Mahathir’s Beijing Trip: What Are the Takeaways?
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By Tai Wei Lim

Mahathir’s Beijing Trip: What Are the Takeaways?

Aug. 30, 2018  |     |  0 comments


Malaysian Prime Minister Dr Mahathir Mohamad visited Beijing from August 17-21, 2018, after taking over as the leader of his country following the stunning defeat of the incumbent leader Tun Najib Razak who was perceived as being too friendly towards Beijing. After taking office, Dr Mahathir made sweeping changes to undo what the previous government had established. It was a reboot of Malaysian politics.

 

Dr Mahathir himself had been the Prime Minister of Malaysia from 1981 to 2003. Previously close to the senior politicians in Japan and an elder statesman amongst ASEAN leaders (contemporary with key leaders like Suharto, Lee Kuan Yew, and Fidel Ramos), he is now updating himself with the policies, worldviews, and key members of the administration of Chinese President Xi Jinping. This visit therefore was also an opportunity for the Malaysian and Chinese leaders to get to know each other. When Dr Mahathir was elected, he was also careful to appoint Robert Kuok, Malaysia’s sugar king and billionaire, for advice on Malaysian dealings with Beijing. Kuok, who is based in Hong Kong, is a prominent tycoon who has met with President Xi and other elite Chinese leaders and is conversant with the pulses of current affairs in China.


Dr Mahathir went to China with the aim of seeking understanding from his Chinese hosts that his government needs to re-adjust Malaysia’s financial situation. In the midst of this re-adjustment, Malaysia has sought Chinese understanding for the cancellation of more than USD 20 billion worth of Chinese-funded projects. Perhaps the cancelled project that has drawn the most intense media attention is the USD 27 billion East Coast Rail Link (ECRL). Another two cancelled items that were less in the media spotlight were the USD 3.1 billion oil and gas pipeline projects awarded to China Petroleum Pipeline Bureau.

 

Dr Mahathir pays attention to the advice of a council of eminent veteran politicians, amongst whom former Finance Minister Daim Zainuddin is against the ECRL project and who has argued that even if Malaysia goes ahead with the ECRL, its operating costs will be too expensive and unprofitable. Daim Zainuddin is considered a wise man and eminent economist in Malaysia. His advice is taken seriously by all stakeholders in the Malaysian economy.


Dr Mahathir and his government have revealed that Malaysia has MYR 1 trillion worth of debt. The debt level has risen to almost 80 percent of the country’s Gross Domestic Product. Dr Mahathir hopes to balance the fiscal situation in Malaysia by cancelling items like the Kuala-Lumpur-Singapore high speed rail project worth MYR 110 billion, the ECRL, the pipeline projects, and other projects that his government perceives to be too expensive. Dr Mahathir is also cancelling the unpopular Good and Services Tax that is associated with the previous Najib Razak government and replacing it with a Sales and Services Tax that will kick off in September 2018. The Sales and Services Tax may bring in several billion of revenue this year and is projected to bring in MYR 30 billion in 2019 when it is implemented for the full year.


Dr Mahathir’s government is also planning to shore up more revenue by auctioning off the fugitive Malaysian financier Jho Low’s luxury yacht and may be eyeing the return of his private jet. Low is accused of being involved in the 1MDB financial scandal which was a major source of discontent for many Malaysians and which was a major factor in the downfall of the previous Najib Razak government. Malaysia is seeking his international arrest as Low goes into hiding, allegedly in disguise.



Dr Mahathir is not afraid to take drastic measures to shore up the well-being and health of the Malaysian economy and has not shied away from painful treatments in the past to nurse Malaysian economy back to health.



Helped by global factors, Malaysia is also advantaged by rising international oil prices which has risen to USD 70 odd per barrel. Global oil prices are likely to buoy the Malaysian economy. But its plan for “Wawasan 2020” which reflects Malaysian ambitions to become a developed economy that year may have to be pushed back to “Wawasan 2025” due to what Dr Mahathir’s administration has cited as the challenges brought about by the previous Najib administration. Malaysia is keen to break out of the middle-income trap and has in the past made remarkable achievements as it leapfrogged others to become the second most developed economy in the Southeast Asian region.


Dr Mahathir had previously stated his worries about Malaysian indebtedness during the election campaign period, particularly from countries which it had borrowed heavily from. He also talked about the importance of fair trade while supporting free trade. This was in response to Chinese Premier Li Keqiang’s call for a common stance on protecting free trade. Such calls are made in an era of protectionism, populism and trade tensions (some might say “trade war”).

 

Beijing is engaged in a tit-for-tat trade exchange with the Trump administration in the US and had been actively advocating for the merits of free trade in the international circuit. Beijing is keen to shore up solidarity for a global free trade system and has been busy canvassing support from the European Union, Japan, South Korea, the ASEAN (Association of Southeast Asian Nations) countries, and other entities supportive and dependent on free trade for their economic growth and development. Beijing is now perceived to be a champion of global free trade in the world arena and trying to push back populist, protectionist, anti-globalization and nationalist sentiments about economic exchanges and global trade. China is also pushing and advocating for a Regional Comprehensive Economic Partnership (RCEP) agreement amongst the economies of Asia Pacific.


Keen to ensure that he does not portray Malaysia as resistant to trade with China in any way, Dr Mahathir also reiterated that his country welcomes Chinese technologies and investment. There are political voices of encouragement on both sides to foster cooperation between Chinese carmaker Geely (perhaps China’s most famous brand of cars that is not state-owned) and Malaysia’s national car project Proton (which is a cherished project that has been championed and founded by Dr Mahathir). Some opinions arising from the visit even mooted possibilities of a factory in China producing Proton cars. Dr Mahathir had also previously promoted the national car project to the Indonesians during his state visit to their country. During his visit to China, Dr Mahathir was especially keen to attract Jack Ma’s Alibaba to strengthen its presence in Malaysia. He also visited numerous industries and witnessed Chinese drone and other cutting-edge technologies, with the aim of inviting them to invest in Malaysia.


China also welcomed Dr Mahathir’s visit and has increased the import of palm oil and specialty products from Malaysia like durians into China. After India and the European Union, China is the third largest export destination for Malaysian products. In this area, there is space for China to purchase more from Malaysia and help balance the trade deficit. China would not be the first country to deal in Malaysian palm oil. In the past, Malaysia has purchased Russian jet fighters like MIG-29s using barter in palm oil.

 

Under Dr Mahathir’s previous administration, Malaysia had implemented unconventional solutions, including disregarding the International Monetary Fund when it pegged the ringgit firmly to mitigate the effects of the 1997 Asian Financial Crisis. Dr Mahathir is not afraid to take drastic measures to shore up the well-being and health of the Malaysian economy and has not shied away from painful treatments in the past to nurse Malaysian economy back to health. The current Beijing visit seemed to be rather successful in terms of getting the leaders to know each other better. This will put Beijing in good stead when the ASEAN chairmanship eventually rotates to Malaysia.

 

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