Will the slew of multibillion ringgit infrastructure deals recently signed result in the Malaysian economy becoming overly dependent on China? Anil Netto surveys the changing times.
It must be a confusing time to be one of the nationalist pro-Umno Red Shirts. What would they make of the giant state-run and listed firms from China that are now going to be involved in billions and billions of ringgit worth of infrastructure contracts in Malaysia?
These firms’ interests span from Johor in the south all the way to Penang in the north; from the proposed Bandar Malaysia on the west coast to Kuantan on the east coast, then swivelling northwards along the east coast to Tumpat – and beyond the South China Sea, to Sarawak and Sabah.
It is not just the Red Shirts who should be concerned about this turn to China.
Certainly, there is merit in steering an independent path away from the United States’ strategic umbrella. Many of us would also be relieved if the new Trump administration got rid of the Trans-Pacific Partnership agreement, which would have mainly profited large multinational corporations and kept China at arm’s length.
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But instead of keeping Malaysia on a more balanced, neutral path, the pendulum appears to have swung too far, too swiftly to the other side. The sheer magnitude of recent deals with China suggests we are entering a little too deeply into China’s sphere of influence for comfort.
Already, China’s main official newspaper, the People’s Daily, is said to be gloating over Philippine President Rodolfo Duterte and Najib’s rapprochement with Beijing.
Former Malaysian envoy Dennis Ignatius’ commentary The East is Red! has outlined succinctly the tentacles of China’s strategic interests in the region.
It is a high-stakes gamble for Prime Minister Najib. As commentator Bakri Musa warns in his piece “Dancing Dragons have no partners only prey”, we are putting ourselves at risk if we try to play one superpower against the other.
Ethics and transparency
Apa lagi Cina mau? From railway construction and power generation assets to property development and land reclamation, make no mistake, China interests have already arrived in a big way – with Najib’s and certain state governments’ blessings.
In the wake of these deals, we can expect new issues of transparency, accountability and ethics to arise. Bear in mind that in 2011, the World Bank announced “the debarment of China Communications Construction Company (CCCC) Limited, and all its subsidiaries, for fraudulent practices under Phase 1 of the Philippines National Roads Improvement and Management Project.”
There are already persistent and nagging questions about the East Coast Rail Link.
The business press and analysts have questioned the RM92m per kilometre price tag for the RM55bn East Coast Rail Line, which makes it the “world’s costliest railway” in its class (The Edge, 7-13 November 2016). The business weekly cited industry players who estimated the cost should have been in the region of RM30bn-RM36bn.
And why are two senior finance ministry officials holding shares in a private RM2 company Malaysia Rail Link Sdn Bhd that would represent Malaysia in the project?
Financial sustainability and viability?
Are we biting off more than we can chew?
Are all these property development projects that China is involved in something of an overkill, given the slump in the property market especially for homes priced above RM500,000? Why are we building for and targeting wealthy buyers from other countries such as China and Singapore? Those who have visited China may have come across vast ghost towns and cities, badly hit after slumps in the property sector following a construction frenzy.
As for the high-speed and mega rail projects, are they viable – especially at those price tags – given that the majority of households here are still relying on BR1M and struggling to cope with the higher cost of living? What if the projected riderships, especially of the East Coast Rail Line, fall below the levels needed to sustain the operations of these projects? Who will absorb the losses then?
Should these projects be a priority now? These infrastructure projects are not being built for us for free. Malaysia could land up deeper in debt, and after several years, feel the full impact of servicing the massive loans.
Have we thought about our exposure to foreign sources of borrowings? Whereas under earlier administrations, we were careful to keep our exposure to foreign loans to a minimum, can we say the same thing in the future with borrowings from China and bonds issued to foreign institutions likely to soar even further?
To be sure, Chinese banks and financial institutions are set to penetrate our economy in a big way and profit from these massive infrastructure projects. All this, even without the TPP.
Are we also heading for a fresh influx of migrant workers to provide a ready source of cheap, vulnerable labour? And what pressure would be brought to bear if local communities were to oppose some of these giant projects?
Certainly, China has accelerated its outward-bound investments around the world under its ambitious One Belt, One Road–related initiatives spanning from Central Asia to Europe, West Asia, South Asia and South East Asia via overland and maritime routes and loops. It has invested in railways, highways, bridges, tunnels, ports and oil and gas pipelines across these regions to secure its strategic interests and raw material requirements.
