This article first appeared in Forum, The Edge Malaysia Weekly on October 12, 2026 - October 18, 2026

Our small and medium enterprises (SMEs) are in real danger of being gutted by their hyper-competitive counterparts from China whose overcapacity is being exported to our domestic markets. They create very little domestic employment and value-add, bringing in an en bloc shipment of labour and overheads, materials and supply chain that are wholly unregulated and untaxed from China.

Malaysia’s private sector-driven SME ecosystem has almost none of the protectionist character of the monopolies and oligopolies that dominate the government-linked company (GLC)/government-linked investment company (GLIC) ecosystem. Our SMEs have to operate under strict financial discipline with limited funding liquidity, while navigating a high level of regulatory demands on their operations and high costs.

Retail units, mechanics’ workshops, construction services and supply chains, food and beverage (F&B) outlets and other service-oriented businesses are not abstract numbers on an economist’s spreadsheet. These are real enterprises that have survived for years, employed people, paid taxes and supported families and funded education for the next generation. The Chinese onslaught has already started to decimate this sector one by one. Once gone, they will never return, together with the employment of our people.

When people across such different sectors start telling the same story at the same time — margins disappearing, customers slowing down, costs rising, price competition becoming impossible and businesses simply trying to survive — we should not dismiss them as isolated business failures or a lack of ability to compete. Maybe the official macro numbers haven’t captured these yet. Maybe nobody has properly measured these or has raised the alarm. But these signals are real. By the time everyone agrees there is a crisis, a lot of these businesses will already be gone for good. Many retailers have already made it known that they will be closing shop after Chinese New Year.

We need to understand the systemic issues that the global phenomenon of China’s dominance is creating and take the necessary steps, or we shall probably see the beginning of the end for our generations-old SME sector, which is the largest tax-paying segment and the backbone of our economy.

So, let us understand why this is happening. China’s macroeconomic model today faces a persistent structural imbalance. High domestic savings rates and state-directed financial intervention have systemically prioritised industrial capacity over private consumption. China’s gross national savings rate sits at about 43% to 45% of gross domestic product (GDP), roughly double the global average.

A glaring structural problem compounds this issue: real estate historically represented 60% to 70% of Chinese household wealth. That bubble has burst, led by Evergrande and Country Garden, which together accumulated roughly US$500 billion (RM2.04 trillion) in liabilities. This problem does not seem to be going away anytime soon and the result has exacerbated several underlying issues:

● Weak consumer base: Despite generating about 30% of global manufacturing output, China’s domestic consumption remains weak.

● Capital redirection: As internal real estate investment contracts, state-backed capital has been redirected to industrial manufacturing output.

● Exporting surplus: Lacking domestic absorption capacity, state-subsidised excess production across heavy industrial goods, solar photovoltaic modules and consumer retail products are routed outwards. Today, this export push extends to the services sector.

● Growth mandates: The Chinese Communist Party’s political narrative relies heavily on economic output. GDP growth targets remain a critical key performance indicator for provincial officials.

● Scale disparity: China operates with an active workforce of 725 million people in provincial production clusters developing a hyper-competitive supply chain within these clusters. No nation on earth can match this scale or build such tightly integrated domestic supply chains.

● Provincial scale: Eleven Chinese provinces maintain working populations exceeding 30 million each — from Guangxi at around 30 million to Guangdong at around 70 million — competing fiercely in overlapping product categories.

● Global context: By comparison, the active labour forces of the European Union, the US and Brazil stand at roughly 195 million, 168 million and 108 million respectively. Malaysia’s total workforce stands at a modest 17.3 million. In short, in terms of industrial scale, there is absolutely no contest.

● Wage arbitrage realities: National Bureau of Statistics figures show that China’s urban private sector median monthly wage sits at roughly RMB4,500 (RM2,745) to RMB4,800, while its baseline rural migrant workforce averages RMB5,075. By comparison, Department of Statistics Malaysia figures place Malaysia’s formal sector median monthly wage at RM3,065. This indicates that the country’s baseline labour cost sits functionally on par with China’s, leaving Malaysian SMEs unable to rely on wage cost advantages to offset China’s massive industrial scale and state-backed capital efficiencies and subsidies.

