2010 > 2019: Decade of Disruption - China’s BRI — a ‘poisoned’ lifeline as 1MDB was sinking

This article first appeared in The Edge Malaysia Weekly, on December 30, 2019 - January 05, 2020.

The Malaysia-China Kuantan Industrial Project, launched in 2013, was the first such joint venture between the two countries. Photo by Chu Juck Seng

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AS China sought to assert itself on the global stage in the past decade, Malaysia too was caught up in that country’s emerging Belt and Road Initiative (BRI).

In a nutshell, BRI is how China branded its avalanche of investments in various transport and logistics infrastructure projects across Asia, Europe and Africa.

By the end of the decade, arguably the most significant impact of BRI locally was how it had been subverted for political purposes as the 1Malaysia Development Bhd (1MDB) scandal unfolded in the latter half of the decade.

BRI was known as the One Belt One Road initiative when Chinese President Xi Jinping unveiled the strategy during visits across Asia in 2013.

Since then, BRI has displaced panda diplomacy as the underlying framework of China’s foreign policy engine, leveraging money and investments in propagating the country’s soft power strategy.

It is worth remembering that in the first half of the past decade, China’s BRI emerged when the US too was seeking to strengthen its influence in the region.

The early waves of BRI hit Malaysian shores in 2013 when the Malaysia-China Kuantan Industrial Project, the first such joint venture between the two nations, was launched.

That took place a year before the 40th anniversary of Malaysia-China relations in 2014, which saw a pair of Chinese pandas gifted to Kuala Lumpur.

And the mega projects and deals funded by hot Chinese cash took shape just as the cracks in Putrajaya’s 1MDB began to reveal that they were not superficial but ran wide and deep.

In November 2015, 1MDB sold its entire power assets under Edra Global Energy Bhd to China General Nuclear Power Corp for about RM10 billion. The following month, a 60% stake in the government’s Bandar Malaysia project was sold to a joint venture between Iskandar Waterfront City and Chinese state-owned China Rail Engineering Corp (CREC) for just over RM12 billion.

These deals came mere months after an explosive Wall Street Journal exposé brought global attention to the misappropriation of funds at 1MDB. Bandar Malaysia was formerly a 1MDB development but the money raised to fund the project was later found to have been misappropriated too.

More projects followed. In July 2016, the Cabinet approved the Multi-Product Pipeline (MPP) and the Trans-Sabah Gas Pipeline (TSGP) projects in Sabah.

Several months later in November, both countries inked a RM55 billion package to fund and build the East Coast Rail Link (ECRL), aiming to connect the west coast of Peninsular Malaysia to the east coast with Chinese money and a state-owned Chinese contractor leading the construction works.

China’s hand was also in the high-speed rail project proposed to link Kuala Lumpur to Singapore as well as in the RM42 billion harbour project in Melaka called Melaka Gateway.

Critics warned the government at the time that China’s investments, particularly in deals that were seen as bailing out 1MDB from its financial troubles, could compromise Malaysia’s ability to decide domestic and foreign policy independently — in other words, a debt trap.

The warning signs were already flashing from Chinese investments in other countries. One particularly worrying example was Sri Lanka’s Hambantota Port, built with Chinese money that the Sri Lankan government eventually found beyond its capability to repay.

Ultimately, in 2016, the Sri Lankan government gave China 80% equity interest (later reduced to 70%) in the heavily loss-making port in a debt-for-equity swap. China now holds between 9% and 15% of Sri Lanka’s external debt, according to foreign press reports.

But things came to a head when Malaysians voted out the incumbent government in the May 2018 general election, sparking the first federal power transfer in Malaysia’s history.

The former federal opposition, now in power, gained access to previously classified documents on many mega projects that are now infamously known as the Red Files — documents that were only made available to top government officials and hidden from others that would normally have access to such documents.

The revelations were shocking and, to some extent, embarrassing to the Chinese government. For instance, the MPP and TSGP were revealed to be only 13% completed even though as much as RM8.3 billion or 88% of the entire project value was already paid to the Chinese contractors involved.

The ECRL contract was also revealed to contain many lopsided terms, according to the new government, affirming long-held suspicions. Reports also began to surface in international media, which exposed that the ECRL cost was inflated by as much as RM30 billion to plug the 1MDB debt hole.

Diplomatically, the situation presented a difficult complication to navigate as ink had long been put to paper by both governments on many projects despite these revelations.

Post-May 2018, relations between the two countries grew tense, especially after Prime Minister Tun Dr Mahathir Mohamad — in his usual maverick fashion — spoke out against the lopsided deals when visiting China in August 2018 to renegotiate some of the contracts in question.

“Such stupidity has never been seen in the history of Malaysia,” Mahathir reportedly said in a press conference in Beijing as he lambasted the previous administration’s predilection for accepting unfavourable terms.

And as Malaysia and China marked the 45th anniversary of bilateral relations in 2019, court proceedings over corruption charges against former prime minister Datuk Seri Najib Razak revealed, among others, that many of the mega projects under BRI in Malaysia were motivated by political survival.

Both Najib and the Chinese government denied any such arrangements when the details were first reported by the foreign press.

In September 2019, the courts were told that Najib had offered a basket of mega projects to China’s state-owned enterprises in 2016, including the ECRL, the MPP and TSGP.

The aim was to court Chinese funding for the mega projects and secretly use some of the money to rescue 1MDB from the debt pit that it had fallen into, according to the testimony of Najib’s former special officer at the time, Datuk Amhari Efendi Nazaruddin, who was sent to Beijing in 2016 to negotiate the matter.

Other proposals had included a Bangkok-Kuala Lumpur high-speed rail, a petroleum pipeline from Port Klang to Kuala Kedah and the development of federal territory Labuan into an offshore banking and tourism hub.

As a new decade beckons, much uncertainty remains over the fate of many of the BRI mega projects. Some, like the ECRL and Bandar Malaysia, are proceeding after some adjustments to reduce costs while others remain in limbo.

And the deeper question in the coming decade is how the government will manage diplomatic relations with China while also pushing on with its electoral promise to unearth scandalous details of the deals made by the previous government that would likely further embarrass the Chinese.

 

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