China's Gas Turbine Foothold in Southeast Asia Exposes a US Manufacturing Gap

In Sarawak, Malaysia, a 500-megawatt combined cycle gas turbine plant is under construction north of Bintulu. Siemens Energy supplied the first two units; Shanghai Electric has now won the contract for Unit 3^[1], bundled with a 25-year service agreement^[1]. The machinery itself, gas and steam turbines, generators, heat recovery systems, will be manufactured entirely in-house by Shanghai Electric^[1], and the company will serve as sole service provider for the plant's operational life. This is not a routine equipment sale. It marks Shanghai Electric's first commercial reference as a heavy-duty gas turbine exporter, after delivering 103 units domestically^[4] and signals a shift in how Southeast Asian utilities evaluate their supply chains.

The mechanism at work is vertical integration meeting cost. Western turbine makers (GE, Siemens, Ansaldo) have dominated overseas CCGT projects by bundling equipment, EPC services, and long-term maintenance under a single contract, extracting rent through that integration. Shanghai Electric is replicating the model but with one lever: manufacturing everything in China, where labor and capital costs are lower, and keeping the service-contract margin as well. The Malaysian utility Sarawak Energy was offered a turnkey solution with unified technical accountability and, implicitly, lower total cost of ownership than the alternative. A Western quote for the same 500 MW unit would include equipment manufactured in Europe, US-origin content in some subsystems, and a service contract priced for Western labor markets. Shanghai Electric's offer is priced for a different cost base.

This matters to US energy policy because the US has spent the past two years tying manufacturing incentives to domestic content rules. The Inflation Reduction Act pairs investment tax credits for clean energy with domestic-content requirements; various agencies enforce Buy America riders that require US-origin steel and manufactured components in federally funded projects. The theory is sound: subsidize domestic production to reduce supply-chain risk and lock in manufacturing jobs. The practice, however, reveals a gap. China's industrial policy does not require subsidies to make equipment competitive in third markets; it uses a combination of state-backed capital, manufacturing scale, and labor costs to underprice. When a Malaysian utility compares a 500 MW turnkey CCGT, the lowest-cost bidder wins, and that bid is increasingly coming from Shanghai, not Pennsylvania. The US approach assumes that if you subsidize domestic production enough, US makers will win overseas contracts. But overseas buyers are price-sensitive; they are not receiving the subsidy. A utility in Sarawak buys the cheapest qualified turbine, period.

The deeper issue is scope. The US subsidizes manufacturing but does not yet control enough of the supply chain to make those subsidies decisive overseas. GE Gas Power still dominates globally, but GE itself sources components across multiple countries and partners with firms (like Doosan in Korea) on offshore projects. Siemens Energy is German and European. Neither is purely a US firm for procurement purposes, and neither competes on the same cost base as Shanghai Electric, which can offer pricing that US labor and capital structures cannot match without subsidy levels that are politically and fiscally implausible. The Malaysian deal shows what happens when that subsidy does not apply: the cheaper, vertically integrated Chinese option wins, and the buyer locks in 25 years of service dependency with a Chinese firm.

This is not an argument for abandoning manufacturing incentives; it is an argument for recognizing their limits and their costs. Every dollar of IRA clean-energy credit that boosts a US manufacturer's cost structure makes that manufacturer less competitive in price-sensitive overseas markets unless the buyer also receives a subsidy (which they do not). The alternative is to accept that manufacturing will be located where costs allow it, and shape US energy policy around what the US can actually control: grid architecture, storage deployment, and the speed of domestic deployment of whatever equipment is built where. The Sarawak deal is a symptom of a real constraint, not a warning that can be solved by another manufacturing subsidy.