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Malaysia's China Reset Malaysia's China Reset
by Murray Hunter
2019-08-30 08:23:42
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Malaysia’s China Reset
What other countries can learn about engaging China

China and the region now called Malaysia have a shared trade, cultural, and immigration history that goes back more than one Thousand years. China and Malaysia were directly connected by the ancient Silk Road sea routes through the South China Sea, where Malaysia’s coastline strategically straddles two sides.

Today the China-Malaysia relationship is based on trade, investment, and tourism. China has been Malaysia’s largest trading partner for over a decade and Malaysia is China’s third largest trading partner in Asia, just after Japan and South Korea. China invested USD 4.75 Billion last year in Malaysia, and USD 43.8 Billion over the last 10 years. Rapidly growing Chinese tourism to Malaysia reached almost 3 Million visitors last year.

chimalay01_400China over the last seven years under the leadership of Xi Jinping, a neo-Maoist in his vision of a great revival of the Chinese Nation, has been re-asserting its place in the world once again. Xi, who is also an inspired Leninist in his view of the importance of state has focused his government’s activities on spreading trade, investment, technology, culture, with an appropriate military presence across the world in pursuit of what is dubbed the Chinese Dream. 

One of the major instruments of China’s assertiveness is the Belt and Road Initiative (BRI), an ambitious recreation of the ancient Silk Road trade routes that once linked Africa, Europe, the Middle East, Americas, and Asia together. The Silk Road was destroyed through the formation of physical borders, trade blocks, geo-politics, wars, and China’s period in isolation in the late 1900s until the country came out again in 1970s.

The ambitions behind the BRI aims to rebuild the old Silk Road and enhance regional connectivity to facilitate greater trade, investment, and cultural exchange on a scale never seen before.

The Najib Barisan Nasional Government enthusiastically embraced China’s initiatives, signing up for an unprecedented number of projects. These included the Kuala Lumpur-Singapore High-Speed Rail (HSR), the Melaka Gateway Port development, Kuala Linggi Port expansion aimed at taking away some of Singapore’s port business, waterfront land reclamation in Penang,  Green Technology Park in Najib’s own town of Pekan, a Methanol Plant in Sarawak fully owned by the Sarawak State Government, and the Trans Sabah Gas Pipeline. Another BRI project, the East Coast Rail Link (ECRL) would connect the new Pahang Port extensions on the East Coast to Port Klang on the West Coast in operation would cut around 30 hours shipping time over ships going around Singapore.

A host of more than 160 private Chinese investments also came to Malaysia along with the USD 100 Billion Forest City on the coastline between Johor adjacent to Singapore. Chinese investment into the Bandar Malaysia project at the old KL Airport site was seen in Malaysia as a bailout of the scandal ridden 1MDB, thus assisting the beleaguered Najib who was under criticism, condemnation, and is now facing a lengthy trial.

China was caught by surprise when Dr Mahathir’s Pakatan Rakyat coalition defeated Najib in the general election. China had lost Najib as a close ally to Mahathir Mohamed who had campaigned strongly against Chinese foreign investment.

Abruptly after the election, Mahathir cancelled or deferred a number of Chinese projects which included the HSR, ECRL and a gas pipeline in Sabah. Mahathir further went on to restrict the Forest City project by saying that visas will not be issued for foreigner owners of properties within the project. 

For China Mahathir first appeared a dilemma. The straight talking Mahathir while on a visit to the Philippines warned President Rodrigo Duterte about being caught up in debt, with media stories about the Sri Lankan port in mind. Just recently Malaysia seized USD 240 Million from the bank account of a state-linked Chinese pipeline contractor for ‘work not done’.

Many commentators have hailed Mahathir’s move as fighting back against China. Perhaps a better metaphor would be that China and Malaysia are playing ping pong democracy.

The relationship between China and Malaysia is robust and China is well aware Mahathir’s narratives are primarily for domestic audiences. However, there are also sublime messages for China. Mahathir never directly blamed China, but rather blamed his predecessor Najib Razak for entering into projects with China without doing due diligence. Cost, affordability, and lack of benefit to Malaysia were the official reasons Mahathir gave for cancelling the projects.