● Urban unemployment mechanics: China’s surveyed urban unemployment rate hovers between 4.8% and 5.3%. Taking just the urban employed population of 470 million, a 5% unemployment rate represents roughly 23.5 million unemployed urban workers (excluding youth unemployment). When their unemployment number dwarfs our total workforce, and their gargantuan employed workforce has a median wage equal to or less than our own, even the most efficient businesses cannot compete with such scale.

Put together, this structural dynamic enables an unprecedented wave of global export dominance without military power, presenting an insurmountable challenge for smaller economies. Unregulated cross-border services and trade flows ensure that local providers are inevitably priced out of their own domestic market.

For Malaysian SMEs, competing against this influx of capital and workforce is not merely an issue of operational efficiency. It is a matter of financial reality. Local private enterprises operate under commercial discipline, bearing standard market-rate borrowing terms and statutory tax obligations. They cannot absorb a prolonged margin squeeze against foreign entities operating under sovereign liquidity mandates that prioritise global market share over return on invested capital. They do not have the scale or almost monopolistic size to force supply chain vendors to provide practically zero-interest financing the way BYD Co, for example, does for its contractors with nearly nine-month payment terms.

This is systemic unfair trade competition that no efficiency improvement or tariffs can ever redress. I am sounding the alarm because while our consumers may enjoy lower costs now, after decades of our own economic misallocation and leakages of capital, especially within our GLIC and GLC economy, the impact will be felt when domestic SMEs disappear, and wages will be further compressed or ultimately dry up altogether along with our SMEs.

The first primary industrial casualty of this dynamic we have witnessed has been Malaysia’s iron and steel sector. Malaysian Iron and Steel Industry Federation (Misif) data indicates national apparent steel consumption between 7.5 million and 9.5 million tonnes annually. However, total domestic capacity has expanded sharply past 24 million tonnes, driven primarily by mega-scale foreign investment projects.

The establishment of integrated steel complexes in the Malaysia-China Kuantan Industrial Park (MCKIP) — such as Alliance Steel (M) Sdn Bhd — introduced immense capacity into a saturated regional market:

●    Capacity utilisation failure: Domestic long-steel capacity utilisation rates dropped below 50%, well beneath the 70% to 80% threshold required for cash break-even operations.

●    Upstream displacements: Incumbent domestic producers such as Kinsteel Bhd and Perwaja Steel Sdn Bhd faced severe balance sheet distress, forced restructurings or liquidation. Local re-rollers operating without sovereign debt backstops could not survive below-cost market pricing.

●    Enclave operations: Rather than integrating with local supply chains, these major foreign-backed industrial enclaves from China mainly import machinery, technical services and feedstock directly, minimising if not eliminating local procurement altogether. Unlike previous investment models, here multipliers and domestic wage spillovers are absent.

Across fellow Asean and BRICS economies, notably Brazil, Indonesia and Vietnam, governments have enacted anti-dumping duties and introduced strict local content mandates to preserve domestic manufacturing ecosystems. Ours provide attractive land deals and unneeded incentives, when we are already a stable political investment destination at the expense of our own domestic economy and employment.

This onslaught has extended from heavy industry to light manufacturing, wholesale distribution and commercial services. The expansion of ultra-low-cost direct-from-factory e-commerce platforms bypasses traditional domestic retail networks.

While Malaysia introduced a 10% low value goods sales tax on imported goods priced below RM500, cross-border sellers continued to exploit customs tariff structures and direct-shipping subsidies. Local bricks-and-mortar retailers — bearing commercial property leases, regulatory compliance costs and standard import tariffs on bulk stock — face a structural cost disadvantage. Concurrently, China’s businesses bring with them huge cash reserves to snap up commercial real estate at any price, inflating industrial land valuations and thus raising fixed operational overheads for local enterprises across F&B, automotive services and light manufacturing. Certain subsectors of our domestic SME economy, in my assessment, will vanish beyond recovery to be replaced by China-owned operators that have no allegiance to Malaysian supply chains or local workforce when its cost advantages are integrated from China in almost all aspects.

