Introduction:Chinese semiconductor companies are accelerating their layout in Malaysia: from Huada Semiconductor leading the acquisition ofUnisem and Tongfu Microelectronics collaborating withAMD to expand production in Penang, to Chinese funds investing in local wafer foundrySilTerra. These cases reflect the strategic logic and challenges of Chinese companies “going abroad” to Malaysia under the intertwining of geopolitical games and industrial transfers.
1. National Semiconductor Strategy (NSS): Three-Phase Path and Five Major Goals
The vision of the NSS strategy: In 2024, the National Semiconductor Strategy released by the Ministry of Investment, Trade and Industry (MITI) positions Malaysia as a “vibrant center for global semiconductor R&D, commercialization, and innovation”, covering the entire manufacturing and service chain. The strategy emphasizes cultivating advanced semiconductor technology through an overall ecosystem and accelerating commercial applications to make Malaysia a “medium-strength hub” for maintaining global supply chain security. To this end,NSS proposes a series of key initiatives, including establishing advanced packaging technology programs and centers, launchingMYChipStart chip startup support programs, planning wafer manufacturing parks, and providing substantial financial and non-financial incentives for talent development, R&D investment, industrial facilities, and support services.
Three-phase development path:NSS has established a clear three-phase “progressive” development roadmap to gradually advance Malaysia’s semiconductor industry from its current advantageous areas to high value-added segments. This three-phase strategy is a dynamic “ten-year plan”, which can be adjusted and optimized according to the situation, but the general direction remains unchanged.
Phase One: Consolidating Foundations and Enhancing Existing Advantages (around 2024-2026). This phase focuses on consolidating Malaysia’s traditional strengths in packaging and testing(OSAT) and evolving towards advanced packaging. At the same time, it continues to attract high-end semiconductor equipment companies to invest and expand the capacity of local existing wafer foundries.
Phase Two: Introducing Cutting-Edge Manufacturing and Cultivating Local Champions (around 2026-2030). In the mid-term,NSS will seek breakthrough investments in front-end manufacturing, specifically attracting leading global wafer foundries to establish advanced process production lines in Malaysia. Given the enormous capital expenditure required for wafer foundries and the limited financial resources of the government, this initiative is planned to be gradually realized in the later stages.
Phase Three: Innovation-Driven, Achieving Ecological Transformation (2030 and beyond). The final phase focuses on a complete transformation and upgrade. Malaysia will double its support for local enterprises, focusing on developing world-class companies in chip design, advanced packaging, and semiconductor equipment. By creating a complete local supply chain and technology ecosystem, it aims to attract advanced chip buyers (such as AI chip giants) to conduct high-end manufacturing in Malaysia. In other words, the third phase aims to enable Malaysia not only to produce advanced chips but also to attract end customers like Apple and NVIDIA to produce their most cutting-edge products locally. The realization of this phase relies on the groundwork laid in the first two phases— only when local enterprises and talent are sufficiently strong, and the supporting environment is adequately developed, can the high-end industrial chain flourish in Malaysia.
Five Core Goals: To ensure the implementation of the three-phase plan,NSS has set five “clearly defined flagship goals”, covering investment, enterprises, R&D, talent, and financial support across five major areas. These five core goals are vividly referred to as “Five Headline Targets”, serving as a guiding principle for various tasks. Specifically as follows:
Goal 1: Total Investment – Accumulate at least RM500 billion (approximately USD107 billion) in semiconductor investments. This includes foreign direct investment (FDI) and domestic direct investment (DDI), focusing on wafer manufacturing, IC design, advanced packaging, and semiconductor equipment. Through large-scale investments, Malaysia aims to introduce cutting-edge technology and knowledge globally, enhancing local capacity and resilience. Prime Minister Anwar has publicly endorsed this goal, stating “Malaysia has a strong capability to diversify upstream in the value chain”, and specifically hopes to attract substantial investments in IC design, advanced packaging, and manufacturing equipment. According to Reuters, the Malaysian government has not provided a clear timeline but aspires to achieve this ambition around 2030.
Goal 2: Enterprise Growth – Cultivate at least 10 local semiconductor leading enterprises, specializing in chip design or advanced packaging, with annual revenues reaching RM1 billion to RM4.7 billion (approximately USD210 million to USD1 billion). At the same time, drive at least 100 related SMEs to achieve annual revenues close to RM1 billion scale. Through this “10+100” plan, the government aims to establish a diverse and competitive local semiconductor enterprise cluster, creating more high-paying jobs and increasing national income. According to official documents, these enterprises will nurture strong domestic industrial momentum for Malaysia, enabling it to stand firm in global competition. Prime Minister Anwar also mentioned the goal of creating at least 10 local design/packaging companies with revenues between USD210 million and USD1 billion. This move is seen as an important step to break away from the past model of “foreign capital dominance and domestic support”, transitioning towards a “local leadership” model.
