China frequently disseminates its propaganda beyond its national borders, targeting individuals of Chinese descent to build a narrative of a larger Chinese nation led by the People’s Republic of China (PRC). Given that there are over 40 million overseas Chinese — one of the largest diaspora groups globally — the Chinese Communist Party (CCP) has a significant pool of potential adherents who may be susceptible to its messages. Despite growing concerns about the transnational impact of Chinese propaganda, there is a notable lack of research examining this issue from an intergroup perspective. This gap is particularly striking given anecdotal evidence of clear ethnic divides in sentiments towards China between Chinese and non-Chinese communities abroad. Observers and policymakers have highlighted the potentially destabilizing effects of Chinese propaganda and disinformation in countries with large Chinese diaspora communities, though definitive evidence supporting these observations is lacking. Drawing on social identity theory, we argue that exposure to PRC propaganda heightens ethnic divisions and grievances, thereby increasing outgroup prejudice among both Chinese and non-Chinese populations. To test this, we conduct a survey experiment examining the transnational effects of Chinese propaganda on interethnic relations in Malaysia, with preliminary pilot surveys supporting our concerns about its destabilizing effects. This research demonstrates how foreign propaganda can destabilize domestic intergroup relations, offering crucial insights into the intersection between international political communication and social cohesion in multiethnic countries.