“Whither Malaysia’s China Policy Under Prime Minister Mahathir?” by Ian Storey

2018/57 11 May 2018

As Malaysia’s largest trade and investment partner, China is hugely important to the country’s economic development. However, even though Mahathir was the architect of the country’s China-friendly policy in the early 1990s, he has been highly critical of his predecessor Najib Razak’s relations with Beijing, arguing that Malaysia has become too dependent on China.

Mahathir has questioned the utility of several China-funded mega-projects in Malaysia and denounced Najib for putting his own interests before those of the country’s. He labelled as “stupid” the sale of energy assets to China to bail out the scandal-plagued 1MDB state fund. Mahathir has been particularly critical of the US$40 billion Forest City residential development in Johor of which China is the main investor and Chinese citizens have been the main buyers of units. According to Mahathir, by allowing Forest City to go ahead, Malaysia has sold out the country’s sovereignty to China: “This is not Chinese investment, but a settlement.” In media interviews prior to the election, Mahathir denied that he was “anti-China”, but promised that if re-elected he would re-examine and, if necessary, re-negotiate major Chinese investment projects. Mahathir has even accused Najib of undermining the country’s non-aligned status by initiating military-to-military ties with China, hyperbolically stating that “Now we are no longer independent, we are now part of the Chinese bloc.”

Regional security analysts will be most interested in the new government’s stance towards the South China Sea dispute.  Although China and Malaysia have enjoyed cordial political relations for 25 years, the two countries have been unable to resolve their overlapping territorial and jurisdictional claims in the South China Sea. Malaysia claims 12 atolls in the Spratlys and occupies five, while China claims all of the features and resources within its nine-dash line. Although successive Malaysian governments have downplayed tensions in the disputed waters, the country’s national security establishment has been unnerved by China’s growing military presence in the area and increasingly assertive behaviour. In 2013 and 2014, Kuala Lumpur was taken aback by high-profile Chinese naval exercises at James Shoal, a feature which lies on Borneo’s continental shelf but which Beijing claims as its southernmost territory. Mahathir has argued that while Malaysia cannot, and should not, confront China militarily, it must vigorously uphold its claims in the area and hold negotiations with China.

While China’s leaders may have viewed the election results nervously, in reality major changes in the bilateral relationship are unlikely. China is too important an economic partner for Kuala Lumpur to offend, and Malaysia is too influential a political actor within ASEAN for Beijing to upset. Besides, the new government will want to reassure foreign governments that Malaysia remains open for business and that it continues to be a reliable partner. That said, in the coming months some of the more controversial China-funded projects—and especially those linked to the 1MDB scandal—will come under renewed scrutiny, and Malaysia may become more openly critical of Beijing’s militarization of the South China Sea dispute. But as it has done with other Southeast Asian countries that have changed governments in the recent past, China will work with the new government to advance bilateral relations. After all, in many ways Prime Minister Mahathir is an old friend of China.

Ian Storey is Senior Fellow at the ISEAS-Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS-Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.