Malaysia-Taiwan Economic Relations: Continued Convergence

Malaysia-Taiwan Economic Relations: Continued Convergence

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Malaysia-Taiwan Economic Relations: Continued Convergence

Malaysia and Taiwan have no diplomatic relations. Yet, bilateral economic and social ties have remained vigorous over many years, trending upward since the 2016 launch of Taipei’s New Southbound Policy (NSP, 新南向政策) and despite the brakes on trade and people-to-people flows caused by the COVID-19 pandemic. 

Much of this is due to converging interests on both sides, and the fact that US-China geopolitical competition has sharpened. But while the NSP is underpinned by the twin goals of further enmeshing Taiwan into the fabric of the Indo-Pacific region and divesting from dependence on China, Malaysia’s openness to the NSP is premised much more narrowly on a combination of economic pragmatism and cultural linkages. 

Trade and Investment: A Recap

Trade flows between Malaysia and Taiwan have steadily grown since the mid-1990s, a trend which has only accelerated since 2016 (see figure 1).

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Figure 1: Malaysia’s imports from and exports to Taiwan, 1995-2018. (Source: As published in Malaysia, Taiwan and CPTPP, Institute for Democracy and Economic Affairs, policy paper no. 65, October 2020).

Between 2017 and 2018, bilateral trade expanded 22.1 percent. By 2018, Taiwan became Malaysia’s sixth-largest trading partner, while Malaysia became Taiwan’s seventh largest. Official figures show that although Malaysia’s exports to Taiwan contracted by 8.6 percent in 2020, imports from Taiwan rose slightly by 1.1 percent. That year, Taiwan was Malaysia’s fifth-largest trading partner and eighth-largest export destination.

In 2021, trade between the two economies rebounded between 26 percent and 29 percent from the previous year, making Taiwan Malaysia’s fifth-largest trading partner. Although Malaysia maintained its 2017-2018 position as Taiwan’s seventh-largest partner, its total exports to Taiwan in 2021 were not insignificant, constituting 3.3 percent of Malaysia’s overall total. Taiwan’s trade statistics show that in December 2023, trade volume with Malaysia was the second-highest in the Association of Southeast Asian Nations (ASEAN) region—totaling USD $2.5 billion, trailing only Singapore. 

There are some 1,700 Malaysian companies operating in Taiwan, which was the exact number of Taiwanese companies in Malaysia by 2018 calculations. Many of the latter have had a presence spanning two to three decades, sustained by efforts at the official, industry, and cultural levels. In 2016, Malaysia’s Ministry of International Trade and Investment and the Ministry of Economic Affairs (MOEA, 經濟部) of Taiwan established the Malaysia-Taiwan Economic Cooperation Committee to explore and promote mutual trade and investment opportunities, including for small and medium enterprises (SMEs), which constitute more than 90 percent of Malaysian businesses. 

At the industry level, the now-34 year old Taiwan Chamber of Commerce and Industry in Malaysia, the Taiwan Investors’ Association in Malaysia, and the investor association’s youth chapter formed in 2013, continue to cultivate close business-to-business ties. Significantly, these trade and commercial relations have been anchored by a long-standing cultural linkage between the Malaysian Chinese and Taiwanese communities—reflected, for example, in the 40-year history of the Federation of Alumni Associations of Taiwan Universities, Malaysia—as well as by a host of other organizations. These different nodes of the Malaysia-Taiwan economic relationship remain just as relevant under the NSP as they did decades ago, regardless of political changes. They will continue to be important elements of bilateral ties under the incoming Lai Ching-te (賴清德) Administration. 


Malaysia and Taiwan enjoy a high degree of economic complementarity. Taiwan’s technological strengths and Malaysia’s comparative advantage in natural resources and labor efficiencies have recently coincided with the twin growth of the digital and green sectors. Unsurprisingly, two-way trade has been dominated by electrical and electronic (E&E) products, as well as chemicals and chemical products. 

