Amid the Sino-U.S. trade war, U.S. semiconductor manufacturers begin to relocate abroad

Penang is just one of the regions in Asia scrambling for supply chains in search of new locations and lower tariffs.

Industrial zones have the advantage of a long-term ecosystem of suppliers and customers in one location, and cheaper labor than local rival Singapore. The two areas are connected by a 24-kilometer (14.9-mile) bridge over the Strait of Malacca.

Another advantage for Penang is that many semiconductors and other electronic products do not have to pay tariffs, unlike China’s 25% tariff rate.

In the first half of this year, foreign direct investment in Penang surged 11 times to about US$2 billion, far more than in any other year. The government expects stronger numbers in the second half of the year but gave no estimate of jobs generated.

Malaysia said in next year's federal budget tabled on Friday that it will provide tax incentives to further promote high value-added activities in its electronics and electrical industry.

U.S. companies including chipmaker Micron Technology Inc and iPhone supplier Jabil Inc are building factories in Penang. Chief Minister Zhou Jianyao, the state's top elected official, said the state was urgently releasing more land, including reclaimed land, to make room for the new factory.

Penang came to the spotlight in 1972 when Intel established its first international manufacturing facility there. This was followed by many other large American companies such as Broadcom, Dell and Motorola.

But starting in 2005, investment remained largely stable for more than a decade as China attracted many companies, government data shows. Intel opened a factory in the Chinese city of Chengdu that same year, prompting some Malaysian suppliers to relocate as well.

Geoffrey Ng, director of strategic investments at Malaysian asset manager Fortress Capital, said Penang has since become a sleepy town.

"It's almost like a new renaissance in Penang. After years of losing its shine to China, Penang is starting to see a second wave of investment."