Active Neutrality: Malaysia in the Middle of U.S.-China Competition
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Active Neutrality: Malaysia in the Middle of U.S.-China Competition


APLN member Cheng-Chwee Kuik argues that although hedging is no panacea and comes with its own risks, it is the best option for Malaysia to pursue its interests amid strategic rivalry. The original post can be found on the USIP website here.

From its experience of centuries-long colonization to dealing with decades-long Cold War politics, Malaysia is no stranger to navigating major power competition, which it sees as a recurring reality in international politics. Today’s U.S.-China rivalry is just the latest round — it is not the first and it will not be the last. Still, it is important to consider how U.S.-China competition impacts Malaysia and how it, like other small and secondary states in the regionseeks to exercise agency. Even as this major power rivalry intensifies and limits the country’s space for maneuvering, Malaysia insists on employing “equidistant diplomacy” to hedge against multiple risks and cultivate long-term options.

How U.S.-China Competition Manifests for Malaysia

For Malaysia, growing U.S.-China competition has thus far manifested most intensely over the South China Sea issue. By the 2010s, Malaysia had begun to view the multi-nation territorial disputes not just as a matter of sovereignty and maritime issues, but increasingly also a problem of major power rivalry. Several developments accentuated this trend. China’s maritime assertiveness and the United States’ strategic reorientation to the region, which began with the Obama administration’s “Asia Pivot” that both the Trump and Biden administrations continued. Other examples include U.S. freedom of navigation operations (or FONOPs), the 2017 revival of the Quad (composed of the United States, Australia, Japan and India) and the 2021 Australia-United Kingdom-United States (AUKUS) security pact.

Largely as a response to growing major-power pressure, successive Malaysian leaders have repeatedly stressed Malaysia’s “nonalignment” policy and “neutrality” position. Neutrality here must be understood not in the context of overlapping claims in the South China Sea (because Malaysia is one of the claimant states), but in the context of U.S.-China rivalry. Malaysian leaders have repeatedly stated that their country “must be fiercely independent as [an] independent nation” and should not be forced to choose between United States and China.

Beyond the security and defense domains, U.S.-China competition has also manifested in high-tech domains, supply-chain resilience, connectivity-related issues and the like. Escalating tensions over Taiwan, as well as the growing attention and involvements of second-tier powers (including European states) in Asian affairs, have made Southeast Asia an increasingly crowded geopolitical and geoeconomic theater.

These deepening and widening manifestations of intensifying major power rivalries are posing more challenges and risks than opportunities and benefits to Malaysia (and for that matter, other smaller powers in Southeast Asia). Even though Malaysia has benefited from the growing competition in terms of economic, strategic and diplomatic courtships, many policy elites see some of these benefits — like multinational firms relocating outside of China in the wake of the U.S.-China trade war and the COVID-19 pandemic — as shorter-term gains. They are more concerned about the longer-term risks, wider drawbacks and the various unintended consequences of increasingly intensified major power rivalries.

In the eyes of the Malaysian policy elites, chief among these risks is the danger of being entrapped in a potential U.S.-China confrontation. But there are other apprehensions and anxieties. As more extra-regional powers increase their presence in Asia across the military and non-military domains, Malaysia sees both positive and negative impacts. On one hand, Malaysia, like other weaker militarily actors in Southeast Asia, wants to leverage a more stable and sustainable balance of power to constrain major-power actions. Malaysia also welcomes more opportunities for strategic and development diversification.

On the other hand, in the face of intensifying power rivalries and an increasingly crowded Indo-Pacific region, Malaysian elites are becoming apprehensive that efforts to constrain major powers might escalate into containment. They are increasingly concerned about the danger of a self-fulfilling prophecy: some powers’ actions in openly identifying China as an adversary and overly preparing for “possible” conflict by ganging up with “like-minded” nations against China will push it to a corner and make it the present enemy, turning a potential danger into an imminent threat. Hence, Malaysia and Indonesia have expressed concerns about AUKUS, not just its impact on nuclear non-proliferation but also the possible arms race and escalation of tensions.

In addition, as mechanisms like the Quad and AUKUS gain momentum, Malaysia is also concerned that the Association of Southeast Nations’ (ASEAN) “centrality” might be challenged. Even in non-military domains, there are growing fears that economic decoupling or “de-risking” — for example, friend-shoring the supply chain — will lead to economic bifurcation and, eventually, across-the-board polarization. The current cycles of action-reaction, if continued, will lead to escalation. Escalation will lead to outright containment, and containment will lead to confrontation, conflict and entrapment. Malaysia, like fellow ASEAN states, does not want containment. When this comes about, weaker states will be the first to be impacted, in part because their proximity to the South China Sea and Taiwan Strait will almost certainly drag them into a major power war they didn’t choose. Cold War 2.0 also means there will be no space for inclusive, continuous cooperation on economic and functional issues that are crucial for domestic governance.

Malaysia’s Agency

In the face of growing challenges and potential dangers stemming from U.S.-China rivalry and external uncertainties, there are signs that Malaysia and other ASEAN states have sought to exercise and exert varying degrees of agency vis-à-vis the competing powers.

Agency is defined here as an inclination, initiation and insistence on the part of a state to make policy choices based on its own interests and tradeoff calculations, rather than being pushed around or pressured by a stronger power. Agency does not mean that a state can always resist a stronger power’s demands; nor does it imply that a state can always get what it wants. However, agency does mean that a smaller and weaker state, despite and precisely because it is disadvantaged in size and strength, is often determined to explore options, cultivate space and optimize policy goals as much as circumstances allow.

