Commentary: Will Mahathir Put a Brake on Chinese Mega Projects in Malaysia?

Written for IPP Review on May 15, 2018 

With the shock defeat of the Malaysia’s ruling coalition Barisan Nasional (BN) and the return of former Malaysian Prime Minister Mahathir Mohamad to power in May 2018, China’s increasing influence in the Southeast Asian nation — a key part of China’s Maritime Silk Road — will likely be calibrated but not weakened.

Hours after the Mahathir-led opposition coalition Pakatan Harapan (PH) clinched a surprising victory at the Malaysian 14th General Election, Mahathir told reporters that his new government “may renegotiate” some deals with China.

Under Prime Minister Najib Razak and his BN government, Malaysia secured billions worth of Chinese investments in the form of infrastructure projects linked to the Belt and Road Initiative (BRI). According to data compiled by This Week in Asia regarding 11 controversial projects signed during the Najib administration, USD 134 billion worth of Chinese investment could be scrutinised by Mahathir’s government.

However, Mahathir and other critics of Najib have argued that some investments could affect Malaysia’s sovereignty, especially when it comes to Chinese-invested infrastructure projects on vast tracts of Malaysian land. Most of the existing Chinese-invested projects, for example the East Coast Rail Link (ECRL), which is designed to connect townships across central Malaysia and the northeastern Malaysian coast, and the Forest City project in Johor, will probably be reviewed in a legal and political manner.

Chinese Projects Questioned by Mahathir

The USD 100 billion Forest City project was developed by a property development company based in Guangdong province, China. Located in the Iskandar special development region in Johor, in southern Malaysia next to Singapore, the project is located on four artificial reclaimed islands and large enough to house up some 700,000 residents. In addition, office towers, parks, hotels, shopping malls and an international school are in the works.

In one of his bitter attacks last December, Mahathir charged that the Forest City sold land to foreigners and how this move will cause Malaysia to lose sovereign control over its own territory. He cited the sale of Singapore to the British in the 1800s and how this eventually caused the loss of Singapore. He also warned that foreign residents in Forest City could live there long enough to become Malaysian citizens.

Another major project criticized by Mahathir was the RM 55 billion East Coast Rail Link hailed by Najib’s government as an “alternative trade route” to the Singapore Strait. The railway runs along the northeastern coast of Malaysia and cuts through the central mountainous spine of West Malaysia, connecting with Port Klang at the western coast of Malaysia. This is expected to boost trade between Malaysian shipping ports on its east and west coasts.

Mahathir felt the East Coast Rail Link project was not viable as people living in the eastern coast will rely on budget airlines if they want to travel to Kuala Lumpur. Mahathir also pointed that the west coast railway operated by KTM is not profitable despite a bigger population and more industrial activity in its area of operation. In April, Mahathir said the new government will “review the ECRL project, whether or not it is necessary. If it is not, then we will stop it where it has already been built.”

Mahathir criticized the nature of foreign investment brought in under Najib, not all foreign investments itself. In February 2018, he told the press that foreign direct investment is about bringing in foreign investments and technology for initiatives “run by Malaysians at every level”. Mahathir wants to draw a line when it comes to land, be it the sale of land or the use of land, for he felt this would impact national sovereignty. Another line he wants to draw is the use of foreign labor.

In his own words, Mahathir said: “What Najib is doing is bringing in money to buy land to build luxurious cities… and these foreign investors do not create job opportunities for Malaysians. They bring in workers from their own countries and this does not benefit our country. We can’t allow our land to be developed by foreigners, for people from their country.”

Mahathir’s Pro-Business Record

Although Mahathir had attacked Najib repeatedly over some of China’s investments, history shows that Mahathir was not fundamentally hostile towards China or foreign investments in general. Recognized by Malaysians as the “father of modernization”, Mahathir courted foreign investments during his time and helped transform Malaysia from a largely agrarian economy into a manufacturing and services hub.

The 92-year-old veteran politician cultivated good ties with China when he was Malaysia’s 4th PM from 1981 to 2003. The first few years of the Mahathir era coincided with China’s reform and opening up under Deng Xiaoping and both sides were eager to strengthen bilateral trade. In 1985, Mahathir visited Beijing, bringing along a large private sector delegation comprising leading Malaysian entrepreneurs and businessmen. During that visit, Mahathir called for deeper economic cooperation and “more direct trade” between China and Malaysia.

