Malaysia’s regime change puts at risk infrastructure projects involving Chinese firms

Previously warm relations between two nations have cooled since Mahathir took charge

PUBLISHED : Sunday, 17 June, 2018, 2:06pm
UPDATED : Sunday, 17 June, 2018, 11:16pm

Malaysia was once a loyal partner in China’s globe-spanning infrastructure drive, but a new government is now pledging to review Beijing-backed projects.

Kuala Lumpur’s previous regime, led by scandal-mired Najib Razak, had warm ties with China and signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.

But the long-ruling coalition was unexpectedly defeated last month by voters angered at allegations of corruption and rising living costs.

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Critics say many agreements lacked transparency, fuelling suspicions they were struck in exchange for help in paying off debts from a financial scandal which ultimately helped bring down Najib’s regime.

The new government, led by former premier Mahathir Mohamad, has pledged to review dubious Chinese deals, calling into question Malaysia’s status as one of Beijing’s most cooperative partners in its infrastructure push.

China’s ambitious “Belt and Road Initiative”, President Xi Jinping’s economic crown jewel, was launched in 2013. The aim is to revive ancient Silk Road trading routes with a global network of ports, roads and railways.

Malaysia and Beijing ally Cambodia, were seen as bright spots in Southeast Asia, with projects in other countries often facing problems, from land acquisition to drawn-out negotiations with governments.

“Malaysia under Najib moved quickly to approve and implement projects,” said Murray Hiebert, a senior associate from think tank the Centre for Strategic and International Studies.

Chinese foreign direct investment into Malaysia stood at just 0.8 per cent of total net FDI inflows in 2008, but that figure had risen to 14.4 per cent by 2016, according to a study from Singapore’s ISEAS-Yusof Ishak Institute.

However, Hiebert said it was “widely assumed” that Malaysia struck quick deals with China in the hope of getting help to cover debts from sovereign wealth fund 1MDB.

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Najib and his cronies are accused of stealing huge sums of public money from the investment vehicle. Public disgust at the fraud allegations – denied by Najib and 1MDB – helped topple him. Malaysia’s first change of government in six decades has left Najib facing a potential jail term – and appears to have unsettled Beijing’s plans in the country.

Mahathir has scrapped a planned high-speed rail link between Kuala Lumpur and Singapore as he seeks to reduce the country’s huge national debt.

The project had not yet received Chinese funding as part of the belt and road strategy. But Chinese companies were tipped to build part of the line, which would have been a link in a high-speed route from Yunnan province to Singapore, along which Chinese goods could have been transported for export.

Work has already started in Malaysia on another line seen as part of that route, and which had received Chinese funding – the US$14-billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur. Mahathir said that agreement is now being renegotiated.

Other Chinese-funded initiatives include a deep-sea port in Malacca, near important shipping routes, and an enormous industrial estate.

It is not clear yet which projects will be changed or cancelled but experts believe axing some will be positive.

Alex Holmes, Asia economist for Capital Economics, backed cancelling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value”.

China’s foreign ministry did not respond to a request for comment, but a recent commentary in state-run tabloid Global Times, warned Mahathir if he damaged Chinese companies’ interests, they had the right to seek compensation.

“The Chinese government will also take concrete measures to safeguard the interests and rights of Chinese enterprises,” it said.

Adding to China’s woes, Mahathir has a clear preference for Beijing’s rival Japan, and last week went to Tokyo for his first foreign trip since taking office.

“We will be friendly with China, but we do not want to be indebted to China,” the 92-year-old said: