Malaysia and China Forge Digital and AI Partnerships in Historic Agreements

In a significant step toward deepening technological and economic ties, Malaysia has signed two landmark memoranda of understanding (MoUs) with China’s National Development and Reform Commission (NDRC). The agreements, finalized on April 16, 2025, focus on advancing the digital economies of both nations and fostering cooperation in artificial intelligence (AI) technology. Witnessed by Malaysian Prime Minister Datuk Seri Anwar Ibrahim and Chinese President Xi Jinping, the pacts signal a new chapter in bilateral relations, with implications for Malaysia’s role as the ASEAN Chair in 2025.

Details of the Digital and AI Agreements

The MoUs, exchanged between Malaysia’s Digital Minister Gobind Singh Deo and NDRC Chairman Zheng Shanjie, outline a broad framework for collaboration. The first agreement aims to promote and develop the digital economies of both countries through policy coordination, regulatory alignment, and industrial digital transformation. It also emphasizes digital technology innovation and talent development, aiming to build a skilled workforce capable of navigating the rapidly evolving tech landscape.

The second MoU focuses specifically on AI technology, a field where both nations see immense potential for growth and innovation. Under this agreement, Malaysia and China will collaborate on projects that encourage partnerships between cities and enterprises. A joint working group on the digital economy will be established, comprising representatives from China’s National Data Administration and Malaysia’s Digital Ministry, to oversee the implementation of these initiatives.

In addition to the MoUs, a letter of intent (LOI) was signed between the Malaysia Digital Economy Corporation (MDEC) and China’s Zhejiang University. This partnership will focus on digital transformation, AI, and the development of smart cities—a priority for Malaysia as it prepares to host the inaugural Smart City Expo Kuala Lumpur in September 2025. These agreements are seen as a strategic move to position Malaysia as a regional leader in digital innovation, especially during its tenure as ASEAN Chair.

Strategic Importance for Malaysia

The timing of these agreements is notable, as Malaysia holds the rotating chairmanship of ASEAN in 2025, a role that places it at the forefront of regional diplomacy and economic integration. Digital Minister Gobind Singh Deo highlighted the significance of the partnerships, stating, “The signing of the two MoUs and the LOI is a step in the right direction as we continue to accelerate Malaysia’s digital transformation.” He further noted that collaboration with NDRC and Zhejiang University will bolster Malaysia’s efforts to spearhead digital initiatives across the ASEAN bloc.

Malaysia has been actively working to transform itself into a digital hub in Southeast Asia, leveraging its strategic location, growing tech ecosystem, and government-backed initiatives. The country’s Digital Economy Blueprint, launched in 2021, aims to contribute 25.5% of GDP through digital sectors by 2030. Partnerships with China, a global leader in AI and digital infrastructure, could provide the technological expertise and investment needed to achieve these ambitious targets.

However, the agreements also come at a time of heightened geopolitical tensions in the region, particularly concerning China’s influence in Southeast Asia. While the economic benefits of such partnerships are clear, some analysts caution that Malaysia must navigate potential concerns over data sovereignty and technological dependency. If not carefully managed, deeper integration with Chinese tech frameworks could raise questions about privacy and national security—issues that have surfaced in other countries engaging with similar initiatives.

Broader Implications for ASEAN

Malaysia’s collaboration with China on digital and AI technologies could set a precedent for other ASEAN nations, many of which are grappling with the challenges and opportunities of digital transformation. The region, home to over 650 million people, represents a massive market for digital services, with e-commerce, fintech, and smart infrastructure projected to drive economic growth in the coming decades. By positioning itself as a bridge between ASEAN and China, Malaysia could play a pivotal role in shaping regional policies on technology and innovation.

The focus on smart cities, in particular, aligns with ASEAN’s broader goals of sustainable urbanization. With rapid population growth and urban migration straining infrastructure in cities like Jakarta, Bangkok, and Ho Chi Minh, the development of AI-driven solutions for traffic management, energy efficiency, and public services is increasingly urgent. Malaysia’s partnership with Zhejiang University, a leading institution in smart city research, could yield scalable models for other ASEAN countries to adopt.

