The China Factor in Malaysian Politics
Photo Credit: Xinhua
By Alvin Cheng-Hin Lim

The China Factor in Malaysian Politics

Jan. 24, 2017  |     |  0 comments

A public spat between former Malaysian Prime Minister Mahathir Mohamad and the Sultan of Johor has drawn China into a dangerously racialized political dispute in Malaysia. The spat concerns Forest City, a massive USD 100 billion real estate project that is being constructed in Johor Bahru, capital of the southern Malaysian state of Johor. This project is developed by Country Garden Pacific View, a joint venture between Country Garden, a Chinese developer, and a local developer with an ownership stake held by the Sultan of Johor.


Forest City, which is being built on four artificial islands, will eventually “house 700,000 people on an area four times the size of New York’s Central Park,” and will also have “office towers, parks, hotels, shopping malls and an international school.” It is just one of almost 60 real estate projects in Johor’s Iskandar Malaysia special economic zone — an area three times the size of Singapore — which has attracted significant foreign direct investment (FDI) from Chinese developers like Country Garden (Lim, 2016; Mahrotri and Choong, 2016).


Responding to Mahathir’s Sinophobic charges that the 700,000 future residents of Forest City will consist of mainland Chinese nationals, “that citizenships will be given away, and that huge tracts of land have been sold to the Chinese,” the Sultan of Johor argued that Mahathir had “twisted” the facts to create “fear, using race, just to fulfil his political motives.” In response to Mahathir’s allegations that “Johor is surrendering land to the Chinese and that we are giving up our sovereignty,” the Sultan noted that the project, which is being built on reclaimed land, will instead “increase Johor land size and sovereignty,” and that the residential units are “not just for Chinese investors, but for anyone around the world, including Johoreans.”


The Sultan also recalled that when Mahathir was Prime Minister, he had persuaded Malaysians “to Look East but now he is criticizing when Chinese investors come here to invest.” The Chinese embassy in Malaysia made the same point when it issued a pointed statement that “somebody applauded Sino-Malaysian cooperation when in office but fanned the flame of anti-Chinese sentiment after … Saying China’s investment is stealing job opportunities from Malaysia is a complete lie with a secret agenda behind it” (Wong and Benjamin, 2017; “Johor Sultan slams,” 2017).


As Mahathir has joined a political coalition opposing the leadership of current Prime Minister Najib Razak, observers believe the spat over Forest City indicates that the issue of Chinese FDI in Malaysia will “dominate the general election expected to be called this year.” For example, Mustafa Izzuddin predicts: “Mahathir and other Malay politicians from the anti-Najib camp will use the sheer [scale of] Chinese investments into Malaysia to criticize Najib as selling Malaysia’s internal sovereignty to China … to the extent of drifting into the China orbit and becoming its satellite state” (Jaipragas, 2017).


The significant Chinese FDI that has been invested in Malaysia forms a large part of the economic background to the political challenge facing Prime Minister Najib’s leadership. In October 2016, the Malaysian government announced that China Communications Construction Co. will construct and China Export-Import Bank will finance the construction of the 620 km East Coast Rail Link (ECRL), a project estimated to cost RM 55 billion. The ECRL will connect Kuantan Port on the east coast of Peninsular Malaysia with Port Klang on the west coast, creating a land bridge that will allow the transshipment of goods between the Straits of Malacca and the South China Sea without having to go past Singapore (Lopez, 2016; “China to build,” 2016).


This expansion of transportation options will benefit corporations which have established factories in the Malaysia-China Kuantan Industrial Park (MCKIP), which has attracted investment in “high-tech industries including stainless steel products, electrical and electronics, information communication technology, and renewable energy.” The MCKIP has been twinned with the China-Malaysia Qinzhou Industrial Park in Guangxi province in China, and the increase in trade between Malaysia and China will be facilitated by the ongoing expansion and upgrading of Kuantan Port, of which China’s Guangxi Beibu Gulf International Port Group has a 40 percent stake (Lim, 2015, p. 9; Tuan, 2016).


In the state of Malacca on the west coast of Peninsular Malaysia, a RM 30 billion joint venture has been formed between KAJ Development Sdn Bhd, a local developer, and Powerchina International Group of China to construct the Melaka Gateway. This project consists of three artificial islands “for various tourism, commercial, property and maritime developments,” and a natural island that will be “designated as a container and bulk terminal, shipbuilding & ship repair services, and a maritime industrial park” (“KAJD and Powerchina,” 2016). The project will also include construction of the RM 8 billion Melaka Gateway Port, which is scheduled for completion in 2019. KAJ Development and the Chinese port operators Shenzhen Yantian Port Group Co. and Rizhao Port Group Co. have formed a partnership to develop this port, which is predicted “to attract 100,000 vessels annually,” with 70-80 percent of the expected traffic coming from China (Samah, 2016).

China generously offered financing to 1MDB in exchange for state assets to help 1MDB repay almost USD 6.5 billion in debts.

The Singapore-Kuala Lumpur high speed rail is a project that is keenly eyed by Chinese rail companies. While the contract to construct the Singapore-KL high-speed rail line has yet to be issued, “local media reports suggest that Singapore prefers a Japanese or European bidder but Malaysia favors a Chinese firm” (Martin, 2016). Indeed, China Railway Group, a Chinese state-owned enterprise, has formed a consortium with a local developer to purchase 60 percent of the land parcel for the RM 160 billion Bandar Malaysia real estate project, located at the KL terminus of the Singapore-KL high speed rail line, from 1Malaysia Development Berhad (1MDB) — the Malaysian state-owned investment fund whose financial troubles, as we shall shortly see, have triggered the current political crisis.


