China's Smart Manufacturing Empowers Penang's Upgrade: FMM Penang Chairman

By Sharon Hu, 21st Century Business Herald, SFC

"If Penang of Malaysia and China can leverage their complementary strengths, we will be able to build a complete semiconductor industry chain, which presents an excellent cooperation opportunity for both sides," said Dato’ Seri Lee Teong Li, Chairman of Federation of Malaysian Manufacturers ( FMM) Penang Branch in an exclusive interview with 21st Century Business Herald.

China has remained Malaysia’s largest trading partner for 16 consecutive years, while Malaysia is China’s second-largest trading partner and top import source country within ASEAN. According to China’s customs data, bilateral trade volume between China and Malaysia reached US$212 billion in 2024, nearly a thousandfold increase compared with the time when the two countries established diplomatic relations. Cooperation potential between the two nations has continued to unlock across digital economy, green development, industrial investment, transportation infrastructure construction and other sectors.

Penang serves as a compelling example. Its industrial strengths lie in downstream segments – namely, semiconductor packaging, testing and assembly; Chinese partners, by contrast, hold greater advantages in the upstream of the industrial chain, such as chip design. Lee stated that Chinese enterprises and local Malaysian firms could carry out in-depth cooperation in research and development, innovation and industrial chain resilience building, driving Penang’s manufacturing sector to move towards a higher level of development.

Lee was particularly impressed by the development of China’s new quality productive forces, noting that China stands at the world-leading level in the Industry 4.0 era, especially in artificial intelligence and automation technologies. He believes that Chinese enterprises are fully capable of supporting Malaysia in developing new quality productive forces.

"The introduction of cutting-edge technologies such as AI from China will help Malaysia further reduce its reliance on foreign laborers, enabling the country to better develop smart manufacturing and achieve digital transformation in the future," he added.

(Dato’ Seri Lee Teong Li, Chairman of Federation of Malaysian Manufacturers ( FMM) Penang Branch Photo/ Xiao Hang)

Foreign Investment Drives Malaysia's Economic Transformation

SFC: Malaysia is currently committed to accelerating the transformation of its economic structure and advancing the shift from Made in Malaysia to Created in Malaysia. What is your take on the role of foreign investment in Malaysia’s economic transformation?

Lee Teong Li:As early as the 1970s, a large number of enterprises from Japan, Europe and the United States invested and set up manufacturing plants in Malaysia, and Penang also benefited from this wave of investment. I once worked for a foreign-invested enterprise, where I gained extensive training experience and technical expertise. Many Malaysians like me chose to start their own businesses after acquiring professional knowledge and skills. It was the entry of these large multinational corporations that spurred the emergence of local supporting industries, with numerous local enterprises starting to provide supply chain supporting services for these multinationals.

With over 50 years of development and accumulation, Penang has built a well-established supply chain system in the electrical and electronics as well as semiconductor sectors. Today, Penang has secured a solid position in the global electronics industry and earned its reputation as the Silicon Valley of the East. A case in point is Inari Amertron, Malaysia’s leading enterprise engaged in outsourced semiconductor assembly and test (OSAT) services. It initially started as a contract manufacturer for major multinationals and is now listed on Bursa Malaysia.

Notably, after years of development, Malaysia’s local supporting suppliers have not only built solid competitive strengths, but also expanded their businesses to the global market, with their products exported to the United States, Europe, Japan, China and other countries. It is fair to say that the sustained inflow of foreign investment over the years has upgraded the skills of Malaysia’s local workforce and boosted the development of its manufacturing sector, empowering local enterprises to grow and thrive step by step.

Nearly 80% of the member enterprises of the Penang Branch of the Federation of Malaysian Manufacturers (FMM) are small and medium-sized enterprises (SMEs), while the remaining 20% are large local enterprises and multinational corporations. The Federation has built a platform for communication and cooperation among its members, enabling enterprises to share supplier resources. This has provided strong support for the development of member enterprises, and many of them have now grown into industry leaders.

Chinese Enterprises Can Empower Malaysia's Smart Manufacturing

SFC: What is your view on the development of China’s new quality productive forces? What cooperation potential exists between Chinese and Malaysian enterprises in emerging sectors such as new energy vehicles, artificial intelligence and the digital economy?