Goal 3: R&D Hub – Transform Malaysia into a global semiconductor R&D center. This includes developing world-class universities and corporate R&D centers, establishing centers of excellence, and attracting and integrating top talent from both domestic and international sources. Through collaborative innovation among government, industry, and academia, Malaysia hopes to secure a place at the forefront of global semiconductor technology.NSS emphasizes the need to create a favorable environment for technological breakthroughs through deep cooperation among academia, industry, and government, ensuring that Malaysia remains at the forefront of global semiconductor innovation. This aligns with the goals of the New Industrial Master Plan (NIMP 2030), which aims to enhance domestic R&D investment, increase high value-added output, and gradually transition from being a “technology receiver” to a “technology contributor”.
Goal 4: Talent Development – Train and enhance 60,000 high-skilled engineers in Malaysia. In the face of the rapidly changing talent demands in the semiconductor industry,NSS plans to invest in education and vocational training to build a local talent pool capable of supporting advanced manufacturing and R&D. The government estimates that RM12 billion will be invested in this project (based on a training cost of approximately RM20,000 per engineer), and this cost has been included in the financial support framework ofNSS. The Ministry of Education has committed to training 30,000 high-skilled engineers within five years, while other departments will provide an additional 30,000 technical talents. Enhancing talent supply is considered key to industrial upgrading— without sufficient and excellent engineers, goals such as advanced packaging and IC design cannot be discussed. To this end, the government is not only increasing domestic education investment but is also considering relaxing restrictions on the introduction of foreign talent to address short-term skill gaps.
Goal 5: Financial Support – Invest at least RM25 billion (approximately USD5.3 billion) as special financial support. This funding will be used to implement a series of incentive programs to ensure the effective implementation ofNSS measures. Specifically, this includes approximately RM5 billion in tax reductions (estimated government tax revenue loss over five years), RM2 billion for existing capital subsidy programs, RM1.25 billion injected into the Human Resources Development Fund (HRDF) for training in the semiconductor industry, RM1 billion for the Domestic Strategic Investment Fund (DSIF) to support local semiconductor enterprises, and RM1 billion for high-impact investment funds (to attract multinational company projects). Additionally, the government has allocated RM2 billion to build semiconductor industrial parks, creating necessary infrastructure (including world-class facilities for green power, cooling, and wastewater treatment); investing RM1.59 billion to establish advanced packaging centers and related support; providing RM2 billion for green technology financing plans to support the industry’s low-carbon transition; and additionally establishing a National Energy Transition Fund to ensure renewable energy supply for the parks. This series of substantial investments demonstrates the government’s determination to promote industrial upgrading. As Zafru said: “To play this game, we must put in the money”. The initial phase of RM25 billion in incentives is just the starting point, and further investments will be increased based on demand.
2. The Investment Landscape of Chinese Enterprises in Malaysia: Typical Cases and Role Analysis
In the new round of development of Malaysia’s semiconductor industry, Chinese capital has increasingly become a force that cannot be ignored. In recent years, many Chinese semiconductor companies have laid out in Malaysia through mergers, joint ventures, and new establishments, which not only helps enhance the local industrial chain but also serves their respective globalization strategies.
Case 1: Huada Semiconductor & Unisem – A Union of OSAT Giants, Introducing Chinese Capital into Local Packaging and Testing Leaders
Background: Unisem is one of the largest packaging and testing companies in Malaysia, headquartered in Ipoh, Perak, established in the 1990s, mainly engaged in integrated circuit packaging, wafer thinning, testing, and other services, with clients across Europe, America, and Asia-Pacific. In September 2018, Unisem’s founder and major shareholder, Datuk John Chia, partnered with China’s Tianshui Huada Semiconductor (TSHT, a well-known packaging and testing manufacturer in China) to jointly initiate a privatization acquisition offer for Unisem. The offer was priced at RM3.30 per share, an 11% premium over the price before suspension, valuing Unisem at approximately RM18.2 billion (about USD4.4 billion). Although this offer was not particularly generous, the collaboration between the two major shareholders ensured the transaction was completed. According to the agreement, after the acquisition, Huada Semiconductor, through its wholly-owned subsidiary HT Malaysia, held approximately 60% of Unisem’s shares, becoming the single largest shareholder, while the Chia family’s shareholding was reduced to second place. Huada promised that its shareholding would always be at least 10 percentage points higher than that of the Chia family to maintain actual control. After the transaction was completed in 2019, Unisem remained listed on the Malaysian stock exchange, and the management team and operations remained largely unchanged, but the board of directors added three Huada-nominated directors, reflecting the influence of the Chinese side.
