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“China’s Infrastructure Strategy under Review in Malaysia” by Tang Siew Mun

2018/70, 8 June 2018

Chinese mega-projects in Malaysia have come under intense scrutiny under the Pakatan Harapan government. Within weeks of taking over the government, Prime Minister Mahathir Mohamad pledged to review all mega-project deals signed by the Najib administration to ascertain their financial viability and the government’s ability to carry out those projects. These reviews can turn three major diplomatic and strategic victories – the Kuala Lumpur-Singapore High Speed Rail (HSR), the East Coast Railway Link (ECRL) and the Malacca Gateway projects – into not just lost economic opportunities but also political liabilities that can potentially impact negatively on how Malaysia views its largest trade partner.

The HSR project was the first to be cancelled by Prime Minister Mahathir on 28 May. Chinese firms were expected to get the lion’s share of the RM110 billion project. The fate of the HSR-linked Bandar Malaysia development project also hangs in the balance. Meanwhile, the RM55 billion ECRL project is also under intense criticism after “irregular” financial practices such as the disbursement of payment to Chinese firms pegged to a fixed schedule as opposed to work completed came to light. While a decision on the ECRL project has not been made, the irregularities disclosed by the Mahathir administration make Malaysians wary of China’s commercial “practices”, including questions of Beijing’s involvement in using Malaysian public works projects to support the Najib administration.

The Malacca state government announced on 5 June that it will review the RM40 billion Malacca Gateway project. The Malacca State Industry, Trade and Investment Committee Chairman, Mohd Rafiq Naizamohideen, explained that although Malacca “was keen to continue with the project, it must directly benefit the local community by providing jobs and business opportunities.” The deepening of the Malacca port and construction of four artificial islands off the West coast of Malaysia will give China a strategic foothold in the Straits of Malacca – a vital maritime artery which carries more than US$5 trillion of goods annually.

Together, the ECRL and the Malacca Gateway projects were intended to mitigate China’s concerns of its Straits of Malacca Dilemma, a scenario where Chinese access to these vital sea lines of communication can be blocked by the US and its allies in a conflict between the two major powers.
 
Malaysia’s public airing of the ECRL irregularities which falls short of international financial practices will put Chinese projects in Malaysia under suspicion. The perception that a part of the ECRL financing package was tailored to fund the political agenda of the recipient government incriminates Chinese firms and banks, and exposes Beijing to accusations of interfering in Malaysia’s domestic politics. The unequal terms of the ECRL agreement, which overwhelmingly favour China, also go against Beijing’s narrative of “win-win cooperation.”

Public perception on China will deteriorate further if the review of the Malacca Gateway project reveals a similar pattern of “predatory financing.” The probe by the Ministry of Finance into the “irregularities in the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP) projects – which were awarded to the China Petroleum Pipeline Bureau (CPPB) – would ensure continuing scrutiny of China-linked projects among the Malaysia public.

The defeat of the Barisan Nasional government on 9 May 2018 has also unravelled Beijing’s cultivation of the Barisan Nasional leadership through, among others, infrastructure financing. In the immediate, the Malaysian public will judge the Najib administration on its fiduciary responsibilities and financial management of the ECRL project just as they will pass judgement on Chinese firms which have taken advantage of Malaysia’s political malaise to exact maximum financial and political advantages. The announcement of three Chinese investments totalling RM1.2 billion in the first week after the GE14 election may be an attempt to gain favour with the new Malaysian government.

A diplomatic fallout from the review and cancellation of the ECRL (and other megaprojects) is unlikely. The Mahathir administration will continue to support and expand Malaysia’s booming trade ties with China, although with a higher degree of circumspection.
 
As the full picture of Chinese “investments” and economic partnership with Malaysia under the Najib administration is played out in full view in Malaysia and globally, recipient countries along the Belt and Road can learn lessons from these episodes to better protect their own national interests.

Dr Tang Siew Mun is Senior Fellow at the Regional Strategic and Political Studies Programme, 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.