PETALING JAYA (Bloomberg): An accelerating influx of tech investment is transforming local economies in Malaysia and Vietnam.
Caravans of sand-filled trucks and bright red cranes punctuate the skyline of a rapidly expanding industrial complex in northern Vietnam. Further south in Malaysia, quiet villages and palm oil plantations are metamorphosing into heavy-duty technological manufacturing estates.
As multinationals, governments and startups rush to develop AI, establish chipmaking hubs and carve out access to raw computing power, the fallout from escalating Beijing-Washington tensions is seeding the tech nerve centres of the future in Southeast Asia and transforming the towns that surround them.
More than US$100bil in foreign direct investment has coursed through Malaysia and Vietnam from 2020 through 2023, with tens of billions more to come. The growth is resulting in job gains and rising incomes. But property prices and demand for power are increasing, and many of the best jobs are going to foreign workers.
“The US-China tensions under Trump 1.0 increased incentives for multinationals to have a China +1 strategy,” said Ong Kian Ming, a former Malaysian trade and investment deputy minister.
The region is at the heart of a shift that began during the Covid-19 pandemic and is changing the way the world’s smartphones, computers and data centre servers are made. Washington’s clampdown on Beijing’s tech ambitions drove companies to explore production in places as close as Mexico and as far as Southeast Asia, enriching countries where labour is abundant and governments are supportive.
“Covid-19 and the business environment in China expedited these moves, with Trump 2.0 letting the holdovers know that there is no turning back,” Ong said.
That optimism comes despite much broader tariff threats from President-elect Donald Trump this time around, which are complicating the investment environment beyond China. The US president-elect has vowed to impose universal tariffs, and his nominees for key economic positions have proposed targeting Chinese companies that set up shop in third countries, including those in Southeast Asia.
Governments across the region are already moving to shield themselves from Trump's tariffs. Vietnam, one of the biggest beneficiaries of Chinese off-shoring, has already pledged to buy more aircraft, liquefied natural gas and other products from the US. A Malaysian official this week said he warned Chinese companies against investing just to avoid American tariffs.
At the same time, nations are continuing to do everything they can to boost a region set to collectively become the world's fourth-largest economy.
“Malaysia sees this as a once-in-a-lifetime opportunity of escaping the middle-income trap and soon achieving its aspirations as a high-income nation,” Chow Kon Yeow, the chief minister of Malaysia’s Penang state, told Bloomberg.
Labelled an upper middle-income nation by the World Bank, with the highest GDP per capita in Southeast Asia by a wide margin after Singapore and Brunei, Malaysia accounts for 13% of the world’s share of chip testing, packaging and assembly. It is now expanding its chip manufacturing capacity.
Just across Vietnam’s border with China and about an hour’s drive from Hanoi, the province of Bac Ninh allows for an easy flow of people and trade. With more than 37,000 new jobs in the four years through 2023, it is fast evolving into a high-tech industrial hub.
Foxconn and GoerTek Inc., key suppliers to Apple Inc., Microsoft Corp. and Sony Group Corp. are among companies that have poured more than US$20bil into this town in the last decade, making critical products that range from AirPods to printed circuit boards.
GoerTek is building out its 127-acre (51-hectare) complex that will employ 50,000 workers. Advertisements abound on local websites, seeking a spectrum of candidates from low-skilled part-time work to senior engineering management positions.
Businesses in Bac Ninh sought candidates for 15,500 jobs through the local employment service platform in the first quarter of this year, up more than 50% from a year ago.
But a qualified workforce remains a challenge, and many of the lucrative assignments are going to Chinese expats.
“A new workforce with new skills is needed in order to meet the requirements of those firms,” said Nguyen Duc Cao, deputy head of Bac Ninh Industrial Zones’ management board.
A pre-requisite for a chip engineer is a bachelor’s degree, but most workers in Bac Ninh are high-school graduates with some vocational training, Cao said.
Vietnam aims to have 50,000 chip engineers by 2030 and is encouraging people to enrol in upskilling programs. Provinces are providing incentives, such as better access to social housing and medical services, to instructors and students in training programs.
The government is also rushing to stabilise power supplies a year after outages caused losses of hundreds of millions of dollars to multinational manufacturers. Large-scale solar rooftop panel projects and programs to generate power from water and waste are underway, while coal plants remain a large part of the solution.
Penang Island sits on the Strait of Malacca, one of the world’s busiest shipping routes and the main channel between the Indian Ocean and the Pacific Ocean. It links major regional economies such as India, Singapore, China, Japan, Taiwan and South Korea.
Not far from its capital George Town, a bustling port with twisting alleys and pastel-painted rowhouses that double as storefronts, Penang ships out more than half of Malaysia’s chip exports.
Since the 1970s, Malaysia has embraced technological advancement and invited foreign investment by attracting major players including Californian chip equipment makers Intel Corp. and Lam Research Corp. The country established a free-trade zone in Penang, provided tax incentives, and offered an affordable English-speaking labour force.
