Outlook on Malaysia and the Belt Road Initiative (BRI)
This article was written as part of an assignment for the Pusan National University Graduate School of International Studies. It was compilled in May 2020, thus the content should be considered accordingly.
The BRI: China’s most ambitious international policy initiative
Throughout the past years, China has been on the spotlight of international relations, especially since Chinese President Xi Jinping launched in 2013 a cooperation project for the construction of the “Economic Belt of the New Silk Road” and the “Maritime Silk Road of the 21st Century ». China’s initiative, now known as the Belt and Road Initiative (BRI), takes inspiration in the infamous Silk Road but is more than just a transit route. It is a gargantuan economic corridor aiming to build important infrastructure in 78 countries while strengthening cooperation in investment and trade, and stimulating cultural, scientific and technological exchanges. It is no wonder it has been described as « probably the most ambitious Chinese international policy initiative in history » (Huang, 2016).
Seven years since its launch, most projects are still work-in progress but the BRI has already made some fierce contributions. Multiple frameworks of financing mechanisms have been formed and made operational, numerous bilateral agreements have been signed while major progress has been observed on the practical level (Jin, 2017). However, despite its early achievements, the project has generated significant controversies and international debate, from academics to policymakers. Concerns range from doubts on long-term economic gains, unilateral benefits to the use of the BRI as a geopolitical tool for China to achieve regional hegemony.
South Asia and the Middle East are the regions which received most BRI investment but South East Asia also captured Chinese government attention, especially Malaysia, a country who experienced rapid growth since 2010, with longstanding ties with China and with an appetite for infrastructure development. With its high-value profile and its sustainable relations with the PRC, Malaysia is theoretically prone to embrace the BRI. Nonetheless, Malaysia’s position regarding BRI is ambivalent and doubts have been expressed on wether BRI could fully benefit the country. This report aims to focus on Malaysia and to offer a critical overview of the development, attitudes and policies in the country regarding BRI.
Malaysia and China’s close relationship
Malaysia’s important position within the BRI is not anecdotal as cultural and economic links with China can be characterised as strong. Historically, both countries had many and fruitful interactions that can be traced back to the Han dynasty, so that Chinese civilisation significantly shaped Malay civilisation. Chinese Malay population is sizeable and makes Malaysia a natural ally and a center of influence for China. Furthermore, unlike its neighbours Vietnam and the Philippines, Malaysia has always sought to avoid conflict with its proximate regional superpower, China and it became in 1974 the first non-Communist country from South East Asia to engage in diplomatic relations with China.
Additionally to cultural and diplomatic ties, China’s interest can be found in the strategic location of Malaysia. Malaysia lies at the end of South East Asia, borders South China Sea to the East. It is one of the four basin countries of the Strait of Malacca, a major shipping lane in the world and where about 17% the oil produced worldwide transit. Economically, it is a 2-way trade relationship between the two countries. China is the number 1 imports destination for Malaysia while Malaysia is China’s most important ASEAN trading partner (Ying, 2017).
The birth of mega-infrastructure projects…
Since the announcement of the Belt and Road Initiative in 2013, Malaysia witnessed a sharp increase of Chinese foreign direct investments. Chinese investment surged by 163% (Compound annual growth rate) from 2013 to 2016 according to PwC (2017). The boom of Chinese economic presence was reflected by the development of several mega-infrastructure projects.
Melaka Gateway is one of the first mega-projects associated with the BRI in Malaysia and in South East Asia. In the strategically located Malacca Strait, it aims the building of a cruise ship terminal and a deep-sea port as well as constructing artificial islands aiming to host shopping malls, tourist attractions and accommodations, condos, a marina and a business district. It is to be developed by the Malaysian KAJ Development Sdn Bhd (KAJD) and a consortium of Chinese companies. These include PowerChina International, a Fortune 500 construction company and Chinese provincial government owned companies Shenzhen Yantian Port Group and Rizhao Port Group. Melaka Gateway is one of the most ambitious effort related to BRI which a cost estimated to MYR42bn ($ 9.6bn) (Hutchinson, 2019).
Bandar Malaysia is an urban redevelopment project in Kuala Lumpur. It aims to build on the Sungai Besi Airport site large commercial and residential buildings and a large transport hub. Bandar Malaysia will be the terminal station for the Singapore-KL HSR, connecting Singapore and Kuala Lumpur in 90 minutes and will be a hub for airport express rail, commuter rail, buses and mass rapid transit. China Railway and Iskandar Waterfront are partnering to develop the MYR140bn ($34bn) mega-project. The two companies own 60% of the joint venture with the rest of the share being owned by the Ministry of Finance (Final, Gomez, Kamaruddin and Padmanabhan, 2018).