China might see its “One Belt, One Road” as an alternative to the present (failed?) model of neoliberal globalisation with its shocks and fluctuations, booms and busts. Obor is its alternative framework for policy coordination, trade liberalisation, and financial integration – its answer to the TPP, which now hangs in the balance, and the Transatlantic Trade and Investment Partnership (T-TIP).
China’s investments in Malaysia may be seen in this light.
Already, the profile of the sources of foreign investments in Malaysia has changed.
Ten years ago, Japan (RM4.4bn) topped the list of sources of investments in Malaysia, followed by Australia (RM2.6bn), United States (RM2.5bn) and Singapore (RM1.9bn) (Source: Mida, 2006).
But by the first half of 2016, Japan had fallen to fifth (RM0.9bn) in terms of approved investments, the UK occupying top spot with RM2.1bn. China (RM1.6bn) propelled itself into second place followed by Korea (RM1.5bn) and Singapore (RM1.5bn).
Even before the latest flurry of deals, reports pointed out that China had already become Malaysia’s largest foreign investor, thanks to China’s purchase – some say bailout – of 1MDB’s power assets. Now with these latest deals, China is likely to stretch its lead even further.
The quantum involved is staggering for a country the size of Malaysia. The China Global Investment Tracker, run by the conservative American Enterprise Institute, puts the value of China’s investments and construction around the world for 2016 (so far) at US$123bn or over RM500m.
What Najib has just agreed with China has been reported to be worth over US$34bn or almost RM150bn. (This is on top of the property development projects that companies from China are already involved in.) That is no small potatoes. Some might argue that these deals are just normal business and investment deals that would help the nation improve its infrastructure.
No, they are not normal. The sudden avalanche of contracts and the sheer magnitude of these deals is unlike anything we have ever seen before. These new investments will make us increasingly dependent on China for years to come. They will alter our physical, economic, socio-cultural and demographic landscape in more ways than we can anticipate. Already, Malaysia’s trade surplus with China has reportedly dropped from US$34bn in 2011 to US$9bn in 2015.
Then there is the geopolitical angle, and the projection of ‘soft power’, benign for now. Remember how the ambassador of China had only to stroll through Chinatown in KL last year distributing mooncakes and talking about peace and harmony – and everyone, including the Red Shirts, got the message!
How the geopolitical shift after the latest flurry of China’s deals in the region will play out remains to be seen, especially given the territorial disputes in the South China Sea.
But are we now dealing with a case of economic neocolonisation? Would that be healthy as we try and chart a more independent economic path? Are there no other forms of sustainable development – keeping in mind our overstretched finances – that will not leave us heavily indebted? What will happen to our economic sovereignty if our debt to China keeps piling up?
While Malaysia and China have steadily built on warm relations established ever since then Premier Tun Razak established diplomatic ties between the two nations just ahead of the 1974 general election, could even he have envisaged how far his son would take it four decades down the road? Was this trajectory, taken to new heights, what he had in mind?
Back then, the early vision of Asean was for “a zone of peace, freedom and neutrality”. The Zopfan declaration had just been signed by Asean foreign ministers in Kuala Lumpur just three years earlier.
The ideals of Zopfan, a slogan much bandied about in the 1970s, along with those of the Bandung Conference in 1955 that opposed colonialism and neocolonialism, now appear to be long forgotten. How far have we strayed. Has the pendulum now swung too far to the other side?
To get an idea of the extent of China’s ballooning economic interest – and influence – in Malaysia, here is a breathtaking compilation, which is by no means exhaustive, of major ongoing and proposed infrastructure projects by region:
Forest City project, Gelang Patah, Johor
– total investment by Country Garden RM175bn
Four artificial islands, mostly reclaimed land.
Total: 1,380ha =3,410 acres (three times the size of Sentosa Island)
Gross development value: RM450bn
Developer: Country Garden Pacificview;
60% Country Gardens Holdings Co Ltd, listed on HK bourse
40% Esplanade Danga 88
Source: The Edge Property
Country Garden @ Dangga Bay, Johor
Mixed development 57 acres, GDV RM18bn
Guangzhou R&F Properties investing RM4.5bn to build condominiums
China’s Country Garden Holdings investing RM0.9bn to build 45 condominium towers.