“The key thing is that Malaysia wants to have the best,” said Wong Siew Hai, President of Malaysia Semiconductor Industry Association. “To have that, we have to make sure that, number one, we stay neutral. Not aligned, without any constraints or hesitation, invite, attract and collaborate with any country.”
Much of Southeast Asia is trying to steer clear of picking sides in the US-China divide. The region is even courting Chinese companies affected by the US curbs on chip exports that have made the most advanced AI and memory chips increasingly inaccessible for developers in China.
Moving out of China could also allow companies to bypass origin-specific trade restrictions, further accelerating a bifurcation in the global supply chain.
“Trump’s escalation to target nationality of firms rather than their location could soon result in a world where there are two supply chains for many products - one for the US and other markets that penalise value addition in China, and another for the rest of the world,” said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute.
“This is a highly inefficient outcome as the gains from scale economies will be compromised, leading to higher prices for all,” Menon said.
Inbound foreign investment in the long-standing electronics manufacturing hub of Penang has accelerated since 2019, nearly tripling from the decade before RM195bil (US$44bil).
Intel is close to completion on its first overseas facility for advanced 3D chip packaging as part of its US$7bil expansion plan. Lam Research’s 800,000-square-foot campus is set to become its largest in terms of capacity and processing capability.
“The most obvious place to see this difference is in Batu Kawan,” said Lee Lian Loo, the chief executive of Penang’s investment agency. The adjacent mainland, formerly home to lush rubber plantations, is now home to American data storage companies Western Digital Corp. and Micron Technology Inc. Its maiden industrial park is expanding.
The residential property market is also booming; it is now home to the only IKEA store in Malaysia’s northern region, and houses the nation’s largest outlet mall.
Previously home to low-value processes for less advanced chips, the nation is now hosting manufacturers for more advanced chips used in smartphones and AI servers.
Living standards and wages are rising, at least on paper. The state’s gross domestic product per capita has grown 38% since 2018.
The neighbouring and largely agricultural state of Kedah, less than an hour’s drive from the crowds of Penang island, is also an emerging home to factories. Infineon Technologies AG in August opened a €7bil (US$7.8bil) plant to churn out silicon carbide power-management chipsets there.
Malaysia has ample power, at one of the smallest price tags in Southeast Asia and a third of the rates for commercial electricity in Singapore.
This makes it an attractive destination — a ChatGPT request can require 10 times more power than a Google search, according to the International Energy Agency. To cope with the increasing power demands, some of the nation’s biggest palm oil producers such as SD Guthrie and IOI Corp. are turning swathes of plantations into large-scale solar plants.
“The people of Penang will benefit from high-skilled jobs created as well as improving infrastructure within the vicinity,” said Chow, Penang’s chief minister. “Moreover, our emphasis in this realm will also create multiplier effects across different sectors, including logistics, transportation, manufacturing, and services.”
But even as labour costs are significantly lower in Southeast Asia than in China, suppliers face challenges. Malaysia has pledged to train 60,000 engineers to fill the hundreds of thousands of new jobs that will emerge in the coming years. In northern Vietnam, many of the high-skilled workers are Chinese.
Ninh last year, when his manager asked him to help the circuits board firm in Dongguan — an electronics manufacturing hub in China — to set up a new plant in the Vietnamese province one-third the size of his home city.
His employer is one of many Chinese suppliers moving operations due to mounting pressure from their American customers, or to keep pace with supply-chain partners who are moving into Southeast Asia. The 27-year-old arrived in Bac Ninh to find himself surrounded by Chinese component makers, assemblers and logistics firms, earning it the moniker ‘Little Dongguan.’
With a rough count of 10,000 expats, China accounts for the largest proportion of foreigners living in Bac Ninh.
Meanwhile, Malaysia’s southernmost state Johor, with a capital that is walkable from neighbouring Singapore, is the next boomtown in the making.
Its western suburbs are quietly powering some of the world’s most sophisticated artificial intelligence models. Rows of vivid green palm trees laden with crimson fruit have given way to boxy concrete buildings, humming with tens of thousands of Nvidia Corp. GPUs. “We are building the backbone of a technology boom,” said Lee Ting Han, an executive council member in charge of investments in Johor.
Its emergence as a data centre market was triggered by Singapore’s temporary moratorium on new data centres at the turn of the decade, a move that was aimed at dealing with energy constraints. “Now Johor is seen as a market on its own and no longer the effects of Singapore’s spillover,” said datacenterhawk analyst Joelyn Chong.
Nvidia is partnering with a local conglomerate to create a US$4.3bil artificial intelligence cloud and supercomputer facility. Microsoft is investing US$2.2bil in cloud computing and AI services.
While a few thousand new jobs have emerged, officials say a bigger transformation is on its way. A Special Economic Zone under development with Singapore, which would be nearly twice the size of China’s Shenzhen, is expected to create 100,000 new jobs.
“We have an advantage in the sense of 50 years,” said Wong of the Malaysia Semiconductor Industry Association. “However we cannot be complacent.” - Bloomberg
