Despite fiery campaign rhetoric, Chinese-backed projects in Malaysia steam ahead

In his first months in office, Prime Minister Mahathir Mohamad suspended Chinese projects like a railway line that raised serious concerns for environmentalists. But since then, the Malaysian leader has seemed to have changed his anti-Chinese stance.

China’s mammoth spending on transportation, energy and residential infrastructure was a potent issue in Malaysia’s raucous 2018 election that saw Najib Razak replaced as prime minister by his former mentor and previous holder of the office, Mahathir Mohamad. A year later, despite Mahathir’s initial antagonism, China’s infrastructure investments have barely shifted at all.

Mahathir earned his unexpected victory in part by criticising China’s extraordinary $30 billion-plus investment in Malaysian infrastructure projects as a threat to national sovereignty. Najib, he said, was selling Malaysia off to China.

Mahathir also accused Najib of stealing Chinese loan money for his own use and for hiding losses in 1MDB, a sovereign wealth fund he founded.

China’s leadership is “inclined towards totalitarianism,” Mahathir told the Financial Times in a 2017 interview.

“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” he said during a 2018 visit to Beijing,  adding that, when China loans large sums to poor countries, it knows “in the end they (China) may have to take the project for themselves.”

In the year following his election, however, Mahathir has tamped down his rhetoric significantly to reflect the reality of his economically weakened nation. In April, he even followed in his predecessor’s footsteps by attending the annual business meeting in Beijing for the Belt and Road Initiative, China’s $1 trillion program to build new global trade routes.

While in the Chinese capital, Mahathir abandoned his strident campaign platform and sought to convince Chinese President Xi Jinping to continue with the infrastructure investments, just at much lower prices.

“The Chinese government is aware that we are facing serious financial issues,” Mahathir said in an interview with a Chinese-language newspaper based in Malaysia. “I told them that we can’t afford [those projects]. This is not whether we want it or not. We can’t afford them.”

The change in Mahathir’s posture reflects more than the distinction between campaigning and governing. It also underscores Malaysia’s considerable national debt – more than $250 billion – a substantive share of it the result of Najib’s infrastructure spending spree.

During his nine years in office, Najib sponsored about $100 billion in rail, port, energy, road and real estate infrastructure projects. He insisted the projects were essential assets in turning Malaysia from a middle-income country into a top-tier Asian economic power. Roughly a third of the cost was financed by China, including the East Coast Rail Link (ECRL), a 688-kilometre (428-mile) passenger and freight railway line between Kuala Lumpur’s port on Malaysia’s west coast, across the center of the peninsula, and north along the east coast to Pengkalan.

The 60 billion ringgit ($14 billion in 2016) Chinese-financed and constructed project, one of the largest installations in China’s Belt and Road Initiative and among the most expensive rail lines ever proposed, also attracted considerable concern from Malaysian environmental organisations, who feared it would damage peninsular forests.

“We’ve been worried about the rail project here,” says Noor Jehan Bt. Abu Bakar, a lawyer and member of the Malaysian Nature Society. “It runs through protected forest. We don’t have a clear picture of how wide the corridor will be and how much forest will be cut.”

In the weeks after his election victory, Mahathir put his stamp on the new administration and on Malaysia’s relationship with China by canceling two Chinese-financed pipelines and suspending the ECRL. While Mahathir didn’t emphasize environmental concerns about the projects, conservation groups cheered both actions. The new prime minister, who had previously served in the post for 22 years, also threatened to halt more big infrastructure projects and block Chinese nationals from buying new apartments in a huge mixed-use Chinese real estate project close to Singapore. He also launched a criminal investigation and prosecution of his one-time protégé and predecessor, Najib Razak.

Thirteen months later, Najib is being tried on multiple charges of corruption, stemming from billions of dollars missing from the accounts of 1MDB, the development fund he founded for the purpose of investing in Malaysian infrastructure and real estate projects.