Greenland Holdings Group putting in RM2.4bn into property development
Source: My Paper
Johor Bahru – Gemas railway double tracking RM7-8bn
197km electrified double-tracking
Melaka Gateway RM30bn investment
Three artificial islands
Master developer KAJ Development Sdn Bhd (51%) signed MOU with Powerchina International Group Ltd
Source: The Star
Melaka Gateway Port
Container and bulk terminal, shipbuilding & ship repair services, and a maritime industrial park.
MOU: KAJ Development Sdn Bhd, Power China, Shenzhen Yantian Port and Rizhao Port
Purchase of land and development of 486-acre site in Sungai Besi
Gross development value: RM200bn
Heads of Agreement: Bandar Malaysia Sdn Bhd and Greenland Holdings Group Overseas Investment
60% – IWH CREC Sdn Bhd (joint venture between Iskandar Waterfront Holdings (IWH) and China Railway Engineering Corporation (CREC) – master developer. (acquired for RM7.4bn)
(IWH is controlled by Malaysian tycoon Lim Kang Hoo and partly owned by the Johor state government.)
40% – Ministry of Finance
These stakes were sold by 1MDB.
Includes RM8.4bn (US$2bn) regional headquarters of China Railway Group.
Bandar Malaysia financial scheme
Foreign banks: Bank of China, Industrial and Commercial Bank, China Construction Bank, HSBC. (Local banks: CIMB, Maybank, RHB, Affin Bank) Source: theSun
Heads of Agreement signed: IWH CREC Sdn Bhd and Industrial and Commercial Bank of China (ICBC).
“To provide infrastructure financing to support Malaysia’s infrastructure development”
Granted to China Construction Bank (Malaysia) Bhd, initial paid-up capital of US$200m. Reported to be among the lenders for the Bandar Malaysia project.
Kuala Lumpur-Singapore high speed rail (RM50-70bn?)
350km line from Bandar Malaysia to Jurong Lake District (JLD)
cuts travel time to 90 minutes
MOU signed in July 2016
Malaysia and Singapore will call a joint tender.
Construction contractor: Not yet known – but a China press reports claims ‘China will have the upper hand in the bidding’.
Semenyih Diamond City
Spanish-style homes: 120 linked houses, 272 bungalows, and 23 mansions.
Developer: Country Garden
Mixed use development 24,000 square-metre plot, valued at RM403m, at Embassy Row
Gross development value: RM2.1bn
30:70 joint venture between China Railway Group and Titijaya Land, listed in Malaysia
Green Technology Park, Pekan (Phase 2 and 3)
Using green technology to convert oil palm empty fruit bunches into pulp and paper, box liner paper, corrugated paper and tissue paper.
Memorandum of Agreement: BHS Industries Bhd and China Nuclear Huaxing Construction Co Ltd
Source: The Edge
Expansion and deepening of Kuantan port
Malaysia-China Kuantan industrial park
Guangxi Beibu Gulf International Port Group
Source: My Paper
Kuantan Waterfront Resort City
500 acres mixed development entirely on reclaimed land
at Tanjung Lumpur, 2km from Kuantan
Gross development value: RM15bn
50% CCCC Dredging (Group) Co Ltd (land reclamation)
50% Bina Puri Holdings Bhd (construction and development)
Source: The Star
East Coast Rail Line RM55bn
620km standard guage rail track (or is it only 545km?)
Parties to engineering, procurement, construction and commissioning agreement:
Malaysia Rail Link Sdn Bhd,
China Communications Construction Company Limited (CCCC)
China Communications Construction Company (M) Sdn Bhd (CCCCM)
Financing agreement: Export-Import Bank of China (EXIM).
Second Penang Bridge RM4.5bn
24km bridge from Batu Maung to Batu Kawan
Substructure: China Harbour Engineering Co Ltd (CHEC)
Penang land reclamation RM2.3bn
E&O’s Seri Tanjung Pinang Phase 2 and Gurney Drive
E&O awarded the contract to CCCC Malaysia, a wholly Malaysian subsidiary of China Communications Construction Company Ltd (CCCC).
Iron and steel plant RM12-13bn
in Samalaju Industrial Park
Framework Cooperation Agreement: Sarawak government of Sarawak, Hebei Xinwuan Steel Group and MCC Overseas Limited
MOU signed in August.
Trans-Sabah Gas Pipeline
Malaysia will buy at least four littoral mission ships (small craft operating close to shore)
Two to be built in China, two in Malaysia.
State-owned China General Nuclear Power Corp bought 1MDB’s power assets for US$2.3bn (approx RM9.7bn)
Source: Straits Times