Chinese companies seek assurances from Malaysia on avoiding US tariffs

Chinese executives have been meeting top government officials in Malaysia to seek assurances that they can avoid US tariffs if they relocate manufacturing to the south-east Asian country.

The companies have asked Malaysian ministers and senior officials to lobby Washington against imposing tariffs on products made or assembled in Malaysia by Chinese groups, according to three people familiar with the matter.

The requests made by battery, medical devices and semiconductor companies come after the US said it would raise tariffs on Chinese goods in order to protect American manufacturers.

Chinese companies have shifted production to south-east Asian countries such as Malaysia, Vietnam and Thailand, which are not subject to the same duties. This has fuelled foreign investment from China, but there is uncertainty over whether the Biden administration will introduce new tariffs on Chinese-made goods in the region.

In June, China-based lithium battery producer Eve Energy met Malaysian ministers and the Malaysian Investment Development Authority to seek assurances on avoiding tariffs ahead of a planned expansion in the country, according to a Malaysian government official.

“They want guarantees but it is impossible for us to provide them with that,” said the official. “We can . . . and do lobby but there is no way [of knowing] what the US will do in the future. We are still trying to work that out ourselves.”

Eve, which sends roughly 20 per cent of its exports to the US, did not respond to a request for comment.

Another Malaysian government official said they had received personal visits from “dozens” of Chinese semiconductor executives this year seeking clarification on whether they could legally sell goods to the US if they were based in Malaysia. They also asked if they could access sophisticated US chips.

Malaysia accounts for 20 per cent of US semiconductor imports annually — more than Taiwan, Japan or South Korea, according to US Census Bureau data for 2023.

US export controls include a ban on “US persons” — American nationals and companies — providing direct or indirect support to certain advanced chip factories in China.

“Sometimes they fly in just for one day,” the official added. “They ask us if they can access or use US chips or GPUs [graphics processing units] in Malaysia if they establish an entity or domicile here or in Singapore.”

There has been an explosion of Chinese companies opening factories over the past 18 months in Penang, a state in Malaysia that has specialised in semiconductor manufacturing since the 1970s.

Johor, a Malaysian state known for its industrial and manufacturing sectors, has also experienced a surge in inquiries from Chinese companies.

Johor executive councillor Lee Ting Han said the head of a Chinese medical devices company had recently asked for advice on whether the company would have to pay tariffs after moving manufacturing from China to Malaysia, showing him an Excel spreadsheet listing his equipment. The company was also considering Mexico, said Lee.

The Biden administration is raising tariffs on syringes, needles, medical and surgical gloves and other medical equipment from China.

“I told them the answer is no for now,” said Lee, “but it is difficult to say whether that can continue. The US could suddenly change its policies. We have no control over that.”

Malaysian Prime Minister Anwar Ibrahim has shifted closer to China, Malaysia’s biggest trading partner, but considers Washington an important ally.

Ahead of a visit from Chinese premier Li Qiang, Anwar last week announced a plan to join the Brics bloc of Brazil, Russia, India, China and South Africa.