Hightlights
- Malaysia’s rare earth potential could impact global alliances.
- China’s influence on Malaysia’s energy and rare earth sectors is strong.
- Increased cooperation with the West could enhance Malaysia’s industry growth.
Is this an imminent decision point or a false dilemma?
It seems to be the former as Malaysia appears headed to make a historical decision as to what sphere of the world to partner up with to develop and process the southeast Asian’s rare earth elements. Rare Earth Exchanges argues a move against China, and toward America may be all but impossible given the inexorably intertwined dealings between the two Asian nations. But ambition calls Malaysia, seeking to transcend its current state. An end-to-end rare earth, refinery and productization future would propel the country’s gross domestic product, and power in the world. This exciting future for Malaysia will not happen under China’s thumb, but could, maybe, under America’s more dynamic, chaotic market system.
As Rare Earth Exchanges has reported recently, Malaysia is interested in its own extraction, processing, and manufacturing of finished products, including permanent magnets and super magnets, bolstering value chain value, and building serious wealth.
With 18.2 million tons of non-radioactive RE reserve the country would like to exploit by 2030, the value today at $174 billion (747.2 billion Malaysian ringgit) undoubtedly keeps the lights on at the Malaysian Investment Development Authority (opens in a new tab) (MIDA). While on the one hand Malaysia seeks to find common ground with China, on the other hand seeking to develop end-to-end value add would undoubtedly conflict with China’s geopolitical power seeking to retain a monopoly on processing.
But is China an appropriate partner? Moving in that direction may alienate western participants in the value chain, including investors.
China’s grip on rare earth power is compelling. With about 70% of the deposit and 90% of the processing control.
A Malaysian move to disrupt that could be beneficial to the West (and to itself) but the climb up may be precarious for the nation’s relationship with China.
China’s predominance is waning however, albeit slowly. About 54% of global REE production and 77% of refining will be China’s position by 2030.
Meanwhile, according to some reports from International Energy Agency (opens in a new tab) (IEA) Malaysia ranks as the second-largest REE refiner by 2030, with an estimated projected 12% market share.
IEA has continued to emphasize high geopolitical risk with 77% of REE refining held by a single country.
While supply disruption response risk remains super high, pricing models remain opaque reports the IEA.
What’s the Malaysian Chinese relationship?
The relationship between China and Malaysia in the context of energy policy is characterized by collaboration and mutual interests, particularly in areas such as energy infrastructure development, renewable energy investments, and fossil fuel partnerships.
Both countries see energy cooperation as a strategic part of their bilateral relations, particularly as they work toward securing stable energy supplies and transitioning to more sustainable energy systems. Below are some key aspects of the energy policy relationship between China and Malaysia.
For example, when it comes to bilateral energy trade Malaysia is one of Southeast Asia’s major producers of oil and natural gas, and China, as a rapidly growing economy, has a strong demand for these resources. Malaysia’s state-owned oil and gas company, Petronas (opens in a new tab), has long been involved in exporting liquefied natural gas (LNG) and crude oil to China.
China views Malaysia as a reliable energy partner, and the two countries have collaborated on oil and gas projects in both upstream (exploration and production) and downstream (refining and petrochemicals) sectors.
Malaysia’s strategic location along major shipping routes, particularly the Strait of Malacca, is also important for China’s energy security, as a significant portion of China’s oil imports passes through these waters.
What about Chinese money in Malaysia’s energy industry?
China has been investing heavily in Malaysia’s energy infrastructure as part of the Belt and Road Initiative (BRI). This includes funding for power plants, pipelines, and renewable energy projects.
Chinese companies have financed and built several coal-fired power plants in Malaysia, such as the Manjung 4 and Jimah East coal plants, which help Malaysia meet its domestic energy demands.
But there is more as Chinese money has found its way into hydropower and solar energy projects in Malaysia. Chinese firms have also shown interest in developing renewable energy projects in Malaysia, including hydropower, solar farms, and wind energy.
For instance, China’s involvement in Sarawak’s hydropower projects (opens in a new tab) plays a significant role in Malaysia’s energy strategy, particularly in the East Malaysian region.
Clearly Chinese tentacles permeate and possibly constrict this southeast Asian nation when it comes to economic realities.
Both countries are increasingly focusing on renewable energy as part of their long-term sustainability goals. Malaysia has been working to diversify its energy mix to include more renewable energy sources, and China is one of the global leaders in renewable energy technology, particularly in solar, wind, and battery storage.
For example, Malaysia is a major player in the global solar photovoltaic (PV) industry, with several Chinese companies investing in Malaysian solar manufacturing plants. Malaysia serves as a key manufacturing hub for Chinese solar companies due to its favorable investment environment and skilled labor force.
And when it comes to technology transfer, China’s expertise in renewable energy technologies, especially solar and wind power, has been beneficial for Malaysia.
Chinese companies continue to aid Malaysia accelerate its transition to renewable energy through investments in solar farms and the provision of green technology.
And this leads to the next inexorably intertwined topic involving a shared interest in energy security between China and Malaysia.
Energy security is a critical concern for both China and Malaysia. China, as the world’s largest energy consumer, has a vested interest in securing stable energy supplies from Southeast Asia, including Malaysia.
While Malaysia, for its part, seeks to strengthen its role as a regional energy hub and maintain good relations with China, which is not only a key energy consumer but also an important source of investment and technological expertise.
Inexorably Intertwined?
Cooperation in the South China Sea raises concern among the West, notably America, plus Malaysia’s dive into the so-called “Belt and Road Initiative” (BRI) and related energy projects.
As part of China’s Belt and Road Initiative, several energy-related infrastructure projects in Malaysia have received Chinese financing and construction expertise. These include energy pipelines, port facilities, and power plants, particularly those geared toward meeting Malaysia’s growing energy demands.
Plus, Malaysia plays a key role in China’s BRI vision due to its strategic position and its ability to serve as a bridge between China and the wider Southeast Asian region. Energy infrastructure projects under the BRI are part of China’s broader efforts to improve regional connectivity and ensure energy security.
Rare Earth Exchanges can delineate several other dynamics bringing these two countries closer together when it comes to rare earth materials.
On the other hand, then there are intensifying Malaysian ambitions. And this leads to challenges and tensions. While the China-Malaysia energy relationship is largely cooperative, Rare Earth Exchanges can report on the occasional tension point, particularly related to sovereignty issues in the South China Sea. These tensions could potentially affect energy exploration and development in disputed areas.
Additionally, Malaysia must balance its energy ties with China with those of other major powers like America and Japan, both of whom have significant interests in the region’s energy sector.
Final Thoughts
The energy relationship between China and Malaysia is multifaceted and includes cooperation on fossil fuels, renewable energy, and infrastructure development. While China benefits from Malaysia’s oil and gas exports and its strategic location, Malaysia gains access to Chinese investments, technology, and expertise, particularly in the renewable energy sector.
As both nations work toward their respective climate goals and energy security, their cooperation in energy policy is likely to expand further, particularly in the areas of clean energy and technological innovation.
And this reality cannot be discounted when considering the next Malaysian move involving rare earth elements, and the southeast Asian nation’s ambitions to become a major player in the field of rare earth processing. Of course, they would become far richer if they made such a move and executed successfully, undoubtedly creating serious tension with China given their myriad material entanglements along the way. But at times throughout history the allure of material advancement, including unprecedented riches, trumps predictability and security.
Daniel
You Might Also Like…