In my previous article (China’s Neo-Colonizing Bag of Tricks), I explained how China’s “build now, pay later” investment strategies have entrapped many smaller countries as China’s neo-colonies of the 21st century.
The case previously highlighted was that of Sri Lanka. The country owes China billions of dollars, and as part of Sri Lanka’s debt reduction deal, China has full operation of Sri Lanka’s S$1.53-billion Hambantota port under a 99-year contract.
In May 2018, Harvard University’s John F. Kennedy School of Government published an analysis report entitled “Debtbook Diplomacy”, detailing how China is leveraging on its new-found economic influence to exploit 16 countries worldwide.
In their report, countries like Pakistan, Djibouti, Myanmar, and Sri Lanka have sunk deep into China’s debt-book trap, by ceding either a key port or military base to China.
Malaysia, too, is not far behind.
What Does China See in Malaysia?
First and foremost, Malaysia is strategically located along the Straits of Malacca and Singapore.
Over 30 percent of the world’s seaborne trade passes through these two waterways. For China, this passage-way is the only conduit for 80 percent of its oil imports.
China sees its lack of control over the Straits as a threat to its long-term energy security.
To reduce its dependency on the Straits, China has endeavoured to develop other land routes for importing oil and gas.
In 2009, China began constructing oil and gas pipelines from the Bay of Bengal to Kunming, Yunnan Province through Myanmar’s Sittwe Port. The 2,806-kilometre Sino-Myanmar pipelines were completed in 2014, carrying 22 billion tonnes of crude oil and 12 billion cubic metres of gas annually.
To bypass the Strait of Singapore, China has also proposed the construction of the East Coast Rail Link, which will connect the west coast and east coast of Peninsula Malaysia. The US$14-billion (S$19-billion) project is 85 percent funded by China’s EXIM bank.
However, a major concern of these alternative routes is that they have not been appraised for financial viability. For instance, the Sino-Myanmar pipelines are vulnerable to domestic instability in Myanmar.
Veteran Malaysian economist Jomo Kwame Sundaram questioned the financial soundness of the East Coast Rail Link: “This thing is not going to be economically viable, it is not going to pay for itself.”
The Straits of Malacca and Singapore are safer bets, as they are governed by international maritime laws enacted by the United Nations Convention on the Law of the Sea.
As such, China wants to exert more strategic access over the Straits, and has found a willing Malaysian government under its previous Prime Minister Najib Razak.
China’s S$182 Billion Investments in Malaysia
How deeply is China invested in Malaysia’s economy? As an indication, China has been Malaysia’ largest trading partner since 2009, surpassing even Singapore.
In 2017, China exported US$41.7 billion (S$56.9 billion) in goods to Malaysia, mostly computers, semiconductors, materials, clothes, and textiles. Malaysia exported US$54.3 billion (S$74.1 billion) in goods to China, mostly palm oil, plastic products, computers, and semiconductor materials.
Under Najib’s administration, China was allowed to increase its investment and influence in Malaysia. To illustrate, the South China Morning Post compiled 11 Chinese investment projects in Malaysia, including real estate developments, infrastructure construction, and large-scale industrial plants. The projects ranged from US$540 million to US$130 billion in worth.
In 2017, Malaysia was the fourth-largest recipient of overseas direct investment from China. Najib secured US$34.2 billion (S$46.7 billion) in infrastructure projects related to the Belt Road Initiative.
That being said, are Malaysians happy with these huge foreign investments?
China sees its lack of control over the Straits as a threat to its long-term energy security.
Malaysia’s Fear of China
Malaysians of wiser echelons are weary of China’s ambitions and intentions in their country.
Writing in his blog on 9 Jan 2017, Dr Mahathir Mohamad noted 21 points concerning foreign direct investment (FDI), referring mostly to Chinese investments during Najib’s administration.
