Us China Chip War Escalation Yet To Rock Malaysia S Boat


 
Malaysia holds the lead in US imports, accounting for 20% or US$972.9 million (RM4.3 billion) of the US’ total chip imports in February. (Freepik pic)PETALING JAYA: As the US-initiated chip war rages against China, Malaysia finds itself stuck between a rock and a hard place – though it appears to have dodged the crossfire, at least for the moment.
Since 2018, the unravelling and decoupling of the economic relationship between the US and China has gathered pace, with semiconductors coming into a sharp focus in recent times.
Fortunately, Malaysia is unlikely to be directly impacted by Japan’s recent move to support US efforts in curbing China’s access to making advanced semiconductor chips, say experts.
Japan’s intentions are to restrict the export of 23 types of equipment used to make semiconductors, requiring manufacturers to seek export permission for all regions.
Given the specific focus on equipment to manufacture high-end chips, ISEAS-Yusof Ishak Institute senior fellow Jayant Menon believes the impact on Malaysia will be benign.
This is because Malaysia’s semiconductor industry is largely involved in global chip assembly and testing (with a market share of 13%) rather than front-end activities like fabrication or chip design, which will likely be more impacted by the restrictions.
“Although the electronics supply chain in Malaysia and some other Asean countries remains China-centred, these restrictions are unlikely to have a major spillover effect on these countries,” Jayant told FMT Business.
If the restrictions expand to cover a broader set of equipment or chips, then the effects could reverberate through the regional supply chain due to interdependence with China.
“Unfortunately, there is not much that countries like Malaysia can do to hedge against this possibility except for working together with other regional partners to try and limit further escalation of the US-China trade and technology war,” he said.
Over the last year, the Biden administration has been ratcheting up its anti-China measures to hobble the growth of China’s technology and semiconductor companies.
It imposed sweeping export restrictions last October, preventing US companies from exporting technology, software and equipment used in producing advanced chips. It went so far as to bar US citizens from supporting certain Chinese chip companies without a licence from the US government.
In January, an agreement was reached among the US, Netherlands and Japan – whose firms produce equipment critical to advanced chip production – to start restricting exports of advanced chip-manufacturing equipment to China.
The Netherlands will bar ASML Holding NV, a Dutch maker of photolithography machines, from selling to China at least some immersion lithography machines. These machines are essential to producing chips such as those in the sub-14 nanometre category.
The Chinese commerce ministry has called on Japan to reverse its decision or face unspecified consequences. “China will take decisive measures to safeguard its rights and interests if Japan insists on obstructing the chip industry cooperation between the two countries,” it said in a recent statement.
Maintaining a delicate balance
Even as the US and its allies ramp up their geopolitical contest with China, Malaysia appears to have been playing its cards right so far, not seeking to take sides but engaging diplomatically and economically with the rival blocs.
Prime Minister Anwar Ibrahim’s recent trip to China secured RM170 billion in investment, while the US and Malaysia signed a bilateral memorandum of understanding to strengthen semiconductor supply chain resilience in May 2022.
Data suggests that trade flowing in and out of the country to both the US and China remains resilient.
Globally, the value of Malaysia’s total trade in semiconductors and integrated circuits increased by 27% from December 2021 to December 2022, according to the department of statistics Malaysia. Exports to China surged 33.27% during this period, with imports also rising 30.7%.
US Census data shows Malaysia still held the lead in US imports, accounting for 20% or US$972.9 million (RM4.3 billion) of the US’ total chip imports in February 2023. However, its crown may be slipping, as the value of chip exports to the US shrunk by 26.3% from February 2022.
The total value of US imports of electrical and electronics equipment from Malaysia in 2022 was US$31.09 billion (RM137.03 billion).

Trushal Vora, a consultant in the semiconductor industry, told FMT Business that Malaysia’s increasing integration into Chinese supply chains could be viewed as a threat to US interests.
The US’ response could take the form of secondary export controls or restrictions on the transfer of sensitive technologies.
“Therefore, Malaysia would need to carefully weigh its interests in the industry and navigate the complex geopolitical landscape surrounding semiconductor supply chains,” he said.
Wong Siew Hai, president of the Malaysia Semiconductor Industry Association (MSIA), told FMT Business Japan’s move is expected to slow down China’s development of cutting-edge technologies.
“The global semiconductor (industry) is becoming more challenging due to the unravelling of the well-oiled global supply chain,” he said.
As Malaysia hopes to move towards more high-value participation in the industry, escalating global tensions may well throw a wrench in our plans.
Mixed impact on the industry
The short-term benefits of the trade war have seen multinational corporations move their operations to other countries, with Malaysia being one of the beneficiaries.
“The chip war and Covid-19 pandemic have seen semiconductor companies add more resiliency to their business operations, by building more capacity in strategic locations including Malaysia,” said Wong.
It is evident the US has been increasingly diversifying their chip import sources, with India, Cambodia, Vietnam, and Thailand among the largest beneficiaries.
Despite this, Trushal highlights that supply chain disruption and relocation has raised costs for companies. Geopolitical uncertainty also impedes decision making for investment in research and development.
These barriers may have a negative impact on the country in the long run and impede Malaysia’s access to such high-end technology.
These sentiments were echoed by international trade and industry minister Tengku Zafrul Aziz at the “China Conference: Southeast Asia” in Singapore recently.
“Companies are relocating, reshoring, friendshoring … but in the longer term, I personally believe that any hindrances or obstacles to global trade will not be good for the global economy,” he said in an interview. - FMT


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