China’s investment in embattled 1MDB throw Malaysian Prime Minister a lifeline - but carry a hidden price tag

China’s investment forays into Southeast Asia, even as it presses on with its South China Sea reclamation works are well-known. But recent acquisitions in Malaysia have taken on an unusually high profile in a country with race relations in a delicate state, and where the Chinese are a significant minority.

In the space of less than two months, China has bought two multi-billion-dollar strategic assets from Malaysia’s debt-laden state-owned investment firm, 1Malaysia Development Berhad (IMDB), expanding its influence in the country while throwing a lifeline to embattled Prime Minister Najib Razak.

The investments, analysts said, have geopolitical implications - specifically, regarding territorial disputes in the South China Sea where Malaysia has an overlapping claim with China. “Najib’s, and Malaysia’s, ability to manoeuvre, vis-à-vis China, is going to be limited after this deal. How far we [Malaysia] will be able to pursue an independent foreign policy after this, is going to be one of the key questions,” said Dennis Ignatius, a former Malaysian diplomat who has served in Beijing, Washington and London.

Najib chairs the advisory board of 1MDB which racked up RM42 billion ringgit (US$9.6 billion) in debts in less than five years and almost defaulted on a loan. For months, 1MDB’s troubles weighed on Malaysia’s sovereign credit rating.

It led to calls for Najib’s resignation from former prime minister Dr Mahathir Mohamad and opposition parties, who accused Najib of mismanagement and corruption. 1MDB is currently under investigation by five domestic agencies and authorities in Switzerland. Najib has denied any wrongdoing.