Supply Chain Role: Through this acquisition, Huada Semiconductor successfully integrated Unisem’s global business network, expanding its group footprint into Southeast Asia and the European and American markets. Huada is the third-largest packaging and testing company in China, with its original customers and business primarily in China. After acquiring Unisem, Huada was able to leverage Unisem’s customer resources in Europe and North America to expand overseas orders. Conversely, Unisem could utilize Huada’s extensive market and capacity in China to enhance its coverage of Asian customers, especially Chinese clients. The two parties achieved customer complementarity and market sharing. Additionally, Unisem already had a packaging factory in Chengdu, China (established in 2006). After Huada took over, it could more effectively support the expansion of the Chengdu factory, achieving cross-border capacity allocation. Currently, Unisem operates three major production bases in Ipoh, Chengdu, and Batam, Indonesia. Huada Semiconductor has several factories in Tianshui, Kunshan, and other locations. The two parties can flexibly allocate orders among multiple factories based on costs and customer locations, significantly enhancing global delivery capabilities.
Investment Scale and Collaboration: The acquisition amount was approximately RM18.2 billion, of which Huada Semiconductor invested over RM10 billion through its overseas subsidiary. Due to the involvement of Chinese enterprises in foreign investment, Huada completed the approval procedures with the Ministry of Commerce, the National Development and Reform Commission, and other authorities in China. After the acquisition was completed, Huada established special purpose companies (SPVs) in Hong Kong and Malaysia to hold Unisem’s shares to meet relevant regulatory requirements. In terms of collaboration, Huada and Unisem gradually aligned in technology and operations. For example, in advanced packaging technology, the two parties shared experiences to enhance Unisem’s product portfolio; in equipment procurement and material supply, Huada’s scale effect could help Unisem reduce costs. Additionally, both parties standardized customer service and quality systems to provide consistent service levels for multinational clients. It can be said that the Huada-Unisem union has created a packaging and testing group spanning China and Malaysia. As of 2025, Unisem contributed a significant portion of Huada Semiconductor’s revenue and has become one of its important pillars in global strategy.
Case 2: Tongfu Microelectronics & TF AMD – Chinese Capital Collaborates with AMD to Deepen High-End Packaging in Penang
Background: Tongfu Microelectronics (referred to as “Tongfu”, listed company 002156.SZ) is another leading packaging and testing enterprise in China, headquartered in Nantong, Jiangsu. In 2016, Tongfu Microelectronics reached a strategic cooperation with AmericanAMD to acquire 85% of AMD’s two packaging and testing factories in Suzhou, China, and Penang, Malaysia, establishing a joint venture TF AMD, with AMD retaining 15% equity. Among them, the Penang factory has a long history within AMD’s system, responsible for assembling and testing high-end chips such as GPUs and CPUs, with advanced bumping and silicon interposer packaging capabilities. After the establishment of the Tongfu-AMD joint venture, the Penang factory was renamed TF AMD Malaysia (TongFu-AMD Microelectronics Penang), becoming Tongfu Microelectronics’ overseas flagship. Reports indicate that Tongfu Microelectronics invested heavily in upgrading technology for this joint venture and announced an additional investment of RM2 billion (approximately USD450 million) in 2022 to expand the new factory in Penang. In 2023, the new factory of TF AMD in the Batu Kawan Industrial Park in Penang was completed and put into operation, marking a new growth phase for its Malaysian business.
Supply Chain Role: TF AMD is a typical example of a “China-US joint venture, high-end manufacturing” case. Its supply chain role has two attributes: on one hand, it is part of AMD’s global manufacturing chain, almost exclusively serving AMD and a few other clients; on the other hand, it is also an important component of the Tongfu Microelectronics group, tasked with enhancing Tongfu’s advanced packaging technology. By holding TF AMD, Tongfu Microelectronics has gained a platform for deep cooperation with international leading IDMs. For example, AMD entrusts TF AMD with the packaging and testing of cutting-edge GPUs and CPUs, involving advanced silicon stacking and Chiplet integration technologies. These technological experiences feed back into Tongfu Microelectronics’ R&D and production domestically, aligning its overall technical level with international frontiers. At the same time, TF AMD, as the operating entity in Malaysia, fully utilizes the local industrial support and skilled engineer workforce in Penang, making it more competitive in terms of cost and efficiency compared to AMD’s self-operated period. According to company historical data, when TF AMD was independent in 2016, it inherited AMD’s high-standard production system, and through resource integration with Tongfu, it continues to maintain a leading position in the high-performance chip packaging and testing field. Therefore, TF AMD can be seen as a bridge connecting Chinese packaging and testing enterprises with international high-end chip clients, symbolizing Malaysia’s position as a “global center for advanced packaging”.
