Icy Malaysia-China relations set to thaw


A RECENT explosive report by the Wall Street Journal (WSJ) “revealing” China’s attempt in 2016 to bail out troubled 1MDB in exchange for projects in Malaysia can potentially deal another blow to Malaysia-China bilateral relations, but both countries have adopted a calm approach towards these “expose”.

The unexciting response from Prime Minister Tun Dr Mahathir Mohamad has sent out a message that Malaysia would not want ties to take another hit following a period of uneasy calm with China.

Relations with China turned turbulent after Dr Mahathir cancelled and suspended several major projects – including the RM55bil East Coast Rail Link – awarded to China.

The warning of “new colonialism” from Dr Mahathir at a joint press conference with Premier Li Keqiang at the end of his official visit to Beijing last August was interpreted as not “giving face” to China.

Beijing, which used to treat Kuala Lumpur as a trusted and comprehensive strategic partner, had taken the remark by Dr Mahathir to mean China using its Belt and Road Initiative to “colonise” poorer and weaker countries – a rhetoric often used by the US and West.

According to the WSJ newspaper that cited minutes from certain meetings, senior Chinese leaders had offered to help bail out Malaysia’s state-owned 1MDB investment fund in 2016 when Datuk Seri Najib Razak was prime minister.

The dethroned Najib and his senior officials are facing many corruption charges linked to 1MDB.

The WSJ report also claimed that Chinese officials had told visiting Malaysians that China would use its influence to try and get the US and other countries to drop probes into allegations that Najib’s allies and friends were plundering the fund.

In return, Malaysia had offered stakes in railway and pipeline projects as part of China’s Belt and Road Initiative of building infrastructure, and within months, Najib had signed US$34bil (RM139.8bil) worth of rail, pipeline and other deals with Chinese state companies, with funding from Chinese banks.

The deals included the ECRL and Trans Sabah Gas Pipeline projects, which reportedly were financed at above-market values to generate excess cash for other needs, according to WSJ report.

Najib has denied all the claims.

While many thought Dr Mahathir would take this golden opportunity to renew his fiery attacks on China projects, his response was uncharacteristically boring:

“We need to find the documents to be used as proof that this actually happened. At the moment, this is just a story in the press,” he said, adding: “Until then, no action could be taken”.

The 93-leader’s cool response was a far cry from his unforgiving rhetoric last year when cancelling China-linked projects and criticising Forest City and Alliance Steel.

“The present Malaysian government should know whether the minutes were true or false… The part on China offering to persuade the US to drop investigations on 1MDB simply cannot be true as Beijing and Washington have never been close,” an analyst from China tells Sunday Star.

“There may be some third party behind the report,” adds the analyst.

While scrutinising the WSJ report, Bunn Negara – a senior fellow at the Institute of Strategic and International Studies Malaysia – pointed out several areas in the report that lacked logic and substantiation.

The analyst, in his Jan 13 write-up in Sunday Star, warned that “some vested political interests of someone somewhere could be served”.

“Both clarity and credibility are essential at every stage to get to the truth behind hazy intrigues,” he wrote.

Apart from some interesting details in the report that cast negative images on Beijing and Najib’s government, China’s bailing out of 1MDB is not new.

It is public knowledge that Beijing bailed out 1MDB or Malaysia in late 2015 soon after the visit of Chinese Premier Li Keqiang to Kuala Lumpur when bilateral relations were very warm.

During his four-day visit, Li pledged support for financial stability in Malaysia and promised to buy more bonds. The ringgit and Malaysian government bonds, which were battered by outflow of funds and 1MDB scandal, gained as a result.

Subsequently, state-owned China General Nuclear Power Corporation bought 1MDB’s power assets under Edra Global Energy Bhd for RM9.83bil cash. This transaction helped 1MDB to cut its massive debts and deflected a downgrade warning by international rating agencies.

From then on Malaysia witnessed for the first time the influx of foreign direct investment (FDI) from China, which has since taken the lead here.

However, doubts emerged after Dr Mahathir toppled the pro-Beijing Najib.

But what angered the Chinese most were the slashing of China-linked mega projects and continual stinging remarks on Belt and Road projects last year.

The first adverse reaction from Chinese nationals towards Malaysia’s perceived hostility was in tourism. Arrivals during China’s Oct1-7 golden holiday to celebrate its national day fell 30% in Peninsular Malaysia. But this has since recovered.

And although Malaysia has hoped China would buy more local palm oil, China – used to be Malaysia’s largest buyer – has turned to Indonesia for the commodity.

However, the current diplomatic front is looking promising, with Malaysia seen as adopting a friendly tone towards China.