Malaysia’s small-state agency has long taken the form of an active and pragmatic foreign policy, one anchored on non-alignment, neutrality and equidistant diplomacy. In recent years, as external uncertainties grow, Malaysia has persisted on pursuing such a policy, even as the multi-ethnic, middle-income country grapples with tremendous internal political challenges and uncertainties and unprecedented governmental changes. Malaysia’s historic 2018 general elections ended the 61-year rule of the United Malays National Organization-led coalition and was followed by the fall and rise of four governments in between 2018 and 2023.

For Malaysia, being equidistant does not mean being equally distant from both competing powers. Rather, it means actively maintaining an impartial, neutral position, while seeking productive and pragmatic relations with all powers. Such active and inclusive equidistance is manifested not only in the economic and development realms — for example, Malaysia embracing both China’s Belt and Road Initiative (BRI) and the U.S.-led Indo-Pacific Economic Framework — but increasingly also in the defense and diplomatic domains.

Malaysia’s equidistance diplomacy and its wider foreign-policy agency are not confined to the United States and China. It similarly approaches other powers and players, with varying degrees of activism discernable across policy domains, all of which display Malaysia’s inclination to make its policy choices primarily based on its own interests. Such pragmatic activism is, by and large, translated into selective cooperation, partial deference and partial defiance toward the major powers.

Examples abound. While openly expressing concerns about AUKUS (thus, partially defying Washington), Malaysia has also chosen to enhance its ties and defense partnerships with each of the three AUKUS powers (selectively cooperating and partially deferring to those powers). Malaysia has also continued its commitment toward the Five Power Defense Arrangements, a consultative defense mechanism involving the United Kingdom, Australia, New Zealand, Malaysia and Singapore. Meanwhile, it is deepening its longstanding and comprehensive security partnership with the United States, including undertaking a wide array of military exercises, maintaining strategic bilateral talks, and collaborating on counterterrorism, maritime and cyber security.

Likewise, Malaysia has partially and indirectly defied China by: suspending three controversial BRI projects in 2018 (one of them was resumed after renegotiations concluded in April 2019); declining Beijing’s request to extradite ethnic Uyghur Muslim detainees to China in 2018; and making a partial submission to the Commission on the Limits of the Continental Shelf (CLCS) in 2019. At the same time, however, Malaysia has opted to publicly (but still partially and selectively) display deference to China on three issues: repeatedly declaring Malaysia’s support for the BRI and continuing to welcome Chinese investments; choosing not to openly condemn China’s Xinjiang policy; and choosing not to use the U.S. card and its defense partnerships with the Western powers on Malaysia’s South China Sea policy.

In addition, Malaysia has also continued to engage China on trade, investment, connectivity-building, regional integration, defense ties and security collaboration. In 2023, Malaysia agreed to resume military exercises with China in November — the last one was in October 2018 before the COVID pandemic — which will expand into six-nation drills involving Cambodia, Laos, Thailand and Vietnam. Malaysia, however, has been cautious, avoiding conducting any of military exercises at locations deemed sensitive to its sovereignty.

Central to small-state agency (in this case, Malaysia’s equidistance agency) is a prudent insistence on simultaneously collaborating, deferring and defying all major powers in partial, selective and, at times, seemingly contradictory manners. The bottom-line for Malaysia is to avoid taking sides, cultivate maneuvering space, and preserve fallback positions for as long as possible. Such bottom-line concerns and approaches are, in essence, a “hedging” act, an insurance-seeking behavior under the conditions of high stakes and high uncertainties. This instinctive behavior is aimed at cultivating policy options and maximizing inclusive cooperation and diversification, while simultaneously mitigating and offsetting multiple risks. Hedging, in practice, is a policy without pronouncement. No shrewd state would announce or admit its hedging, because doing so would defeat the very purpose of mitigating and offsetting risks amid uncertainties.

In Southeast Asia, small-state agency is performed primarily at the individual state level, but at times also collectively, via ASEAN as a group. Small states’ group agency, however, has been and will always be subject to the extent of ASEAN unity, centrality and neutrality.

Malaysia’s Options

Under the current circumstances, when threat perceptions remain shades-of-gray rather than black-and-white and when power relations remain uncertain, the two straightforward policies of “full balancing” or “full bandwagoning” are not viable for middle states like Malaysia. While full or direct balancing might serve to maximize security and potentially enhance economic utility, it can also result in incurring a range of unacceptable risks: inviting hostility from the opposing power, increasing the danger of entrapment, eroding national autonomy and prompting domestic resentment, which could, in turn, undermine elites’ domestic legitimacy. In a similar vein, while full bandwagoning might maximize material and foreign policy profits (and potential some security assurance), this option will lead to the risks of becoming subservient and over-dependent, while provoking suspicion and alienation from the other power, all of which also harm elites’ domestic legitimacy. So, both options are neither desirable nor sustainable under the present conditions.

Short of direct threats and highly reliable allied support, middle-sized states like Malaysia will not take sides, while seeking to strengthen the existing approach of pursuing activeinclusive and prudent multi-layered equidistance diplomacy. Such an approach, aimed at hedging multiple risks while maximizing opportunities for concurrent and continuous cooperation, is a more logical option. Although hedging is no panacea and entails its own limitations, it is the next best policy for Malaysia, allowing it to strike a balance and acceptable tradeoffs between immediate and longer-term interests under a context of uncertainty.

Image: The Malaysia-China Kuantan Industrial Park in Malaysia. Domestic factors and concern over debt led Malaysia to suspend some Belt and Road projects in 2018, but it continues to declare support for Chinese investment. (Lauren DeCicca/The New York Times)


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