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Chinese companies are shifting their approach, viewing the Malaysian state of Penang more as a strategic global launchpad rather than just an overseas manufacturing hub with tariff benefits, according to the CEO of InvestPenang, the primary investment promotion agency for the region.
“When I spoke with several companies this week, they all emphasized ‘China for China and Penang for the world,’ which I believe is now their new strategy,” she stated during her visit to China, where she and her team toured 14 firms across six cities, including Shanghai, Shenzhen, and Wuxi.
Initially, the first wave of Chinese firms relocating to Penang after the US-China trade tensions intensified in 2018 and 2019 mainly focused on quickly shifting production processes.
“At that time, many manufacturers responded rapidly to new tariffs by relocating. Their methods were often hurried, with less thorough site evaluations, and they tended to move lower-value products,” she explained.
However, over the past year, a noticeable shift has occurred, with higher-end semiconductor companies within the supply chain choosing Penang as part of a more strategic, long-term plan. They are now considering factors beyond just tariffs.
Foreign direct investment in manufacturing in Penang increased approximately 22% to CNY 21.4 billion (USD 3.0 billion) in the first nine months of the year compared to the previous year, with China ranking as the second-largest source of investment, according to data from InvestPenang and Malaysia’s investment authority.
The companies she met with this month are predominantly high-end semiconductor firms with clear international expansion plans. “All of them aim to operate beyond China,” she said. “They possess sophisticated branding, and some are owned by second-generation entrepreneurs with global ambitions.”
For example, Jingsheng Mechanical and Electrical, also known as JSG, a leading Chinese firm specializing in advanced materials and equipment for semiconductor and solar industries, announced in July that its subsidiary, SuperSic, would establish a factory in Penang’s Technology Park in Bertam with an annual capacity of 240,000 silicon carbide wafers.
Similarly, Trensor, a Chinese maker of pressure sensors for automotive and industrial applications, revealed in April that it would open its first overseas factory at the Penang Technology Park. “Our investment in Malaysia isn’t just about transferring production, but a vital step in our global expansion plan,” said Stephen Zhou, director of Trensor’s Malaysian branch.
Contrary to common belief, lower costs are not the primary motivator for Chinese companies selecting Penang. “We are not the cheapest option for Chinese firms,” she pointed out. “Everything in China is far more affordable due to the scale of labor and skills.”
Instead, Penang’s appeal lies in its neutrality, extensive international expertise, well-developed ecosystem, and R&D capabilities, especially among engineers. The region hosts over 350 multinational companies, including more than 80 Chinese firms, with leading semiconductor players like Intel and AMD.
“We provide a highly international environment,” she said. “Our supply chain, especially in semiconductors, is highly mature, and the workforce is well-trained in this industry.”
“Chinese companies can come to Penang and start operations immediately, fast-tracking their global growth ambitions,” she added.
While Penang’s semiconductor exports have so far been spared from US tariff measures, she remains cautious about this advantage lasting. Tariff risks have become a new normal, but she emphasized that tariffs shouldn’t be the only factor influencing investment decisions.
“Malaysia maintains a neutral stance, which is a strategic advantage for us,” she explained. “It provides a stable, impartial location for both Western and Chinese firms, especially as policy risks continue to rise globally.”
Researcher Chen Liu from Nanjing University, who conducted field studies in Penang this year, noted that US tariffs are prompting Chinese manufacturers to consider overseas production. However, he warned that a strategy focused solely on market access in the US can carry significant risks.
When Chinese firms scale up exports to the US via other countries, there’s a considerable chance that the US could extend tariffs to those nations as well. Some companies have attempted direct US investments, but labor shortages and visa restrictions, especially in skilled engineering roles, remain obstacles.
She emphasized the importance of long-term investments in the local ecosystem rather than short-term relocations. “We have longstanding investors like AMD, Intel, and Bosch, which have been in Penang for over 50 years,” she said. They initially focused on manufacturing, then gradually expanded into local talent development, supply chains, and R&D.
“Chinese companies are starting to realize that sustainable success requires investing in local talent and infrastructure,” she stated. “To truly thrive, they need to engage with the ecosystem and collaborate extensively.”
Historically, Penang has been a hub for semiconductor assembly and testing. But Malaysia aims to elevate its industry by moving into higher value segments like integrated circuit design, advanced packaging, and automated testing equipment.
“IC design now accounts for roughly 60% of the semiconductor value chain,” she explained. “We see Chinese and other Asian firms investing heavily in advanced packaging and automated test equipment in Penang.”
Talent development remains central to these ambitions. Penang’s multilingual workforce and established manufacturing foundation provide a solid platform for growth.
“We assess projects based on their products, technology, sustainability, and future potential—not on whether they are Western or Chinese,” she noted.
“Our goal is to position Penang as the region’s high-tech hub for global investors. Whether from the East or the West, everyone is welcome,” she added. “We have long been recognized as the Silicon Valley of the East.”
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