Lee Teong Li:Chinese enterprises are fully capable of supporting Malaysia in developing new quality productive forces. Malaysia has a relatively small population, and our labor force has long been highly reliant on foreign workers. In addition, Malaysia has been plagued by a chronic talent shortage: the reserve of professionally skilled talents is inherently limited, and the outflow of some local talents to work overseas has further exacerbated the domestic talent gap. Against this backdrop, Malaysia has an urgent demand for developing new smart manufacturing technologies centered on artificial intelligence and automation.

A consensus has been reached among both the Malaysian government and the industrial sector that industrial upgrading hinges on breaking away from reliance on labor-intensive industries. Such industries alone cannot underpin Malaysia’s economic transformation, and developing smart manufacturing has become an inevitable trend. China stands at the world-leading level in the Industry 4.0 era, particularly in artificial intelligence and automation technologies. The introduction of these technologies will undoubtedly help Malaysia further reduce its dependence on foreign laborers, and better advance the development of smart manufacturing and the achievement of digital transformation.

Jointly Building a Synergistic Semiconductor Industry

SFC: In October this year, the Hi-Tech Zone of Zhuhai, Guangdong, signed a memorandum of cooperation with Penang Science Park, specifying that cooperation will be carried out in integrated circuits, biomedicine and other sectors. As a representative of the local manufacturing industry, how do you evaluate the significance of this cooperation for the industrial development of both places?

Lee Teong Li:We follow this cooperation with keen attention, as both industrial parks are engaged in the high-tech industry sector. Malaysia accounts for 13% of the global market share in chip packaging, assembly and testing services, and is also a world-class electronics manufacturing hub. This cooperation is a win-win for both sides. When Chinese enterprises invest in Penang, they can drive the industrial upgrading of Penang through China-Malaysia joint ventures, and at the same time, Chinese enterprises can also access the Malaysian market more conveniently.

Specifically, Penang’s industrial strengths lie in downstream segments – namely, semiconductor packaging, testing and assembly. Chinese partners, on the other hand, hold greater advantages in the upstream of the industrial chain, such as chip design. If both sides can leverage their complementary strengths, we will be able to build a complete semiconductor industry chain, which presents an excellent cooperation opportunity for each other.

In the future, Chinese and local enterprises can carry out in-depth cooperation in research and development, innovation and industrial chain resilience building. In the long run, Chinese enterprises can also take Penang as a springboard for development, expanding into the Asian and even global markets with Penang as a fulcrum, while driving Penang’s manufacturing sector to move towards a higher level of development.

China's Experience Empowers Malaysia's Industrial Upgrading

SFC: What is your impression of Guangdong’s business environment and sci-tech innovation development?

Lee Teong Li:Most local enterprises in Malaysia are SMEs. In the early stage of development, they basically provide supporting services for local upstream enterprises. Only after accumulating sufficient experience do these SMEs engage in export business and gradually expand into overseas markets. The expansion pace of Malaysia’s SMEs is relatively slow, for two main reasons: first, the market is relatively narrow, with most enterprises only serving local customers and not actively exploring overseas markets; second, most Malaysian SMEs are family-run businesses, which are restricted by capital scale and thus unable to achieve rapid expansion.

In contrast, Chinese enterprises have a much faster development pace. China has a huge population base, and both its overall economy and industrial development have grown by leaps and bounds. During my field visits to Guangdong earlier, I found that almost every factory is quite large in scale, which may benefit from China’s vast domestic market, providing ample room for enterprise development.

At present, the entry of Chinese-funded enterprises such as TFME and Jingcheng Machinery & Electronics into the four major industrial parks in Penang is a typical example of bilateral cooperation. I believe there is enormous cooperation potential between Chinese and Malaysian SMEs for in-depth collaboration. Going forward, Chinese enterprises can bring their business models and operational experience to Malaysia, and help Malaysian SMEs grow and expand by establishing cooperative relations with local enterprises.

Building a "Bridge" Connecting Enterprises

SFC: As of the start of this year, more than 50 Chinese-funded enterprises have rooted in Penang, forming a diversified industrial pattern dominated by manufacturing, supported by the service and logistics industries. What potential adaptation challenges do you think these Chinese enterprises may face in the process of integrating into Penang’s local manufacturing ecosystem?

