As Malaysia seeks to boost economic growth, Prime Minister Anwar Ibrahim has been building closer ties with China.

This comes amid growing trade and geopolitical tensions between Beijing and the US — also a close economic and strategic partner to Malaysia.

In June, Chinese Premier Li Qiang visited Malaysia and inked multiple deals, including the renewal of a five-year economic and trade cooperation pact.

Li and Anwar also attended a groundbreaking ceremony of a train station along East Coast Rail Link (ECRL), a key project of China's Belt and Road Initiative (BRI) in Malaysia.

Malaysia is one of the top recipients of BRI funding in Southeast Asia, a global infrastructure financing scheme that is a cornerstone of Beijing's foreign policy. Li's visit also marked the 50th anniversary of diplomatic ties between China and Malaysia.

Both countries have other agreements in place, including the promotion of investments in digital economy, boosting housing and urban development, and commitments to tackling transnational crime, improving higher education, tourism and cultural cooperation. China has been Malaysia's top trade partner since 2009.

Malaysia also recently expressed interest in joining the BRICS bloc of emerging market economies, with China one of the bloc's core members that also includes Brazil, Russia, India, and South Africa.

"Today, a key aspect of the relationship seems to be economic. The Anwar administration seems to see China as a major market opportunity and source of investment," Ian Chong, a political scientist in Singapore, told DW.

Tampering tensions in the South China Sea

As Anwar bolsters economic ties with China, Malaysia has also pursued a more subdued management of geopolitical tension in the South China Sea.

China claims nearly the entirety of the sea, despite an international tribunal ruling in 2016 that such claims had no legal basis.

The Philippines, which had initiated the legal case at the Hague, has been the most at odds with China over competing maritime claims.

Chinese coast guard vessels, some of which are the size of naval destroyers, frequently harass much smaller Philippine vessels near disputed shoals.

Vietnam, Brunei and Taiwan also dispute Beijing's vast claims. And Malaysia does, too. In 2019, under a previous government, Malaysia's Foreign Ministry called Beijing's claims "ridiculous." However, the current government has been less vocal on the South China Sea.

"Perhaps the Anwar administration sees China as a means to push the Malaysian economy forward, or is perhaps wary of potential punishment from Beijing should the latter get upset with Malaysia," said analyst Chong.

This is despite reports that China's coast guard and navy ships have been loitering in Malaysia's Exclusive Economic Zone (EEZ) near Luconia Shoal, also called Batu Patinggi Ali, located 100 kilometers (60 miles) off the coast of the Malaysian state of Sarawak.

Malaysia has "also taken a quieter approach to its own dispute with Beijing," Chong said, adding that Anwar called for Malaysians "to be calm" in response to the presence of the Chinese vessels.

Zachary Abuza, a professor at the National War College in Washington who focuses on Southeast Asia, said he expects more Chinese investment into Malaysia.

"While bilateral relations had a brief downturn with the government of [former PM] Mahathir Mohammed following the general election in 2018 that ousted Prime Minister Najib Razak, they have returned to their traditional close relations under Anwar Ibrahim," he told DW.

"I anticipate significant Chinese investment in Malaysia's semiconductor industry, primarily to evade Western sanctions," he added.

US-China tensions in the background

In 2022, the US imposed export controls on advanced semiconductor chips from US manufacturers to China, in part to hamper Beijing's ability to produce high-tech military systems.

This raises questions about whether semiconductor exports from Malaysia to China could dampen US-Malaysia ties.

The US is also one of Malaysia's top trading partners and both countries have enjoyed long-standing security and economic relations, after diplomatic ties were established 67 years ago.

But Abuza says Anwar is unfazed by any retaliation from Washington.

"Anwar has really chafed at US pressure and threats of sanctions on Malaysia should they evade US sanctions and sell semiconductors to Russia, Iran and other sanctioned countries. Malaysia has made clear that they intend to sell to anyone," he said. 

As the US and China present competing visions for order and stability in Asia, smaller countries in the region are striking a balancing act.

Countries like Thailand and Vietnam are examples of how to keep relations positive without publicly taking sides. 

"Like many other Southeast Asian governments, the Anwar administration may be betting that it can maintain positive ties with both the US and China, to have its cake and eat it too," Chong said.

"However, that assumes that one or both major powers continue to accept this position and do not punish Malaysia for being too close with their rival, either in reality or perception. That is a bet that is outside Malaysia's control."

Edited by: Wesley Rahn