A controversial China-backed infrastructure project that Malaysian Prime Minister Mahathir Mohamad put on the back burner in July will continue on a smaller scale, he has said – pending Beijing’s approval.

In an interview with Chinese language Malaysian daily Sin Chew, Mahathir said that the 80 billion ringgit (US$19.3 billion) East Coast Rail Link (ECRL) project, which was out for tender when it was dropped, could continue if Beijing took into account the tough economic spot Malaysia was in.

“China’s government understands that Malaysia is facing serious financial problems,” Mahathir said on Monday.

“What we are trying to do is ensure that we will not spend much money and that China will not suffer a loss.”

The railway – which would cross the Malay Peninsula, connecting Port Klang on the Malacca Strait with Kuantan on the eastern coast before running north through Tumpat on the border with Thailand – was to be financed in large part by the Export-Import Bank of China.

Malaysia has already paid 19.68 billion ringgit (US$4.8 billion) to the China Communications Construction Company, which holds the construction contract for the project and declined to comment for this article.

Mahathir said negotiations on the matter were ongoing, adding: “Of course China will want to continue with the plan because they think it’s a good deal.”

His concerns, however, centre around the potentially astronomical amount of compensation China would receive if the project was terminated before completion, as well as Malaysia’s capacity to actually complete it.

He said the country has maintained a long friendship with China, exemplified by the two pandas Xing Xing and Liang Liang that were leased to Malaysia for 10 years in 2014.

Minister of Water, Land and Natural Resources Xavier Jayakumar has raised the possibility of returning the animals given the high cost of maintaining them, but Mahathir rejected this proposal. The prime minister’s warm sentiments echo those previously put forth by former finance minister Daim Zainuddin, the chairman of a government advisory body overseeing the project.

Daim, who chairs the Council of Eminent Persons, met Chinese Premier Li Keqiang in mid-July and discussed the rail link. A month later, Mahathir visited Beijing. The two nations seemed keen at the time to preserve close ties despite tensions over suspended projects and allegedly lopsided terms.

China, for its part, has publicly accepted that Malaysia is attempting to reduce its ballooning national debt – though there has been speculation that Beijing was quietly seething at the perceived slight.

Mahathir has maintained since before last summer’s election victory that the rail link and other infrastructure projects would be difficult to implement in the face of the nation’s financial problems, a situation his government claims was handed to it by the previous administration.

The ECRL was one of several infrastructure projects suspended by Mahathir after he took office in May, following shock election results that saw his coalition oust former protégé Najib Razak’s Barisan Nasional. Citing dire financial straits, the new prime minister refused to commit to timelines that had been set for US$22 billion worth of projects, questioning deals that had been approved by the former coalition.

In suspending the project, Mahathir earned a reputation for being willing to stand up to China and the growing influence it is exerting in the region through its Belt and Road Initiative – a scheme that critics have described as debt-trap diplomacy, citing the example of the strategically important Hambantota Port, which Sri Lanka leased to Chinese state-owned firms for 99 years in 2017 to settle unpaid debts.

While the ECRL dispute is ostensibly a commercial matter between two companies, a source directly involved in the talks told This Week in Asia last year that both governments getting involved was “inevitable”.

Foreign policy expert Ngeow Chow Bing of the University of Malaya’s Institute of China Studies said that Mahathir’s announcement came as “no large surprise” given the wider financial implications of cancelling the project outright.

“Money has been drawn, it will be hard for us to cancel. The government must have come to the conclusion that it is better to renegotiate rather than cancelling outright,” he said.

“I think China will be happy to learn this and try to cooperate to help reduce the cost as it will be to the benefit of both sides. However, China may be concerned that if the project is renegotiated, other countries in similar situations may apply pressure to also renegotiate projects. But at this point, the costs and benefits must be weighed.”

Majid Khan, president of the Malaysia-China Friendship Association, also welcomed Mahathir’s announcement.

“This is a win-win situation and puts the issue of Malaysia-China relations to rest. Perhaps to keep the project on a smaller scale they can shorten the length [to] just halfway to Kuantan, where there is an industrial park, rather than the initial plan of all the way to Kelantan. Or perhaps there is a way to realign it for less cost,” he said.

Oh Ei Sun, senior fellow at the Singapore Institute of International Affairs think tank, said there was a need for a rail link across the breadth of the Malay Peninsula to facilitate the transport of goods.

“The existing east coast rail line can be upgraded – such as [by being] double-tracked – to better serve needs,” he said.

Meanwhile, in a Facebook post, disgraced former prime minister Najib – whose government had a positive relationship with China – asserted that Malaysia could afford to pay back Chinese loans for the project, citing upcoming dividends from national oil company Petronas and its willingness to lose tax revenue by removing the goods and services tax

“If they could [rob] Petronas of 82 billion [ringgit] for this year and next year, of course they could afford to pay ECRL, [whether] priced at 55 billion or 81 billion,” he said.

“It is very difficult for me to believe why many Malaysians could be deceived and believed [Pakatan] Harapan’s propaganda that Malaysia will become Sri Lanka because of the ECRL project. That is Sri Lanka, this is Malaysia.”