When completed, Bandar Malaysia will serve as the new transportation hub for KL, connecting the high speed rail line with KL’s existing bus and rail lines, and it will also house China Railway Group’s USD 2 billion regional headquarters. Due to the close working relationship between the Malaysian government and Chinese investors — including China Railway Rolling Stock Co. which has supplied Malaysian Railway with trains since 2010, and which also set up a manufacturing plant in Malaysia in 2015 — some experts believe China holds the advantage in securing the contract for the Singapore-KL high-speed rail line. Looking to the future, China Railway is already “in discussions with the Thai government to build a high speed rail connecting Bandar Malaysia to Bangkok” (Lim, 2015, p. 9; Forss, 2016).


In the case of the South China Sea dispute, the recent surge in Chinese FDI appears to have tempered the Malaysian government’s earlier hard line against China. Urchick (2017) recalls that following newly-elected Philippine President Rodrigo Duterte’s moves to normalize relations with Beijing, Prime Minister Najib visited Beijing “to meet with China’s leadership and agree to negotiate their dispute bilaterally. This agreement resulted in the signing of $34 billion in trade deals and a naval vessel arms sale to Malaysia.” Given the scale of Chinese largesse, Manila and KL will likely not want to kill the goose that lays the golden eggs. Hence, “the Philippines and Malaysia will not retract or drop their claims in the South China Sea, but will instead work to keep their dissatisfaction quiet for the sake of bilateral trade deals, and will continue with their projected military purchases.”


At the same time, however, Chinese FDI does not give Beijing carte blanche to act without expectation of response from its partners. For example, the satellite images which revealed the recent Chinese installation of military systems in the Spratly Islands have prompted the Malaysian and Philippine governments to seek clarifications from Beijing. These responses, though weak, nonetheless show their publics that their governments have not acquiesced to the Chinese militarization of the disputed islands (Asia Maritime Transparency Initiative, 2016; “Malaysia to seek,” 2016; “China's sea militarization,” 2017).


As noted earlier, some Chinese FDI in Malaysia served as financial support for 1MDB. Chinese state-owned enterprises have done this by buying 1MDB assets, for example China General Nuclear Power Co.’s RM 17 billion purchase of Edra Global Energy. Such takeovers of Malaysian infrastructure assets by Chinese state-owned enterprises have alarmed opposition politicians like Democratic Action Party MP Ong Kian Ming, who argued that: “The Malaysian government needs to be fully transparent on the details of this deal … Nothing comes for free and the Malaysian taxpayer deserves to know the true cost of the bailout.” More recently, China generously offered financing to 1MDB in exchange for state assets to help 1MDB repay almost USD 6.5 billion in debts to Abu Dhabi’s state-owned International Petroleum Investment Co. (Jaipragas, 2016; Vasagar, Binham, and Kerr, 2016).


While Chinese FDI has helped 1MDB survive its financial problems, this has created political risk for China as 1MDB’s problems stem from a still-unfolding international corruption scandal in which Prime Minister Najib himself has been deeply implicated (“Malaysian PM Najib,” 2016). Indeed, the Malaysian government turned away from the US and repositioned itself towards China following civil lawsuits filed by the US Justice Department in July 2016 implicating Najib in the scandal, following which Najib made his aforementioned pivotal visit to Beijing. China has hence emerged as a key factor in the opposition coalition’s attacks on Najib’s leadership (Wong, 2016).


The emergence of China in the political dispute is especially dangerous given the racialized nature of the dispute. The racialization emerged in 2015 during an earlier phase of the scandal, when Najib’s personal bank accounts were revealed to hold almost USD 700 million in suspicious deposits. Following mass opposition rallies calling for Najib’s ouster, pro-government rallies were organized in which the dispute was reframed as an attempt by Malaysia’s Chinese minority to end the privileges enjoyed by the Malay majority. As Malaysia has a history of ethnic riots, this racialization has added a dangerous element of ethnic tension to the political dispute (“Ethnic Malays openly,” 2015).


Due to the racialized dimension of the political dispute, the Chinese government has had to tread carefully in its dealings with Malaysian government. In September 2015, the Chinese ambassador to Malaysia was summoned to Malaysia’s Foreign Ministry after he made a public statement that “China, Malaysia’s top trading partner, would not hesitate to speak out against any threat that may affect the country’s ties with Malaysia and that Beijing is opposed to discrimination against races and any form of extremism.” The ambassador’s statement followed the threat of racial violence by pro-government Malay groups that had arisen after an anti-government rally was held that largely consisted of ethnic Chinese Malaysians.


While the Malaysian government perceived his statement as interference in Malaysian domestic politics, the Chinese embassy explained that the ambassador’s statement was just an “act of goodwill” and an expression of “the hope that Malaysia stays united, prosperous and harmonious” (Teoh, 2015). China’s Foreign Ministry issued a clarification that China does not “interfere in other countries’ domestic politics nor intervene in other countries’ internal affairs,” but also reaffirmed the ambassador’s expression of hope that Malaysia will be able to “maintain national unity and stability and ethnic harmony” (Goh, 2015).


Given that the 1MDB scandal is still unfolding, it remains to be seen how the political dispute over Prime Minister Najib’s leadership will ultimately be resolved. Until then, the billions of dollars in Chinese FDI in Malaysia remain under the cloud of political risk.




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