Malaysia Could Lose Western Investments Over Project With Chinese Firm – Analysis

By Iman Muttaqin Yusof

Malaysia could risk losing future investments in the technology sector if it aligns too closely with Chinese tech giant Huawei Technologies, which the United States and its allies have accused of espionage and intellectual property theft, analysts warn.

Western firms could think Beijing has an unfair advantage in Kuala Lumpur’s growing tech market, said Asrul Hadi Abdullah Sani, a partner at regional consultant ADA Southeast Asia.

Malaysia’s partnership with the U.S.-blacklisted Huawei to set up the country’s second 5G network “could be perceived as favoring Chinese interests,” he said.

“The Malaysian government may consider Huawei’s partnership a pragmatic economic decision,” Asrul told BenarNews. “However, Western investors might view this differently, especially since several countries, including the U.S., United Kingdom and Japan, have blacklisted the company and view it as a security threat.”

In addition, the partnership with Huawei could trigger uncertainty among international investors, according to Farlina Said, an analyst at the Institute of Strategic & International Studies Malaysia, a research think-tank.

“Considering Malaysia is in phases of strengthening the digital economy and some of the nation’s digital economy development plans come with international collaboration, [the project with Huawei] could create an environment of uncertainty,” she told BenarNews. 

Malaysia plays a significant role in the global technology and semiconductor supply chain, attracting more than U.S. $20 billion from tech giants including Google, Microsoft, Nvidia, Oracle and Infineon over the last two years. 

Chinese company ByteDance, TikTok’s parent, also committed U.S. $350 million to expand its data center operations in Malaysia into a regional AI hub.

Kuala Lumpur hopes that the multi-billion dollars of investments in the technology sector will create thousands of jobs in the country by 2030, according to the government.

Malaysian Prime Minister Anwar Ibrahim views a second 5G network as essential to meet surging broadband demand and attract more global investments amid heightened U.S.-China trade tensions.

The Malaysian Communications and Multimedia Commission conducted a technical and commercial evaluation to choose a mobile network operator for the project, Communications Minister Fahmi Fadzil said last week.

The decision to award U Mobile – Huawei’s local partner – complies with licensing conditions, he said. “The factors for selection include contributions to projects [for rural telecommunication access], as well as performance on 4G upgrade initiatives.” 

The government also reviewed U Mobile’s business and technical plans, customer satisfaction record and prior performance on infrastructure projects, the minister said.

U Mobile, backed by powerful stakeholders such as Malaysia’s king, Sultan Ibrahim Iskandar, and Singapore’s Temasek Holdings, defended itself from criticisms by pointing to its 17-year history in the sector and promising a cost-effective 5G rollout. 

Huawei’s communications team did not immediately respond to a BenarNews request for comment.

Malaysia-China relations

Previously, Anwar said Malaysia was committed to using Chinese technology in its tech infrastructure. 

“We have adopted the policy of getting the Chinese technology, 5G, involved in the development of our country,” Anwar told Chinese President Xi Jinping during his four-day working visit to China last week, his third trip to the Asian superpower since being named prime minister in 2022.

China has been Malaysia’s biggest trading partner since 2009. Bilateral trade between the two countries surged to over $117.5 billion in the first seven months of 2024, state news agency Bernama quoted Chinese Ambassador to Malaysia Ouyang Yujing as saying.

During his Beijing trip, Anwar also met with Huawei executives, discussing the company’s “5.5G” tech, cloud and artificial intelligence applications. 

Espionage concerns

In May 2023, the U.S. and European Union issued a rare joint letter to the Malaysian government cautioning against Huawei’s involvement. A Financial Times report cited a leaked letter from former U.S. Ambassador Brian McFeeters warning that “allowing untrusted suppliers in any part of the network also subjects Malaysia’s infrastructure to national security risks.”

The U.S. has banned Huawei from its 5G networks and European countries have followed suit because of espionage concerns.

Investigators determined Huawei equipment installed near U.S. military bases can intercept and disrupt sensitive defense communications, including those related to the oversight of the country’s nuclear deterrent, Reuters news service reported in July 2022.

Ong Kian Ming, former deputy minister for International Trade and Industry, said the Malaysian government should have been more transparent in awarding the 5G contract to U Mobile. 

“I do not think that having Huawei as the vendor for the second network is necessarily damaging for investor confidence, provided that: (i) the award of that contract is open and transparent and (ii) the [government company Digital Nasional Berhad which oversees Malaysia’s 5G network initiative] remains in place and is performing well,” Ong told BenarNews in a message.

Second Trump term

Meanwhile, a foreign affairs analyst said a second term for U.S. President-elect Donald Trump could mean stricter policies toward Chinese technology abroad. 

“Trump will have greater flexibility and pragmatism in handling China, which might not always be transactional in nature and can also be more direct and forceful,” said University of Malaya’s Collins Chong Yew Keat.