Integrated circuits (IC)—along with their component parts of semiconductors and chips—are key export and import items for both economies. These products are used for a wide range of applications: including data processing, communications technology, and increasingly, electric vehicles. It is no surprise, therefore, that the E&E industry plays a significant role in bilateral trade between Malaysia and Taiwan, which sit at different but reinforcing points of the global IC value chain. 

Taiwan, with its highly developed ecosystem, leads the world in semiconductor production (over 60 percent). Its packaging and testing sectors account for nearly 60 percent of global market share, and domestic investment in IC design in a range of digital tech sectors and sub-sectors means that Taiwanese businesses will continue to be major players in the growth of 5G network infrastructure, data centers, automation, and artificial intelligence. 

Malaysia’s own 50-year presence in the semiconductor industry makes up seven percent of global market share. It is the sixth-largest semiconductor exporter on the world stage, with semiconductor devices and ICs alone comprising a quarter of the country’s total exports. Its strength in the semiconductor value chain lies in chip assembly, packaging, and testing. Although the industry has grappled with issues related to recruiting and retaining skilled labor, and has largely operated at the mid- to lower-end of the value chain, Malaysia still serves 13 percent of backend semiconductor capacity. 

As the country looks to increase its economic complexity and to “tech up for a digitally vibrant nation” through a range of initiatives—such as the government’s New Industrial Master Plan (NIMP) released in 2023—it is clear that Taiwan’s and Malaysia’s interests in semiconductors, chips, and ICs will continue to dovetail. This will be particularly true if US-China “de-risking” initiatives intensify in the run-up to (or after) the US presidential election in November 2024. The NIMP, in fact, explicitly recognizes that the Creating Helpful Incentives to Produce Semiconductors for America (CHIPS Act) offers Malaysia an opportunity to “become a neutral country of choice to expand on semiconductor manufacturing activities, capitalizing on the US+1, China+1 and Taiwan+1 trends.” Malaysia also has ambitions to move up the value chain by establishing more home-grown IC design champions and attracting global leaders in wafer fabrication to the country.

Some of this is already materializing with Taiwan’s help. In 2022, Foxconn (鴻海精密工業股份有限公司) chose Malaysia to build a chip fabrication plant geared at electric vehicles (EVs). Working with a local partner, the plant will specialize in producing up to 40,000 wafers per month built on 28-nanometer and 40-nanometer technology. For Foxconn, this would advance its push into the booming EV market, which is projected to hit close to USD $1 trillion worldwide by 2030 at a compound annual growth rate of 24.5 percent. Building a plant in Malaysia, which has so far been spared Washington’s raft of trade restrictions on critical electronics components, also makes for sound supply chain diversification strategy.  

For Malaysia, Foxconn’s investment will mark a growth milestone, not only in semiconductors, but also in EVs, both of which are earmarked for expansion in the NIMP. Additionally, the plant’s specialization in 28- and 40-nanometer technology should also contribute to local upskilling. Foxconn’s Malaysian partner is Dagang NexChange (DNex), whose subsidiary SilTerra is one of the country’s few semiconductor wafer pure-play foundries. Silterra specializes in wafers as small as 90 nanometers, but has struggled to compete with more sophisticated players on the global scene. Foxconn owns a roughly four percent stake in Silterra, enough to secure its supply of microchip wafers for the planned plant. 

The Taiwanese semiconductor business presence in Malaysia also acts as a hedge against geopolitical disruptions to the semiconductor global supply chain. Following the United States’ 2023 move to expand restrictions on advanced semiconductors, supercomputing items, and related manufacturing equipment to China, Chinese firms are looking to safeguard access to advanced packaging services (currently not on the US Department of Commerce list) by tapping established companies in Malaysia. One of those is Taipei-headquartered ASE Technology (日月光半導體製造股份有限公司), which has operated in Malaysia since 1991. In 2022, the company committed to invest USD $300 million over five years to expand its presence in the country. If, however, advanced packaging ends up being included on the US’ restriction list in the future, it is doubtful this circumvention tactic will work. Taiwan is a part of the “Chip 4” alliance, and the other companies capable of providing such services in Malaysia are US firms.  