Yet, the collaboration also raises questions about the balance of power within ASEAN. While Malaysia’s leadership in digital initiatives is commendable, some member states may view China’s growing involvement with caution, given historical sensitivities and ongoing disputes in the South China Sea. If these partnerships are perceived as disproportionately benefiting China, they could strain intra-ASEAN cohesion at a time when unity is critical to addressing regional challenges.

China’s Role and Regional Dynamics

For China, the agreements with Malaysia reinforce its Belt and Road Initiative (BRI) ambitions, which extend beyond physical infrastructure to include digital connectivity. Known as the “Digital Silk Road,” this facet of the BRI seeks to establish China as a dominant player in global tech networks through investments in 5G, AI, and cloud computing. Malaysia, with its advanced telecommunications infrastructure and strategic position along key trade routes, is a vital partner in this vision.

President Xi Jinping’s visit to Kuala Lumpur, where he was seen walking alongside Prime Minister Anwar Ibrahim at the Bunga Raya VIP complex of Kuala Lumpur International Airport on April 17, 2025, underscored the high-level commitment to these partnerships. The image of the two leaders departing for Cambodia—Xi’s next stop on his regional tour—sent a symbolic message of alignment between the two nations, even as other countries in the region remain wary of Beijing’s expanding footprint.

China’s technological prowess, particularly in AI, offers undeniable benefits for Malaysia. Chinese companies like Huawei and Tencent have already made inroads into Southeast Asia, providing affordable solutions for digital infrastructure. However, concerns persist about the long-term implications of such partnerships. Reports from other regions have highlighted risks associated with Chinese tech investments, including potential surveillance capabilities embedded in hardware and software. While no evidence suggests such issues in the current MoUs, Malaysia will need to establish robust safeguards to protect national interests.

Public and Industry Reactions

Within Malaysia, the agreements have been met with a mix of optimism and cautious scrutiny. Tech industry leaders have welcomed the potential for knowledge transfer and investment, with many anticipating that collaboration with Chinese entities will accelerate innovation in areas like AI-driven logistics and e-commerce. Small and medium enterprises (SMEs), which form the backbone of Malaysia’s economy, could benefit from access to cutting-edge tools and training programs outlined in the MoUs.

On the other hand, civil society groups and privacy advocates have raised concerns about the lack of transparency surrounding the agreements. Questions remain about how data sharing will be regulated under the joint working group and whether Malaysian citizens’ personal information will be adequately protected. Public discourse on social media platforms reflects a broader unease about over-reliance on foreign technology, with some users calling for greater domestic capacity building.

Internationally, the partnerships have drawn attention from other global powers, particularly the United States and the European Union, which have their own strategic interests in Southeast Asia’s digital landscape. Both have been pushing for alternative frameworks, such as the US-led Indo-Pacific Economic Framework (IPEF) and the EU’s Digital Partnership agreements, to counterbalance China’s influence. Malaysia’s ability to balance these competing interests will be crucial in maintaining its geopolitical neutrality.

Looking Ahead: Challenges and Opportunities

As Malaysia and China embark on this new phase of cooperation, the road ahead is fraught with both promise and complexity. The digital economy and AI partnerships hold the potential to transform Malaysia into a regional tech powerhouse, creating jobs, boosting productivity, and enhancing public services. Hosting the Smart City Expo Kuala Lumpur in September 2025 will provide a platform to showcase these advancements, potentially attracting further investment and collaboration.

Yet, the challenges of ensuring equitable benefits, protecting national sovereignty, and addressing public concerns cannot be understated. If these agreements are to succeed, they must be accompanied by transparent governance, robust regulatory frameworks, and active engagement with stakeholders across society. For now, as Malaysia takes on a leadership role within ASEAN, its digital alliances with China will be closely watched by neighbors and global partners alike, shaping the future of technology in the region.