Investment Scale and Collaboration: The initial acquisition of 85% equity in AMD’s Penang factory by Tongfu Microelectronics was costly (public information does not disclose the individual price, but the total transaction price with the Suzhou factory was approximately USD370 million). Subsequently, additional funds were invested in expansion, especially during the global chip shortage in 2021-2022, when the company decided to build a large factory in Penang, investing RM2 billion. The Malaysian government also provided tax incentives and other support for such capital increases. In terms of collaboration, as a joint venture, AMD retains minority equity and dispatches management personnel to participate in operational decision-making. AMD not only contributes stable orders but also assists in employee training and the introduction of new products. When AMD develops new packaging technologies, such as high-speed packaging for data center GPUs, it considers mass production at TF AMD. It is reported that in 2023, AMD’s high-end chips aimed at the AI market, such as the MI300 accelerator, have their packaging and testing parts handled by Tongfu Microelectronics in both China and Malaysia. AMD maintains a close cooperative relationship with Tongfu, being both a shareholder and a customer, ensuring the stability of TF AMD’s business. For Tongfu, through the Penang base, the company diversifies its business geography and reduces reliance on domestic capacity risks.
Facing Challenges: TF AMD’s development also needs to address several challenges. First is the risk of customer concentration— currently, AMD accounts for the vast majority of its business, and if AMD’s product cycle or strategic adjustments occur (such as more reliance on TSMC’s CoWoS advanced packaging services), it may cause fluctuations for TF AMD. Therefore, Tongfu and TF AMD are also striving to provide services for other clients, attracting some Chinese or international design companies to outsource advanced packaging orders to the Penang factory. Secondly, technology confidentiality and control are critical, as TF AMD handles globally leading chips, it must strictly comply with US export controls and technology licensing to ensure sensitive technologies are not leaked. This is particularly important for Chinese-controlled enterprises, requiring the establishment of firewall mechanisms to comply with international regulations. Furthermore, the challenge of expanding the workforce arises, as the new factory’s operation requires a large number of skilled technicians and engineers, while the talent market in Penang is highly competitive. To address this, the company is increasing campus recruitment and sending experienced personnel from China for support. Lastly, geopolitical risks loom overhead: if US-China relations further deteriorate, the US may tighten restrictions on AMD and Chinese joint ventures sharing technology or orders. However, as of now, AMD continues to deepen cooperation with Tongfu, indicating a high level of mutual dependence. Overall, the successful operation of TF AMD demonstrates that Chinese enterprises can build world-class manufacturing capabilities in Malaysia through collaborative win-win approaches, achieving benefits for all parties.
Case 3: Unigroup & SilTerra – Chinese Fund Invests in Local Wafer Foundry to Assist Process Upgrading
Background: SilTerra is the only locally established wafer manufacturing enterprise in Malaysia, founded in 1995 (formerly known as Wafer Technology Malaysia), located in the Kulim Hi-Tech Park in Kedah. SilTerra focuses on 8-inch wafer foundry, with process technologies primarily at 0.13 microns and 90 nanometers, covering power semiconductors, MEMS sensors, and biochips in specialized fields. Due to years of operating losses, SilTerra’s sole shareholder, the Malaysian sovereign fund Khazanah, decided to sell its shares in 2020. In February 2021, after a bidding process, the Malaysian listed company Dagang Nexchange (DNeX) successfully acquired all shares of SilTerra in partnership with the Chinese Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (referred to as CGP Fund). The transaction price was only RM273 million (approximately USD68 million), with DNeX contributing 60% to gain controlling rights, while the CGP Fund contributed 40%. The CGP Fund is a large semiconductor industry investment fund in China, established with contributions from the National Integrated Circuit Industry Investment Fund (the big fund) and the Beijing municipal government, focusing on wafer manufacturing and equipment. This means that SilTerra has been incorporated into the strategic map of Chinese capital.
Supply Chain Role: SilTerra has had a minimal market share in the global wafer foundry market, but its existence is of great significance to Malaysia—this is the only local wafer foundry capability. With the introduction of Chinese capital, SilTerra is expected to play a role in undertaking capacity transfers from Chinese enterprises and collaborating on specialized processes. On one hand, the CGP Fund can leverage its industrial network in China to recommend Chinese clients to place some wafer orders with SilTerra, filling its capacity and improving utilization rates. For instance, some power device design companies and panel driver chip manufacturers in China may consider transferring some capacity to SilTerra for diversification of supply. On the other hand, the Chinese side also plans to assist SilTerra in upgrading processes and equipment to provide higher value-added foundry services. According to the acquisition agreement, DNeX and the CGP Fund committed to injecting no less than RM200 million (approximately USD50 million) into SilTerra for capital expenditures and operations within 180 days after the transaction completion. Among them, approximately RM150 million is specifically allocated for equipment upgrades and new technology capability building to enhance the factory’s competitiveness. Indeed, since 2022, SilTerra has announced collaborations with Chinese company Chipone to develop third-generation semiconductor processes and gradually convert some production lines for manufacturing higher-value products such as CMOS image sensors. These developments are all supported by Chinese partners.
