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Chinese-Malaysian ties after the election

The new Malaysian Prime Minister, Dr. Mahathir, has indicated that he will reverse significant gains made by China under the outgoing Prime Minister, Najib Razak. In response, China has called on Dr. Mahathir to honour bilateral agreements and investments. How might the change in government impact these agreements, Chinese investments, and bilateral ties between China and Malaysia?

A political earthquake shook Malaysia after the general elections earlier this month when over 60 years of Barisan Nasional (BN) – the longest ruling political coalition in history – rule finally came to an end. Galvanised by the presence and support of Dr. Mahathir, the erstwhile leader of BN and former mentor to the incumbent Prime Minister Najib Razak, Malaysia’s opposition coalition Pakatan Harapan (PH) stormed to a resounding victory in the national elections.

The election results also served as an indictment of BN’s stewardship under Najib Razak’s tenure. The 1Malaysia Development Board (1MBD) scandal was particularly harmful to BN, and revealed that Najib Razak and his wife had embezzled over USD1 billion from an economic development fund. Likewise, BN did a poor job allaying public concerns over unusually high levels of Chinese investment in the country.

Malaysia’s concerns about China

These concerns included fears that the government would not be able to repay Chinese loans that it had been guaranteed by the Malaysian government. Malaysians were well aware that Sri Lanka had to surrender control of a major port to Chinese state-owned enterprises after the island nation was unable to repay the debts incurred in the port’s construction. With China similarly involved in important national infrastructure projects such as the East Coast Rail Link (ECRL) and several other ports to the tune of USD100 billion, Dr. Mahathir spoke for the average Malaysian when he remarked that the country was being “sold” piecemeal to China.

Additionally, the average Malaysian has been sidelined by China in such projects. China has opted to export its own resources and labour instead of subcontracting out such requirements to local companies. With China having already acquired a reputation in places as far afield as the Philippines and Ghana for such behaviour, Malaysian companies justifiably fear that it would presage future competition with the Chinese – and that they will not be competing on an equal footing, as the Chinese complete projects better and faster than them.

ECRL, Malaysia

The East Coast Rail Line. When complete, this rail infrastructure would allow a large amount of freight to bypass Singapore and the Straights of Malacca (Map source: Malaysia’s Land Public Transport Comission).

Flip side of the Chinese coin

While Dr. Mahathir was able to play on such fears in order to win the elections, it would be incorrect to say that Chinese involvement has entirely been to Malaysia’s detriment. Chinese investments in these projects have indisputably contributed to Malaysia’s national development, and helped shore up a flagging economy that would have otherwise taken a battering from falling oil prices and the 1MDB scandal.

As such, these infrastructure projects may be necessary in order to future-proof Malaysia’s economy. Malaysia is touted as an invaluable link in China’s Belt and Road Initiative (BRI) – at the expense of Malaysia’s long-time neighbour, Singapore. While Singapore’s diplomatic run-ins with China have been speculated to underpin this decision, the fact remains that critical shipping routes bound for China have to pass by Singapore, located at the tip of the West Malaysian peninsula. Through infrastructure projects such as the ECRL, the Kuantan port and the Kuala Linggi port, China therefore aims to shorten and secure shipping routes headed its way.

For Malaysia, the combined effect of the three projects would provide a portage route for nearly 53 million tonnes of cargo instead of taking the long way around the West Malaysian peninsula via ship. 80,000 jobs from the ECRL alone would be created for Malaysians. Further – and contrary to what voters may have thought – local firms are expected to play a part in the ECRL’s construction as well. The icing on the cake is an industrial training programme for Malaysian students that is designed to tie in with the ongoing construction work.

What the future will hold

Dr. Mahathir’s election rhetoric may therefore prove to be nothing more than the ordinary course of business in politics, as he recently promised to uphold Malaysia’s end of its various bargains with China. With that said, however, ties are unlikely to be affected even as Dr. Mahathir attempts to “renegotiate” their terms. Under Najib Razak’s tenure, bilateral ties with China reached an all-time high. The sheer volume of Chinese investment in Malaysia appears to have secured ties for the time being.

With political and economic ties with China locked in for the foreseeable future, it is up to Dr. Mahathir to do better than Najib Razak by going back on his words – and convincing an uneasy Malaysia that it will be to their benefit.

This article was first published on Global Risk Insights and was written by Nicholas Leong.