To put a pin on the human cost of the cut-throat competition in CCP China, note its “996 culture” (working 9am to 9pm for six days a week), where in 2021, a 22-year-old overworked Pinduo­duo employee died after leaving work at 1.30am, and two weeks later another worker fell to his death. This is the price of the cheap goods we are buying and the transfer-pricing of China’s systemic surplus into our economy. From anecdotal lamentations locally, we are already hearing of retail shops planning to close their businesses after Chinese New Year.

Preserving Malaysia’s domestic private sector requires us to move away from headline foreign direct investment figures as the metric of economic success. Instead, we need to pivot towards net domestic value-add.

1. Trade remedy reform (Act 504): The Ministry of Investment, Trade and Industry (Miti) should radicalise the Countervailing and Anti-Dumping Duties Act 1993. Establishing fast-track duties alone may be insufficient. Instead of providing fast-track provisional duties within 60 days of petition filings and enacting strict anti-circumvention rules, Miti needs to form an active task force that identifies vulnerable sectors and completely prevents foreign producers from bypassing tariffs, destroying domestic production capacity or allowing minimal regional processing.

2. Customs parity and digital levies: We need to streamline import duty frameworks on cross-border e-commerce parcels to maintain tax parity between foreign platforms and local business owners, even though this may not be an effective move against such scales of production. Indonesian authorities have altogether blocked Temu (operated by Pinduoduo’s parent company, PDD Holdings) to protect domestic micro, small and medium enterprises (MSMEs).

3. Local procurement and wage benchmarks: The authorities must link foreign industrial manufacturing licences directly to a mandatory 60% local vendor allocation and monitor benchmarked salary structures for domestic technical hires to ensure capital inflows generate local economic spillovers. We cannot allow the import of practical servitude in the form of a 996 culture into our Malaysian way of life.

4. Targeted SME fiscal relief: We need to lower the preferential corporate income tax rate for local SMEs from 15% to 10% for taxable income up to RM600,000, while expanding by 100% Accelerated Capital Allowances (ACA) to accelerate local automation. In fact, we should systemically institutionalise an overall private sector-driven economy with a low total corporate tax rate, gradually rising to a 15% ceiling.

5. Supply-side deregulation: We must reduce operational overheads by eliminating tolls and protective concessions in domestic logistics, port handling and energy supply, enabling domestic private enterprises to compete on more equal footing.

Tighter controls and enforcement on wholesale, retail and trade licensing by the Ministry of Domestic Trade and Cost of Living such that our Malaysian MSME ecosystem does not crash due to China’s “market share at any cost” business model.

The cost of doing business in Malaysia must be reduced, rather than further burdening entrepreneurs, as is now being done by the government. Can we stop mandating a Business Reporting System and an Income Tax Reporting System? Basically, these reporting costs are wasteful overheads for our SMEs with no returns on productivity or revenue. Why is the government outsourcing its own work and burdening the private sector with it?

The time has come to deregulate and open up our financial industry to create more access to funding and competition. This is an imperative for a developed domestic private sector economy. Our nation has crippled this money supply to SMEs in order to protect GLIC investments and for political power dynamics to the nation’s detriment.

In conclusion, China and its economic interests have no alignment with Malaysian economic needs. No diplomatic lip service will replace its need to export its systemic overcapacity problems from its own cut-throat internal economy to accommodate Malaysian long-term economic interests. Enforcing market integrity and trade discipline is an economic prerequisite of fair-trade capitalism to preserve Malaysia’s domestic capital base, production capacity, private sector employment and long-term industrial capability and survival. We do or we die.

Shamsul Saad (Sam) is national organisation bureau chief of Parti Bangsa Malaysia and host of the Gut Shot Podcast. He is a former group managing director of Perdana Petroleum Bhd.

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