He saw Malaysia as selling itself to China if Najib allowed foreign Chinese companies to buy land and develop towns, cities, and expensive properties in Malaysia, and then sell these properties to Chinese homebuyers so they can move to Malaysia.
These Chinese enclaves are effectively China’s neo-colonies in Malaysia. “Much of the most valuable land will now be owned and occupied by foreigners,” Dr Mahathir wrote in his blog. “In effect, they will become foreign land.”
“So we don’t want to have whole cities built in Malaysia, have them purchase a big piece of Malaysian land, and then bring in foreigners to stay there. That is what I am against. I am against it even if it is from India or from Arab countries or from Europe. Foreign immigrants in huge numbers – nobody will welcome, certainly not in Malaysia,” Dr Mahathir said in an interview with the South China Morning Post.
A prime example is Forest City, a US$100-billion (S$136-billion) mixed development being built on four reclaimed islands in Johor by China’s third-largest property developer Country Garden. Expected to be completed in 2035, the city will house 700,000 people who are mostly from China.
The 92-year old Dr Mahathir told Bloomberg on Apr 6 that Forest City is “unaffordable for most Malaysians”. Apartments are sold for RM1 million (S$340,000), 16 times the country’s 2016 median annual income of RM 62,736 (S$21,115). “We don’t have enough people with wealth to buy all those very expensive flats,” he said.
Another major worry is Malaysia’s growing debt to China.
“What worries us is the amount of money borrowed by the [Malaysia] government … A responsible government must try to reduce borrowing, otherwise we will be in a bad shape,” Dr Mahathir said in May 2018 after his election victory.
“We have made it clear that we are going to look into all these contracts again because they are very costly for the government and will incur huge debts which we cannot pay,” said Dr Mahathir.
In an interview with the South China Morning Post, Dr Mahathir expressed concerns over Chinese contracts. “But when it involves giving contracts to China, borrowing huge sums of money from China, and the contract goes to China, and China contractors prefer to use their own workers from China, use everything imported from China, even the payment is not made here, it’s made in China. So, we gain nothing at all. That kind of contract is not something that I welcome.”
Will Malaysia be able to redeem itself from these unfavourable deals? Since assuming leadership in May, Dr Mahathir is bent on doing a system reset.
A new “Mahathir Doctrine” is in the making where Malaysia under Mahathir will relook and rethink Malaysia’s role and relationship with China and the region.
However, the sheer scale of Chinese investments leaves Malaysia in a weak bargaining position to renegotiate terms.
Should it renegotiate, Malaysia will be forced to give more negotiating leverage to China, and runs the risks of ceding to China a majority stake in its key infrastructure, as had happened in Sri Lanka, Myanmar, and other countries.
China Extending Its Economic Influence
China today bears many hallmarks of a capitalist society. It has a state-led market economy that has produced many more billionaires than the U.S., but has also generated rampant economic inequality and corruption.
With China’s economic progress, one might believe it has put its dark communist past behind and, like any Western country, is now embracing capitalism full steam.
But communism still retains its ideological stronghold in China’s government. In May 2018, Xi Jinping said “Writing Marxism onto the flag of the Chinese Communist Party was totally correct … Unceasingly promoting the Sinification and modernisation of Marxism is totally correct.”
To commemorate the 200th anniversary of Karl Marx, Xi said that the political theories of Karl Marx remain “totally correct”.
Does China’s successful market economy remain a means to fulfil the party’s communist ideals?
As Deng Xiaoping said in 1984, “We have said that socialism is the primary stage of communism and that at the advanced stage the principle of from each, according to his ability, to each, according to his needs, will be applied. This calls for highly developed productive forces and an overwhelming abundance of material wealth.”
China has always rephrased its state-led market economy as “socialism with Chinese characteristics”.
Is China creating this “abundance of material wealth” to advance into the later stages of communism expounded by Karl Marx?
With a one-party political system managing a country of 1.3 billion people, one can never be too cautious.
