Malaysia moves to protect local firms as cheap Chinese goods fill market

Malaysia is stepping up scrutiny of foreign-run businesses amid concerns from local operators over competition from China. The government wants to retain Chinese investment, technology and affordable consumer goods, while assuring local small and medium enterprises (SMEs) that foreign competitors are not subject to different rules. Former trade and investment minister Tengku Zafrul Aziz, now chairman of the Malaysian Investment Development Authority, said government social media analysis had identified concerns over Chinese businesses as a significant issue before the Johor state election earlier this month. “We did a sentiment analysis one week before Johor. One of the top five issues is China coming in. The survey was done for politics, we just flipped through [it] last week and [it was] still a major issue,” Zafrul told This Week in Asia. He said the issues remained salient even after the poll, in which the Barisan Nasional (BN) coalition, long dominant in Malaysian politics, won a supermajority in the state legislature at the expense of federal partner Pakatan Harapan, led by Prime Minister Anwar Ibrahim. While consumers in Malaysia benefit from cheaper Chinese products and faster services, local SMEs say they are struggling to match mainland competitors’ scale, supply chains and pricing. A survey of business owners and senior managers in November last year by the Associated Chinese Chambers of Commerce and Industry of Malaysia found that 45.1 per cent of the 245 respondents were pessimistic about their industry’s ability to compete with Chinese firms over the next five years. Some 70.9 per cent described the competition as intense or very intense. Price pressure was the most commonly reported effect, at 86.4 per cent, followed by loss of market share at 61.2 per cent. Another 52.9 per cent said the presence of unlicensed operators had created an uneven playing field. The concerns carry political weight because micro and SMEs are central to Malaysia’s economy. In 2024, they accounted for 96.1 per cent of business establishments and hired 8.1 million people, or 48.7 per cent of total employment, according to official statistics. Zafrul said the pressure was being felt in services ranging from interior design and retail fit-outs to car servicing and photography. In renovation work, for example, he said Chinese companies could measure and simulate a site design quickly, send orders to the mainland for fabrication, and deliver completed fittings at a price and speed local firms struggled to match. “There’s a problem, right? Because the consumer, they are happy. The local SMEs are upset,” he said, adding that open economies required a “careful” balance. Instead of restricting the market, he suggested Malaysia should help local firms improve productivity, adopt technology and reduce reliance on foreign labour. “We need to help by getting them up, rather than close down the economy, and invest in our companies to be more productive.” From studios to furniture In Melaka, wedding photographer Jordison Tan said although clients still preferred local operators for actual-day event photography, the impact of foreign Chinese competition was most visible in pre-wedding, portrait and costume shoots. China-based teams had increased competition for heritage-style shoots using Melaka’s Peranakan backdrops, he said. Some advertised packages from US$73 on popular social media platform RedNote, then charged separately for editing, selected photo files and other add-ons. “It has been bad for pre-wedding and portraiture, because they can offer very low prices, and it’s distorted the market because new clients come in thinking that’s the price,” Jordison said. The same issues have also emerged in furniture retail. Yeoh Tze Siang, a Penang-based furniture retailer and installer, said direct sales on Chinese platforms such as Shopee, Lazada and Pinduoduo had changed a market once dominated by local stores. “Before the pandemic, competition was mostly between local stores,” he said. “Even [with] price competition, we had a bottom line that we would not cross.” As online sales grew, customers began photographing furniture in his showroom and searching for cheaper similar-looking products online, Yeoh said. His business has been badly hit since 2023, pushing firms like his further towards installation work – where workers often encounter shoddily made items such as cabinets with thin or warped back panels that need reinforcement. “They are cutting corners just to move products. Malaysians are happily buying it because it’s cheap.” Yeoh said he could not verify what testing or regulatory checks individual products had undergone. “The government should look into [online platforms] and limit those coming in. There are many Chinese companies ‘collaborating’ with locals to enter the market. But nothing is done to care for direct purchases through legal channels.” ‘Not an easy balance’ The government’s challenge is to respond to local SMEs without removing the consumer benefits of an open economy, Zafrul said. A purely market-based answer, such as asking businesses to improve productivity and efficiency, was unlikely to satisfy politically. “If we say that, voters will say then next election we’ll make sure you’re voted out,” he said. Broad restrictions could also provoke a consumer backlash and raise prices. “If you stop it, the consumer is angry, the inflation goes up. It’s not an easy balance,” Zafrul said. Putrajaya has framed the issue around compliance and fair competition rather than a problem with Chinese businesses specifically. In June, Anwar ordered a nationwide, multi-agency crackdown on illegal business activity involving foreign nationals, including alleged abuse of tourist and student visas and the unlawful acquisition or misuse of business licences. Deputy Finance Minister Liew Chin Tong said then the effort was to ensure a level playing field and full compliance with Malaysian laws and regulations. Last month, Economy Minister Akmal Nasrullah Mohd Nasir said the government was considering possible legal changes to tackle illegal foreign business activity – such as immigration-pass abuse, proxy arrangements with local vendors and leasing of business licences. Planned responses include stronger vendor compliance checks, agency data sharing, risk-based monitoring and greater industry capacity to identify and report such activities. Enforcement was also high on the list for respondents to last year’s chamber survey, with 75.7 per cent calling for stronger action against abuse of Malaysia’s visa-free facility and work-permit systems, and 55.8 per cent supporting enhanced guidelines on local participation and inclusion in supply chains. ‘Need to adapt’ Some politicians have called for more forceful measures too. Lawmaker Tan Kar Hing urged the government to suspend e-commerce platform Pinduoduo’s Malaysian operations until an effective cross-border anti-dumping mechanism was created. In a social-media post on Monday, the Gopeng MP said the factory-to-consumer model allowed overseas manufacturers to sell directly to Malaysian consumers at prices local manufacturers, wholesalers and distributors could not match. He proposed local data-storage requirements for cross-border platforms, as well as mandatory partnerships with Malaysian manufacturers, suppliers and logistics providers, alongside technology transfer and SME training. “The suggestion … is not blind protectionism, but an adjustment period to ensure local SMEs can compete in a fair, transparent and balanced environment, rather than be killed directly by price wars,” Tan said in his post. Malaysia could no longer depend on lower wages as its main competitive edge, said economics analyst Geoffrey Williams. “The competition from cheaper Chinese products is mostly a legitimate cost advantage, rather than unfair practices,” the visiting fellow at Universiti Malaya said. “What is often described as dumping because of the large volumes involved is now mostly a production advantage.” China’s economies of scale were “simply a reality of the competitive environment”, he said. Williams warned that protectionist intervention would harm consumers and prove unsustainable in the long run. “Businesses need to adapt, not rely on protection.”

Malaysia moves to protect local firms as cheap Chinese goods fill market

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Investment authority chairman Tengku Zafrul Aziz says Putrajaya has to strike a balance between an open economy and helping local firms

Investment authority chairman Tengku Zafrul Aziz says Putrajaya has to strike a balance between an open economy and helping local firms