The China Plus One (C+1) strategy has gained traction since it was first proposed in 2013. This strategy involves multinational companies (MNCs) and investors complementing their China operations with investment in another country, often referred to as the “+1,” to lower costs, diversify risks, and access new markets. Given tectonic shifts in the global economic landscape and economic security, this approach will accelerate further.

Among Malaysia’s advantages for the C+1 strategy are its strategic geographical position as a shipping and logistics hub, diversified economic sectors, products, and markets, combined with political stability and good governance. The country also boasts a skilled workforce, well-developed infrastructure, and a business-friendly environment. Additionally, Malaysia’s geographical proximity to China and its membership in the Association of Southeast Asian Nations (ASEAN) make it an attractive investment destination.

Malaysia has been attracting investments as part of the C+1 strategy, particularly in the semiconductor and chip manufacturing sector. The China+1 strategy has contributed to increased chip investments in Malaysia as companies seek to diversify their supply chains and reduce dependence on China. As tensions between the United States and China have risen, there has been a push to secure chip supply chains outside of China. Malaysia is well-positioned to capitalise on this strategic shift and attract foreign investment.

Figure 1: Malaysia is among the Southeast Asian countries that are well-positioned in high-growth, next-generation sectors

Source: NAVIGATING HIGH WINDS, South-East Asia Outlook, 2024-2034 by Angsana Council, Bain & Company, DBS

Malaysia is the leader in SEA by FDI (foreign direct investment) in the semiconductor sector. According to the Malaysian Investment Development Authority (MIDA), major brands like Intel, AMD and Bosch established early operations, joined later by Infineon, Micron and many others. Malaysia has successfully developed homegrown champions such as Inari, Vitrox, Oppstar, SkyeChip and Pentamaster as part of the global value chain. Over the years, this fostered a robust local supply chain and skilled talent pool.

Figure 2: Malaysia’s manufacturing sector performance in Q1 2024

Source: Malaysian Investment Development Authority (MIDA)

The country’s manufacturing sector has attracted significant FDI in recent years, particularly in the E&E segment, with RM34.3 billion (US$7.9 billion) in approved investments in Q1 2024. Leading companies recently announced their investment include Intel, which set up a US$7 billion plant; Micron, which plans to invest another US$1 billion to set up its second assembly and testing facility; and Infineon, which has allocated an additional €5 billion for Phase 2, on top of the original €2 billion for Phase 1, to construct the silicon carbide power fabrication plant.

The Malaysian government recently unveiled the National Semiconductor Strategy (NSS), indirectly declaring the country’s intention to cement its position as a leading international hub for semiconductor manufacturing and innovation while aiming to build a strong base in chip design. Backed by an initial RM25 billion (US$5.33 billion) allocation, the plan provides a clear roadmap for the country’s move up the global technology value chain. The NSS plays a significant role in Malaysia’s ambition to strengthen its position in the global semiconductor industry and participate in the C+1 strategy.

Amidst the growing adoption of the C+1 strategy, the outlook remains positive. The industrial and logistics sector continues to attract foreign investors, which is expected to contribute to the growth of capital values in the market as investor interest remains strong.

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