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Vincent Tan

Malaysia is finding it increasingly difficult to stay neutral in the US-China rivalry as the superpowers lock horns over trade, investment and the security of advanced technology, according to a top government adviser.
“They don’t make us take sides when it comes to foreign policy,” Tengku Zafrul Aziz, senior political adviser to Malaysia’s Prime Minister Anwar Ibrahim, told This Week in Asia. “They ask me to take sides when it comes to security of technology.”
Malaysia’s solution was conditional neutrality, he said, backed by stronger regulations, closer scrutiny of sensitive technologies and assurances that neither side’s hardware or know-how would end up in the other’s hands.
The challenge is particularly acute for Malaysia’s growing data-centre sector, with policymakers needing to convince Washington that advanced US artificial intelligence chips will not be diverted to China, while assuring Beijing that tighter controls do not amount to choosing sides.
They ask me to take sides when it comes to security of technology
Tengku Zafrul Aziz, political adviser
“Today the first question I always get asked is whether Malaysia is aligned with China or the US,” said Zafrul, a former finance minister who also served as Malaysia’s trade chief from 2022 to December last year, “Companies then make decisions based on that [answer]. It used to be driven by efficiency, cost, but now it’s driven by alignment.”
Last year, Washington alleged that Chinese engineers had circumvented US export controls by renting Malaysian data-centre capacity equipped with high-end Nvidia chips to train AI models.
Malaysia responded by imposing tighter restrictions on the export, transshipment and transit of high-performance AI chips of US origin.
Zafrul argued that such controls made Malaysia a more attractive, trusted location for the deployment of advanced hardware, turning compliance into a competitive advantage.

Abdul Halim Md Lassim, group COO of HeiTech Padu, a Malaysian data-centre and cloud service operator, said security, resilience and environment, social and governance compliance were factors investors increasingly prized.
“Malaysia remains well-positioned for growth because of its location” and government agencies’ efforts “to strengthen the digital economy”, Abdul Halim said.
‘Catch-all’ controls
American technology companies continue to design many of the most sought-after AI chips, allowing the US government to set the regulatory standards and export controls governing their sale.
In July last year, Malaysia issued a directive under its Strategic Trade Act 2010 to establish “catch-all” controls on unlisted goods, requiring trade permits for US-origin AI chips if businesses suspect shipments could be diverted for restricted activities.
Under the directive, anyone exporting, transhipping or moving specified advanced AI chips through Malaysia must give 30 days’ notice if they know, believe or have reason to suspect the chips could be linked to such activity. The Strategic Trade Secretariat then decides whether a permit is needed.
The provision, originally written to prevent the proliferation of weapons of mass destruction and their delivery systems, also regulates “intangible transfers of controlled technology”, according to legal experts.


It could in theory “cover controlled technology, software or know-how transferred through digital or data-centre environments, even where no physical hardware crosses a border”, customs and trade lawyers Jeff Sum and Chloe Ng at Wong & Partners said in a joint response to questions.
The rules allowed Malaysian regulators to demand access to documents and digital records when a breach was suspected, they added, but a lack of legal precedent meant that “how they would be applied in practice … remains largely untested”.
Privacy vs compliance
Farlina Said, director of cyber and technology policy at the Institute of Strategic and International Studies Malaysia, said controlling chip usage would still leave data-centre operators with little visibility into what clients actually did with rented computing capacity.
“This makes it difficult to provide the end-user assurance sought by technology-owning countries,” she said. “Moreover, forcing operators to inspect computing activity too closely might also run into privacy concerns.”
Data-centre operators could be expected to “conduct appropriate customer due diligence, but they cannot realistically know every downstream AI workload running on their platforms”, Abdul Halim said.
He added that operators had a responsibility to respect customer confidentiality and data sovereignty while providing secure and compliant infrastructure.

Farlina suggested Malaysia could build credibility as a host for sensitive technology by setting clear, technology-neutral standards covering cybersecurity, data protection and information-systems management.
“We have to think about our own capability to detect and enforce, our own capability to detect, think about our capabilities to build the ecosystem that we want,” she said, noting that Malaysia was still trying to make the move from technology adopter to technology developer, while relying on systems and components from the US, China, Japan, South Korea and elsewhere.
Politics complicates matters further. What one government considers a national security threat may not be viewed the same way elsewhere, complicating enforcement when export controls change.
Malaysia needed a framework that was “welcoming but also structured”, Farlina said, because businesses sought stability to operate in an open trading economy.
Abdul Halim said a trusted-host model should be based on “governance, security and openness rather than geopolitical alignment”, adding that HeiTech aimed to remain technology-agnostic while complying with applicable laws.
The anxieties run both ways: as Malaysia has pushed to process rare earths domestically rather than simply export the raw ore, Zafrul says Chinese investors have raised their own version of the same concern – that their processing technology could leak to competitors.
“They want to ensure that the technology they bring in is protected,” he said, adding that Malaysia’s approach was to stay open to investment while strengthening safeguards for sensitive technology.

Political ambitions
As for Zafrul, since his Senate term ended last year, he has made clear he intends to seek elected office.
“I’ve stated clearly, publicly as well and of course to the prime minister … that I intend to contest,” he said when asked about his political aspirations. “I hope I will be given the opportunity.”
Zafrul said he would leave it to Anwar and the People’s Justice Party (PKR) to decide whether he runs for a parliamentary or state seat. He has previously been linked to the parliamentary seat former economy minister Rafizi Ramli vacated when he quit the party earlier this year.
“I’m OK … Parliament, state or both,” he said, adding that he had joined the multiracial PKR because he supported parties campaigning on policies and issues, rather than “weaponising race and religion”.
Before entering government, Zafrul was a career banker and group CEO of CIMB, one of Malaysia’s largest banking groups, from 2015 to 2020. He became finance minister under Malaysia’s eighth prime minister, Muhyiddin Yassin, in March 2020 and retained the portfolio under Muhyiddin’s successor Ismail Sabri Yaakob.
Zafrul previously contested the Kuala Selangor parliamentary seat in 2022 as a candidate for the United Malays National Organisation, which he joined in 1997. He left Umno in May last year to join PKR.


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‘Take sides’? Malaysia insists on conditional neutrality amid US-China tech rivalry

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To keep US chips and Chinese capital flowing, Malaysia is working overtime to reassure both Washington and Beijing


To keep US chips and Chinese capital flowing, Malaysia is working overtime to reassure both Washington and Beijing.


‘Take sides’? Malaysia insists on conditional neutrality amid US-China tech rivalry

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}To keep US chips and Chinese capital flowing, Malaysia is working overtime to reassure both Washington and Beijing

To keep US chips and Chinese capital flowing, Malaysia is working overtime to reassure both Washington and Beijing