We’ve been worried about the rail project here. It runs through protected forest. We don’t have a clear picture of how wide the corridor will be and how much forest will be cut.

Noor Jehan Bt. Abu Bakar, lawyer and member, Malaysian Nature Society

Losses from those accounts, investigators say, were covered by inflated costs from rail, pipeline and port projects. More than $700 million from the accounts of 1MDB also were allegedly diverted to Najib’s personal accounts, according to investigators. Najib has pleaded not guilty to the charges.

Mahathir’s post-election anti-Chinese activity, meanwhile, looks like a political feint. China’s investments in Malaysia’s infrastructure, which last year totaled $4.75 billion, remain a powerful influence in the country’s economy, environment and geopolitics.

The rail, port, industrial and residential projects financed wholly or in part by Chinese investors are still in place. The only changes are that Mahathir has negotiated new contracts that lowered costs and lengthened scheduled start and completion dates.

Under the new agreement, China will finance and build the East Coast Rail Link for 44 billion ringgit ($10.6 billion today), more than 30 per cent less than the initial 2016 construction contract negotiated by Najib. (The lower costs reflect, to some extent, a 40-kilometre reduction in the route’s length.)

The railway is designed to connect Port Klang on the Malacca Strait to Pengkalan Kubor in northeast Peninsular Malaysia, on the border with Thailand. Najib awarded the project to China in 2016 and officials say $5 billion has already been spent on the rail line, most of it on building tunnels.

The start of construction for a $17 billion high-speed rail line between Singapore and Kuala Lumpur has been delayed to 2020, more than a year later than initially scheduled. Another planned commuter line, spanning the 3.4 kilometres (2.1 mile) between Johor Bahru and Singapore, has also has been put on hold pending a Malaysian government decision in September on whether to proceed.

“The reasons for the Malaysian Government halting some of its infrastructure projects are twofold,” James Chin, director of the Asia Institute at the University of Tasmania, told World Finance, a business magazine. “Firstly, it was political, intended to show voters that it was going to do something different from previous regimes. In addition, many of the mega-projects were overpriced for the benefit of cronies connected to previous regimes.”

Najib’s infrastructure projects were billed as efforts to alert the world to Malaysia’s arrival as an Asian power, and to encourage private investment. China, which wanted to secure high-growth industries with its Belt and Road Initiative, was more than ready to help. The question Mahathir asked during the 2018 campaign, and in the months after, was whether China’s money was really needed.

In a report published in May, Alex Holmes, Asia economist for Capital Economics, said reviewing planned mega-projects would help Malaysia. “Malaysia already has good infrastructure, equivalent to what you’d expect in a developed economy, and much better than countries at a similar income level,” Holmes wrote. “In particular, we suspect that all the investment in port infrastructure currently planned would lead to major overcapacity. Given that neighboring Singapore and Indonesia are also adding to capacity, there is unlikely to be enough demand to make all the projects profitable.”

Authorities in China and Malaysia don’t agree with that assessment. Along with the East Coast Rail Link, other mammoth projects include the $10 billion Melaka Gateway, a port project on the west coast co-developed with PowerChina International; a $1 billion port project in Kuantan, on the east coast of Peninsular Malaysia; and a $2 billion manufacturing base nearby. All are proceeding apace.

Before his visit to Beijing earlier this year, Mahathir also announced that Malaysia will revive Bandar Malaysia, a $34 billion, 190-hectare (468-acre) mixed use real estate project planned for a shuttered military air base and centered around Kuala Lumpur’s high-speed rail terminal. Bandar Malaysia was abandoned in 2017 after the Chinese principal developer dropped out over a dispute about scheduled payments.

Last year, China’s investment practices were a foil for Mahathir’s winning campaign of antagonism and nationalism. But so much of governing is about meeting the requirements of business, industry, national budgets and the economy. Neither environmental concerns nor anti-China rhetoric appear to have changed that in Malaysia.

This story was published with permission from Mongabay.com.

 

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