China, Malaysia tout new ‘port alliance’ to reduce customs bottlenecks and boost trade

PUBLISHED : Saturday, 09 April, 2016, 3:30pm
UPDATED : Saturday, 09 April, 2016, 4:00pm

China’s 21st century Maritime Silk Road is just one element in Beijing’s drive to spread its trade ties and influence globally and Malaysia has become a major partner in this expansion.

As part of this Silk Road reboot, the two countries are forming a “port alliance” to fast-track trade by reducing customs bottlenecks at both ends, according to China’s top envoy to Malaysia, Huang Huikang.

“The port alliance will serve not only as a maritime network between the two countries, but also the bond of trade and business and tourism,” Huang told the South China Morning Post.

Malacca was an important port during the ancient Silk Road, playing host to Chinese navigator Zheng He in the 15th century, and is set to rise again as Beijing invests US$10 billion to develop a deep sea port there, according to Malaysian Transport Minister Liow Tiong Lai.

The port is expected to be the biggest in the region when it is completed in 2025 under the Malacca Gateway project which includes commercial and residential property developments.

As a sign of Malacca’s importance, Chinese Premier Li Keqiang squeezed several hours out of his tight schedule during last November’s Asean Summit in Kuala Lumpur to visit the city.

“China regards the Strait of Malacca as highly sensitive and critical as Chinese shipping interest is vulnerable to disruption by unfriendly parties in times of conflict. Thus, securing a foothold in the Strait of Malacca will be a major strategic achievement for China,” says Tang Siew Mun, senior fellow at the Institute of Southeast Asian Studies Yusof Ishak Institute.

Under the port alliance, 10 Chinese ports – Dalian, Shanghai, Ningbo, Qinzhou, Guangzhou, Fuzhou, Xiamen, Shezhen, Hainan and Taicang will collaborate with six Malaysian ports – Port Klang, Malacca, Penang, Johor, Kuantan and Bintulu.

“All the ports under the port alliance are for commercial purposes,” Liow told the Post.

He said details of the port alliance are currently being thrashed out and he expects the final version to be ready in about six months.

“We are working on the details, we are working in many areas ... technology transfer, human capacity building, training of manpower from both countries. China is advanced in their port technology, in freight forwarding, container transfers ... We are looking at the bottlenecks of our customs and bottlenecks of China’s custom,” added Liow.

According to Alexious Lee, head of industrial research China, at Credit Lyonnais, Beijing is pouring large sums of money into the Malacca port because it “expects it to make money”.

“When a venture is commercially viable, it is easy to get approval from with the Silk Fund or the Asian Infrastructure Investment Bank (AIIB),” he said.

According to Huang, many Chinese companies favour Malaysia.

“Due to Malaysia’s strong competitiveness and business-friendly environment, more and more Chinese enterprises regard Malaysia as one of the best investment destinations in Southeast Asia,” he said.

“In 2015, the non-financial direct investment from China to Malaysia reached US$410 million, growing by 237 per cent,” said Huang. In the past six months, China has bought two multibillion-dollar strategic assets from Malaysia’s debt-laden state-owned investment firm, 1Malaysia Development Berhad (IMDB), effectively rescuing beleaguered Prime Minister Najib Razak who chairs the firm’s advisory board.

Allegations of corruption and mismanagement at 1MDB has led to calls for Najib’s resignation. Najib has denied any wrongdoing and the attorney general cleared him of all accusations.

China General Nuclear Power Group, a Chinese state-owned enterprise, paid US$2.3 billion to acquire 1MDB’s Edra Global Energy Bhd last November.

Edra is the country’s second largest power producer, giving China a major foothold in the energy sector.

In December, China Railway Construction teamed up with Malaysian Iskandar Waterfront Holdings to buy a 60 per cent stake in 1MDB’s property project known as Bandar Malaysia for US$1.7 billion.

Bandar Malaysia is a mixed-property project on a 197-hectare site. The development will also host terminals for a planned Singapore-Kuala Lumpur high-speed rail link.

Many analysts say China is now in pole position to win the bid for the high speed railway.

Huang was coy when asked about China’s chances.

“With the full support of [the] Chinese government, a sole Chinese consortium is established to actively participate in the bid for Kuala Lumpur-Singapore high speed railway.

“China enjoys the largest, fastest, most advanced and best managed high speed railway network worldwide. China’s 308km-long Hainan high speed railway is the only one of its kind in the tropical zone. It has been running safely for five years under similar climate and geological conditions to the Kuala Lumpur-Singapore line.