Steel related non‑market policies and practices of FDI in Malaysia

This paper examines the profound structural transformation of Malaysia’s steel sector, driven primarily by large-scale foreign direct investment (FDI) in integrated blast furnace/basic oxygen furnace (BF/BOF) capacity. It investigates the extent to which cross-border investments were shaped, enabled, or supported by non-market policies and practices (NMPPs) in the country of origin—such as strategic policy alignment and state-linked financing mechanisms—and assesses their subsequent impacts on host-economy market dynamics. The findings reveal that massive capacity additions, occurring against a backdrop of subdued domestic demand, have led to surging exports, the severe displacement and market exit of viable domestic electric arc furnace (EAF) producers, low capacity utilisation, and a shift towards more carbon-intensive production. Furthermore, host-country investment incentives have interacted with home-economy support, reinforcing uneven competitive conditions. To address these structural distortions, the paper proposes five complementary policy approaches: supporting collective international action against excess capacity, enhancing the disclosure and verification of foreign support in inward FDI, ensuring host industrial policies safeguard a level playing field, mitigating adverse impacts on viable domestic producers, and embedding steel-specific excess-capacity criteria into national investment-assessment frameworks.