From 1981 to 1990, Malaysia-China trade increased four-fold, from around USD 289 million in 1981 to USD 1.18 billion in 1990. In 1988, both countries signed the Sino-Malaysian Trade Agreement. The Malaysian government under Mahathir also made other moves to ease Sino-Malaysian trade, such as abolishing the need for special permission to import Chinese goods and changing exit permit regulations to allow Malaysian businessmen to stay longer in China. In 1991, Malaysia and China began bilateral consultations and this evolved into annual Strategic Consultation meetings held alternately between Malaysia and China every year.

PH’s Pro-Business Record

Mahathir’s four-party Pakatan Harapan coalition is also generally pro-business. From 2008-2018, two of PH’s component parties controlled Malaysia’s wealthiest states; The Democratic Action Party (DAP) controlled Penang while the Parti Keadilan Rakyat (PKR), set up by former Deputy Prime Minister Anwar Ibrahim, controlled Selangor. PH’s draws a lot of support from urban voters in the country’s biggest cities.

Last month, in response to questions about Mahathir’s stand on Chinese investments, Penang’s Chief Minister (CM) Lim Guan Eng said foreign investments are welcome in Malaysia as long it is transparent, accountable and serves the interests of the people, pointing to Chinese investments into Penang’s electronic manufacturing industry. CM Lim also criticized the ECRL for being granted without tender, in contrast to the Penang undersea tunnel project, which did have an open tender.

Malaysia’s most industrialized state of Selangor has been actively seeking investments. Earlier in February this year, Selangor CM Mohamed Azmin Ali also spoke in favor of Chinese investments in the country, arguing that Malaysia needs to “accept the reality” of China’s rise as a super economy and the fact that China is a major trade partner with Malaysia. Selangor state government is focusing in five core business clusters: electronics manufacturing, life sciences, food and beverage, transport equipment, and machinery and equipment.

Given the investment-friendly nature of the two major PH parties, it is likely that PH will remain friendly to Chinese investments as a whole, but with renegotiations with the Chinese to address concerns over sovereignty and the high cost of living faced by disgruntled voters in states targeted by Chinese investors.

Readjustment in Ties with China

Mahathir was well-known for his fierce criticism of the West during his previous tenure as PM. At the same time, Mahathir’s government strengthened economic ties with the US and Europe from 1981 to 2003. Malaysia and the US have also maintained steady defence cooperation since the 1990s. This shows that beyond strong verbal rhetoric, when it comes to policy, Mahathir is not necessarily hostile towards the nations he criticized.

Pragmatic, not drastic, adjustments in foreign policy can be expected under the new PM. In addition, the winning PH coalition has stated in its manifesto that it will ensure Malaysia’s neutrality and be a powerful middle power between the US and China.

Some of Mahathir’s criticism of Chinese investment attracted under Najib was partly election rhetoric. A seasoned politician, Mahathir probably felt that such rhetoric is needed to generate the “Malay tsunami” needed to overturn BN’s formidable grip on power. After all, despite the “Singapore bashing” that often took place during Malaysian elections, both governments have often described Singapore-Malaysian relations as good.

Ultimately, Mahathir is only specifically worried about Chinese infrastructure projects that could erode Malaysian sovereignty, not Chinese investment projects in general. He has consistently drawn a line when it comes to land sales and will continue to do so.

Mahathir’s government will need to ensure a healthy flow of investments in Malaysia and Chinese investments will continue to play an important part in Malaysia’s economic growth. Like Mahathir said on the day being sworn as the Malaysia’s seventh prime minister, “It is not only about China…We need to study all the things done by the previous government.” Mahathir emphasized that he has “no problem” with the BRI although he does not want “too many warships because warship attracts other warships.”

Thus, China-Malaysia investment relations would be re-adjusted in consideration of Malaysia’s national interest rather than be cut down. Mahathir not only welcome more investments to uphold the Malaysia economy when he has already promised to demolish GST which accounted for RM 44 billion in government revenue for 2017 and reintroduce fuel subsidies for targeted group, but actually he also needs Chinese investment to support his previously notable ambition to bring Malaysia into developed country status in 2020.

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