SEPTEMBER 7 — Europe is sounding the alarm about China again. Malaysia should listen carefully, but it should not necessarily adopt Europe’s language.

European industry has warned that manufacturing could suffer another 300,000 job losses during the remainder of 2026 as Chinese manufacturers penetrate ever more deeply into industrial supply chains.

Alexander Julius, president of European metals trade association Eurometal, has described the process dramatically as the “colonisation” of European industry.

That terminology may capture the anxiety sweeping parts of European manufacturing. But Malaysia, the Federation of Malaysian Manufacturing (FMM) and Malaysian small and medium enterprises should draw a different conclusion.

The central issue is not colonisation.

It is China’s extraordinary industrial competitiveness.

China has spent several decades constructing manufacturing ecosystems of enormous scale. Its advantages now extend far beyond cheap labour.

Chinese companies benefit from dense supplier networks, sophisticated logistics, automation, enormous domestic demand, advanced manufacturing technologies, rapidly improving research and development capabilities and extraordinarily intense competition among themselves.

The result is an industrial machine capable of producing not merely finished consumer products, but increasingly the components, materials, machinery and technologies that sit inside global supply chains.

This is where the European warning becomes relevant to Malaysia.

European manufacturers fear that Chinese companies are becoming embedded at the component level.

Once domestic suppliers disappear, manufacturers can become increasingly dependent on imported Chinese components.

For Malaysian companies, especially SMEs, the appropriate response cannot simply be protectionism.

Nor should Malaysia describe Chinese economic competition as colonisation.

China is Malaysia’s largest trading partner and one of Asean’s most important economic partners.

Malaysian companies themselves benefit enormously from affordable Chinese machinery, components, electronics, intermediate goods and increasingly sophisticated technologies.

Malaysia therefore faces competition from China while simultaneously depending upon Chinese supply chains to remain competitive.

That is the paradox Malaysian industrial policy must understand.

The answer is not decoupling from China. It is learning how to compete alongside China.

Malaysian SMEs must study Chinese companies much more closely.

Chinese factories automate relentlessly.

They compress the journey from product design to mass production.

They increasingly integrate artificial intelligence into logistics, marketing, inventory management and manufacturing.

They drive down costs while improving quality.

Their SMEs operate within vast industrial ecosystems that magnify their individual strengths.

These are lessons FMM, SME Corp Malaysia, MITI, MIDA, universities and Malaysian financial institutions should study together.

The challenge is becoming more urgent because Malaysian manufacturers are already being squeezed from several directions.

Higher energy, freight and raw-material costs are eroding margins. Supply-chain disruptions create additional uncertainty. Competition from lower-cost manufacturing centres continues to intensify.

A Malaysian manufacturer paying substantially more for freight, fuel and intermediate goods cannot indefinitely compete against a Chinese producer benefiting from scale, integrated supply chains and relentless domestic competition.

Malaysia therefore needs another productivity revolution. Automation must accelerate.

AI adoption must spread beyond large corporations into SMEs.

Technical and vocational training must be connected more closely to actual industrial requirements.

Malaysian companies must move further into specialised manufacturing where quality, reliability, intellectual property, certification and customer relationships matter as much as price.

Semiconductors, electrical and electronics, aerospace components, medical devices, halal industries, advanced materials, green technologies and specialised engineering services offer considerable opportunities.

Asean provides another advantage.

Malaysia does not need to replicate China’s industrial scale.

It can participate in an Asean production ecosystem of almost 700 million people, connecting Malaysian capabilities with Singaporean finance and technology, Indonesian resources and markets, Vietnamese manufacturing, Thai auto-industrial expertise and the wider regional economy.

China should therefore be understood neither simply as a threat nor merely as an opportunity.

China is a benchmark.

When Chinese manufacturers can produce something faster, cheaper and increasingly at comparable or superior quality, Malaysian businesses must understand how they do it.

Visit the factories.

Understand the supply chains.

Adopt the technology.

Re-examine the speed. Then compete.

Calling this phenomenon “colonisation” may satisfy Europe’s growing industrial anxiety.

It will not make Malaysian factories more productive.

FMM and Malaysian SMEs should draw a harder lesson from Europe’s predicament.

The age of inexpensive Chinese manufacturing has evolved into something much more formidable: the age of ultra-competitive Chinese manufacturing.

Malaysia cannot stop that transformation.

It should not try.

Malaysia must instead ensure that its own manufacturers become faster, smarter, more technologically capable and more deeply connected to Asean and global supply chains.

China’s competitiveness is not something Malaysia can wish away.

It is something Malaysia must learn from — and learn to match.

* Phar Kim Beng, PhD is the Professor of Asean Studies at International Islamic University of Malaysia and Director of Institute of International and Asean Studies (IINTAS). 

** This is the personal opinion of the writers or publication and does not necessarily represent the views of Malay Mail.