Investment Scale and Collaboration: In this acquisition, the Chinese CGP Fund paid RM109.2 million to obtain 40% equity. In subsequent capital injections, the CGP Fund proportionally undertook RM80 million. Overall, the Chinese side’s direct cash investment is approximately RM190 million (about USD45 million). Additionally, the CGP Fund has brought several directors into SilTerra’s board and dispatched technical and management consultants to work with DNeX’s team to formulate strategies for turning around and upgrading the factory. In their collaboration, DNeX, as a local company familiar with the Malaysian environment, is responsible for daily operational management; the Chinese fund provides international resources and industry insights, assisting in customer development and technology introduction. For example, it is rumored that the CGP Fund has arranged technical exchanges with China’s Huahong Group (a leading wafer foundry in the country) to learn from its experience in processes below 90nm. There are also reports that Chinese panel manufacturer BOE is exploring cooperation with SilTerra in the foundry of OLED driver chips. It can be said that both Chinese and Malaysian parties have adopted a “fund + industry” cooperation model in the SilTerra project: combining financial investment with industry resource allocation, aiming to quickly lead SilTerra out of losses and into healthy development.
Facing Challenges: Despite the promising outlook, SilTerra’s transformation path is not without challenges. First, its process technology is relatively behind mainstream levels, and catching up to 90nm or even 65nm nodes requires substantial investment and technology introduction. Although the CGP Fund brings some funding, it is still limited compared to the capital required to build a new production line. Additionally, US export controls on Chinese semiconductor technology may affect SilTerra’s access to critical equipment needed for upgrades. If the planned technology to be introduced contains US intellectual property, licenses must be obtained, which introduces uncertainty. Secondly, for SilTerra to achieve profitability, capacity utilization rates must be rapidly improved. This requires quickly securing stable orders. However, in the global foundry competition, SilTerra’s brand recognition and reputation are not as strong as TSMC or UMC, and it needs to rely on DNeX and the Chinese network to pull in orders. Although the current demand boom from automotive electronics and chip shortages provides a temporary advantage, it still needs to find a sustainable customer base in the long term. Thirdly, management integration is also a test. DNeX has primarily focused on IT and oil and gas businesses in the past, lacking experience in semiconductor manufacturing; while the Chinese fund is familiar with the industry, it is still managing from a distance. How to empower SilTerra’s management is key to determining performance. Lastly, politically, Malaysia generally supports this acquisition, but there are also concerns among the public about the “national wafer factory falling into Chinese hands” potentially leading to technology leakage. However, Khazanah’s public choice of DNeX-CGP over a higher bidding Taiwanese company reflects a desire to retain some local control while introducing opportunities from the Chinese market. As long as the operation is effective, these concerns are likely to subside.
3. Financial Perspective: The Logic and Risk Assessment of Chinese Investment in Malaysia
1. Investment Logic: Seeking Growth and Avoiding Restrictions as Dual Drivers.
(1) Global Expansion and Market Diversification: For Chinese semiconductor companies, Malaysia provides an ideal foothold for expanding overseas markets. By establishing factories or acquiring local enterprises in Malaysia, Chinese companies can quickly connect with European and American customer networks and integrate into international supply chains. For example, after Huada Semiconductor acquired Unisem, it leveraged the latter’s customer base in Europe and America to expand its order sources. At the same time, Chinese companies can utilize Malaysia as a neutral platform to sell products to more non-Chinese markets.Reuters reported that Chinese capital hopes to package chips outside of China and then sell them to third-country markets, which would be more convenient. This is because some overseas customers (especially Western customers) have concerns about purely “Made in China” chips, but if the products are labeled as “packaged in Malaysia,” they are more likely to be accepted. This is extremely beneficial for Chinese companies to explore emerging markets.
(2) Capacity Layout and Supply Chain Security: In recent years, the US has implemented a series of semiconductor export controls and sanctions against China, creating uncertainty for the Chinese chip industry chain. To mitigate potential risks, an increasing number of Chinese chip design companies are choosing to outsource some high-end chip packaging tasks to Malaysian manufacturers. Reports indicate that this trend is a proactive layout to guard against the US expanding sanctions against China. Since chip assembly and testing are currently not under export control, Chinese companies can complete the packaging of high-end chips such as GPUs in Malaysia, while the chip wafers are still produced by foundries like TSMC, without violating current regulations. If the US expands restrictions to the packaging segment in the future, Chinese companies will at least have established cooperative channels overseas to ensure uninterrupted product supply. This is a supply chain hedging strategy. Additionally, establishing a presence in Malaysia also helps address potential capacity bottlenecks domestically. For instance, when domestic advanced packaging capacity is tight, Malaysia, as a global packaging and testing powerhouse, can provide additional capacity support for Chinese companies.
(3) Acquiring Advanced Technology and Enhancing Strength: Through cross-border cooperation, Chinese enterprises can learn advanced management experiences and technology know-how from abroad. The joint venture between Tongfu Microelectronics and AMD is a typical example; by operating the Penang factory, Tongfu has mastered international top-notch Chiplet packaging and silicon stacking processes. This is less time-consuming and more effective than developing in isolation, helping Chinese companies accelerate their catch-up. Moreover, Malaysia emphasizes the construction of an R&D ecosystem, allowing Chinese companies to participate in local industry-academia-research projects and enjoy R&D subsidies and support from the Malaysian government. For example, the NSS proposes to build an R&D hub, and Chinese R&D centers (such as Huawei’s research institute in Malaysia) can benefit from policy dividends while recruiting global talent for joint innovation.