Lee Teong Li:Chinese enterprises entering Malaysia do need a period of adaptation. After all, Malaysia is a multi-ethnic country. When Chinese enterprises develop their business here, they first face the challenge of employing a multi-ethnic local workforce, and there are also many foreign laborers from other countries in local factories. Therefore, Chinese enterprises need to adapt to the diverse cultural environment in Malaysia. Only by proactively adapting to Malaysia’s culture, language and interpersonal communication styles can Chinese enterprises achieve long-term development in the country.

Second, there are significant differences between Malaysia and China in trade policies, industry norms and customs regulations. In addition, Malaysia imposes regulatory restrictions on the import and export of certain commodities, which requires Chinese enterprises to strengthen collaboration with local institutions.

SFC: In the field of high-tech industrial cooperation, how will the Penang Branch of the Federation of Malaysian Manufacturers (FMM) promote cooperation between Guangdong and Penang, and in particular, help enterprises from both sides move from project landing to ecological integration?

Lee Teong Li:It can be said that the Federation of Malaysian Manufacturers is a "booster" for the development of Malaysia’s manufacturing industry, and our mission is to help Malaysian manufacturing enterprises go global. As an industry association, we help enterprises better understand local policies and integrate into the local market, with one important measure being organizing experience-sharing sessions among member enterprises. Not long ago, when a delegation of manufacturing enterprises and government associations from Guangdong visited Penang, FMM facilitated precise business matching between Chinese and Malaysian enterprises.

The semiconductor industry is a key sector for our development. In September 2024, the Penang State Government launched the Penang Silicon Design @5KM+ Initiative, aiming to build a complete IC design and technology hub within a 5-kilometer radius of Bayan Lepas in Penang Island. This initiative nurtures science and technology education talents, and supports the New Industrial Master Plan 2030 (2030NIMP) and the National Semiconductor Strategy (NSS). In fact, the scope of cooperation between Chinese and Malaysian enterprises has long gone beyond the semiconductor industry. We have previously facilitated cooperation in many sectors including biomedicine and food processing.

Improved Connectivity Drives Economic Development

SFC: What is the attitude of Penang residents towards the Penang Second Bridge? What changes have taken place in local transportation and economic development before and after the bridge opened to traffic?

Lee Teong Li:The completion of the Penang Second Bridge has undoubtedly provided strong support for the development of industrial parks in southern Penang. Penang’s first bridge mainly serves the northern and central areas, and the transportation demand in the southern area has long been unmet. In any country, transportation connectivity is the key to economic development, and China’s achievements in this field are a stellar example. A sound transportation network greatly facilitates personnel mobility. Penang Island itself is an old city with prominent problems of narrow roads and traffic congestion, leaving very limited space for development. Industrial expansion can only be shifted to Seberang Perai on the opposite shore.

In fact, Seberang Perai is more suitable for laying out industries that require a large labor force and cover a large area, while Penang Island is more suitable for developing business formats with low labor demand such as design and R&D centers. Improved transportation further supports the development of differentiated industries in the region.

SFC: What are your expectations for the upcoming opening of the East Coast Rail Link (ECRL) in Malaysia?

Lee Teong Li:Certainly, I have high expectations and will definitely experience it personally. Having lived in Malaysia for so long, I know this project has gone through many twists and turns in its advancement. It is indeed a good thing that it is now under smooth construction and completion.

The Malaysia East Coast Rail Link is a flagship project under the framework of the China-Malaysia joint construction of the Belt and Road Initiative. Although there are railways on Malaysia’s west coast, the lines mainly extend from the south to the north, connecting with Thailand, and lack the capacity to radiate to broader areas. The completion of the ECRL will fill this gap and achieve connectivity between Malaysia’s east and west coasts.

In fact, Malaysia suffered a severe container transportation crisis during the COVID-19 pandemic. Shipping prices soared and container fees surged, resulting in delayed cargo delivery. At that time, it was extremely difficult to book shipping space, transportation cycles were uncontrollable, and vessels had to wait for berths. In contrast, rail transportation has obvious advantages – high punctuality and strong stability. Once a train departs, it will arrive exactly as scheduled in two days without any delays. In the future, with the completion of the ECRL, the enhanced regional connectivity will be of great significance to Malaysia’s economic development, which is exactly what we urgently need.