Penang’s five decades as a chip assembly and testing base give the state bargaining power that neither Washington nor Beijing can easily replace, executive councillor Zairil Khir Johari argued in a paper delivered at the Beijing Forum 2026, according to a column in The Edge Malaysia on 12 November.
The paper was titled Beyond the Dark Forest: Technohegemony, Strategic Hedging and the Case of Penang. Zairil, who holds the infrastructure, transport and digital portfolio, presented it at the forum co-hosted by Peking University from 6 to 8 November, the column said.
He opened with Liu Cixin’s science fiction novel The Three-Body Problem, in which advanced civilisations work to stop rivals from gaining the means to overtake them. Zairil drew a parallel with US export controls on advanced chips and China’s control over rare earth supplies. The aim, in both cases, is no longer to outperform a competitor but to keep it from catching up.
Penang fits awkwardly into that contest because rival interests already share one industrial base. Intel opened its first offshore assembly and testing plant in the state in 1972. American, European and Chinese operations still run alongside each other, including chip designer AMD’s link to China’s Tongfu Microelectronics.
Malaysia handles about 13% of the global market for semiconductor assembly, testing and packaging. Zairil’s argument, as the column set it out, is that neutrality earns little on its own. What protects a small state is being needed, which means holding skills, supplier networks and infrastructure that cannot be shifted on a political timetable.
The exposure behind that position is large. Penang’s exports reached RM113.2 billion in September 2026, and 177 manufacturing projects worth RM17.32 billion were approved in the first half of the year, Bernama reported on 10 November, quoting Chief Minister Chow Kon Yeow.
The paper carried a warning as well. Malaysia’s strengths sit in assembly, testing and packaging, while advanced fabrication, chip design tools and the most complex processes remain beyond its reach. The column asked who owns the intellectual property, who controls the machinery and who decides when pressure mounts.
It compared Penang with the United Arab Emirates, where Microsoft’s US$1.5 billion investment in artificial intelligence firm G42 in 2024 followed the company’s move to distance itself from Chinese technology, and with Taiwan, where chipmaker TSMC underpins what analysts call a silicon shield.
The column opened with the Nvidia affair. Chief executive Jensen Huang has admitted being unfaithful to his wife, and US intelligence officials reportedly believe a woman linked to him had ties to Chinese intelligence. Nvidia has begun an independent investigation, Beijing rejects the espionage claims and no espionage has been established.
Its closing point was that indispensability has to be renewed. The same industrial base that gives Penang its edge today, it said, must keep moving towards higher-value work, or the advantage “risks becoming merely temporary convenience”.