East Coast Rail Link (ECRL)
The East Coast Rail Link is a 640-kilometre-long high-speed rail route connecting Port Klang on the Straits of Malacca to the coastal city of Kota Bharu to carry both passengers and freight from the West Coast of Peninsular Malaysia to its East Coast. The project is being developed by Malaysia Rail Link (MRLSB) in a 50:50 joint venture with China Communications Construction Company (CCCC) with construction costs are estimated MYR65.5bn ($15.8bn) Beyond reducing travel time between two important ports of the country, the project is deemed to generate during the construction jobs worth MYR17.6bn ($4.2bn) and later on boosting businesses and housing demand (Railway Technology).
Malaysia-China Kuantan Industrial Park (MCKIP)
The Malaysia-China Kuantan Industrial Park (MCKIP) is the first industrial park in Malaysia jointly developed by Malaysia and China, as well as the first to be accorded ‘National Park’ status. It is the sister park of in Guangxi, China is the Malaysia Qinzhou Industrial Park (CMQIP). The two parks are the result of a bilateral investment cooperation of “Two Countries Twin Parks », aiming to stimulate the development of industrial clusters in both countries. MCKIP is the third industrial park established by Chinese and foreign governments, the two other ones being in Singapore. It was expected by 2017 that the park will have 30,000 professionals and generate MYR30bn in industrial output (Zou and Zhang, 2018).
Additionally to these mega-infrastructure plans, some other projects, of smaller scale, have been initiated under the umbrella of the BRI. These include Forest City, Kuantan Port’s expansion, Xiamen University Malaysia, Gemas-Johor Bahru Rail, Digital Free Trade Zone (DFTZ), Trans-Sabah Gas Pipeline and the Multi-Product Pipeline.
…with very mixed outcomes
7 years later the announcement of the Belt and Road Initiative and the implosion of infrastructure projects driven by Chinese foreign investment, progress has been made in Malaysia. Nonetheless, many of the projects listed above have seen their development process being far from what planned initially. It is expected that mega-infrastructure projects demand significant amount of time to be completed but rising construction cost, suspended projects, suspicion of corruption and white elephants portrays the current situation of the BRI in Malaysia.
There were huge expectations on the Melaka Gateway as it was one the first mega-projects under the BRI but so far, construction has fallen far behind schedule. Groundwork began in 2017 but in July 2018, the Federal Minister of Transport, Anthony Loke claimed he saw ‘no sign of work’ on the project (Hutchinson, 2019). The same year, one of the two masters developers, KAJ Development Sdn Bhd, had its licence to operate the port and terminal revoked by the transport ministry. After an appeal to the Ministry of Transport, the license was eventually reinstated. Land reclamation work resumed but this series of setbacks will undoubtedly threaten the timeline and budget expectations.
The East Coast Rail Link (ECRL) project also experienced tremendous difficulties. It was initially canceled by Malaysian Prime Minister Mahathir Mohamad before construction resumed after a year-long suspension and an agreement between the trade partners to cut the project down to a cost of MYR44bn ($10.7bn), rather than MYR65.5bn ($15.8bn) (Cheung and Hong, 2019). Similarly, Bandar Malaysia project suffered from a serious setback when TXR City, owned by the Ministry of Finance of Malaysia, announced the deal was terminated due to to China Railway and Iskandar Waterfront failure to agree on the terms and conditions (Cheung and Hong, 2019). The project was revived in December 2019 after an agreement on new conditions for the two developers: the construction of 10,000 units of subsidised affordable homes, the doubling of the size of the People’s Park and an increase participation of local contractors and ressources.
Of the mega-projects, Malaysia-China Kuantan Industrial Park (MCKIP) is probably the one experiencing the most successful development so far. After a period of slowdown, rapid advancements have been made on the industrial park. MCKIP is already expected to draw almost MYR20bn ($4.8bn) in investments (South China Morning Post, 2019). Regarding the projects of smaller scale, their development is not without challenges. Xiamen University Malaysia is operational. Forest City and the Gemas-Johor Bahru Rail are set to be completed by October 2020 (The Star, 2020), but other projects are encountering significant difficulties and even facing cancelations.
