BRI and Look East Policy: Worthy collaborations

THIS year marks the 10th anniversary of the Belt and Road Initiative (BRI). In 2013, President Xi Jinping revealed two new Silk Roads, which are now known as BRI, to connect the world with China.

Historically, China had good political, social, and economic relationships with Asian countries.

By 2013, developed Western countries had started de-globalisation, but Asian and African countries continued their globalisation drive.

This is evident in the Globalisation Index by ETH Zurich’s KOF Swiss Economic Institute. BRI came in at a timely point to fill up the investment and trade gaps left by the West’s de-globalisation and later, Donald Trump’s neo-mercantilism policy.

The increasing influence of Occidentalism that cast unfavourable views toward the West added enthusiasm to the eastern-centric BRI.

Since the launch of the BRI, developing Asian countries like Malaysia have been looking east to China as a role model. China, through BRI, plays an important role in supporting the economic development of participating countries.

Malaysia did have its own Look East Policy in 1982, where Japan became Malaysia’s main role model for economic development and work ethic.

It is believed that since then, Japan has greatly assisted Malaysia’s economic progress in terms of investment, technology transfer, trade, and economic structure.

Similarly, the BRI has been the catalyst to Malaysia’s economic growth, inflow of foreign direct investment, increasing trade opportunities and technology transfer from China and other BRI partners.

What are the similarities and differences between the Look East Policy 1982 (LEP) and the BRI in helping the Malaysian economy?

Firstly, there are no official members of the BRI. This is different from the likes of Asean, the European Union, the World Trade Organisation (WTO), the Regional Comprehensive Economic Partnership (RCEP) and the United Nations, which have official memberships, rules, and regulations.

Secondly, there are no official projects undertaken in the BRI. Instead, there are investments by companies that originate from China that support the BRI.

Similar characteristics are also seen in LEP. The LEP merely refers to emulating industrialisation models and work ethic of developed countries like Japan, South Korea, and regions like Taiwan without an official list of members.

Additionally, through the LEP, companies that originated from Japan, South Korea and Taiwan started to invest in Malaysia.

In LEP, Malaysia was the one pitching to Japan for investments and technology transfer. Meanwhile, China is the one offering to help and cooperate with Malaysia in various aspects under the BRI.

Nonetheless, in the economics-verse, a relationship is a voluntary exchange, but its terms are subject to the negotiation power of each party.

Malaysia benefited through two channels, namely the global value chain and the digital silk road, from China’s BRI.

Infrastructure projects dominate the former channel while e-commerce and digital industry are the focus of the latter. In terms of major infrastructure projects, Sergio Grassi in his report entitled "The Belt and Road Initiative in Malaysia” listed out the East Coast Rail Link, Bandar Malaysia, Forest City, two Multi-Product Pipeline (MPP) projects, Melaka Gateway, Kuantan Port, rare earth mining projects and Malaysia-China Kuantan Industrial Park.

These are different from the LEP where Japanese investments were mostly concentrated in pioneer-status manufacturing, and not mega-infrastructure projects. Malaysia has developed its manufacturing sector since the LEP era. Now, it is important to promote collaboration between Malaysia and China through BRI to expand our global value chain and digital sector.

Reciprocally, Malaysia provides an important global value chain gateway to China through the Asean Economic Community (AEC).

At the national level, China wants to use BRI to migrate whole production facilities to deal with their excess capacity production problem. Through this, China can potentially transfer some of its high-quality production capacity to South-East Asian countries, including Malaysia.

For example, it has been reported that China invested heavily and tapped into the global supply chain of electric vehicle and automotive manufacturing in Indonesia and Thailand, solar energy in Malaysia, pharmaceutical manufacturing and financial services in Singapore and electronic manufacturing in Malaysia, Vietnam, Thailand, and Indonesia.

In the 1970s, Japan heavily relied on exports rather than investment to serve the foreign market due to exchange rate competitiveness favouring Japan. This resulted in trade frictions with Western trading partners and rapid appreciation of the yen due to the Plaza Accord in September 1985.

Japanese firms then changed strategy to invest abroad and Malaysia’s LEP was akin to a red carpet for Japan’s foreign direct investments.

Malaysia played an important role as a gateway to the global value chain in BRI and LEP to China and Japan, respectively.

Perhaps due to the acceleration of digitalisation and the Fourth Industrial Revolution, the digital silk road makes a distinctive difference between BRI and LEP.

Citing Grassi, China digitalisation spillovers to Malaysia include the Cloud Computing Centre under the China-Asean Information Harbour, US$1bil Artificial Intelligence (AI) Hub investment from SenseTime, 5G network from Huawei, e-commerce platform from Alibaba and Smart Cities projects.

In terms of financing, China has funded BRI projects through its Export-Import Bank of China, China Development Bank, Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Asian Infrastructure Investment Bank, other commercial banks, and investment funds.

Despite not matching the might of China’s finance, Japan has been generous to help Malaysia's economic development through its Official Development Assistance (ODA) programme.

According to research led by Kartini Aboo Talib, published in the Asian Social Science (Vol. 9, No. 17), Malaysia is the fourth largest recipient country under this programme and Japan is the largest trading partner to Malaysia.

During the Asian Financial Crisis, Japan supported Malaysia through rescue packages of a loan of US$137mil to enable Malaysians to study in Japan and another US$75mil for scholarships.

In conclusion, Malaysia has mutually beneficial relationships with China through the BRI as well as with Japan under the LEP.

However, rapid changes in today's world due to the pandemic, war and clashes of ideologies threaten the very foundation of good international relations.

A 10-year anniversary of the BRI should be celebrated, promoted and preserved for as many more years as possible.

Har Wai Mun is a Senior Lecturer at Universiti Tunku Abdul Rahman. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.