Taiwan, of course, has its own “plus one” strategy to hedge against geopolitical disruptions to the semiconductor global supply chain. In some cases, the cultural ties between Taiwan and Malaysia mentioned earlier have supplemented more business-driven considerations as to which Southeast Asian country to partner with. Two of the five co-founders of the Taiwan-based chip company Phison Electronics Corp (群聯電子) are originally from Malaysia. Although Phison’s 2012 investment in Malaysia ended up in liquidation in 2020, the company is in negotiations to return to Malaysia to establish an overseas research and development center. Much of the decision to offshore is due to calls by its investors to diversify the company’s operations outside Taiwan to hedge against the threat of conflict in the Taiwan Strait. Part of the consideration is due to a talent gap in Taiwan, which has increasingly sought to expand its access to skilled labor. And at least some of the movement to reinvest in Malaysia is intended to help the country build its own talent pool in the IC design industry, if supported by the right government policies from Putrajaya. 

New Opportunities for Expanded Ties

There are new collaborative opportunities beyond just the tech sector. As Taiwan looks to penetrate the global halal market—poised to approximate USD $3 trillion by 2029 by some estimates, and USD $5 trillion by others—Malaysia, with its 40-year experience in the industry, can and will be a natural partner for Taiwan to establish an international foothold. Halal refers to what is permissible or lawful by Islamic teachings. 

Malaysia’s demographics (60 percent Muslim, with a large ethnic Chinese minority) makes it a unique market and entry point to the international halal market. Pre-pandemic, the country was the primary source of tourists visiting Taiwan. In 2023, Malaysians constituted the largest group of visitors from Southeast Asia in the first quarter of the year. Historically, as well, Malaysian students have dominated the total number of international students in Taiwan. In 2023, Malaysians made up the third-largest population of international students in Taiwan. Taiwanese food and beverage outlets and chains, therefore, are well-known to Malaysians and are familiar brands when they set up shop in Malaysia. They do even better when obtaining halal certification, enabling them to expand their market reach to the largest communal group of Malaysians. 

The Taiwanese government has, in fact, been promoting products targeted at the Muslim market since 2017—and as of 2023, over 1,000 Taiwanese businesses had obtained halal certification. Most of them (80 percent) have had their certification recognized by Malaysia’s halal certifying body, the Department of Islamic Development. The Taiwan External Trade Development Council (TAITRA, 中華民國對外貿易發展協會) even has a dedicated Taiwan Halal Center to facilitate market entry for Taiwanese businesses. 

But the Taiwanese tourism industry also recognizes the consumer potential of Malaysian and other Muslim visitors. Many Malaysian tourists are, after all, repeat visitors. In 2023, the Taiwan Tourism Bureau in Kuala Lumpur launched a “Salam Taiwan” campaign, customizing vacation packages for Muslim tourists. The Taiwanese government has also begun building prayer rooms at airports, highway rest stops, and tourist spots. These efforts have already borne fruit. For the past two consecutive years, Taiwan has been ranked in the top three of the most Muslim-friendly destinations among non-Organization of Islamic Cooperation countries and territories.


When Malaysian Prime Minister Anwar Ibrahim and his coalition government were voted into office in November 2022, the Taiwanese ministry of foreign affairs issued a congratulatory message pledging to closely cooperate under the New Southbound Policy. Although Malaysia’s commitment to the “One-China Policy” meant that Putrajaya could not extend reciprocity at the official level when President Lai was elected, Malaysia’s and Taiwan’s long-standing cooperation in all other areas demonstrates a friendship that seems likely to endure, quite apart from political or even geopolitical constraints. 

The main point: Thanks to a variety of economic, technological, and people-to-people connections, Malaysia and Taiwan have built a strong—albeit informal—relationship. As President Lai enters office, it seems likely that both sides will continue to develop their ties.