The political tsunami in Malaysia has changed the nature of Sino-Malaysian relations, even if a reset is not imminent.
“At best level in history” was how then Malaysian Prime minister Najib Razak described bilateral relations with China in 2015. The following year, President Xi Jinping also described Sino-Malaysian relations as the ‘best ever’. As a part of its ambitious Belt-and-Road Initiatives (BRI), China extended funding to connect the east coast of peninsular Malaysia with its west coast with a 688 kilometer long East Coast Rail Link (ECRL). At its groundbreaking ceremony in August 2017, Najib called it a ‘game-and-mindset changer.’
Yesterday on June 4, Najib was produced in a court of law after his arrest the day before on charges of criminal breach of trust and of using his position for gratification. On the same day, the ECRL has been instructed to stop all activities with immediate effect. Only a month ago, the new Prime Minister Dr Mohamad Mahathir scuttled plans for building Kuala-Lumpur-Singapore High Speed Rail (HSR), another crucial component of the Chinese BRI.
The world’s oldest premier Mahathir is showing the urgency that the electorate expected him to show. Sino-Malaysian closeness was a major poll issue in General Elections held on 9 May. The Pakatan Harapan (PH), which came to power had promised a ‘no sell-out to China’ in its manifesto. Soon after coming to power, the PH has set in motion, amidst charges of a witch-hunt by the opposition, investigations into the infamous 1MDB scandal. This culminated in the arrest of Najib, whose personal bank account saw USD 10.4 million siphoned from the public fund. The alleged role of China in funding 1 MDB had put the spotlight on Najib’s nefarious relations with Beijing.
Diplomatic relations between Malaysia and China were established in 1975, with Malaysia becoming the first ASEAN country to normalise ties, and since then it has more or less been friendly with China, with the friendship assuming greater proximity in the Najib era–so much so that South China Sea dispute was not made into an issue of nationalism, sovereignty and Malaysian pride.
China has invested its might in Malaysia with major projects like ECRL and Malacca Gateway. It is the biggest source of FDI in Malaysia and in the last three years (from 2015 to 2018), Chinese construction companies have earned contracts worth a staggering RM 300 billion.
The new regime has, for obvious reasons, not made it seem like it is keen on resetting ties with China. The reason cited by Mahathir for cancellation of the HSR, or rethinking the ECRL, or for that matter, scrutiny of proposals of few other major port building and highway projects, is that of addressing the debt problem that has arisen during the Barison Nasional rule. The debt has been pegged at RM 1 trillion and even a public fund, Tabung Harapan Malaysia, has been set up to help reduce the country’s debt.
Among the island countries in China’s neighbourhood, Malaysia is its top cooperation partner. However the fate of many island countries has not missed the Mahathir government’s notice. The debt trap of Sri Lanka — its signing a 1.1 billion USD debt-to-equity swap along with handing over 70% of Hambantota port to the Chinese — has been a warning bell to small island nations and Malaysia has often cited it as an example to make people aware of the risks associated with projects built much ahead of the demand peaking.
For example, when ECRL was conceived it was supposed to be a RM 55 billion project, 85% of which was to be loaned at 3.5% interest from Exim Bank of China (a state owned bank) and slated to generate 80,000 jobs and benefit about 5.4 million travellers. However when the new government took charge the cost had spiralled to RM 81 billion and has not gone down well with both Finance Minister Lim Guan Eng who has said that the cost had to significantly come down for it to be viable and with the Council of Elders, who along with ECRL, has red-flagged several large projects for the want of financial prudence.
The Malaysian-Chinese Factor
It is essential to underline the position of the Malaysian-Chinese who constitute about 22% of the population and have been important part of the stellar Malaysian economic growth. China has, time and again, propelled itself as a ‘protector’ of the interests of this population amidst racial tensions. While ethnic Malays and Najib in the past attributing ‘Chinese tsunami’ to the growth of opposition, the new PH government has even gone on to have a Malaysian Chinese as its finance minister.
With deep distrust looming large, during the visit of finance minister Guam Eng to China, an issue of press release in Mandarin and not Malay hogged headlines for a few days. The large numbers of Chinese workers who follow massive projects are being seen suspiciously as one who would meddle with the Malaysian way of life. Mahathir’s stand on China is thus likely to find popular support.
The Enemy’s Enemy is…
India established diplomatic relations with Malaysia in 1957 and the relation between the two countries can best be described as cordial. There have been strategic, economic, political, cultural relations which did gather some steam after India’s adoption of ‘Look Eat Policy’. Prime Minister Modi’s ‘Act East Policy’ has further placed Malaysia in the centre, or somewhere near it, of India’s endearment to ASEAN.
The economic and commercial relations are guided by the Comprehensive Economic Cooperation Agreement (CECA) signed between the two countries in July 2010 and the Free Trade Agreement (FTA) that India signed with the 10 member ASEAN in September 2014. Both countries have signed MoU on Defence Cooperation and joint exercises termed ‘Harimau Shakti’ are held annually and Indian naval ships make regular port calls in Malaysia.
However, the trade figures are lopsided with India having made a paltry USD 2.31 billion investment in Malaysia from 1980-2014, according to Malayasian Investment Development Authority (MIDA). Bilateral trade between the two countries stood at USD 8.71 billion between Jan-Sept 2016 with Malaysia being the 25th largest FDI investor in India. This present a lacklustre picture considering that Indian diaspora constitutes about 7% of the Malaysian population and about 1.3 million Indian expats work in both formal and informal sector.
Amidst this dichotomous situation of economic ties not espousing great confidence on one hand and the strategic position that Malaysia holds for India, the larger question is whether India present itself as a geopolitical counterweight to China, with Malaysia having traditionally given that spot to the US. The commonalities in wariness of BRI, South China Sea hegemony of China, could be bonding factors.
Ever since the historic 14th General Elections, Malaysia has been in throes of change. Among all other changes, significant has been the whiff of change in Sino-Malaysian relations vis-à-vis cancellation and reconsideration of major infrastructural projects which are Chinese funded and are a part of Xi Jinping’s determined BRI. With arrest and impending trial of former PM Najib Razak one can expect his Chinese links to come out of closet further chilling relations between the two countries.
While Malaysia cannot insulate itself from the Chinese investment and workers and infrastructure, and which would not be economically prudent either it would aim at regaining the distance it had always maintained prior to Najib. Equidistance from China and US has been the characteristic feature of Malaysian foreign policy and it would possibly stick by it.
However, it will be interesting to see how China plays its card, for example, in the ECRL case, which is a govt-to-govt legally-binding project of which 13% is already complete. In all this, a small window, for India to partner with Malaysia, where it should see immense geopolitical interest, has opened to further its ties. If India can sell Malaysia a position where the latter can hedge between the former and China, it would be a win-win for both nations.
The Pakatan Harapan government is after all only two months old and Mohamad Mahathir has two years before he hands over the reins to Anwar Ibrahim. How the coalition works, how much they adhere to their manifesto, how they plan to take Malaysia on a growth trajectory are questions for which answers will unfold with time. For a country which has done extremely well for itself and wishes to break into the developed countries club soon, it will be interesting to watch how the Sino-Malaysian relations pan out.