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Economy

Malaysia’s Belt and Road About-Face

Apr 25 , 2019

Malaysian Prime Minister Mahathir Mohamad’s government announced on April 12th that the country will once again start work on the East Coast Rail Link (ECRL), a multi-billion-dollar project that is part of China’s vast Belt and Road Initiative. Less than a year prior, Prime Minister Mohamad had cited the project’s cost of construction as a major threat to Malaysia’s security, claiming, according to Al Jazeera, that it would leave the country indebted for a generation. Now, after lengthy negotiations with the China Communications Construction Company (CCCC), as well as the Chinese government, the cost has been reduced by a third, from almost $16 bn to just under $11 bn. Malaysia Rail Link Sdn. signed the agreement, which covered engineering, procurement, construction and commissioning aspects. The decision does not come out of the blue, however. In January 2018, Prime Minister Mahathir revealed that the decision to pull out of the project had not been made final and that negotiations were underway. 

The approximately 700 km-long high-speed railway line is set to run along Peninsular Malaysia’s less-developed east coast, connecting it to a major port near the capital Kuala Luampur. Construction was halted shortly after Prime Minister Mohamad won his office due to costs ballooning as the project took shape, with estimates initially showing that it could cost up to 81 billion ringgit. Concern also centred around a perceived lack of transparency. At the time, analysts assumed Mohamad’s decision to block ECRL and other BRI projects, which he called “unequal treaties,” was a way of pushing back against Beijing, but this new announcement sheds only positive light on China. 

It demonstrates that China is willing to listen to and address the concerns of BRI member states – an image at odds with the ominous picture painted by Washington, accusing China of “debt trap diplomacy.” Benny Kung of the Nikkei Asian Review says “The Belt & Road Initiative is a geopolitical strategy promoted by Chinese President Xi Jinping with the intention of deepening Beijing's economic and political ties with a large number of countries across Asia, Europe and Africa.” Malaysia’s decision to resume the ECRL also shows, according to Tom Fowdy, that China is willing to cater to member states’ broader national interests, showing considerable flexibility. Despite the high costs, many countries continue to see BRI projects as beneficial to their economies. 

For China, this agreement signifies a strengthening of the BRI, which has seen, according to Bloomberg, governments from Myanmar to Maldives reassessing their investments “amid concerns over sovereignty and large borrowings.” Even where Chinese projects have been successfully implemented, such as in Greece, political reception has been mixed. The Greeks welcomed Chinese investment but pushed back against environmental and labour practices employed by Chinese companies. Saibal Dasgupta of the Times of India says China has agreed to the 30% price reduction in Malaysia because it is “desperate to present a strong global infrastructure programme at the Belt and Road Forum” later this month. For Malaysia, this reinstatement of the ECRL means that ties with China remain strong, an essential move for the smaller country, as China is not only Malaysia’s biggest trade partner, but also able to affect Malaysian interests in the South China Sea. "We are pleased to see both sides finally reach a solution through friendly consultation… China has been advocating the principles of extensive consultation, joint contribution and shared benefits," said Foreign Minister Lu Kang. 

Moving forward, it would not be farfetched for several other smaller economies like Pakistan to consider the possibility of getting price cuts from China on their costly BRI projects, especially as inflation rises and puts pressure on the economy. Chinese officials have stated that there is no fixed formula to their negotiations with BRI member states, and that their intention is to realize shared benefits for both China and the more than 100 partnering countries. If this is true, China may get caught up in a series of discussions around discounting the BRI as each member state brings forth their case, now that precedent has been set with Malaysia. According to Andrew Polk, “Chinese regulators realize they need to be pragmatic if these projects are to be successful, especially where there is local pushback on political and societal levels.”

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