The behind the scene communications with China were symbolic and at first unofficial. Jack Ma, head of Alibaba and a member of the CCP made a visit to Mahathir in Putra Jaya very quickly after the election.  Mahathir’s closest confident Daim Zainuddin made an unofficial trip to meet China’s premier Li Keqiang, a couple of weeks after Jack Ma’s visit to Putra Jaya.

Mahathir’s visit to Japan before visiting China didn’t go unnoticed by China. On Mahathir’s first visit to China after becoming PM, China accepted Mahathir’s cancellation of the projects. Even with the project cancellations, the visit was deeply symbolic where great respect was accorded to Mahathir by the key Chinese leadership.

During the trip Mahathir visited Alibaba and  Greely which had just taken up a 49% equity in Proton, a car Mahathir has been publicly seen driving on several occasions.

With a reset relationship, Mahathir returned to China in April this year. Some of the projects had been renegotiated and Bandar Malaysia and ECRL were revived. Mahathir publicly expressed his full support for the BRI development strategy. Mahathir’s visit to Huawei headquarters stating Malaysia will continue working with the company on 5G development was important support against US criticism of the company. Malaysia also signed a major palm oil export deal that will offset lose of palm oil exports to the EU. These events showed a very strong two way relationship.

Mahathir had dealt with the Chinese leadership in a way they understood. His visit to Japan showed his displeasure to China over their explicit support for Najib last general election. The Japan visit also showed the Chinese leadership that Malaysia had other strong regional friends. Mahathir’s rebuke of China’s investments projects in Malaysia was not totally taken as an affront to China’s interests, as China itself had restricted capital outflows for the Forest City project.  Mahathir’s calls for due diligence and transparency in BRI projects has even enhanced China’s credibility on BRI in the region, which has been strongly criticized, somewhat unjustly in some corners of the media.

The Malaysia-China reset has created a number of understandings.

State to state relations are of the utmost importance because the majority of China’s Malaysian business partners are related to the state in one way or another. Future investments will be scrutinized as to their benefit to Malaysia. Under a Mahathir Government these investments will be transparent, unlike his predecessor. Malaysia is not an easy place to do business in, even for China. China must take into account political power, various relationships between the stakeholders and public narratives.

The China-Malaysia relationship also hinges on many unsaid givens. Mahathir’s realism about the South China Sea is a thousand years of what has been. He rejects the occidental views of parties outside of the region, which saves enormous amounts on what he believes is unnecessary defense spending.

The BRI is China’s best asset to contest US influence in the region. This is particularly the case as US foreign policy concerning the Asian region is in disarray, especially with the US withdraw from the TPP. US commitment to the region is currently under question by a number of regional governments.

The China-Malaysia reset comes at a time when there is much discussion about growing Chinese influence around the world. Rising Chinese influence is following a pattern not too unsimilar to how US influence grew around the world after the Second World War through aid, cultural exchange, propaganda, trade, investment, military expansion, espionage, and covert military operations.

What does the Malaysian experience mean for other countries engaging China?

The issues are much more complicated today as there are so many Chinese migrants that have integrated into their host societies around the world. Most of these people still carry strong affections for China. The loyalties of people with dual cultural ties is much more complex in regards to the integrity of national security. These issues must be considered very early on, not after the horse has bolted. Potential threats to national security can come from any wave of migration.

It’s the host countries that invited the migrants. It’s the host countries that have invited Chinese investment. Mahathir has pointed out that it’s the responsibility of the host country to carry out their own due diligence on the decisions they make in regards to foreign investment. If a country’s government is corrupt or decision makers compromised, then the country will get into trouble. There is plenty of evidence to support this assertion.

The debt trap has been accorded the status of China’s secret weapon. A loan is like any mortgage. If its not paid back in accordance with the terms, the bank will forgo on the mortgage property. China has been accused of using debt trap diplomacy, but there have not actually been any infrastructure loans that have led to the forfeiture of any Chinese constructed assets in the region.

Mahathir may have given a lesson to China about meddling inside domestic politics, especially during the last federal election. The China-Malaysia case also shows that dealing with China shouldn’t be of a transactional nature. The importance of symbolism, diplomacy, and a little bit of hard ball can’t be underestimated. China has a massive PR job ahead of it on BRI, especially with the slant much of the media has given the subject. Although mistakes have been made, beyond the controversies there is a vision. The US may not be China’s main competitor within the region, it might be China’s own ghost.

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