Stepping Up Taiwan’s Links with Malaysia

Stepping Up Taiwan’s Links with Malaysia

Stepping Up Taiwan’s Links with Malaysia

In early May, Malaysia’s defense minister, Ismail Sabri Yaakob, praised Taiwan for its relative success in keeping the novel coronavirus (COVID-19) infection and mortality rates low. He observed that Taiwanese citizens wear masks, maintain social distance, and wash their hands frequently to maintain personal hygiene and argued that Malaysians should learn from the Taiwanese people’s self-discipline in following government guidelines. The Malaysian government’s praise of Taiwan marked a positive tone during the ongoing coronavirus pandemic after a ban on Taiwanese travelers to the Malaysian state of Sarawak, ostensibly due to pressure from China, hit a sour note with Taipei. Indeed, the looming presence of China in Malaysia’s national development and foreign policy priorities has impeded new and significant breakthroughs in Taiwan’s relations with Malaysia. Although both sides have enjoyed longstanding economic and cultural links, Taiwan and Malaysia have often looked past each other and prioritized other regional partners.

Malaysia’s Look East Policy Now Includes China

Learning lessons from the experiences of other countries has been a persistent theme in Malaysia’s foreign policy. Malaysia’s Look East Policy (向東學習政策), introduced by then Prime Minister Mahathir Mohamad in 1982, elevated the industrialized economies of Japan and South Korea as models for national development. Mahathir wanted Malaysia to emulate East Asian work ethics and personal values, pointing to Japan’s culture of meticulousness in creating high-quality national products. Malaysia’s Look East Policy not only brought the country economically closer to Japan, but it also contributed to the industrialization of Malaysia’s economy and helped to build its automobile industry. “Malaysia can take a leaf out of the success stories of these two countries, and weave it into our own culture,” Mahathir said to college students in 2019.

During his second tenure as prime minister starting in 2018, Mahathir renewed his Look East Policy’s focus on Japan and South Korea, while also adding China. Taken together, they constitute the three main Asian economies that Malaysia should target in its foreign economic relations, Mahathir said. Furthermore, he observed that Asian economic growth was mainly driven by Japan, followed by South Korea, but now China’s time had come. Mahathir pointed to China’s large amount of capital available for investment and new technologies, and said he hopes Malaysian companies can learn from Chinese companies that have become world-class players in an effort to achieve Malaysia’s goal to become a high-income country. Perhaps owing to Malaysia’s rivalry with Chinese-dominant Singapore and inter-ethnic relations within Malaysia, the prime minister argued that Malaysians—in particular the ethnic Malay majority—should adopt the work ethic of ethnic Chinese to achieve economic success, both as an ethnic group and a nation. According to Mahathir, Malays have lost in economic competition with ethnic Chinese residents – despite the former enjoying various forms of government assistance – due to relatively lax work attitudes among Malays.

Rising China Factor

When Mahathir became prime minister again in 2018, there were hopes that he would rebalance Malaysia’s foreign relations away from excessive dependence on China. Mahathir said he would reconsider “unfair” Chinese investment projects under its Belt and Road Initiative (BRI, formerly known as the “One Belt, One Road” Initiative) that were signed by his predecessor Najib Razak. The Mahathir government canceled but later revived a major Chinese train project in northern Malaysia, though it axed Chinese-backed petroleum and natural gas pipeline projects in Sabah. Despite Mahathir’s rhetoric against his political opponent Najib, both prime ministers saw the benefits of closer political and economic relations with China.

Prior to his sudden resignation in February 2020, Mahathir had underscored Malaysia’s pragmatic approach to relations with China and Taiwan. He said his country wants to trade with both economies and does not want to become entangled in cross-Strait affairs. “We can’t ignore [that] China is a very big market. But on the other hand, Taiwan has long relation[s] with us. Even before we had relation[s] with China, we already had relation[s] with Taiwan,” he said in a 2018 interview.

Malaysia established diplomatic relations with the Republic of China (ROC) in 1964, which lasted until 1974, when Kuala Lumpur switched recognition to the People’s Republic of China (PRC). Even in the absence of formal diplomatic relations, Taiwan enjoys an overall positive image in Malaysia due to a long history of educational exchanges and people-to-people interactions. Furthermore, for a small country that is also a strategic maritime hub along the Strait of Malacca, Malaysia has benefited from balancing its diplomacy among many nations and diversifying its foreign economic partners, which include Japan, South Korea, China, Taiwan, the United States, Singapore, and other neighboring countries.

Shifting Economic and Trade Dynamics

Trade and investment lie at the core of Taiwan’s relations with Malaysia. In the 1990s, Taiwan was Malaysia’s largest investment partner. At the height of Taiwanese investment in Malaysia in 2015, Taiwan was Malaysia’s fourth-largest source of foreign investment, boasting a total investment of USD $12.1 billion. Since then, other foreign countries, such as China, Japan, Singapore, and the United States have become major investors in Malaysia. In 2019, the United States overtook China as Malaysia’s top investment source as US companies shifted production out of China to avoid US tariffs erected during the US-China trade war. At the same time, Malaysia has fallen behind its regional competitors in attracting redirected investments from China. Many foreign companies, including Taiwanese businesses, that were previously operating in China have increasingly shifted their investments to other ASEAN countries, notably Vietnam.

