Prospect of Malaysia as the Gateway for Taiwan’s New Southbound Policy (NSP) Push

Written by Karl Chee Leong Lee.

Image credit: 05.05 總統接受印度、印尼、馬來西亞、菲律賓、新加坡及泰國等六國媒體聯訪  by 總統府/Flickr, license: CC BY 2.0

Despite lingering pessimism surrounding the impact of COVID-19 on Southeast Asia’s economy, Malaysia has unexpectedly enjoyed a new wave of Taiwanese investment. According to official figures released by the Malaysian Investment Development Authority (MIDA) last April, the value of inbound manufacturing-based investment from Taiwan has increased seven-fold. In 2019 Taiwan became the fourth largest FDI source for Malaysia’s manufacturing sector after China, the US and Singapore.

At the same time, Taiwan’s bookstore chain, Eslite, is also planning to expand to Malaysia next year and if this plan is realised, it will be the conglomerate’s first ever store in Southeast Asia. Beyond its huge investment value, Eslite’s presence is expected to bring with it the island nation’s unique reading culture, along with its uniquely eclectic mix of services which range from cafes, dining and music, to public events and shopping. While Malaysia has seen a few Taiwanese bookstores sprouting in the local market for the past years, it has yet to experience such a wide-range of services such as those offered by Eslite.

Given the fact that Malaysia had been ‘left behind’ by Taiwanese investors who for the last 10 years had prioritised the emerging markets of Vietnam and Myanmar, the aforementioned developments look set to re-position the country back into its former status as one of Taiwan’s most important partners, as it was in the 1990s. With the US-China trade war and COVID-19 pandemic, Malaysia’s potential as an attractive destination for the Taiwanese investors should be seriously explored as a means to reduce dependence on the Chinese market.

Malaysia as Gateway for NSP’s Three Key Links

Contrary to recent pessimism about the New Southbound Policy (NSP) that has been brought up by certain quarters, these two developments show that the NSP’s success should not be measured solely by the metric of bilateral trade figures. A comprehensive view of the NSP’s progress in the case of Malaysia reveals that the country is well-positioned to play the role as the gateway for building three of the types of links with the region outlined in the NSP’s policy vision (I.e., soft power links, supply chain links, links between regional markets, and people-to-people links).

As far as supply chain links are concerned, both Malaysia and Taiwan have the opportunity to establish new supply chain ties in the information and communication technology (ICT) sector. With Malaysia striving to achieve the capacities outlined in its Fourth Industrial Revolution (IR4.0) vision, Taiwanese companies are natural resource providers for the Malaysian firms which are devising application solutions to meet the needs of local consumers. In the last Taiwan Expo, Advantech announced that it is looking to establish Malaysia as the ICT hub for other Southeast Asian players to come in and tap on the Malaysian firm’s domain-focused solutions which can be adapted to meet their own countries’ needs. Taiwanese business partners can provide Advantech technological resources like software for running its applications, and the Malaysian company could in turn potentially link its Southeast Asian clients with its Taiwanese partners. If such supply chain ties are replicated to other Malaysian tech players, this will help to reinforce Malaysia as an ICT hub for Taiwanese providers looking to venture into other ASEAN markets.

As for links between regional markets, the goal of promoting online links with Southbound countries remains Taiwan’s best bet in response to the digitalisation needs prompted by the impact of the COVID-19 pandemic. Instead of competing squarely with its Northeast Asian peers China, South Korea and Japan for massive infrastructure projects in ASEAN countries, Taiwan should aim for niche infrastructure projects that can capitalise on its ICT capabilities in Southeast Asia. On this front, smart cities cooperation projects such as that between Malaysia’s Selangor state government and Taiwan’s Taipei city government is a model that can be expanded upon by the Tsai Ing-wen administration.

In the context of Malaysia, Taiwan should consider expanding the Selangor-Taipei model of cooperation to other economically advanced states of Malaysia. The other best candidate will be Penang, which has joined WeGo, a South Korean-led organisation set up for the global promotion of smart, sustainable cities. Taiwan could consider promoting a similar arrangement between a Taiwanese industrial/creative city (Hsinchu or New Taipei) and Penang which will give it a strategic opening for further smart cities cooperation ventures with other WeGo network members in Southeast Asia: Thua Thien Hue, Cauayan, Batam, Riau, and Baguio. Through participation in this global scale subnational cooperation scheme, Taiwan will not only be able to put its ICT into good use within the Southeast Asian localities, it will also be positioned to circumvent pressure from China if the island nation tries to participate formally in the regionally-based ASEAN Smart Cities Network (ASCN).

Finally, people-to-people links between Malaysia and Taiwan can also be strengthened in the areas of tourism and culture. Tourism wise, it is obvious that the Malay Muslim community has become a growing market that augments the long-standing Malay-Chinese market. Taiwan’s success in this area should be credited to its localised marketing strategy which fostered a general perception of the island nation as a Muslim-friendly destination in the Asia-Pacific region akin to Japan. The same marketing model can be adapted to Malaysia’s neighbours Indonesia and Brunei, which could help Taiwan make inroads in exploiting the potential market of 242-million Southeast Asian Muslims.

In terms of culture, Malaysia can also become the gateway for developing Taiwan’s cultural cooperation with other ASEAN countries. In my discussion with the leaders of the globally recognised think tank the Taiwan-Asia Exchange Foundation (TAEF), a network of heritage cities is well on the table for further exploration. For instance, a cultural bubble can be formed by bringing together Tainan, Melaka and Ambon into a network of heritage cities ⸺ on the basis that these cities share not only a rich ancient heritage, but also Portuguese and Dutch influences. As a first step, the Tainan municipal government can start exploring a plan with the Melaka state government, and later enlist the latter’s support to promote this network to the Maluku provincial government.

In the four aforementioned areas of cooperation Malaysia stands to be a promising gateway for Taiwan’s NSP push in Southeast Asia. Realising cooperation entails converting resources pertaining to these four areas into practical, sustainable and reliably beneficial outcomes for ASEAN countries. This, in turn, will help establish trust among Southeast Asian countries that Taiwan is coming in as an equal partner and high-quality contributor to the former’s socio-economic progress. This could serve as the overarching soft power link which Taiwan seeks to achieve with NSP countries.

A recipient of the Taiwan Fellowship 2020, Karl Chee Leong Lee is currently a Visiting Fellow at the Center for Southeast Asian Studies (CSEAS), National Chengchi University (NCCU). He is also an Associate Fellow of the Institute of China Studies (ICS), University of Malaya.

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