According to sources, Dr Mahathir has accepted President Xi Jinping’s invitation to attend the Belt and Road Summit in Beijing in April 2019. This summit, like the one last May, could be one of the most important diplomatic events in China and the world.

China has often expressed appreciation that Malaysia was one of the first countries to support Xi’s Belt and Road Initiative. Najib participated in the last summit.

Dr Mahathir’s recent remarks on China were also soothing for the Chinese.

In a recent interview given to Chinese daily Sin Chew Jit Poh, published on Jan 2, Dr Mahathir denied he was anti-China. He argued he had defended China in many international forums.

He also disclosed that the ECRL project, which could cause Malaysia to pay China compensation of more than RM10bil if cancelled, might be revived on a smaller scale and discussions were ongoing.

If the ECRL is not revived soon, Malaysia stands to lose more as it has to pay project “idling fee” of over RM1mil on a daily basis, says someone with knowledge.

The ECRL, which can boost the GDP growth of East Coast states by 1.5% annually and spur tourism, is an important Belt and Road project to China as its trade with countries to the West of Peninsular Malaysia can go through ECRL-Port Klang link, bypassing Singapore’s port.

In fact, the RM3bil spent by the Federal Government and IJM Corporation on the deepening of Kuantan Port to cater for this increase in trade activities would go to waste if the ECRL project is abandoned.

At the interview with Sin Chew, Dr Mahathir compared China with the West, pointing out that the China had never colonised any country.

The seasoned politician’s cold response to the WSJ report directed at Belt and Road projects in Malaysia was noted by political analyst Dr Oh Ei Sun.

“Recent developments have indicated Malaysia and China are ready to embark on a new chapter in their relations.

“Many of our ministers have spoken very favourably on continuing to engage China in economic cooperation and development. Some even want to visit China to look for more investments,” Dr Oh, from Singapore Institute of International Affairs, tells Sunday Star.

In fact, a statement by Malaysia’s Special Envoy to China Tan Kok Wai last Wednesday indicates Malaysia’s desire to work more closely with China.

“Currently, our ministries involved in trade and investment, tourism, finance and foreign affairs are taking proactive steps to strengthen economic cooperation with China amid challenges,” said Tan, while receiving a delegation from Malaysia-China Chamber of Commerce.

Dr Oh opines that compared to the current suspension and cancellations of China-linked projects, the WSJ report carries less impact on bilateral relations.

Two major rail projects that have been suspended are the Kuala Lumpur-Singapore High-Speed Rail and ECRL.

To some people, the timing of the WSJ report – coming so soon after the announcement that the ECRL could be revived, should be telling.

There is suspicion that some international politics is at play.

“Dr Mahathir should be aware a certain world power might be behind the publication of the so-called minutes.

“Before the general election, our people in the Economic Planning Unit in the PM’s Department were approached by officials from this foreign power to check on our Belt and Road projects,” says a former Cabinet Minister.

The Minister, who declines to be named, reasons that this foreign country does not want to see China’s presence and rising influence in Malaysia.

“When the Melaka Gateway port project was announced, its officials called up our government agencies. The same thing happened in the case of Kuantan Port (in which Chinese have invested) and ECRL project,” he adds.

But without pointing figures at anyone and any country, the Chinese Embassy here said in its usual officialese Beijing “never attached political conditions” to its cooperation with other countries as it adhered to the principle of non-interference in the domestic affairs of other countries.

“Both China and Malaysia had all along treated each other as friendly neighbours and sincere partners. This year marked the 45th anniversary of diplomatic relations between the two nations, which would open up new opportunities for China-Malaysian relations,” said Ambassador Bei Tian in a statement.

For Malaysia, whose economy has not improved much under the new government, it may be wiser to have more friends than foes.

Malaysia needs China’s help economically while China needs Malaysia’s support in international issues.

China has been the largest trading partner of Malaysia for nine consecutive years and a leading FDI in recent years.

According to Chinese statistics, total China-Malaysia bilateral trade last year hit a historic high of US$108.6bil (RM445.3bil), up 13% from 2017. This means that for the whole of 2018, total bilateral trade will breach US$100bil. On the investment front, Chinese continue to be keen on Malaysia despite their earlier apprehension. In the first nine months of 2018, Malaysia received Chinese FDI of US$3.77bil (RM15.5bil), accounting for 32% of total FDI received by the country during the period.

In tourism, Chinese arrivals are expected to have hit three million last year, up 31.5% from 2.28 million in 2017, according to Chinese entrepreneur Datuk Keith Li.

“I think the worst for Malaysia-China relations may be over. It is to the benefit of both countries to have warm relations,” says Li, the president of the China Entrepreneurs Association in Malaysia.


   

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