PETALING JAYA, Oct 7 — Former Finance Minister Lim Guan Eng has urged that all foreign investors and contractors be required to source at least 50 per cent of their supplies from local manufacturers to protect small and medium enterprises (SMEs).
Lim said he raised the proposal during a meeting of government MPs with Prime Minister Datuk Seri Anwar Ibrahim on Oct 5, ahead of the 2026 Budget.
He said the move would help safeguard local businesses struggling under the impact of US tariffs.
“The role of SMEs in Malaysia cannot be ignored. They contribute 38 per cent of GDP, generate 48 per cent of employment, and account for almost 13 per cent of total exports. Any disruption to SMEs affects the economy, jobs and the livelihoods of many Malaysians,” Lim said.
He pointed to the global tariff war launched by the US, which forced products destined for America to seek alternative markets at much lower prices, often below production costs.
Lim warned that the influx of cheap imports could devastate local industries.
Lim also cited China‘s phenomenon of “involution” (nei quan), describing it as intense competition that reduces profits despite increased effort, resulting in a “race to the bottom” as companies slash prices to dominate market share.
“This ‘one-dragon’ scenario may save costs for suppliers or government projects, but leaves local SMEs with little opportunity. Many are expected to close by mid-next year if the situation continues,” he said.
He added that rising electricity tariffs, new SST scopes, e-invoicing, a 2 per cent dividend tax on earnings above RM100,000, and 2 per cent EPF contributions for foreign workers have added further pressure, putting SMEs “on the edge.”
Lim said Malaysian SMEs are also facing stiff competition from Chinese traders controlling the supply chain and imports from China.
He proposed mandating that foreign investors and contractors source at least 50 per cent of their materials locally, noting that Indonesia requires 70 per cent local sourcing.
He added that Anwar was aware of the issue, recognising the challenges faced by SMEs and shrinking business orders, and committed to reviewing measures to protect local industries.
