China is signalling that it will not be splashing money indiscriminately along 65 Belt and Road nations from now on.
MALAYSIA and other South-East Asian countries have come under China’s close scrutiny for political, financial and legal risks as Beijing intensifies its efforts to review its Belt and Road programmes and control capital outflows.
Two weeks ago, a six-member delegation of academics, researchers and foreign affairs officials – members of Beijing think tanks –came to Kuala Lumpur to conduct an independent assessment of the local political situation, legal and financial systems, as well as response towards Belt and Road projects.
China’s President Xi Jinping proposed the Belt and Road initiative in 2013. This trade-cum-foreign affair ambitious scheme seeks to connect China more closely with Europe, Southeast and Central Asia, the Middle East and Africa.
The July 13-16 study tour of the Chinese group came following the May 14-15 Belt and Road Summit in China that had, among others, compiled complaints on Chinese projects and the way the projects were being implemented.
When opening that summit, Xi had announced plans to allocate more funds for roads, railways, ports and pipelines across Asia and beyond.
According to Citi Research, Malaysia’s port and railway projects may see investments of RM400bil from China.
By sending its officials to conduct independent studies, the Chinese are signalling that their money does not fall from the sky anymore. It is time to rectify the wrongs. Chinese funded investments should look at risks, costs and benefits, just like any other commercial undertakings.
Beijing had to act in the face of warnings of risks linked to these projects and other investments.
Although there are successes in Belt and Road projects, there are also disturbing stories of protests against projects which affected the livelihood of residents in host countries.
Business-wise, it is also worrying. Recently, the Chinese Commerce Ministry revealed that 65% of Chinese investments abroad – including Belt and Road projects – had incurred losses.
And state-funded insurance company Sinosure that has supported export, domestic trade and investment with a total value of US$2.8 trillion (RM12 trillion) since 2001, reported that claims it had paid out by 2015 amounted to US$9.5bil (RM40.6bil) .
These revelations could not have gone unnoticed.
The Malaysia-bound study group, led by Zhang Yuyan – director of the Institute of World Economics and Politics and senior fellow at the Chinese Academy of Social Sciences (CASS) – had met with officials from the Economic Planning Unit and a think tank, among others.
“We are here to study the response to Belt and Road projects before and after the summit. We have heard there are opposition noises and we hope to clear our doubts,” Zhang told the press here.
The influx of Chinese investments in the recent two years has sparked a local debate on whether the Government is “selling Malaysia’s sovereignty”.
There is also a warning that Malaysia’s debts, just under 55% of the country’s GDP, could balloon due to huge soft loans to be taken from China to implement Belt and Road projects, mainly for railways and ports.
On the ground, there is fear that jobs and business opportunities for small businesses may be curtailed as the Chinese bring in their own contractors, managers, workers and even chefs.
Zhang said a major task of the delegation was to assess how stable the Government was, and whether there were implementation risks in Chinese projects here. Malaysia must hold its 14th general election before mid-2018.
The Chinese experts were also looking into how investments from China were being managed.
The unexpected visit of this group shows that China is no longer indiscriminate in dispersing funds for state projects overseas. It also means that overseas investments by its nationals – not just the big corporations – would also have to be properly managed.
The scrutiny has come about partly due to China’s tightening of capital controls to prevent outflow of funds into projects that will not contribute to the real economy of the host countries, said Zhang.
Zhang said his delegation would also visit Brunei and Myanmar.
While Brunei has not been prominently featured in the Belt and Road scene, China’s US$3.6bil (RM15bil) Myitsone dam in northern Myanmar has stirred up anti-Chinese sentiment as it would cause irreparable harm to the Irrawaddy River, destroy fish stocks downstream and displace thousands of villagers.
Indeed, just before the Chinese delegation came to Kuala Lumpur, CASS – known for its research work – posted a warning on its website of various risks facing Chinese direct investments in Asean.
“Although China and Asean have enjoyed close and fruitful cooperation in policy coordination, infrastructure development, investment and trade facilitation, financial integration and people-to-people connectivity – some deep-seated problems still need to be solved.
“For example, cooperation is still in the exploratory stage and some policy details have yet to be clarified. Trade growth is slowing while an increasingly complicated geopolitical environment adds to the difficulty of cooperation,” says the CASS report published on July 12.
The report also highlights legal risks.
“Chinese enterprises considering investing abroad might face a series of risks related to politics, culture, business, law and morality, most of which will be transformed into legal risks.”
However, Prof Zhai Kun of Peking University – a member of Zhang-led study tour – said infrastructure of “strategic importance” and manufacturing projects that will add value to the economy and in line with the objectives of the Belt and Road would not be affected.
“President Xi has guided that our enterprises should not only talk, but must manage their companies well. If you are solid and steady, then you will be able to go far,” he said.
On Malaysia’s political situation, Prof Zhai felt “it is more stable now” compared to one to two years ago.
“China hopes there will be continuity for our projects, whoever forms the Government after the general election.”
He said China could understand the fear of many Malaysians towards the influx of Chinese investments.
In 1978, China also had the same experience when it opened itself to the world.
“People were asking if the invasion of foreign investments would rob us of our wealth and sovereignty. But now everybody agrees that globalisation has benefited China and the world.”
The delegation felt many ordinary people could not immediately enjoy the benefit of Belt and Road projects mainly because they are long-term schemes.
Some projects classified by China as Belt and Road projects in Malaysia are the RM55bil East Coast Rail Link, Bandar Malaysia, RM70bil KL-Singapore High Speed Rail, RM40bil Melaka Gateway, RM30bil oil pipeline linking Bagan Datuk to Bachok, Kuantan Port and Xiamen University Malaysia.