Political instability and mistrust at the heart of failed promises
Why so many of these projets have failed so far to fulfil promises in Malaysia is inevitably linked to the local government and public opinions towards BRI. Close relations between China and Malaysia augured success for the BRI in the country. Najib Razak, president of Malaysia at the time of the announcement of the BRI said the One Belt One Road Initiative « would derive massive benefits to Malaysia in terms of excellent infrastructure, connectivity, social facilities, better living standards and abundant business opportunities » (Peery, 2018). The reality was quite different. Changing Malaysian political context, together with mistrusts upon benefits for receiving countries of the BRI made difficult the success of BRI driven projects.
In May 2018, Malaysia witnessed a historic and unexpected change of power when the Pakatan Harapan (PH) coalition government, lead by Mahathir Mohamad, was voted into power, replacing the government of Najib Razak. It was under Najib presidency that most BRI mega-infrastructure projects were initiated and China had “clearly positioned itself with the BN coalition and Najib; its embassy in Kuala Lumpur had even recommended how Malaysians should vote ». (Grassi, 2020). Najib was deemed to have concluded very unfavourable deals for Malaysia with Beijing. According to some observers, the huge sums involved in the BRI projects in Malaysia could have abated money laundering and help get back the lost 1MDB funds (Grassi, 2020). Though Mahatir and other members of the PH have expressed their will to pursue good relations with China, they severely criticised the heavy involvement of Chinese investment in Malaysian infrastructure projects. The newly elected president qualified the Forest City project as a « foreign enclave » with «much of the most valuable land will now be owned and occupied by foreigners ».
Following the change in administration, several of the mega-infrastructure projets were put on hold or renegotiated as detailed before. Not only the new government judged some of these projects too costly but he also found some of the conditions non acceptable. In the meantime, the case of debt-trapped Sri Lanka raised awareness across Asia about some of the dangers of BRI and pushed Mahatir to be more cautious when dealing with Chinese foreign investment. That to be said, the new government also understood that behind BRI projects there were bigger stakes. Issues regarding the projects and cancellations could negatively affect Malaysia-China relations and as reported earlier, China is Malaysia number one economic partner. The issue of ECRL especially was very sensitive for China and then there was little choice than reviving the project after its cancelation. This highlights an important aspect of the BRI. The economic and diplomatic strength of China can play as counterweight to potential doubts and reluctances on the BRI and pressure beneficiary countries.
A different approach to BRI for Malaysia
In conclusion, in Malaysia, despite several setbacks, the Belt and Road Initiative continues to receive support from the current government. The latter is however more reluctant to develop new mega-infrastructure projects and the emphasis will be put on consolidating existing ones. If the current projects are finished, it will be a clear signal that Malaysia still has a strong commitment to the BRI. The success of BRI projects will overall depend on how domestic actors react.
As for policy recommendation, we advocate Malaysia to continue to continue closely collaborating with China under the BRI but in a cautious way. Beside strengthening Sino-Malaysian relations, the BRI and Chinese FDI provide an array of benefits to Malaysia, from fuelling the construction and manufacturing industries to improving infrastructures and connecting the country. Nonetheless, Chinese FDI do not come without their set of disadvantages and in order to minor them, it should be ensured that ongoing mega projects are completed and that they benefit both Malaysia’s economy and the local population. It should also be made certain that local and foreign contractors have equal opportunities for working on the projects and that there is enough transparency to guaranty a fair competition. Otherwise, the government should be ready to renegotiate conditions with the master developers like it did for the East Coast Rail Link.
Focusing on domestic and long term interests has to be the prime objective. Huge infrastructure projects like the ECRL, Bandar Malaysia and Malacca Gateway will, without a doubt, benefit China geopolitically and economically since they are key elements in Beijing’s strategy for opening new spaces and reducing the influence of Singapore (Forbes, 2020) but their contribution to Malaysia needs to be further questioned. For example, the Melaka Gateway project involves the construction of a new Deep Sea port and cruise terminal but in the meantime, Malaysia’s top three ports are currently only running at 70% of their capacity. In addition, Malaysia is already expanding Port Klang and Carey Island ports, which are supposed to be bigger and more dynamic than what was planned for Melaka (Forbes, 2020). Chinese foreign investment might provide an instant boost to the economy but the long term sustainability of these projects is what will determine the real success of the BRI in Malaysia. It is also worth noting that the BRI should not be assessed only in terms of return on investment. The BRI is not merely infrastructure building but as claimed by the Chinese Communist Party, it also aims for unimpeded trade, policy coordination, financial integration and people to people bonds.
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