Malaysia rethinking investment incentives as data centre boom exposes policy gaps, says Treasury secretary general

KUALA LUMPUR (July 24): Malaysia is rethinking how it attracts foreign investments after an influx of data centre projects exposed the limitations of rewarding companies based primarily on the size of their capital commitments.

Treasury secretary general Tan Sri Johan Mahmood Merican said the government has learnt from its recent experience with data centres, acknowledging that Malaysia may have gone too far in rolling out incentives for the sector as demand surged alongside the global artificial intelligence (AI) boom.

"I think in recent experience, we perhaps overdid the red carpet for data centres to the extent that now we are almost getting too much of a demand," he said during a fireside chat held in conjunction with the signing of a memorandum of understanding (MOU) between the Securities Commission Malaysia (SC) and the Securities and Futures Commission of Hong Kong (SFC) on Thursday.

The surge in interest has prompted the government to reassess its approach, including reviewing electricity pricing for the energy-intensive industry.

"We are having to reprice ourselves," Johan said, adding that Malaysia's energy tariffs may need to better reflect the value of its resources while remaining competitive in attracting investments.

His remarks signal a broader shift in investment policy, with the government moving away from judging projects mainly by the amount companies are willing to spend.

"I think in the past, we have been a bit overly simplistic, broad-based, offering incentives, and sometimes it was just a pursuit of large capital investments," he said.

Instead, Johan said future investment decisions should be guided by whether projects contribute to Malaysia's long-term economic ambitions.

While data centres have attracted billions of ringgit in investments, he noted that a standard, or "vanilla", data centre does not necessarily create significant employment opportunities or generate strong spillover benefits for local businesses.

"If we just provide incentives based on large expenditures, that may not be completely aligned with our national objectives," he said.

Going forward, Johan said the government is developing a broader framework to assess investments based on their overall economic value rather than capital expenditure alone.

The proposed "scorecard" would evaluate whether projects increase economic complexity, create higher value-added jobs and strengthen linkages with local industries.

The policy shift comes as Malaysia continues to attract strong interest from global technology companies seeking to expand AI and cloud infrastructure in Southeast Asia. While the government remains open to investment, Johan said future incentives are likely to become more targeted to ensure projects deliver lasting economic benefits.

"I think to that extent, we will always be open to look at areas where we can collaborate to provide greater value for the economy," he said.

On the collaboration between Hong Kong and Malaysia, Johan said Malaysia can learn from Hong Kong's experience in developing the single family office industry, as Hong Kong is more advanced in attracting wealthy families to establish investment offices.

He said Malaysia wants not only to attract these investors but also encourage them to stay and use the country as a long-term base for investment and business.

Johan also said Malaysia's partnership with Hong Kong will improve access to global capital, helping finance high-growth sectors such as semiconductor design and the energy transition.

He added that Malaysia remains open to business and believes its neutral foreign policy makes it an attractive investment destination amid global geopolitical uncertainty. He also sees opportunities to attract capital from the Middle East by leveraging Malaysia's strengths in Islamic finance.

His remarks came during a Malaysia-Hong Kong capital markets forum, which followed the signing of the MOU between the SC and the SFC which will make it easier for companies to pursue dual listings and expand cross-border investment products.

Hong Kong's secretary for financial services and the Treasury, Christopher Hui, said the partnership would allow both markets to leverage their strengths, with Hong Kong providing access to international investors and Malaysia offering opportunities in high-value manufacturing and commodities.

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