2. Financing Channels and Financial Planning: Diverse and Flexible Combinations of Chinese Investment in Malaysia usually involve cross-border mergers or new projects, requiring complex funding and financial arrangements. Common channels include:
Equity Acquisition Financing: For instance, in the case of Huada Semiconductor’s acquisition of Unisem, the Chinese side used an overseas subsidiary SPV to hold shares, completing the transaction through cash acquisition + retaining listing status. Huada raised funds overseas (in Hong Kong) and transferred the funds out through domestic approvals. Chinese companies need to obtain approvals from the Ministry of Commerce, the National Development and Reform Commission, the State Administration of Foreign Exchange, etc., for overseas mergers and acquisitions, and often set up holding companies in Hong Kong or Singapore in advance to facilitate financing. Many large Chinese companies issue bonds or loans overseas for acquisition funding.
Joint Ventures and Equity Cooperation: In many cases, Chinese companies are not sole proprietors but collaborate with local partners or third-party funds. This can share financial pressure and reduce sensitivity from the host country. For example, the SilTerra case involved a joint acquisition by DNeX and the CGP Fund. DNeX solved 60% of the acquisition cost through stock issuance in the Malaysian stock market and internal funds; the CGP Fund contributed 40% with its own funds. This model alleviates the burden on a single party. Similarly, the Tongfu Microelectronics-AMD joint venture involved AMD contributing assets in exchange for equity, while Tongfu provided funding, with both parties sharing operational responsibilities. This shows that Chinese companies in Malaysia flexibly utilize equity cooperation and strategic investment to balance risks and returns.
Local Financing and Listing: Some Malaysian companies controlled by Chinese capital remain listed in local capital markets, such as Unisem, which maintained its listing after the acquisition. This allows the company to continue raising funds from the Malaysian stock market, and local institutional investors like EPF can also hold shares, increasing financial stability. Additionally, some Chinese companies choose to issue bonds in Malaysia or obtain loans from local banks, especially financing denominated in Malaysian Ringgit can hedge against exchange rate risks. The Malaysian government also welcomes foreign-funded enterprises to list and raise funds in Malaysia, which benefits the local capital market’s vitality and the localization of enterprises.
Government Incentives and Subsidies: From a financial return perspective, the tax reductions and subsidies provided by the Malaysian government significantly improve the economic viability of projects. Investors will factor these policy dividends into their NPV analysis when making decisions. For example, high-tech “pioneer status” can receive 10 years of tax exemption, which increases the project’s free cash flow. The RM250 billion incentives initiated by NSS cover tax incentives, equipment subsidies, training grants, etc. For enterprises, this is equivalent to direct capital injection or reduced operating costs. Financial institutions tend to give positive weight to these legally guaranteed incentives when evaluating projects. Additionally, the IC design park recently launched by the Malaysian government includes measures such as visa fee reductions to lower operating costs. In summary, policy dividends can significantly enhance investment returns (RoI), making Malaysia an important consideration for Chinese enterprises.
3. ESG Compliance and Responsibility: New Requirements for Chinese Enterprises Going Abroad increasingly need to meet international and host country ESG standards.
Environmental Responsibility: Semiconductor manufacturing consumes energy and water, and projects in Malaysia must pay attention to environmental compliance. The NSS proposes providing round-the-clock green power, centralized cooling, water recycling, and waste treatment in wafer factory parks. Chinese companies building factories in Malaysia must use clean energy quotas and ensure emissions meet standards; otherwise, approvals may be difficult to obtain. The good news is that the Malaysian government has green funds to support enterprises in financing the installation of solar energy, for example, the TF AMD Penang factory claims to have significantly reduced carbon emissions annually by adopting renewable energy. Chinese enterprises already face ESG pressures domestically, and establishing a presence in Malaysia can showcase their international responsibility image, aligning with many investment institutions’ sustainable investment criteria.
Social Responsibility: In terms of labor rights and community contributions, Malaysia has a sound legal system. Chinese enterprises must ensure compliance with minimum wage and labor laws when employing local staff, avoiding issues such as forced labor (some sectors, such as glove manufacturing, have had lessons). The semiconductor industry primarily consists of technical positions, usually offering salaries above average and employing fewer low-paid foreign workers, so issues are not prominent. However, during the construction of industrial bases, care must be taken not to harm local community interests. Large projects typically require environmental and social impact assessments (EIA/SIA). Additionally, Malaysia’s diverse ethnic and religious landscape requires Chinese enterprises to be culturally sensitive in management to avoid labor or ethnic conflicts. Fulfilling social responsibilities and actively participating in local public welfare is also key to establishing a good reputation.
