligning exports with Malaysia’s focus on renewable energy, e-commerce, and other high-growth industries. This comprehensive ecosystem positions the Twin Parks as a critical enabler of export growth, creating significant opportunities for Chinese businesses to expand their presence in Malaysia and the ASEAN region.

China invests in Malaysia

China Direct Investment in Malaysia, 2018-2023

Source: Ministry of Commerce of China

As of the end of 2023, Malaysia ranked 15th among the top 20 countries (regions) for China’s outbound FDI stock, reaching US$13.48 billion, which accounts for 0.5 percent of China’s total. Additionally, according to data from Malaysia’s Malaysian Investment Development Authority (MIDA), in 2022, China was Malaysia’s largest source of approved foreign investment. Malaysia approved a total of RM 163.3 billion (approximately US$36.9 billion) in FDI that year, of which RM 55.4 billion (US$12.5 billion) came from China, accounting for 33.9 percent of the total.

In 2023, China ranked among the top five foreign investors in Malaysia, driven by the manufacturing and services sectors. Malaysia’s international standard legal framework, abundant resources, competitive labor costs, and proximity to ASEAN markets further solidify its position as a preferred destination for Chinese enterprises.

China’s investment in Malaysia highlights a strongly tied partnership rooted in cultural, economic, and strategic advantages. Chinese companies such as Vanke and CRRC Corporation have leveraged Malaysia’s pro-investment environment and multicultural society, which includes a significant Chinese population, to streamline operations and enhance cooperation. CRRC Corporation has played a vital role in advancing Malaysia’s transportation sector, particularly in rail and related industries, aligning with Malaysia’s goals of developing sustainable and modern infrastructure.

In the telecommunication sector, Huawei and ZTE’s early investments in Malaysia, beginning in 2001 and 2004 respectively, were drawn by Malaysia’s focus on modernizing its telecommunications infrastructure. With Malaysia’s skilled workforce and a business-friendly environment, these firms have significantly contributed to the country’s digital transformation, supporting Malaysia in gaining access to cutting-edge technology while the firms secure a strategic foothold in a growing market.

China’s investment in Malaysia’s real estate sector has been on the rise, exemplified most prominently by the Forest City project. Forest City, developed by China’s Country Garden Group, stands as Malaysia’s most ambitious Chinese-funded real estate project, spanning over 1,386 hectares and blending luxury housing with service-oriented industries like tourism, healthcare, and green technology.

Malaysia offers a competitive investment environment with strategic initiatives such as tax incentives for manufacturing, green energy, and technology sectors and its promotion of five economic corridors to balance regional development. The government also supports 100 percent foreign ownership in targeted industries, boosting Malaysia’s attractiveness for FDI.

Why Malaysia?

Strategic location and advanced transportation

Malaysia presents an exceptional opportunity for investors due to its combination of strategic location, advanced infrastructure, and business-friendly policies. Situated in the heart of Southeast Asia, Malaysia’s well-developed transport networks—including international airports, seaports, highways, and railways—facilitate efficient logistics and commerce, making it a central hub for global trade. The country also features over 500 industrial parks and Free Industrial Zones (FIZs) equipped with essential amenities, offering tax and duty incentives to reduce operational costs.

In addition, Malaysia also benefits from ASEAN’s regional growth, which features the third-largest labor market globally. With its expanding middle class and increasing demand for goods and services, the country attracted 31 percent of global FDI into ASEAN in 2021. These synergies between Malaysia’s infrastructure, strategic location, and access to ASEAN markets firmly establish it as a key hub for international commerce and innovation.

Investment environment

The Malaysian government actively supports foreign investment through economic corridors that target regional development. Through its participation in ASEAN Free Trade Agreements (AFTA), Malaysia grants businesses access to a potential market of 3.9 billion consumers, with up to 98 percent of products enjoying zero import tariffs. These reduced trade barriers translate into lower operational costs, allowing businesses in Malaysia to capitalize on the opportunities within one of the largest global trade blocs.

As a market-oriented economy, it is supported by 13 FTAs and a liberalized trade framework, which allows foreign investors to own 100 percent equity in manufacturing and specific service industries. The country has attracted over 5,000 foreign companies from more than 50 nations, generating over 104,000 jobs and US$143 billion in investments.

Government support

Malaysia’s strong economic foundation and growth prospects are another draw for investors. As one of the most competitive and innovative emerging markets in ASEAN, Malaysia ranks highly in global indices for investment opportunities. Its policies, such as the “Decade of the Digital Economy Blueprint,” support digitalization and AI technologies to take up 26 percent of the total GDP in the next decade. Similarly, the “National Renewable Energy Policy, 2022-2040” aims to support Malaysia in achieving nationwide electrification and equitable development by expanding rural energy access, enhancing demand-side energy efficiency across sectors, and optimizing the value of indigenous resources like natural gas and petrochemicals. It also promotes private investment in renewable energy sources such as solar, hydroelectric, and bioenergy to support sustainable industry growth and regional competitiveness.

Natural resources

The country is rich in natural resources, from palm oil and rubber to petroleum and minerals, supporting a diverse range of industries. Its skilled workforce, with relatively low labor costs, enhances the competitiveness of its manufacturing and service sectors. Additionally, Malaysia’s multicultural environment, especially the large Chinese community, facilitates smooth operations for foreign companies, particularly those from China.

China-Malaysia bilateral agreement

China-Malaysia Double Taxation Avoidance Agreement

The Malaysia-China Double Tax Treaty (DTA), effective since 1988 and revised periodically, is designed to eliminate the risk of double taxation on income and foster enhanced economic relations between Malaysia and China. It outlines clear tax obligations for income generated across both countries, ensuring taxpayers are not taxed twice on the same earnings.

