We can expect a fresh stream of investments from China following the revival of ECRL and Bandar Malaysia, as well as Dr. Mahathir’s recent productive trip to Beijing.
After Prime Minister Tun Dr. Mahathir Mohamad & President Xi Jinping held a Malaysia, China bilateral meeting on April 25.
President Xi, who is seldom seen smiling, happiness was in winning over the heart of Malaysia ahead of the Second Belt and Road Forum in Beijing, the world’s biggest Diplomatic event of the year.
For the past 12 months, Malaysia-China relations had been frosty and choppy due to the suspension of several key China-linked projects by the Government of Dr. Mahathir, who overthrew the previous administration in the May 2018 general election.
After becoming Premier for the second time, Dr. Mahathir mercilessly attacked China-linked mega projects launched by former Premier Datuk Seri Najib Razak, alleging corruption, collusion and overpricing in the contracts.
But just before visiting China for the second time during his current premiership, the 94-old leader made a U-turn on two major projects and the prospects for normalised bilateral ties suddenly brightened up.
On April 12, Malaysia revived the East Coast Rail Link (ECRL) project after renegotiating its cost down to RM44bil from RM65.5bil. It subsequently reinstated the Bandar Malaysia project, with a revised total gross development value of RM140bil.
Restoring these two China-linked projects was important for Beijing ahead of the April 25-27 summit, as they are vital projects under Xi’s signature Belt and Road Initiative (BRI).
For Dr Mahathir, this visit to Beijing also meant luring more foreign direct investment (FDI) and getting China to commit to buying more palm oil.
Before the trip, there were indications that the outspoken Malaysian leader would be accorded the highest honour. He was scheduled to share his views on two occasions: at the BRI top leaders’ roundtable on April 26 and the high-level forum on April 27.
In fact, the Malaysian leader was the only ASEAN leader invited to speak at the opening of the high-level BRI forum.
“This was the honour felt by all Malaysians at the forum. I attended the opening of the forum and I felt proud for our Prime Minister,” says Tan Sri Ter Leong Yap, President of the National Chamber of Commerce and Industry of Malaysia. A total of 36 Heads of Government and about 5,000 delegates from all over the world were at the BRI extravaganza.
Launched in 2013, the BRI aims to create an economic land belt through Central Asia and West Asia to the Middle East and Europe, as well as a maritime road linking China’s ports with those in South-East Asia, Africa and the Mediterranean.
However, this multi-trillion programme has come under attack by the United States as a “debt trap” for developing countries and a plan for China to spread its influence.
Loan contract terms signed with China were said to be oppressive and not transparent.
In this second official BRI summit in Beijing, Xi had taken pains to address key concerns on BRI and emphasised shared prosperity.
Dr. Mahathir’s views helped refute Western allegations against China when he aired support for BRI: “The BRI is not a ‘domination plan’ by China, one of the world’s superpowers, to gain control of participating countries.”
Before returning to Kuala Lumpur, Dr. Mahathir told Malaysian media that to lure in more FDI, he planned to set up a one-stop centre to expedite the process of giving foreign investment approvals.
FDI has been a strong force in Malaysia’s economic development. But based on the Unctad World Investment Report, FDI into Malaysia over the past decade grew only 3% annually, achieving US$9.5bil (RM39.2bil) per year. Last year, Malaysia netted only US$8bil (RM33bil).
But this year, Malaysia is likely to see a rebound in FDI growth, led by the inflow of IT firms and industries from China that will meet the economic needs of the country.
Ter, who is also President of the Associated Chinese Chamber of Commerce and Industry of Malaysia said; “Chinese investors are very positive about Malaysia after the visit of our Prime Minister, who has voiced his support for BRI and sent out a friendly signal to Chinese businessmen.
“This visit has boosted investor confidence. Those adopting a wait-and-see attitude are now convinced that Malaysia is the right place for them. I feel confident in saying that a lot of Chinese FDI will come to Malaysia.”