Governance Transparency: The governance and financial transparency of listed companies in Malaysia are subject to strict regulation. Local listed companies controlled by Chinese enterprises (such as Unisem) must comply with the Malaysian stock exchange’s information disclosure rules, avoiding insider trading or financial fraud. This poses challenges for some Chinese enterprises that are listing overseas for the first time, requiring adaptation to international accounting standards and governance norms. Additionally, governance rights and responsibilities among parties in joint ventures must be clear to avoid decision-making deadlocks due to cultural differences. Financial institutions generally pay attention to governance clauses in joint venture agreements and whether the Chinese side respects international governance practices. In this regard, collaborations like AMD with Tongfu and Huada with Unisem have set positive examples, with both parties maintaining robust operations by clearly defining roles in the board and management teams.
4. Exchange Rate and Geopolitical Risks: Proactive Risk Management (1) Exchange Rate Risk: Fluctuations in the Malaysian Ringgit against the US dollar and the Chinese yuan directly impact corporate finances. For example, Unisem’s revenue is primarily in US dollars, while most costs are in Malaysian Ringgit. When the Ringgit depreciates, profits in Ringgit terms increase, and vice versa. Chinese enterprises can adopt natural hedging strategies, such as borrowing in Ringgit or issuing Ringgit-denominated bonds to create Ringgit liabilities to hedge Ringgit revenues. Additionally, financial instruments like forwards and swaps can be used to lock in exchange rates. Chinese parent companies often finance in RMB domestically, and investing in Malaysia requires converting to USD or Ringgit, which also needs to be managed for exchange rate risks. Currently, the RMB has some flexibility against the Ringgit, but overall fluctuations are not significant, and hedging can be done through offshore markets in Hong Kong.
(2) Geopolitical Risks: This is an area that Chinese enterprises must carefully consider when going abroad. Although Malaysia has long maintained neutrality, the semiconductor sector inevitably faces external pressures amid US-China technological competition. Senior advisor to the Nanyang Technological University, Oh Ei Sun, warned that if Malaysia cooperates excessively with Chinese semiconductor companies, it may provoke dissatisfaction from Washington. This concern is not unfounded— in 2023, the US investigated and found that high-end AI chips from Nvidia were being routed through Malaysia to China, raising concerns. The Malaysian government immediately strengthened related regulations. In the future, it is not ruled out that the US may extend some restrictions targeting China to Malaysian subsidiaries, such as requiring US equipment suppliers not to provide the most advanced technologies to Malaysian factories controlled by Chinese capital. If this occurs, the technological upgrades of Chinese projects will be affected. Furthermore, if US-China relations deteriorate significantly, the US may pressure Malaysia to take sides on sensitive technologies. Although the current Malaysian government firmly states its welcome for Chinese cooperation while adhering to international rules, balancing these interests will become increasingly challenging. Chinese enterprises need to have contingency plans, such as ensuring product lines are diversified; if the US bans certain technologies, there are other businesses to maintain operations; or placing critical links in China while only engaging in non-sensitive parts in Malaysia. Fortunately, most Chinese projects in Malaysia currently focus on civilian and mature processes, which do not challenge US red lines. As the chairman of Unisem stated, the company’s business is “fully compliant” and does not have the energy to worry about potential sanctions that have not yet occurred. However, financial institutions generally conduct scenario analyses on geopolitical risks when evaluating such projects, requiring enhanced supply chain transparency and the establishment of crisis response plans to mitigate the impact of extreme events.
5. Outlook: Future Opportunities for Chinese Participation in Malaysia’s Semiconductor Ecosystem
Looking ahead 5-10 years, as Malaysia’s NSS gradually advances and the global semiconductor industry chain reshapes, the role of Chinese enterprises in Malaysia’s semiconductor ecosystem is expected to further expand. In the following key areas, Chinese enterprises will have significant opportunities:
1. IC Design and IP Development: Malaysia is making every effort to fill the gap in IC design, planning to establish the largest design park in the region and offering generous incentives. This presents an excellent opportunity for Chinese fabless IC design companies. Chinese design enterprises can establish branches in places like Penang, leveraging local talent and policy dividends to develop new products for the global market. For example, Chinese startups focusing on artificial intelligence and IoT chips can fully relocate part of their R&D to Malaysia, attracting top engineers globally while enjoying 5-10 years of tax exemption. This not only reduces costs but also helps enterprises penetrate the ASEAN market.
