Rm42 Billion Fdi Up In Smoke Malaysia S Solar Industry Hit As Chinese Companies Shut Down Due To U S Tariffs


 When Anwar Ibrahim proudly announced RM170 billion investment commitments from China in March 2023, just a few months after he became the 10th Prime Minister of Malaysia, he received praise with high expectation that the country would receive a massive boost to its economy. He visited China again in September the same year, and again in November 2024.
Having visited the Middle Kingdom three times in two years, the Anwar administration was sending a message that Malaysia depends heavily on China. The third trip to Beijing also came after Donald Trump won the U.S. presidential election, sending a message that the U.S. can go fly a kite as Malaysia, having applied for BRICS membership, has another superpower to rely on.
It was a strategic error for a small nation to choose sides in a trade war between two superpowers. The U.S. has imposed sanctions on four Malaysia-based companies accused of helping Iran’s production of drones, before slapping another round of sanctions on six local companies for links to Russian manufacturing sector. The re-election of Trump is bad news for Anwar government.
Not only Trump was pro-Israel during his first term, he often used the three magic words – Radical Islamic Terrorism – to express his policy against extremism. This is exactly the opposite of what Anwar preaches, praising Hamas terrorists and provoking anti-Jews to the extent of promoting such dangerous ideology in schools. Anwar’s congratulatory message to Trump’s re-election has not been reciprocated accordingly.
Having courted investment from the likes of AT&T, Nvidia Corp., Ericsson and Bosch, now Malaysia is afraid that Trump’s tariffs could threaten its chip sector. Trump says he plans to impost 10% tariffs on Chinese imports beginning February 1, after threatening 25% tariffs on Mexico and Canada. Like it or not, China still relies on the U.S. for trade even though both nations are economically interdependent.
From medical gloves to semiconductor, and from solar panels to electric vehicles, Malaysia’s export to the United States will be severely affected if President Trump slaps more tariffs as “Trade War 2.0” with China begins. But even before Trump won his election, the Southeast Asia nation has started experiencing a new round of turmoil as Chinese investors were closing down factories.
As early as early June 2024, LONGi Green Energy’s photovoltaic module factory in Malaysia has been gradually shutting down. The Chinese solar panel giant, which accounts for more than 37% of capacity in the country and had invested RM5.4 billion in 2023, has suspended its expansion plans after building three manufacturing facilities in central Selangor state and Sarawak in East Malaysia.  
But LONGi was not alone in closing down its operations in Malaysia. Shanghai-based Jinko Solar Co, the world’s largest solar panel manufacturers, has shut down its plant in Perai, Penang, due to a slowdown in solar panel manufacturing triggered by the US’ investigations into crystalline silicon photovoltaic cells and expiry of anti-dumping exemptions for selected solar products.
Jinko Solar Co, along with Risen Energy Co and JA Solar Technology Co, collectively account for nearly 40% of Malaysia’s total solar production capacity. And they have scaled back their business in Malaysia. Risen Energy Co is believed to have scaled down its production in the last six months after having invested huge amounts over 15 years in a new production facility in the country.
First entered the Malaysian market in 2021, Risen had planned to invest over RM42 billionover 15 years in its production facility in Kulim, Kedah state. Now, the Chinese developer, manufacturer and distributor of high-efficiency solar photovoltaic application products is leaving in search of other strategic location. Of course, PM Anwar won’t and can’t announce how RM42 billion FDI (foreign direct investment) goes up in smoke.
Likewise, JA Solar Technology is relocating its solar panel manufacturing facilities to the United States together with Jinko Solar Co as trade protections ramp up under previous Biden administration and the new Trump leadership. Longi, under the banner of Illuminate USA, is ramping up production at its new 5GW facility in Ohio, whereas Trina Solar is building a 5GW plant in Wilmer, Texas.
To be fair, Malaysia is not the only country affected in the region. Solar panel manufacturing in other countries, including Cambodia, Thailand and Vietnam was also hit after the expiry of Joe Biden’s 24-month period free of the tariffs in June 2024 to give Chinese-owned solar manufacturers in these countries time to move their supply chains (preferably to the USA) and to accelerate solar deployment.
From the beginning, Chinese solar companies entered Malaysia not because they like the country’s Musang King durian or fascinated by the country’s racist policy against minority ethnic Chinese, but specifically to circumvent the anti-dumping tariffs on Chinese solar panels, first imposed by the Obama administration back in 2012. It’s all about business and never about China-Malaysia relationship.
Circumvention – the practices where China tried to trick the U.S. by manufacturing, but with only minor processing, in Cambodia, Malaysia, Thailand and Vietnam in order to evade paying anti-dumping and countervailing duties, worked only for so long before the U.S. Department of Commerce (DOC) started investigation for anti-circumvention practices in the solar industry on 28 March 2022.
 
Apart from these investigations, the U.S. has reportedly imposed a general duty of 9.13% on solar imports from Malaysia. It is expected that Trump 2.0 will expand the scope of solar tariffs to include possible components and to target new regions besides Southeast Asia. Malaysian government has been trying to obtain an exemption for companies with high local content.
However, using local companies can affect the cost competitiveness of Chinese companies in Malaysia since China is the cheapest country for producing solar panels. Local suppliers simply cannot beat the cost competitiveness offered by Chinese suppliers, therefore, forcing Chinese companies to either scale down, shut down or shift to other countries.
 
The impact is obvious – China’s solar panel makers dominate the local sector, making up nearly 80%, or 18.6 gigawatts (GW), of Malaysia’s 23.6GW total solar production capacity in 2024. Most of these solar panels are manufactured for export to the US, with Malaysia’s installed solar capacity of only 4.2GW. From January to September 2024 alone, Malaysia exported nearly US$1.8 billion (RM8 billion) worth of solar panels.
 
The problem is just the beginning as more Chinese solar companies are expected to shut down operations in Malaysia as U.S. tariffs continue to erode their profit margins. Most of these firms initially invested in Malaysia to target the U.S. market. With long arm of the U.S. solar tariffs scrutinizing the ownership of companies exporting solar panels to the U.S., the worst is yet to come.
Because the U.S. market offers profit margins as high as 40%, compared with just 10-20% in other markets, and a new round of tariffs in 2024 on solar panel imports from Malaysia, Thailand, Cambodia and Vietnam, there is very little incentive for Chinese companies not to close down and retrench about 5,000 workers. About 80% of U.S. solar panels imports come from these four Southeast Asian nations.
 
Worse, the knock-on effect on smaller, Chinese-owned firms in the supply chain, could also see a new wave of closing down because they are unable to supply their products to the major solar panel manufacturers that have shut operations. China, which was Malaysia’s largest foreign direct investor in 2022, already saw its investments plummet from RM55.4 billion to RM14.5 billion in 2023.
 
It didn’t help that China’s slowing economy is making its investors to be cautious about investing abroad, including Malaysia. Just because they had committed RM170 billion investments in March 2023 does not mean they will blindly pour money into the country. In fact, PM Anwar knew it was not a done deal, hence his three desperate visits to China in 2 years.
 
- financetwitter
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.


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