Semiconductors are now regarded as important strategic goods, and countries around the world are competing to promote the development of the semiconductor industry. The geopolitical risks brought about by the dispute between the United States and China, which has extended from the trade war to the chip war, have further elevated the importance of the semiconductor industry to a national security level.

The New York Times reported that American semiconductor giant Intel and German chip manufacturer Infineon have each invested approximately $7 billion (approximately RM31.3 billion) in Malaysia, and Nvidia is also partnering with a Malaysian utility group to develop artificial intelligence (AI) cloud and supercomputer centers at a cost of $4.3 billion (approximately RM19.2 billion). Texas Instruments, Ericsson, Bosch, and Lam Research have also expanded their business in Malaysia.

Austrian tech giant AT&S is also one of many European and American chip companies that have decided to relocate or expand their investments in Malaysia. Andreas Gerstenmayer, CEO of AT&S, admitted that the company needs to achieve business diversification after investing in China for 20 years.

He also pointed out that Malaysia's experience in semiconductor backend processes is one of the main factors attracting investment.

The report points out that Southeast Asia's strategic position in the South China Sea region, as well as its long-term economic ties with the United States and China, make the region an extremely attractive location for building factories. Although countries such as Thailand and Vietnam also strongly attract semiconductor companies to settle in, Malaysia has a leading advantage. In the 1970s, it seized the opportunity brought by the technology wave and established a free trade zone in Bayan Lepas, Penang. In addition to providing specific tax exemptions for foreign investment, it also built industrial parks, warehouses, and roads, which led to the entry of international factories such as Intel and Litronix.

On the other hand, the fact that the majority of Malaysia's population speaks English, the availability of cheaper labor, and the relatively stable government with experience in semiconductor backend manufacturing are all factors that make Malaysia stand out in the competition among Southeast Asian countries.

The Malaysian government hopes to attract more investment through a series of policies and focus on the upstream of semiconductors. Prime Minister Anwar Ibrahim announced the National Semiconductor Strategy (NSS) in May 2024, which is a comprehensive plan divided into three stages and five core objectives: establishing the foundation, moving towards the front end, and innovating in the front end; The five major goals are: investment, company growth, research and development center, training, and financial support.

Firstly, the main objective is to ensure at least RM500 billion in investment for Phase 1, with a focus on domestic direct investment (DDI) in integrated circuit (IC) design, advanced packaging and manufacturing equipment, as well as foreign direct investment (FDI) in wafer fabs and manufacturing equipment.

Secondly, the Malaysian government hopes to establish at least 10 Malaysian companies in the field of design and advanced packaging, generating revenue of RM1 billion to RM4.7 billion (approximately RM4.46 billion to RM21 billion). In addition, there will be at least 100 local semiconductor related companies generating revenue of nearly RM1 billion, creating higher salaries for domestic employees.

Thirdly, to build Malaysia into a globally recognized semiconductor research and development center, with world-class universities, corporate research centers, and centers of excellence that integrate top talents from Malaysia and internationally.

Fourthly, Malaysia plans to train 60000 local engineers in the next 5 to 10 years to form a highly skilled semiconductor workforce.

Fifth, provide financial support and targeted incentives of no less than RM25 billion to ensure the smooth implementation and operation of NSS.

Malaysia's strategic positioning is also one of the core pillars of NSS. As a 'neutral, non aligned' region, Malaysia can become a key location for decentralized and diversified semiconductor supply chains to reduce geopolitical risks and supply chain vulnerabilities.

Currently, Malaysia is the 6th largest semiconductor exporting country in the world, accounting for 13% of the global semiconductor assembly, testing, and packaging (ATP) market and contributing 7% of global semiconductor production. Up to 23% of chips in the United States are produced in Malaysia.

Malaysia has become a popular investment destination not only due to its strategic position in the South China Sea and economic ties with China and the United States, but also due to its other competitive advantages. In the 1970s, Malaysia seized the opportunity of technological trends and established a free trade zone in Bayan Lepas, Penang, providing tax incentives for foreign investment and building a comprehensive industrial park, warehousing facilities, and transportation network, which prompted international giants including Intel and Litronix to set up factories here. In addition, the majority of the Malaysian population speaks English, labor costs are relatively low, the political environment is stable, and they have rich experience in semiconductor backend manufacturing, all of which provide strong support for them to stand out in the competition in Southeast Asia.

In order to further promote the development of the semiconductor industry, the Malaysian government announced the National Semiconductor Strategy (NSS) in May 2024. This strategy is divided into three stages, covering five core objectives, aimed at promoting Malaysia's long-term competitiveness in the semiconductor industry.

In addition, the government plans to provide financial support of no less than RM25 billion and ensure the smooth implementation of the National Semiconductor Strategy through a series of incentive measures.

Malaysia's geographical advantages and policy support make it a key link in the global semiconductor industry chain and a core component of global supply chain diversification. As a 'neutral, non aligned' country, Malaysia's strategic positioning enables it to avoid getting involved in the US China technological dispute and maintain stability in the increasingly complex international situation.

As the intervention of the United States and China in the semiconductor supply chain deepens, Malaysia must face a more complex geopolitical environment. How to maintain neutrality between these two superpowers will be an important issue for Malaysia in the future.

Although the neutral stance has brought some investment opportunities to Malaysia, the power struggle between the United States and China in the semiconductor field is profoundly changing the global supply chain landscape. Miller reminded that Malaysia must be more cautious in balancing its relationship with the two countries to avoid getting caught up in the global technological competition.

Chris Miller, author of the book "Chip Wars: Striving for the World's Most Critical Technologies," believes that Malaysia's neutral stance in the US China technology war may face increasing challenges in the future.

He pointed out at the Malaysia Economic Forum (FEM2025) in January this year: "The geopolitical landscape brings both opportunities and risks, but for the semiconductor industry as a strategic industry, it is not easy to remain neutral

Miller said that the investment boom in Malaysia's semiconductor industry in recent years is partly due to its neutral stance, which brings attractiveness, but the challenge is that the United States and China are increasingly intervening in the semiconductor supply chain and adopting more invasive trade measures.

Miller explained, "If a country imports these key minerals from China, it is not even allowed to export them to certain specific countries, such as the United States

Miller stated that the two superpowers, the United States and China, are increasingly engaging politically in the global supply chain, even if it involves third-party countries, and this trend will continue for a considerable period of time.

This means that maintaining neutrality will become increasingly difficult as multiple countries are trying to influence the structure of their supply chains and use their influence in enterprises, technology, and raw materials to exert different forms of political influence

Miller believes that although this does not mean that Malaysia is completely unable to maintain neutrality, it will be a challenging path. We need to think deeply about how to truly achieve neutrality. When China and the United States hold different positions on a certain issue, how should Malaysia choose?