What New Zealand Can Learn from Malaysia's "Business as Usual" Foreign Policy

In late June I travelled to Kuala Lumpur as part of a New Zealand delegation supported by the Asia New Zealand Foundation, to attend the 39th Asia-Pacific Roundtable. Convened by ISIS Malaysia on behalf of the ASEAN Institutes of Strategic and International Studies, the Roundtable is Southeast Asia’s flagship Track 2 gathering and involves several hundred officials, analysts and academics meeting off the record to speak frankly about the pressures bearing down on the region.

This year’s theme, “Accelerating agency and action,” asked where regional leadership might be found amid geopolitical turbulence, and what smaller states can actually do about circumstances they did not choose.

Australia's High Commissioner to Malaysia, Danielle Heinecke, speaks with Thomas Daniel, Director of Foreign Policy and Security Studies at ISIS Malaysia, during a fireside chat at the 39th Asia-Pacific Roundtable. Image Credits - Supplied

From a foreign policy perspective, one of the key takeaways from the Asia-Pacific Roundtable was not any bold strategic announcement but, rather, the conspicuous absence of one. Faced with intensifying US–China rivalry, tariff turbulence, and mounting pressure to pick a side, Malaysia’s answer - echoed across much of the ASEAN commentary at the Roundtable - was essentially “business as usual.” The emphasis being: keep trading with everyone. Keep talking to everyone. Avoid burning bridges. Preserve optionality.

In international relations terms, this is hedging: the deliberate cultivation of a middle position between balancing (aligning with others to counter a rising power) and bandwagoning (siding with the rising power in the hope of security or reward).

The strategy of hedging was first observed in Southeast Asian states behaviour in the late 1990s and early 2000s. When China’s rise began reshaping the region, ASEAN states declined to follow the textbook script of balancing or bandwagoning and instead built dense economic ties with Beijing while quietly maintaining security relationships with Washington.

While China’s rise has become more problematic over the last decade and elicited a concerted backlash from the United States, a hedging strategy remains the preferred foreign policy choice for Malaysia. What makes this “business as usual” stance bold is that Malaysia sits directly on one of Southeast Asia’s most dangerous geopolitical fault lines: the straits of Malacca, through which nearly 40% of global trade and 30% of oil pass. On top of that, Malaysia is now heavily dependent on China for trade while also having competing South China Sea claims (with China).

A panel discussing 'Sino-Indian tectonics in the Global South' at the Roundtable. Image credits - Supplied

If any state should feel the room for hedging shrinking beneath its feet, it is Malaysia. Yet, at the Asia-Pacific Roundtable, the message was one of pragmatic continuity.

Now consider New Zealand. It is about as far from the Indo-Pacific’s flashpoints as geography allows. It faces no territorial disputes, very few grey-zone incursions, and no meaningful direct military threat. And yet it is New Zealand, not Malaysia, that has spent the past half-decade seemingly dismantling its hedge. From the late 2000s up until about 2018, New Zealand ran what I have called an “asymmetrical hedge”: growing an unprecedented trade relationship with China - the much-vaunted “mature” relationship - while remaining anchored in the US-led security architecture.

However, since adopting the Indo-Pacific concept in 2019, Wellington has progressively securitised China, ramped up defence cooperation with the United States and Australia (and committed more to defence internally), pursued trade diversification, and, until recently, openly explored participation in Pillar II of AUKUS. The trajectory points away from hedging and towards something closer to conventional balancing.

Why has distant New Zealand abandoned what proximate Malaysia retains? Part of the answer is that the room for hedging is not simply a material fact; it is also a matter of perception, shaped by the narratives a state absorbs.

The Indo-Pacific concept - with its core claim that a “free and open” regional order faces an existential challenge from China - is a securitising project driven largely from Washington, Canberra, and Tokyo. ASEAN states have been notably resistant to it, developing their own outlook precisely to blunt its binary logic. New Zealand, embedded in the Anglosphere and Five Eyes, has proved a far more receptive actor, however.

Datuk Prof Dr Mohd Faiz Abdullah Executive Chairman ISIS Malaysia delivers the Welcoming Remarks at the Roundtable. Image Credits - Supplied.

Ultimately, Malaysia hears the same rhetoric about a new Cold War but discounts it whereas Wellington increasingly treats it as the operating environment.

So, what might New Zealand take from Malaysia’s example? The most valuable lesson is dispositional rather than strategic: the discipline of not allowing great-power anxiety to crowd out an independent reading of one’s own interests. Malaysia demonstrates that a small, trade-dependent state can acknowledge genuine security concerns about China while declining to let those concerns dictate the entire foreign policy. Optionality, once surrendered, is very hard to buy back.

But the limits of the comparison matter too. Malaysia hedges from within ASEAN, a collective that provides diplomatic cover, convening power, and a shared regional vocabulary. New Zealand has no equivalent grouping; our closest friends are within the Anglosphere arrangements that pull us towards balancing China.

Malaysia can also credibly present itself as non-aligned in a way New Zealand - a Five Eyes member with deepening interoperability with the United States and Australia - cannot. Hedging, in other words, is not freely available to all comers. It depends on the neighbourhood you are in and the company you keep.

The uncomfortable question the Roundtable left me with is this: if the states living closest to the supposed threat are the ones most committed to keeping their options open, what exactly is driving New Zealand – which is relatively geopolitically safe – to recoil?

Business as usual may sound like an ambivalent stance at a time of geopolitical upheaval. But, from the sidelines of the Asia-Pacific Roundtable in Kuala Lumpur, it struck me as being a smart and sophisticated stance.

-Asia Media Centre