Ter’s positive view is largely shared by the president of China Entrepreneurs Association in Malaysia, Datuk Keith Li.
“Chinese confidence in Malaysia has been restored after Dr. Mahathir’s visit. In addition to other factors, the appointment of Datuk Abdul Majid (Ahmad Khan)as the New Chairman of Malaysia Industrial Development Authority (Mida) shows Malaysia’s determination to woo more Chinese FDI,” Li said.
Abdul Majib is a former Ambassador of Malaysia to China. After retiring, he became the President of the Malaysia-China Friendship Association to promote Malaysia-China relations.
Li adds: “More Chinese FDI, particularly in the infrastructure and IT fields, are expected to rush in. The Prime Minister’s visit to Huawei and SenseTime is seen as an endorsement of Chinese technology.”
Many observers believe that Malaysia-China ties will soar from now on.
“The reset button has begun. A recent turn of events has signalled that both Malaysia and China remain committed to further enhance their long-term relationship as it enables each of us to achieve economic goals together,” says economist Lee Heng Guie, Director of the Socio-Economic Research Centre (SERC).
On a wider scale, Malaysia is expected to become a major beneficiary of BRI after being put off the radar for more than a year.
In his closing remarks at the BRI forum on April 27, Xi hailed deals worth over US$64bil (RM268.8bil) signed during the week the summit/forum was held.
He reassured the BRI nations that the initiative would deliver sustainable growth and green and high-quality developments.
Though Malaysia’s economy and sources of FDI are diversified, some believe that at this juncture, it is important for Malaysia to look to China for investment as new FDI flow from traditional sources has been slow.
“Malaysia cannot escape from China, the second largest economy in the world. The Middle Kingdom is Malaysia’s biggest trading partner. It is a major buyer of our palm oil and natural gas, and a very reliable investment partner,” says a China watcher.
China has been Malaysia’s top trading partner for the past 10 years. Total bilateral trade last year stood at US$108.6bil (RM445bil), according to Chinese data that captured trade via Singapore and Hong Kong.
In recent years, Chinese investments in infrastructure, construction, property, banking and manufacturing have created 73,500 jobs for Malaysians, Chinese Embassy data shows.
China’s accumulated FDI in Malaysia stood at RM170.4bil or 2.7% of total FDI outstanding at end-2018, according to SERC. Approved Chinese FDI in the manufacturing sector totalled RM20bil last year.
In the past 10 years, local property market saw inflow of Chinese capital of US$43.8bil (RM181bil), according to Knight Frank.
With the revival of some local and Chinese mega projects, as well as a clearer direction on Chinese FDI policy, Malaysia’s stagnating economy is expected to look up.
Currently, the country is facing outflow of funds, a slide in the ringgit and stock market, and low ratings for the one-year-old government of Dr. Mahathir.
But optimism seems to be in the air now.
RHB Investment Bank last week projected that Malaysia’s GDP growth for the second half of this year will be boosted to 4.8% from 4.5% in the first half, after recent policy actions.
Some research firms are projecting a higher economic growth, rebound of the ringgit and return of portfolio funds.
But Dr. Khoo Boo Teik, a professor at Tokyo’s National Graduate Institute for Policy Studies, looks at the success of Dr. Mahathir’s Beijing trip beyond economic arena.
He says: “Malaysia’s successful ECRL renegotiation and Dr. Mahathir’s productive visit to China have exorcised the spectre of Najib Razak that hung over Malaysia-China relations after the 14th General Election).
“If other (China) projects once criticised by Mahathir before GE14 are reviewed in detail, at least a mutually acceptable framework for resolving disputes is in place.”
Najib is facing countless corruption charges linked to 1MDB. He is being tried in court for one multi-billion case. Prof Khoo states: “Now whatever happens to Najib internally will bear no impact on the economic, security and other relations between Malaysia and China.”