Mysay: Improving Malaysia-China economic relations

This article first appeared in Forum, The Edge Malaysia Weekly, on July 30, 2018 - August 05, 2018.
-A +A

Various media reports and even remarks by some close to the new government of Malaysia imply that the government will be antagonistic towards improving economic relations with China. This grossly misrepresents the popular Malaysian rejection of the corrupt kleptocracy that ruled the country in the last decade.

To be sure, all Malaysian governments since independence in 1957 have invited foreign direct investment. For decades, some of us have been concerned about the government’s seemingly uncritical view of foreign investments. However, to be fair, Prime Ministers Tun Abdul Razak Hussein and Tun Dr Mahathir Mohamad were, in fact, quite circumspect.

How else can we explain the takeovers of mainly British-owned investments in Malaysian trading agencies, plantations and mines of the 1970s? Or for that matter, the technology transfer, employment generation and domestic procurement requirements imposed in the following decade?

Caricaturing the recent Malaysian political debate over some investments associated with China risks misleading all concerned. This may have unpredictable and even adverse consequences for future bilateral economic relations. Since early last year, some of us have been portrayed in some quarters as critics of all foreign investments from China.

In particular, I had questioned the economic viability of the East Coast Rail Line (ECRL) project as Malaysia would eventually have to pay well over three times the original cost estimates. Even at the much lower costs, the project would never pay for itself.

After discounting the original cargo and passenger projections to more realistic levels, the project would have implied permanent haemorrhage of operating costs, even after writing off the gargantuan development costs of RM81 billion plus interest.

As had become the norm with such projects in recent years, the contract was awarded via “direct nego” by the previous government to a Chinese company without any competition and little transparency, but generous special privileges, including massive tax exemptions.

To be sure, the ECRL would not have involved foreign investment from China, but rather, huge loans from The Export-Import Bank of China, ostensibly for 85% of projected costs. It was expedited to start early this year before the 14th general election. A few months later, with little work done, almost RM20 billion, or half the total loan, had already been disbursed in dubious circumstances.

The sagas of the two gas pipelines by Ministry of Finance-owned company Suria Strategic Energy Resources Sdn Bhd are similar, with the loans almost all disbursed despite little actual progress on the ground. The huge safety risks for the multi-product pipeline and the likely ecological damage in Sabah only exacerbate the familiar tale of economic infeasibility.

Unsurprisingly, there has been considerable public opposition to such projects and associated debt liabilities, involving likely fraudulent hands already greatly resented by most Malaysians. Needless to say, the mammoth debt burden will be borne by future generations of Malaysians.

On May 9, Malaysians resoundingly rejected such irresponsible foreign investments and dubious loans that will burden and ruin our economy, and their greedy enablers. However, public opposition to such abuses does not constitute blanket opposition to all investments from China. Unfortunately, the undiscriminating tend to lump all investments from China together.

Recent full employment, assured by ballooning public-sector employment, has obscured the lacklustre growth since the 1997-98 Asian crisis, especially in the last decade following premature deindustrialisation. The promise of services employment has mainly involved traditional, rather than modern services, despite misleading official hype to the contrary.

Like the government of China, the new Malaysian government is much more discriminating and recognises that foreign direct investment and technology transfers from abroad will be crucial to future progress. Undoubtedly, there are some dodgy foreign investments in Malaysia involving investors from China, as from elsewhere.

But it is important to recognise that the Chinese authorities are embarrassed by such opportunistic, irresponsible and even corrupt behaviour. Hence, they have already taken action to regulate outward capital flows. Before that, a serving Chinese ambassador famously criticised such investors from China and publicly apologised for their bad conduct.

For over half a decade, Chinese President Xi Jinping has led an ongoing campaign against graft, promising to quash deep-seated corruption at all levels. China’s Central Commission for Discipline Inspection has taken the fight abroad since 2015, and can be expected to cooperate, not least because of the reputational risks for China, especially after recent attempts to diplomatically isolate it by its strategic rivals.

While many Malaysians are understandably wary of a “Perotiga”, we should not throw the baby out with the bathwater. We should consider Mahathir’s plea for a renewed commitment to more technologically advanced industrialisation despite earlier failed “heavy industrial” investments.

For example, Zhejiang Geely Holding Group should be persuaded to work with Proton Holdings Bhd to make the country their major export hub for right-hand drive mid-size car production for the world. The collaboration may also build on prescient Mahathir-inspired efforts to develop an electric car in the 1990s, well before the now near-universal appreciation of the urgent need to address global warming and air pollution due to fossil fuels.

After all, electric cars will also dispense with the need for traditional engines, which was the last challenge in developing a Malaysian-made car decades ago. Of course, the world has changed and it would be crucial to reconsider what would be viable and internationally competitive going forward.

Malaysians appreciate investments that will contribute to the country’s progress, for example, in 5G telecommunications technologies, useful artificial intelligence applications, new financial technologies, renewable energy, new medicines and electric vehicles. The new government clearly favours productive industrial investments, especially with Mahathir’s well-known commitment to accelerating Malaysian technological progress.

Of all Asean leaders, Mahathir has been the most committed to the 1955 Bandung principles and the Asean commitment to make Southeast Asia a Zone of Peace, Freedom and Neutrality, recently reiterated as keeping foreign warships out of the region. This must surely give comfort to China, which has long striven to break out of decades-long efforts to encircle it.

Rather than rely on an opportunistically compliant leader ever ready to serve those who pay him most, China is surely better off dealing with a Malaysian leader who desires peace, freedom and neutrality based on mutual respect and benefit, and truly commands the respect of the governments and peoples of the region.


Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for Economic Development and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. He is a member of the Pakatan Harapan government’s Council of Eminent Persons.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.