By: Muad Zaki,

Senior Fellow at Asia Middle East Center (AMEC)

For much of the past decade, foreign direct investment (FDI) was treated by governments as a largely technical and economic matter. Policymakers focused on macroeconomic stability, incentives, infrastructure readiness, and regulatory predictability. The underlying assumption was that global capital flowed within a broadly stable international framework—one governed by shared rules, multilateral institutions, and predictable norms. That framework has now broken.

Across Asia, including Malaysia, growth strategies were built on openness to investment from multiple directions, the United States, Europe, Japan, South Korea, and China. Non-alignment was not merely a diplomatic posture; it was an economic strategy made possible by an international system that rewarded neutrality and constrained unilateral coercion. For years, this allowed Asian economies to attract capital while remaining largely insulated from geopolitical confrontation.

Those conditions no longer hold. Foreign direct investment today operates in an international environment where prior assumptions about restraint, enforcement, and predictability have collapsed. Economic integration is no longer insulated from power politics. Capital flows are increasingly shaped by geopolitical pressure, strategic rivalry, and long-term alignment considerations, alongside traditional market fundamentals.

This reality was stated plainly at the 2026 World Economic Forum in Davos, when Mark Carney declared that the post-Cold War rules-based international order has already ruptured. His assessment was not a warning about future risk, but a diagnosis of present conditions. Trade, finance, supply chains, and regulatory systems are now routinely used as instruments of pressure rather than neutral mechanisms of cooperation. For a country as closely integrated with the United States as Canada, this public admission carried particular weight. For small and middle powers, the implications are even more serious.

In this fragmented global environment, sovereignty is increasingly respected only when it aligns with the strategic priorities of major powers. The experience of Venezuela illustrates this reality. External pressure was accompanied by unusually explicit statements linking strategic objectives directly to access to natural resources. Whatever one’s view of Venezuela’s domestic politics, the precedent is clear: when strategic assets are involved, international legal norms and multilateral restraint can be sidelined.

A similar logic, —expressed without military force,— was evident in Greenland. U.S. interest in Greenland was framed around security and strategic necessity, prompting firm rejection by Greenlandic and Danish authorities. The episode demonstrated that even stable, developed territories are not immune to from external pressure when geography or resources carry strategic value. These cases matter not because they are identical, but because they reflect a broader pattern with direct implications for long-term economic and investment policy.

Any serious discussion of foreign direct investment in Asia must also acknowledge the central role played by China in the region’s economic development over the past decade. Chinese investment has been a major driver of infrastructure expansion, industrial capacity building, manufacturing growth, logistics connectivity, and energy development across Asia, including Malaysia. These investments have focused on long-term economic fundamentals, such as—transport networks, industrial zones, ports, energy systems, and production facilities, —that directly support national development strategies and regional integration.

From the perspective of Asian governments and policymakers, Chinese investment has been widely regarded as practical, development-focused, and economically complementary. It has addressed financing gaps in large-scale projects that require scale, patience, and long investment horizons, often in areas where other sources of capital were limited or constrained. Importantly, China’s approach to investment engagement in Asia has emphasised economic outcomes rather than ideological or cultural conditionality, allowing host countries to pursue growth and infrastructure modernisation while preserving domestic policy autonomy.

At the same time, multinational corporations are adjusting rapidly to this new global landscape. Large firms now maintain dedicated geopolitical risk and strategic foresight units that assess medium- and long-term scenarios. These teams do not ask whether the old international system will return. They ask how host countries will manage alignment pressures once strategic competition intensifies further. The central concern for investors is policy durability and—whether regulatory frameworks, market access conditions, and compliance obligations will remain coherent over five to ten years.

In this context, countries that attempt to indefinitely hedge between competing power centres may be perceived as facing future policy disruption. This is not a judgement on the legitimacy of hedging, but a reflection of the narrowing space for sustained neutrality in a world where economic relations are increasingly politicised.

The breakdown of shared rules has also transformed how major powers approach investment. Foreign direct investment is increasingly used as leverage. Market access, technology cooperation, and even security partnerships are tied to political expectations. Policy signals from Washington suggest that preferential treatment for U.S. firms may become more explicit, sometimes at the expense of Canadian or European investors. Security arrangements can further complicate this environment when they indirectly constrain economic policy and raise questions about long-term regulatory independence.

At the same time, strategic divergence between the United States and the European Union, alongside Canada’s public reassessment of its global posture, is reshaping global investment behaviour. European scrutiny of major U.S. technology firms reflects a broader effort to reclaim regulatory and political autonomy in an increasingly fragmented international system. For Asia, this fragmentation presents both risks and opportunities.

What this means for Asian policymakers is clear. Foreign direct investment frameworks designed for a stable, rules-based international order are no longer sufficient. Governments must move from a model of passive investment attraction to one of strategic investment management. This requires integrating geopolitical foresight into economic policy, providing long-term clarity and predictability to investors, strengthening regional coordination within ASEAN, and embedding safeguards that protect sovereignty while preserving openness to productive partnerships.

This is not about choosing sides. It is about reducing vulnerability to coercion in a world where coercion has become normalised. The greatest risk facing policymakers today is not misjudgement, but delay. The assumption that the global system will self-correct has already been overtaken by events.Foreign direct investment will continue to flow. But in the current global environment, how it is governed —and the strategic clarity that underpins it —will increasingly determine not only economic outcomes, but national resilience itself.