KUALA LUMPUR - Malaysia is rolling out incentives to lure foreign investors seeking shelter from the persistent US-China trade war.

"The protracted trade war creates a unique opportunity for Malaysia to again be the preferred destination for high value-added Foreign Direct Investments," said Finance Minister Lim Guan Eng in presenting the annual budget speech on Friday (Oct 11).

Approved FDI in the first half of the year surged by 97 per cent to RM49.5 billion (S$16.2 billion), compared with RM25.1 billion in the first six months of last year.

The United States recorded the highest FDI in manufacturing with RM11.7 billion followed by China with RM4.8 billion.

Mr Lim sees opportunities as companies relocate to escape the trade war, with those previously opening plants in China looking to set up shop outside the Middle Kingdom to avoid US tariffs.

The Malaysian government is setting up a "Special Channel" to boost investments from China.

"As China is our largest trading partner, FDI from China should be comparable with the US," Mr Lim said.

"As such, a 'Special Channel' to attract investments from China shall be established under InvestKL," the minister added.

InvestKL is a government agency that works to get multinationals to set up shop in the Klang Valley, also known as Greater KL, as their regional hubs.

To attract Fortune 500 companies to set up business in Malaysia, the government is offering up to RM1 billion worth of customised packaged investment incentives annually, over five years.

Companies would have to invest at least RM5 billion in Malaysia to generate additional economic activities that would support small and medium enterprises, thus creating 150,000 high-impact jobs in five years, Mr Lim said.

For the electrical and electronics (E&E) sector - the mainstay of Malaysia's export demand - the government is providing special tax incentives.

They included a 10-year corporate tax exemption for E&E companies that invest in knowledge-based services, and special investment tax allowances for E&E companies to continue its operations in Malaysia.

There is also a push for automation with capital allowances for companies injecting its first RM2 million and RM4 million until 2023.

"The budget's emphasis on backing higher-value added industries and on infrastructure development (both social and physical) will support growth against a challenging global environment," said Anushka Shah, senior analyst at Moody's Investors Service.

But it was not just foreign investors who are getting the carrots, as domestic investors were also in the government's sight.

Domestic direct investments (DDI) fell by 17.1 per cent in 2018 from the year before, decreasing to RM121.1 billion from RM146.2 billion.

In the first half of 2019, DDI comprised less than half of the nearly RM92 billion approved private investments, at only 46 per cent, with foreign direct investments taking the lead instead.

"To transform Malaysia's best and most promising businesses into the most competitive enterprises in global export markets, the government will also make available up to RM1 billion in customised packaged investment incentives annually over 5 years" for local companies, Mr Lim said.

"These incentives are strictly conditional upon these companies proving their ability to grow and export their products and services globally," he added.

The government estimates that this measure would strengthen the local network supply chain and generate 100,000 high quality job within five years.

For Malaysian construction consortiums seeking to bid for concessions or projects abroad, the government has allotted RM1 billion of matching guarantee at a 1:5 ratio for private equity funds to invest in these consortiums.

Much of 2020 budget incentives are targeted at the internet economy and its supporting network, with the government looking to providing digital infrastructure in industrial parks and tax perks for angel investors.