Malaysia rethinks on China projects

Malaysia rethinks on China projects

The flags of China and Malaysia. China's Communist Party mouthpiece has warned Dr Mahathir about backing off projects with Chinese investment. (Graphic supplied)
The flags of China and Malaysia. China's Communist Party mouthpiece has warned Dr Mahathir about backing off projects with Chinese investment. (Graphic supplied)

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, threatening key links in the much-vaunted initiative.

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 turfed out of power last month by voters disgusted at allegations of corruption and angered at rising living costs.

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 Mr Najib's regime.

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

China's ambitious initiative to revive the ancient Silk Road trading routes with a global network of ports, roads and railways -- dubbed "One Belt, One Road" -- was launched in 2013 and is the economic crown jewel of President Xi Jinping's presidency.

Malaysia, along with Beijing's 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 Mr Najib moved quickly to approve and implement projects," Murray Hiebert, a senior associate from the think-tank Centre for Strategic and International Studies said.

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

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

Mr Najib and his cronies were accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations -- denied by Mr Najib and 1MDB -- helped topple his government.

Malaysia's first change of government in six decades has left Mr Najib facing a potential jail term -- and appears to have already unsettled Beijing's plans in the country.

New prime minister, Mr Mahathir, has announced that a planned high-speed rail link between Kuala Lumpur and neighbouring Singapore will not go ahead as he seeks to reduce the country's huge national debt.

The project was in its early stages and had not yet received any Chinese funding as part of "One Belt, One Road".

But Chinese companies were favoured to build part of the line, which would have constituted a link in a high-speed route from China's Yunnan province to trading hub Singapore, along which Chinese goods could have been transported for export much more quickly than presently.

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

Mr Mahathir has 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 park.

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".

The Chinese foreign ministry did not respond to request for comment.

But a recent commentary in China's Global Times, a nationalist state-run tabloid, warned Mr Mahathir that if he damaged the interests of Chinese companies, 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, Mr Mahathir has a clear preference for Beijing's rival Japan. Last week, the newly-appointed prime minister took his first foreign trip since assuming office to Tokyo.

During the visit, the 92-year-old signalled that ties with Beijing would begin to cool: "We will be friendly with China, but we do not want to be indebted to China".

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