Malaysia well shielded from China's dumping risks

Malaysian Reserve

21-04-2025

Report says nation's manufacturing structure, trade laws and supply chain position, shield it from the worst of any dumping-related risks
by RUPINDER SINGH
FEARS that Malaysia could be swamped by a wave of cheap Chinese imports, especially in the wake of shifting US-China trade tensions, are likely misplaced, according to RHB Research.
In its recent report by the RHB Investment Bank Bhd unit, its team of economist argues that Malaysia's manufacturing structure, trade laws and supply chain position, shield it from the worst of any dumping-related risks — and might even allow local manufacturers to benefit from lower input costs.
US Tariffs Push Chinese Exports into ASEAN
The background to these concerns stems from ongoing global trade tensions, especially after recent US tariff hikes targeting Chinese goods.
As the US clamps down on imports from the world's largest exporter, manufacturers in China have increasingly sought alternative buyers in Southeast Asia — raising eyebrows over the risk of dumping, especially in price-sensitive sectors like electronics, base metals and machinery.
But according to RHB Research's report, the Malaysian economy is more resilient than many feared.
The bank's economists believe Malaysia's industrial structure and legal safeguards are strong enough to prevent any material harm.
Trade Model that Reduces Risk
At the core of RHB Research's argument is Malaysia's unique trade flow pattern, which revolves around importing intermediate goods rather than competing directly with finished products from China.
'Malaysia's manufacturing chain is led by the imports of intermediate goods and exports of final goods,' RHB Research stated in its April 17 note.
The data backs this up: Intermediate goods account for 71.9% of Malaysia's total imports, while processed goods make up 90.6% of its exports.
This structure means Malaysia functions more like a global production hub than a domestic consumer of mass-market products, making direct competition with Chinese finished goods less likely.
E&E Sector Focussed on Export Markets
Electronics, one of Malaysia's largest export sectors, offers a prime example of this dynamic.
According to RHB Research, the domestic economy absorbs just a fraction of the sector's output.
'Our input-output table suggests Malaysia's electrical and electronic (E&E) sector's value-add relies only on 13.2% of domestic final demand,' the report highlighted.
In other words, Malaysia's E&E producers are focussed overwhelmingly on global markets, not on local retail shelves, insulating them from direct competition with low-cost Chinese imports.
RHB Research also noted that any reallocation of Chinese exports, particularly in intermediate products, could help Malaysian manufacturers lower their input costs — an unexpected silver lining in the trade conflict.
Anti-Dumping Laws Provide a Strong Defence
Alongside its trade structure, Malaysia's regulatory framework further reduces the risk of harm from foreign dumping.
The country's anti-dumping laws, established under the Countervailing and Anti-Dumping Duties Act 1993, allow authorities to investigate and impose duties on imported goods sold at unfairly low prices.
'Malaysia's anti-dumping law is a critical shield against unfair trade practices,' RHB Research wrote, noting that the legal framework empowers regulators to act before predatory pricing can damage local industries.
The government has already shown its willingness to enforce these rules.
Earlier this year, Deputy Trade Minister Liew Chin Tong confirmed the imposition of provisional anti-dumping duties of between 6.33% and 37.44% on imports of polyethene terephthalate (PET) as well as flat-rolled iron and steel products from China, India, Japan and South Korea.
Liew said these measures are part of the government's commitment to ensuring 'local industries are not undermined by unfair trade practices'.
Lower Producer Prices, Higher Manufacturing Profits
Interestingly, the influx of cheaper Chinese goods may actually benefit Malaysian manufacturers, at least in the short term, by reducing the price of imported inputs.
RHB Research's regression analysis found a clear link between lower producer prices and higher revenue expectations for Malaysian manufacturers.
'The data suggest that a potential direct impact from US tariffs on China may be a boon to Malaysia's manufacturing firms in lowering producer prices, benefiting firms' bottomline,' the report concluded.
This means that the trade shock, rather than hurting domestic production, could actually enhance the competitiveness of Malaysian manufacturers — particularly those producing for export.
Inflation Outlook Remains Stable
Despite the possibility of lower producer prices, RHB Research does not expect Malaysia's Consumer Price Index (CPI) to be materially affected.
The research showed that inflation in Malaysia is primarily driven by the services sector rather than manufacturing input costs.
'Malaysia's price pressures are a function of services PPI rather than manufacturing prices,' the firm noted, based on its statistical analysis.
Regression results showed that services producer prices has a strong influence on CPI, while manufacturing prices had a negligible impact.
RHB Research reaffirmed its 2025 inflation forecast at 2.2%, suggesting that even with lower manufacturing costs, consumer-level prices would likely remain stable.
Elastic Import Demand Suggests Resilience
RHB Research also pointed to Malaysia's long-run import behaviour as another reason for confidence.
The bank calculated the elasticity of Malaysia's import demand at -1.2 over the past decade, meaning lower input prices are likely to result in increased import volumes.
'This suggests that a decline in input prices would likely encourage higher import volumes, particularly for intermediate goods, smoothing any supply chain disruptions and supporting production,' RHB Research wrote.
In essence, Malaysia's import patterns are designed to self-correct: Cheaper imported inputs don't just push out local producers, instead feed directly into the country's export machinery, sustaining its role in global supply chains.
Policy Stability Supports Outlook
The bank also maintained its base-case scenario for the central bank's Overnight Policy Rate (OPR) at 3%, provided Malaysia's GDP growth remains within the official forecast range of 4.5% to 5.5% this year.
However, if economic growth were to fall below 4% as a result of global uncertainties, RHB Research did not rule out a 25-basis-point rate cut in the second half of 2025.
'Downside risks to GDP, manageable inflation, and a lower global interest-rate environment strengthen the case for a rate reduction,' the report noted.
At its core, RHB Research's message is that Malaysia's position as a downstream manufacturing hub, bolstered by strong laws and resilient supply chains, will shield it from short-term disruptions caused by global trade realignments.
With over 90% of its exports comprising processed goods, Malaysia is less exposed to being outcompeted by a flood of cheap Chinese products, and more likely to benefit from cost-effective inputs that enhance its global competitiveness.
As the global trade environment shifts under the weight of geopolitical tensions and protectionist policies, Malaysia's focus on value-added exports and regulated market practices seems set to pay off.
This article first appeared in The Malaysian Reserve weekly print edition