The treaty stipulates withholding tax rates on various income types to reduce tax burdens for cross-border transactions:

• Dividends: 5 percent if the recipient holds at least 25 percent (China to Malaysia), or 10 percent (Malaysia to China) of the shares in the company paying the dividends. 10 percent for all other cases.
• Interest: 10 percent.
• Royalties: 10 percent.

Regional Comprehensive Economic Partnership (RCEP) Agreement

The RCEP Agreement aims to enhance trade and investment among its members by reducing tariffs, simplifying customs procedures, and promoting economic integration. Key features of the agreement can be found in this article.

China-Malaysia future opportunities

Green energy

Malaysia’s energy sector is poised for a promising transformation, underpinned by robust plans for renewable energy development and market reforms. Malaysia has incentivized green technology tax benefits since 2001. The “National Energy Policy 2022-2040” lists nine targets to cut CO2 emissions by 2050. The government’s supportive policies are aiming to attract investments in green technology projects in sectors such as circular economy, low carbon emissions, renewable energy, energy storage, etc.

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As of 2022, the country’s power industry had an installed capacity of 42 GW and generated 151 TWh of electricity annually. Guided by the “Malaysia Electricity Reform 2.0 Plan” introduced in 2019, the government is gradually liberalizing Peninsular Malaysia’s electricity market to attract independent enterprises and diversify fuel sources. Malaysia has set ambitious renewable energy targets, aiming to increase the share of renewables in installed capacity from 16 percent in 2021 to 31 percent by 2025 and 40 percent by 2040. Furthermore, the nation is committed to reducing its carbon emission intensity by 45 percent by 2030 and 60 percent by 2035, using 2005 levels as a baseline. To achieve these goals, Malaysia plans to halt the construction of new coal plants and retire 7 GW of coal-fired power by 2033. These initiatives highlight Malaysia’s dedication to reducing fossil fuel dependence, curbing carbon emissions, and fostering a sustainable energy future aligned with global climate commitments.

Electrical and electronics (E&E) industry

Malaysia’s E&E industry is thriving and evolving with increasing opportunities for investment. Semiconductor manufacturing remains one of the country’s primary contributors to economic growth, with strong participation from multinational corporations (MNCs) in the downstream segments such as assembly, advanced packaging, and testing.

According to the MIDA, as of 2021, foreign investment accounted for 99.4 percent of the total approved investment in electronic components, with the sector receiving US$19.38 billion in investment, resulting in over 12,400 job opportunities. The growing demand for electronics, driven by global trends in automation, electric vehicles, and renewable energy, ensures that Malaysia will remain at the forefront of the semiconductor and electronic component industries. By 2027, the global semiconductor market is expected to grow to US$141.1 billion, and this favorable business climate makes it an attractive location for investors looking to capture a share of this expanding market.

Malaysia is also emerging as a leader in the solar energy space, with an almost complete ecosystem of 250 companies involved in solar cell production, inverters, and system integration. The solar sector attracted a significant portion of the total approved investment, reflecting Malaysia’s strategic commitment to renewable energy.

Additionally, Malaysia is well-positioned to capitalize on the shift toward advanced manufacturing, with a focus on Industry 4.0 innovations such as the Internet of Things (IoT)-embedded electronic products, smart devices, and smart energy solutions. The government’s ongoing support for research and development, coupled with favorable tax incentives, further enhances Malaysia’s appeal as a global electronics manufacturing hub.

Intelligent agriculture

Malaysia’s National AI Roadmap 2021-2025 shows the government’s objectives to attract financial incentives, grants, and support to encourage AI adoption and innovation domestically.

In 2024, Malaysia presents an increasingly attractive landscape for investors in the AI industry, driven by its strategic integration of AI technologies across key sectors such as manufacturing, healthcare, finance, and education.

With the National AI Roadmap 2021-2025 achieving 63 percent completion as of Q3 2024, the country is on track to harness AI to significantly boost its GDP, with projections indicating a 30 percent increase. This robust government-backed initiative, coupled with improvements in global AI readiness rankings, reflects Malaysia’s commitment to becoming a regional and global leader in AI. The country’s focus on fostering public-private partnerships, workforce upskilling, and cutting-edge digital infrastructure enhances its attractiveness for investors seeking growth in a rapidly evolving AI ecosystem.

Additionally, Malaysia’s upcoming ASEAN chairmanship and its emphasis on digitalization as a regional priority highlight the nation’s growing influence in shaping the future of AI adoption within Southeast Asia. Investors can expect a conducive environment for innovation, supported by a clear national AI vision, strategic research investments, and initiatives designed to overcome AI adoption barriers. With Malaysia positioning itself as a hub for AI-driven growth, the country’s comprehensive approach to AI readiness, workforce development, and cross-border collaboration presents significant opportunities for long-term investment in this dynamic sector.

Healthcare

Malaysia’s healthcare sector is also offering compelling opportunities for international investors. Investors are attracted by incentives such as tax allowances for establishing or expanding private hospitals and facilities specializing in ambulatory care or rehabilitation. With a rising middle class and a growing aging population, there is a substantial demand for high-quality private healthcare services, including specialized treatments in oncology, cardiology, and geriatrics.

The sector’s push toward digitalization presents additional avenues for investment in telemedicine, health data analytics, and AI-driven diagnostics. Furthermore, Malaysia’s position as a global medical tourism hub offers lucrative opportunities in wellness centers, cosmetic surgery, and fertility treatments. So, catering to regional and global healthcare demands while tapping into Malaysia’s skilled workforce and robust public-private collaboration frameworks will be attractive in the near future.

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