Story of the year: Malaysia bets big on China


December 27, 2016 by iskandarinsider


MALAYSIA-China relations ­reached a new high this year following Prime Minister Datuk Seri Najib Razak’s official visit to Beijing, where he signed 14 bilateral agreements worth a combined RM144 billion.

While the improved ties will help bring much-needed fresh foreign direct investments (FDIs) into the Malaysian economy, the size of those deals has also sparked debate about China’s growing influence in the country.

As some strategic assets will be controlled by China, there are concerns that Malaysia will become too dependent on the world’s second largest economy in terms of FDI and financing of mega projects, which may affect Malaysia’s sovereignty. Indeed, the issue has become political fodder as China is already seen as a financial lifeline for troubled state investment fund 1Malaysia Development Bhd (1MDB), which racked up RM42 billion in debts within five years of operation.

Earlier this year, China General Nuclear Power Corp Ltd (CGN Power) paid RM9.83 billion cash to purchase all the power assets owned by 1MDB, and assumed Edra Global Energy Bhd’s debt of RM6.8 billion. China Railway Engineering Corp Ltd (CREC) also partnered Iskandar Waterfront Holdings Sdn Bhd (IWH), an entity controlled by business tycoon Tan Sri Lim Kang Hoo and the Johor government, to take over a 60% stake in the Bandar Malaysia project in Kuala Lumpur from 1MDB for RM7.41 billion.

Of concern in the latest deals was Malaysia’s soft loan of RM55 billion from China to build a railway line linking Kuala Lumpur with Kelantan. The East Coast Rail Link (ECRL) provoked a backlash when it was revealed that the engineering procurement contract granted to China Communications Construction Corp Ltd (CCCC) for the proposed track was RM46 billion, that is, RM9 billion less than the amount of the soft loan.

Criticism was also levelled at the government for awarding the RM7.13 billion Gemas-Johor Baru electrified double-tracking project to China Railway Construction Corp Ltd (CRCC), CREC and CCCC without an open tender process.

It is learnt that CRCC, CREC and CCCC are also keen to bid for the high-speed rail (HSR) project between Singapore and Kuala Lumpur. Singapore and Malaysia finally signed a legally binding bilateral agreement on Dec 13 that paves the way for the implementation of the proposed HSR project.

Another concern among Malaysians is the construction of a new RM8 billion Melaka Port, which will be undertaken by privately-held KAJ Development Sdn Bhd (KAJD) with three Chinese companies — PowerChina International Bhd, Shenzhen Yantian Port Group and Rizhao Port Group. KAJD and PowerChina International will also build and develop three islands that are earmarked for various tourism, commercial, property and maritime activities, with a gross development value of RM30 billion.

This is not China’s first participation in port development in Malaysia. Kuantan Port, which faces the South China Sea, is already 40% owned by a Chinese company called ­Beibu Gulf Holding (Hong Kong) Co Ltd in a joint venture with IJM Corp Bhd.


Local businessmen unfazed

There are also doubts about whether these Chinese investments will bring added value to the country and whether Malaysian companies will be crowded out by Chinese firms that have greater economies of scale.

LBS Bina Group Bhd managing director Tan Sri Lim Hock San says, “We have to accept the reality that China is one of the world’s strongest economies and our economy isn’t growing and needs a boost … I don’t think we should be overly concerned [about China] controlling our strategic assets because if the local economy collapses, it will be bad for all entrepreneurs.”

Lim believes that the relationship between China and Malaysia has the potential to be a win-win one.

“People will say why look like a fool by giving your partner so many rights and interests? But if we cannot (even) withstand the global economic slowdown and the local economy collapses, we will have nothing [in the end],” he tells The Edge.

Indeed, Lim believes that China will replace the US as Malaysia’s top source of FDIs. “That’s because under the leadership of US President-elect Donald Trump, foreign funds in Malaysia are expected to return to the US. With Chinese investments, we will be able to withstand the storm,” he adds.

Sunway Group founder and chairman Tan Sri Jeffrey Cheah also dismisses concerns over China’s dominance in Malaysia.

“If we [Asean region] were to lose the two traditional trading blocs [the US and Europe], China will be able to substitute the [investment] gap … As such, I don’t see the issue of dominance here,” he says.

“Based on history, the Chinese have never colonised countries in Southeast Asia. For over 600 years, they didn’t come and conquer this region like the Europeans did, but [it was] for trade and cultural exchange.

“I view our current relationship with China in this historical context. I don’t think China is out to colonise us or dominate our strategic industries. China’s outreach to Malaysia and Asean is part and parcel of President Xi Jinping’s ‘One Belt, One Road’ initiative,” Cheah adds.

He foresees more private investments coming from China, going forward.

“It has to start from G2G [government-to- government]. Once this platform is established, as it is being done now, then the private sector can build on it to make the cake larger in many ways. If you have railways and new townships being built, it will be fantastic for everybody.

“I see more private investments coming in. We need the private sector to participate as the government cannot do everything on its own. The economic relationship will be private-sector driven, with the two governments providing the leadership,” says Cheah.

Tan Sri Lee Kim Yew, the patron of the World Chinese Economic Summit and former chairman and founder of the Malaysia China ­Business Council, says the concerns are not about Chinese investments, but transparency and how the Malaysian government handles the investments.

“The government should ensure that when the Chinese invest in Malaysia, they will bring in the supporting industries and share opportunities with local entities as well,” he adds.

Malayan United Industries Bhd (MUI) chairman Tan Sri Khoo Kay Peng also sees the strengthened ties between Malaysia and China as benefiting Malaysian businessmen.

“China is very big and the population huge. There are always good opportunities. The key is you must get the right partner to work with. [On MUI’s part], we are looking into it,” he says.

Minister in the Prime Minister’s Department Datuk Seri Wee Ka Siong says while Malaysia opens up its economy to foreign investors, the government is mindful that foreign investors should be partners and bring added value to the economy via technology transfer and skills training.

“Much of the investments are aimed at catalysing the local small and medium enterprises and their satellite industries, and increasing their contribution to the country’s gross domestic product at large,” he tells The Edge via email.

Source: The Edge Markets


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