2. Advanced Packaging and Testing Services: As chip packaging technology enters the Chiplet interconnection and 3D packaging era, Malaysia hopes to become a global highland for advanced packaging. Chinese OSAT companies are also rapidly catching up in advanced packaging, with Huada, Changjiang, and Tongfu all possessing 2.5D/3D packaging capabilities. In the future, these companies can leverage Malaysia’s advanced packaging centers (the government has allocated RM15.9 billion for construction) to conduct cutting-edge process R&D collaborations. For example, jointly establishing advanced packaging pilot lines, developing standard packaging processes for Chiplets, heterogeneous integration solutions, etc. Once the technology matures, mass production can be provided in Malaysia for global customers. Currently, Intel has built a Foveros 3D packaging factory in Penang, and Anke is also building an advanced packaging factory in the US. If Chinese enterprises can form an advanced packaging alliance in Malaysia, they will have the opportunity to undertake high-performance chip packaging orders from the US, Japan, South Korea, and even China. Especially in the AI era, the demand for HBM high-bandwidth memory packaging is surging, and Chinese enterprises can invest in corresponding production lines in Malaysia to gain the trust of international customers in a neutral environment. Overall, advanced packaging is a “golden track” where China and Malaysia can jointly exert efforts.
3. Localization of Semiconductor Equipment and Materials: NSS clearly lists “manufacturing equipment” as one of the investment priorities. China has seen a surge of manufacturers approaching international advanced levels in etching, cleaning, CMP, and testing equipment. If these manufacturers can establish application R&D centers or small assembly plants in Malaysia, they can not only support Malaysian customers nearby but also radiate the entire Southeast Asian market. More importantly, once new wafer factories are established in Malaysia, these Chinese equipment are likely to enter the procurement list. Currently, the US and Japan impose export restrictions on certain high-end equipment to China, but there are no restrictions on Malaysia. Supplying Chinese equipment through Malaysia complies with regulations while expanding sales channels, representing a “win-win” situation. The same applies to materials. For example, silicon wafers, photoresists, and specialty gases are areas where Chinese companies face bottlenecks domestically, but in Malaysia, they can meet local demand through joint production while honing their technology. Connecting Chinese raw materials with the Malaysian market reduces both parties’ reliance on US and European supplies, aligning with the trend of supply chain diversification.
4. High-End Wafer Manufacturing Cooperation: Although establishing high-end wafer factories is not easy in the short term, in the medium to long term, Malaysia’s wafer factory parks will attract investment. Besides American and Japanese companies, whether Chinese wafer factories can settle depends on the political and economic environment. If American companies hesitate while the Malaysian government urgently needs flagship projects, Chinese companies (such as SMIC and Huahong) may become options. However, to avoid provoking the US, Malaysia may prefer Chinese participation in a joint venture rather than sole ownership. For example, in the future, if a global wafer foundry enters, it may invite Chinese capital to participate; or establish a Malaysia-China joint wafer factory to introduce mature Chinese processes (28nm-40nm) to serve the automotive electronics market.
5. Complete System and Downstream Applications: The end of the semiconductor industry chain is the assembly and testing of electronic products, and Malaysia is also a manufacturing powerhouse in this regard (for example, the contract manufacturing giant Foxconn has factories in Malaysia). As chip design, packaging, and testing concentrate in Malaysia, Chinese capital can also extend to end applications, building local integration capabilities from chips to systems. For example, the aforementioned Huawei-affiliated Xfusion collaborates with Malaysian companies to produce GPU servers, manufacturing Chinese advantageous computing power products in Malaysia for international sales. This model can be replicated in other fields: security cameras, communication base stations, automotive electronic modules, etc., which may all be assembled by Chinese capital in Malaysia, entering the international market as “Made in Malaysia”. This not only circumvents some trade barriers but also leverages Malaysia’s lower manufacturing costs. At the same time, with the development of Malaysia’s digital economy, the demand for electronic products is growing, and Chinese downstream enterprises investing here can directly tap into local and surrounding markets. For instance, Chinese photovoltaic inverter and energy storage system factories have already been put into production in Malaysia, and in the future, there may be production lines for mobile phones, computers, and other end products (depending on Malaysia’s labor cost competitiveness).
6. Talent and Education Cooperation: Softly, Chinese capital can also participate in the training of semiconductor talent in Malaysia. For example, Huawei collaborates with local universities to establish ICT colleges, and companies like SMIC can also set up scholarships and internship bases in Malaysia to reserve talent for future employment. If local engineers are well-trained, they can also be dispatched to Chinese global projects, enhancing the company’s international team. This deep-seated talent bond will make Malaysia-China semiconductor cooperation more solid.
In summary, the upgrading of Malaysia’s semiconductor industry provides Chinese enterprises with comprehensive participation opportunities. From design, manufacturing, and packaging to equipment and even end applications, Chinese enterprises can find points of alignment. Malaysia’s neutral and open stance, along with lower entry barriers, makes it an important part of China’s “going out” strategy. Of course, seizing opportunities also requires wisdom, as The Economist stated: “In the reshaped supply chain world, Malaysia must play a reliable and neutral role”. If Chinese enterprises can grow together with Malaysia and achieve mutual success, they will not only strengthen themselves but also bring more resilience and choices to the global semiconductor ecosystem.