FMM and Malaysian SMEs must pay attention to China’s ultra-competitiveness — Phar Kim Beng

On September 7, European industry warned that China's manufacturing prowess could lead to an additional 300,000 job losses in Europe through the remainder of 2026. Alexander Julius, president of the European metals trade association Eurometal, used the term “colonisation” to describe Chinese penetration of European supply chains.

However, Malaysia, the Federation of Malaysian Manufacturing (FMM), and Malaysian small and medium enterprises (SMEs) should focus on China's extraordinary industrial competitiveness rather than viewing this situation as colonization. China has invested decades in constructing manufacturing ecosystems of vast scale, with advantages such as dense supplier networks, sophisticated logistics, automation, large domestic demand, advanced manufacturing technologies, rapidly improving research and development capabilities, and intense competition among itself.

These factors have created an industrial machine capable of producing not only finished consumer products but also components, materials, machinery, and technologies that are integral to global supply chains. European manufacturers are concerned that Chinese companies are becoming embedded at the component level, leading to increased dependence on imported Chinese components.

Malaysian companies, particularly SMEs, face a paradox: Malaysia is one of China's largest trading partners and an important economic partner in ASEAN. While Malaysia benefits from affordable Chinese machinery, components, and technologies, it also competes with China in the same supply chains. The solution is not to decouple from China but to learn how to compete alongside it.

Malaysian SMEs must study Chinese companies more closely, paying attention to their automation, integration of artificial intelligence, and the compression of product design to mass production. Malaysian manufacturers must accelerate automation, spread AI adoption beyond large corporations into SMEs, and better connect technical and vocational training to actual industrial requirements.

They should focus on specialized manufacturing sectors where quality, reliability, intellectual property, certification, and customer relationships matter more than price, such as semiconductors, electrical and electronics, aerospace components, medical devices, halal industries, advanced materials, and green technologies. Malaysia's participation in an ASEAN production ecosystem, which includes Singapore's finance and technology, Indonesia's resources and markets, Vietnam's manufacturing, Thailand's automotive expertise, and the broader regional economy, provides an additional advantage.

Rather than viewing China as a threat, Malaysian businesses should understand how Chinese manufacturers achieve their ultra-competitive speeds and quality, and strive to match them. "Colonisation" may satisfy European industrial anxiety, but it will not make Malaysian factories more productive. Malaysia must ensure that its manufacturers become faster, smarter, more technologically capable, and more deeply connected to ASEAN and global supply chains.