Asia’s AI and chip hubs thrive as US-China tech tensions escalate

Southeast Asia is turning into the backbone of the global tech industry as rising tensions between the US and China force companies to rethink their operations.

From 2020 to 2023, more than $100 billion in foreign direct investment poured into Vietnam and Malaysia, with even more on the way. This cash injection has gone to building new AI development hubs, semiconductor factories, and supply chains that bypass China.

The shift has triggered job creation and rising incomes in these countries, though the benefits are uneven. Property prices are skyrocketing, power grids are strained, and many high-paying jobs go to foreign experts. The economic effects are impossible to ignore.

“The US-China tensions under Trump 1.0 increased incentives for multinationals to have a China+1 strategy,” said Ong Kian Ming, Malaysia’s former deputy minister of trade and investment.

The “China+1” strategy pushed companies to expand outside of China to mitigate risks. And Southeast Asia, with its affordable labor and pro-business governments, became a magnet for tech investment.

Vietnam’s high-tech makeover

Vietnam’s Bac Ninh province, near Hanoi, has transformed into a high-tech manufacturing hub. Just a decade ago, it was a quiet area near the Chinese border. Now, it houses factories for Foxconn and GoerTek, key suppliers to Apple, Microsoft, and Sony. These companies have invested over $20 billion in Bac Ninh to produce everything from AirPods to circuit boards.

GoerTek’s new 127-acre facility is expected to create 50,000 jobs. Ads for these positions—from entry-level roles to senior engineers—are plastered across local websites. However, many of the higher-paying jobs are going to Chinese expats.

The problem? Most locals lack the qualifications. Many workers only have high school diplomas or basic vocational training, while chip engineering jobs require at least a bachelor’s degree. To address this, Vietnam has set a goal of training 50,000 chip engineers by 2030.

Local governments are offering housing and healthcare incentives to attract instructors and students to these training programs.

Power shortages are another obstacle. In 2022, outages cost manufacturers hundreds of millions of dollars. The government is now pushing for renewable energy solutions, including rooftop solar panels and waste-to-energy projects. Coal plants still account for much of the power supply, but the country is scrambling to diversify its energy sources to keep up with demand.

Malaysia’s semiconductor gamble

Malaysia is no newbie in the semiconductor game. The country accounts for 13% of the world’s chip testing and packaging capacity. Penang, a coastal state, processes more than half of Malaysia’s chip exports. Between 2019 and 2023, Penang attracted $44 billion in foreign investment, nearly tripling its inflow from the last decade.

Intel is nearing completion of its first advanced 3D chip packaging facility outside the US, a $7 billion investment. Lam Research is building an 800,000-square-foot campus that will become its largest globally. Western Digital and Micron Technology have also set up operations in Penang’s industrial parks.

The industrial boom extends to Batu Kawan, a nearby area that used to be covered in rubber plantations. It’s now home to sprawling factories, outlet malls, and the region’s only IKEA store. Residential property markets are surging alongside this industrial growth.

However, Malaysia faces the same workforce issues as Vietnam. The government plans to train 60,000 engineers over the next few years to fill the growing demand for skilled labor. Power supply is also a concern.

Malaysia has some of the lowest electricity rates in Southeast Asia, which attracts energy-intensive industries like AI and chipmaking. To meet rising power demands, palm oil plantations are being converted into large-scale solar farms.

Kedah, a state near Penang, is also emerging as a major player in the tech scene. In 2023, Infineon Technologies opened a $7.8 billion silicon carbide chip plant in Kedah. These chips are essential for electric vehicles and renewable energy systems, further solidifying Malaysia’s place in the global semiconductor supply chain.

Analysts warn that Trump’s policies could lead to a fragmented global supply chain, with separate networks servicing US-friendly and China-friendly markets.

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