Is this racist policy still in effect?
Yes, from what I hear it is. It's not racism; It's protectionism to ensure entry level airline jobs go to locals. Same applies in Australia in that non Australian citizens or residents are not permitted to work there. And what makes you think you have the god given right to work in Malaysia over the hundreds of other local Malaysian pilots already with a Malaysian CPL and fATPL for airline entry level jobs? Although you may have thousands of hours in GA in Australia, those hours means zilch in Malaysia and you are still considered as an airline wannabe seeking an entry level job.