Germany eyes closer M’sia ties

PETALING JAYA: Germany is looking to deepen its economic footprint in Malaysia as global companies accelerate supply- chain diversification, opening up fresh investment opportunities in semiconductors, advanced manufacturing, green technology and regional services.

With German businesses already expanding their Malaysian operations and a growing number shifting regional functions from Singapore to Johor, the two countries are seeking to move beyond traditional trade ties towards a more strategic industrial partnership.

The proposed EU-Malaysia Free Trade Agreement (FTA), alongside Kuala Lumpur’s selection to host the Asia-Pacific Conference of German Business (APK) in 2028, could provide further impetus to that ambition.

The latest trade figures underline the importance of the relationship.

Bilateral merchandise trade between Malaysia and Germany stood at approximately €16.6bil in 2025, down 4.3% from the previous year.

German exports to Malaysia amounted to €5.9bil, while imports from Malaysia totalled €10.7bil.

From Malaysia’s perspective, exports to Germany increased 1.9% to RM32.97bil in 2025, making it the country’s second- largest export destination within the European Union (EU).

The figures point to considerable room for growth, particularly as businesses reassess their supply chains amid tensions between the United States and China.

Hannes Farlock of the Malaysian-German Chamber of Commerce and Industry (MGCC) said German companies already operating in Malaysia remained confident about the country, with expansion taking place across several industries.

“We see a good momentum. So, companies who are already invested, they still believe in Malaysia and they’re expanding,” he told StarBiz on the sidelines of the 19th APK held in Seoul recently.

Importantly, the interest is no longer confined to electrical and electronics (E&E) and semiconductors.

German companies are also active in food production, defence, services and logistics, with some relocating regional support functions to Malaysia.

“We see also a little bit of a shift from Singapore into, especially, Johor and the region. And this, I mean, I’m only there for a year now, but it’s actually gaining momentum now,” Farlock said.

The development reflects a broader shift towards China Plus One and China Plus X strategies, as companies seek to diversify production and reduce reliance on individual markets.

Malaysia’s established manufacturing ecosystem, skilled workforce, strategic location and access to regional markets are among the factors supporting its appeal.

The next phase of cooperation is expected to focus increasingly on higher-value manufacturing, particularly semiconductors, industrial automation and digitalisation.

Farlock said Malaysia is well positioned to move further up the industrial value chain, particularly as the country pursues its industrial development ambitions between 2026 and 2030.

He said the transition towards smart factories would create demand for machinery, automation systems, logistics solutions and software, presenting opportunities for German technology providers.

Another growth area is data centres, where German companies can supply specialised technologies such as cooling systems, smart energy solutions and infrastructure.

Although German companies may not necessarily develop or operate these facilities, they can provide the technologies required to support their operations.

Siemens AG chief executive Roland Busch said that Malaysia is an important market within the company’s regional strategy.

“Yes, Malaysia is a very important country, an Asean country, for us. We have a long, long-term establishment in Malaysia, strong partnership, and this cuts across our whole portfolio,” he said.

He identified smart infrastructure, electricity grid expansion, grid automation, digitalisation and data centres as areas offering significant potential.

Busch also stressed the importance of digital transformation among Malaysian companies, particularly through artificial intelligence (AI).

“Automation and digitalisation is one of the topics Malaysia and Malaysian companies can also start working on.

“The big ones and the smaller ones are starting their digital transformation – AI supercharged, so to speak – supported by AI technology, which would strengthen Malaysia’s economy on the one side, but also competitiveness,” he noted.

Beyond manufacturing, rare earths and critical raw materials could become another important area of cooperation as Europe seeks to diversify its sources of strategic materials.

Farlock highlighted Malaysia’s existing rare earth processing capabilities and the potential to develop downstream activities, including the production of materials used in permanent magnets.

Green technology is another promising area, particularly renewable energy, hydrogen, energy efficiency and electricity grid connectivity.

Busch said collaboration should extend beyond energy generation to include recycling and resource efficiency.

“We are investing in green technologies not only from the aspect of energy production, but also from the recycling aspect.

“You have to go more and more into recycling your materials – not only critical materials, but immaterial too – which drives your footprint down. So, huge opportunities there,” he said.

Despite the opportunities, Malaysia faces

competition from regional investment destinations such as Vietnam, Thailand and Singapore.

Talent availability, rising operating costs, regulatory consistency and infrastructure reliability remain important considerations for German businesses.

Farlock identified skilled talent as a key challenge, particularly as more multinational companies compete for engineers and technical workers.

He said that MGCC is supporting dual vocational training initiatives to help develop the workforce required by German companies.

Another important factor is the proposed EU-Malaysia FTA, which could provide a stronger framework for trade and investment.

Ambassador of Germany to Malaysia Silke Riecken-Daerr said that both sides should accelerate negotiations, with the ambition of concluding the agreement by the end of 2027, subject to progress on outstanding issues.

The agreement is expected to address tariff elimination and non-tariff barriers, giving businesses greater predictability and improving market access.

Volker Treier, chief executive of foreign trade at the German Chamber of Commerce and Industry, highlighted the importance of stable markets, investment protection and common standards.

“We need a certain predictability and market stability.

“All your markets offer stability, and growth of course makes it attractive to be in the market, as well as being open-minded in terms of partnering,” he said.

He added that greater alignment in governance, environmental and labour standards through trade agreements would strengthen cooperation.

Meanwhile, a further boost to bilateral ties could come from Malaysia’s selection to host the APK in 2028. The announcement was made during the 19th APK in Seoul, South Korea, held from Oct 29 to 31, 2026.

Notably, the conference attracted more than 700 political and business decision- makers from Germany and the Asia-Pacific region.

The Kuala Lumpur edition is expected to draw approximately 800 participants, including senior German business leaders and policymakers.

Riecken-Daerr described the selection as a significant opportunity to deepen economic relations.

“We are extremely proud to see the APK go to Kuala Lumpur in two years’ time.

“And I think it’s an immense, tremendous opportunity to further develop our bilateral ties.”

She added that the timing is particularly important as both sides hope to advance the EU-Malaysia FTA negotiations before the conference, potentially allowing the gathering to translate political commitments into concrete business opportunities.