KUALA LUMPUR, Jan 20 — Malaysia will relax restrictions barring foreign automakers from manufacturing small passenger vehicles as Southeast Asia’s third-largest economy competes with Thailand for investments.

Malaysia will selectively seek foreign investments that bring advanced technology and offer customised incentives to attract companies, according to M. Madani Sahari, chief executive officer of the Malaysia Automotive Institute, a unit of the trade ministry. Under the previous policy, the licences only allowed for the manufacture of vehicles that had engines 1.8 litres or bigger, he said.

“This is a big deal because previously we didn’t issue any licences” for the manufacture of small cars, Madani, whose unit was involved in drafting the government policy, told reporters in Kuala Lumpur last week.

Effective immediately, the new policy further opens up national maker Proton Holdings Bhd. to foreign competition. The drive to attract global automakers also comes at a time when neighbour Thailand is mired in political protests aimed at ousting Prime Minister Yingluck Shinawatra’s government.

Malaysia wants to position itself as a manufacturing hub for energy-efficient vehicles to differentiate the country from Thailand, where foreign automakers have invested to produce pick-up trucks and other vehicles, Madani said.

“By focusing on energy-efficient vehicles, we are also at the same time making Malaysia a centre for excellence in technology,” he said.

Vehicle sales

Vehicle prices may fall in Malaysia by as much as 30 per cent by the end of 2018 as a result of local production by global automakers and other government initiatives, he said.

Sales of passenger and commercial vehicles rose 4.9 per cent to 595,300 units in the 11 months ended November, according to the Malaysian Automotive Association. That’s faster than the 2.7 per cent pace in the year-earlier period.

The government is seeking to attract automakers that have yet to establish major manufacturing facilities in Southeast Asia for passenger cars, including Volkswagen AG, Renault SA, Hyundai Motor Co., Fiat SpA and some Chinese companies, according to Madani.

The country’s trade ministry is scheduled to hold a briefing at about 2:30pm today to release more details. — Bloomberg