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When do countries that pursue industrialisation through the development of their manufacturing sector shift to services? Does the shift take place because manufacturing development has matured with the development of indigenous technology? What is the role of policy in this shift? Understanding this shift is crucial due to the changing nature and role of services in development and its association with deindustrialisation. This article seeks to compare Malaysia and China's shift from manufacturing to services and the challenges and prospects of such a shift. The main findings indicate that Malaysia's shift occurred earlier than China's and was prompted by the failure of its manufacturing sector to deepen as it has not produced any world-class domestic technology firms. China's more recent shift is associated with ongoing upgrading in its manufacturing sector while some global domestic technology firms have also emerged. Both countries used similar policies to drive this shift in response to domestic and external changes. The services sectors of both countries are still dominated by domestic market orientated, labour-intensive services. Developing competitive knowledge-intensive services in both countries will need a reform of their state-owned enterprises and the production of more talents that are needed for these types of services. [ABSTRACT FROM AUTHOR]