Malaysia was once a loyal partner in China’s globe-spanning Belt and Road Initiative, but Malaysian Prime Minister Mahathir Mohamad’s new government is pledging to review Beijing-backed projects, threatening key links in the much-vaunted initiative.
Kuala Lumpur’s previous government, led by scandal-mired former Malaysian prime minister 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.
However, Najib’s 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 said that many agreements lacked transparency, fueling suspicions that they were struck in exchange for help in paying off debts from the financial scandal at sovereign wealth fund 1Malaysia Development Bhd (1MDB), which ultimately helped bring down Najib’s government.
Malaysia, along with 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 Najib moved quickly to approve and implement projects,” Center for Strategic and International Studies senior associate Murray Hiebert said.
Chinese foreign direct investment (FDI) into Malaysia stood at just 0.8 percent of total net FDI inflows in 2008, but that figure rose to 14.4 percent by 2016, a study by Singapore’s ISEAS-Yusof Ishak Institute said.
However, Hiebert said that it was “widely assumed” that Malaysia was striking quick deals with China in the hope of getting help to cover debts from 1MDB.
Najib and his cronies have been accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations — which have been denied by Najib and 1MDB — helped topple his government.
Malaysia’s first change of government in six decades has left Najib facing a potential jail term — and appears to have already unsettled Beijing’s plans in the country.
Mahathir has announced that a planned high-speed rail link between Kuala Lumpur and Singapore will not go ahead as he seeks to reduce the national debt.
The project was in its early stages and had not yet received any Chinese funding as part of the Belt and Road Initiative, Chinese companies were favored to build part of the line, which would have constituted a link in a high-speed route from China’s Yunnan Province to Singapore along which Chinese goods could have been transported for export.
Work has already started in Malaysia on another line seen as part of that route, which has received Chinese funding — the US$14 billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur.
Mahathir has said that 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 are to be changed or cancelled, but experts said that axing some of them would be positive.
Capital Economics Asia economist Alex Holmes backed cancelling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value.”
A recent commentary in China’s state-run Global Times warned 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, Mahathir has a clear preference for Japan and last week went to Tokyo for his first foreign trip since taking office. During the visit, the 92-year-old signaled that ties with Beijing would cool.
“We will be friendly with China, but we do not want to be indebted to China,” Mahathir said.
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