Money talks as Beijing and Washington compete for friends and dominance in Asia

China courts Malaysia with its biggest foreign direct investment deal for the year, a move some analysts see as a big win over the United States for regional influence

South China Morning Post / Sunday, 13 December, 2015, 6:07pm

Amy Chew in Kuala Lumpur

From left: Chinese Premier Li Keqiang, Malaysia’s Prime Minister Najib Razak and US President Barack Obama. Photo: AFP

As far as photo opportunities go, it wouldn’t seem unusual for Malaysia’s Premier Najib Razak, the host of last month’s Asean summit in Kuala Lumpur, to be standing between China’s premier Li Keqiang and US President Barack Obama.

It was a diplomatic gesture to show the world that both major powers are important to Malaysia’s economic and strategic interests.

Behind the scenes, however, Beijing and Washington had been aggressively competing to court Malaysia, reflecting the two governments’ ongoing struggle to exert influence in Asia.

Beijing wants stronger diplomatic relations with Malaysia after relations have soured with other Southeast Asian neighbours due to disputes in the South China Sea. Malaysia too has recently been more vocal about China’s encroachment in the oil-rich region.

The US, accordingly, wants to strengthen ties with Asian nations to counter China’s growing assertiveness. And for now, China appears to have trumped the US in winning over Malaysia, according to observers.

China is very clever. With one single transaction, it has gained control of a very strategic asset in Malaysia

KADIR JASIN, BLOGGER

A day after Obama left Kuala Lumpur, Malaysia’s debt-ridden state investment firm 1Malaysia Berhad (IMDB) announced China Nuclear General Power Corp woudl buy its entire power assets, Edra Global Energy Bhd, for 9.83 billion ringgit (HK$17.6 billion), giving China a major foothold in the country’s energy sector.

Edra is the country’s second-largest power producer. The deal also amounts to the largest direct foreign investment in Malaysia this year.

“China is very clever,” said prominent blogger Kadir Jasin. “With one single transaction, it has gained control of a very strategic asset in Malaysia while the US is still waiting for the Trans-Pacific Partnership [TPP] to be signed.”

The TPP is Obama’s centrepiece trade agreement, designed to open up markets in Asia-Pacific and counter China’s influence. Malaysia has said it will sign the agreement after the parliament endorses it.

“It is clear that the US and China are now in serious competition for influence in Southeast Asia and it will only grow more intense,” said Dennis Ignatius, a former Malaysian diplomat who has served in London, Beijing, and Washington D.C.

It is clear that the US and China are now in serious competition for influence in Southeast Asia

DENNIS IGNATIUS, FORMER MALAYSIAN DIPLOMAT

“China is responding to the US strategy by using its greatest strength – its massive financial reserves – to make strategic investments like EDRA, across the region. Prime Minister Najib is in a tight spot especially over the 1MDB scandal and China is perhaps the only country right now with the cash and political will to rescue him.”

1MDB, is presently under investigation for corruption and mismanagement by five domestic agencies and authorities in Switzerland. Najib chairs the state investment firm’s advisory board and has denied any wrongdoing.

1MDB amassed US$9.6 billion of debt in just five years. The debt is expected to be reduced significantly with the sale of Edra where China Nuclear General Power Corp will assume its debts.

“The EDRA deal is a godsend in this regard – it offers China an opportunity to position itself in the heart of Malaysia’s economy while at the same time earning the gratitude of the Najib Administration,” Ignatius said.

“As we all know, gratitude comes with a price. Being the biggest single direct foreign investor in Malaysia will certainly bring with it special privileges.”

Being the biggest single direct foreign investor in Malaysia will certainly bring with it special privileges

DENNIS IGNATIUS

Beyond Malaysia and in the larger Asean context, China is viewed more favourably than the US – with the exception of territorial claims in the South China Sea – said Danny Quah, Professor of Economic and International Development at the London School of Economics.

“The TPP will not be good news for many in Asean because of its sections on intellectual property rights and investor dispute settlement,” Quah said. “The balance of power in those sections is heavily skewed towards US businesses and in my view, away from public interests.”

The US and China are also competing for pre-eminence in the vital Strait of Malacca, which accounts for as much as half the world’s seaborne trade.

If China intends to establish itself as the pre-eminent power in the region, replete with a blue-water navy, it will need the same kind of naval base access as the US, according to Ignatius.

“Acquiring such access must surely be one of the goals of China’s regional policy,” he said. “In this sense, Malaysia is very attractive to China … Malaysia’s vulnerability due to internal dissension offers unique opportunities for advancing its [China’s[ strategic interests.”