Nonetheless, Taiwan continues to rank among the top 10 foreign investors in Malaysia. Around 1,700 Taiwanese companies have invested in more than 2,500 projects in Malaysia, with approximately USD $12.4 billion in total investments. Taiwanese businesses have left a positive footprint on Malaysia’s economic growth through the creation of jobs and technological upgrades, said Taiwan’s Representative to Malaysia Anne Hung (洪慧珠). Taiwanese businesses prefer to invest in Kuala Lumpur, the country’s financial center, followed by Penang and Johor in the northern and southern parts of Malaysia, respectively, according to Taipei’s former Representative to Malaysia James Chi-Ping Chang (章計平). Malaysia’s political stability, sound infrastructure and investment laws, and common use of English and Chinese are attractive features for Taiwanese businesses. However, a major shortcoming is Malaysia’s labor shortage and reliance on foreign workers. Taiwanese companies operating in Malaysia have in the past complained about the domestic shortage of workers.

Taiwan is the sixth-largest trade partner of Malaysia, while Malaysia is the seventh-largest trade partner for Taiwan. Malaysia was Taiwan’s second-largest Southeast Asian trade partner in 2019, trailing only Singapore. Taiwan imported USD $10.4 billion from Malaysia in 2019, while exporting USD $9.4 billion to the Southeast Asian country the same year. Taiwanese exports to Malaysia have included integrated circuits and components, gasoline, basic metals, steel products, and machinery. Meanwhile, Taiwan mainly imports liquefied natural gas (LNG), fuel oil, machinery, and chemical products from Malaysia. Taiwan imports about 99 percent of its natural gas, with most of its LNG supplies from Qatar (28 percent), Australia (26 percent), and Malaysia (15 percent). As the island purchases more LNG supplies from abroad amid a reduction in nuclear power and coal consumption, Taipei has an incentive to cultivate steady LNG trade relations with Malaysia.

Exchanges with Malaysia’s Ethnic Groups

Malaysia is a multi-ethnic and multi-lingual country. Historically, the ethnic Chinese population in Malaysia has served as a bridge to Taiwan and has played a key role in fostering close economic, cultural, and people-to-people ties between the two sides. Given that many ethnic Chinese families in Malaysia prefer to send their children abroad for Chinese-language training as well as post-secondary education, rather than have them attend Malaysian schools and universities, Taiwan is a natural choice for Chinese Malaysians.[1] Indeed, Malaysian students comprise the largest source of foreign students in Taiwan. In 2017, as many as 17,000 Malaysians studied in Taiwan, nearly three times higher than the number of Malaysian students studying in China. That same year, a record high of 500,000 Malaysian tourists visited Taiwan. In 2018, more than 380,000 Taiwanese traveled to Malaysia. However, just as Taiwan’s exchanges with ethnic Chinese Malaysians have proven beneficial in promoting bilateral commercial and social exchanges, they also result in a shortcoming, in that Taiwan’s contacts with other ethnic groups in Malaysia—such as the Malays and Indians—tend to lag behind.

In recent years, however—particularly under Taiwan President Tsai Ing-wen’s (蔡英文) New Southbound Policy (新南向政策)—Taiwan has been eager to enhance trade and other engagement with Muslim populations in Southeast Asia, including ethnic Malays in Malaysia. Taiwan has significantly ramped up its eating facilities for Muslim tourists, with nearly 200 halal-certified restaurants and hotels. The Taiwan Halal Center opened in Taipei in 2017 to assist local businesses with expanding trade and business ties with Muslim markets. Additionally, Taiwan’s government has worked with the Malaysian Islamic Development Department to gain halal certification for Taiwanese businesses, food, and other products. In April 2018, the Malaysia External Trade Development Corporation (MATRADE) signed a memorandum of understanding with the Taiwan External Trade Development Council (TAITRA, 中華民國對外貿易發展協會) to enhance bilateral trade cooperation in the halal food sector. As a result, Taiwan is now considered one of the most Muslim-friendly non-Muslim countries, a status that can potentially boost its people-to-people diplomacy with Malaysia’s dominant Malay population.

Taiwan’s relationship with Malaysia includes a long history of close people-to-people exchanges as well as trade and investment ties, yet there is still room for substantial growth. Malaysia’s turn towards East Asian countries has traditionally prioritized economic relations with Japan and South Korea, with a more recent emphasis on China. Beijing’s growing economic and political clout in Malaysia, coupled with Malaysia’s growth in foreign investments from many countries, has often caused Taiwan to get lost in the crowd.

Moving forward, Taiwan could leverage its expertise in agriculture, medical treatment, and science and technology to broaden and deepen bilateral cooperation with the Malaysian government, such as by sharing public health knowledge on combatting the coronavirus. In a more pressing and perhaps sensitive arena, Malaysia would also be keen in learning from Taipei on countering Chinese influence operations that are targeting the country’s sizeable ethnic Chinese population, and could work with Malaysian actors to counter China’s disinformation campaign. Over the long-run, Taipei and Kuala Lumpur may find more areas of collaboration as Beijing becomes more assertive in the Indo-Pacific region.

The main point: The development of Taiwan-Malaysia relations has long been centered on economic relations, educational exchanges, and people-to-people ties. However, Malaysia’s economic and political turn towards China has impeded new breakthroughs in the Taiwan-Malaysia relationship.

[1] Author’s observations during a trip to Malaysia, July 2016.