This paper employs the theoretical framework of resources and resource exchange to explain Taiwan's relations with Malaysia. Taiwan's abundant economic resources are credited not only to improve the island's economic interactions with Malaysia, but also to strengthen its political and substantive relations with this Muslim state. However, Taiwan will face more challenges from the People's Republic of China (PRC) because the PRC has intensified its political and economic relations with Malaysia since the early 1990s. Malaysia is the primary winner from the competition between Taiwan and the PRC. It is argued that the PRC is a major stumbling block for further improvement of Taiwan-Malaysian diplomatic relations.