BRI, China, China Exim Bank, Dr. Mahathir Mohamad, ECRL, infrastructure projects, Malaysia, Sri Lanka
On Friday, Prime Minister Dr Mahathir Mohamad will travel to Beijing to begin his much-anticipated official visit to China, the first since returning to office after a 15-year hiatus. His visit comes at a critical time in Malaysia-China relations.
The key issue going forward is whether both countries can find a way to amicably resolve the toxic legacy of Najib’s many dodgy and disastrous infrastructure deals that now threaten to sink us.
This much we know: many of the projects were of dubious value, outrageously overpriced, ridiculously skewed in China’s favour, and highly detrimental to Malaysia’s national interest.
The East Coast Rail Link (ECRL), for example, was clearly a disaster in the making. Even the most cursory analysis of the project showed that it was based on flawed and exaggerated assumptions and would never pay for itself. In exchange for Exim bank financing, it ceded to China most of the benefits in terms of project management, design and construction, and supply of equipment and rolling stock. Even the labour force was sourced from China.
How any government could agree to such a project, and on such terms too, is simply mind-boggling.
At the rate the Najib Administration was pursuing infrastructure projects with China, Malaysia would have quickly become so heavily indebted to China that its very sovereignty would have been compromised. As it is, it is going to take all of Dr Mahathir’s political acumen and negotiating skills to extricate us from the hole we are in.
Of course, there can be absolutely no doubt that Najib and his entire cabinet are responsible for the sorry state of affairs we now find ourselves in vis-à-vis China.
The way the contracts were structured – including disbursement of funds according to timeline instead of the normal progress payments – suggests that some of these projects were simply a scam to defraud taxpayers.
Whatever the merits of the Belt and Road Initiative (BRI), in Malaysia, at least, there is little doubt that it quickly came to be seen as a feeding trough for corrupt politicians and their cronies who were soon falling over themselves to come up with infrastructure projects for China to finance.
None of this, however, could have taken place without Beijing’s complicity, especially since Exim bank loans were involved. China’s Exim Bank may be relatively new to the game but they are not naive; they had to know what Najib was up to. Somewhere along the line, a political decision must have been made to facilitate Najib’s plans, as suspect as they were, in the hope of advancing China’s strategic objectives vis-à-vis Malaysia.
Indeed, what happened in Malaysia was hardly unique. Countries such as Venezuela, Tajikistan, Pakistan, Sri Lanka, the Maldives, Cambodia, Myanmar and even Tonga all ended up heavily indebted to China as a result of over-ambitious infrastructure projects. Sri Lanka, Maldives and Tajikistan were eventually obliged to cede or lease land to China in exchange for debt relief.
China quite simply exploited local greed, weak leadership, regulatory deficiencies and the need for infrastructure financing to draw countries into a debt trap in order to advance its own strategic interests.
The US$1.1 billion China gave Sri Lanka in debt relief was after all a small price to pay for a 99-year lease on a strategic port in the Indian Ocean, right in the backyard of its regional arch-rival, India.
Blame to share
Clearly both countries must share the blame, in equal measure, for the disastrous situation they now find themselves in.
Dr Mahathir has indicated that he would like to see some of these contracts including the ECRL cancelled or at the very least postponed. The contract terms, however, apparently give him little room to manoeuvre.
Unless China is amenable to renegotiating some of the terms, Malaysia may have little choice but to walk away from projects like the ECRL even at the cost of having to pay billions in compensation. It’s either forgo a few billion in penalties or spend (with borrowed money) as much as RM80 billion to proceed with the project. And that does not include operating costs which could amount to as much as RM1 billion annually, according to the Treasury.
It might be the only way to escape the debt trap which Najib bequeathed to the nation.
For China, a satisfactory solution will not only preserve close and cordial ties with one of its closest friends in the region, it will also help ameliorate the fallout from its disastrous management of BRI-related projects in Malaysia.
A pragmatic leader
Beijing should have no doubt that Malaysia is fully committed to developing close and mutually beneficial relations with China. Indeed, China is Malaysia’s indispensable economic partner notwithstanding Mahathir’s overtures to Japan.
Beijing would also do well to recall that during his first term in office, Mahathir himself went out of his way to help China integrate with the rest of the region, and staunchly championed closer relations with China even at the risk of upsetting Malaysia’s traditional partners.
Beijing will certainly find in Mahathir a pragmatic Asianist who appreciates China’s aspirations and its desire to play a leading role in world affairs. His goal is not to disrupt long-established and mutually beneficial ties or to embarrass China but to save his country from ruin.
Whether Mahathir returns from Beijing an appreciative friend or a “recalcitrant” (to quote former Australian Prime Minister Paul Keating) neighbour might well depend upon the kind of agreement both countries reach on the problematic infrastructure issue.
Dennis Ignatius | Kuala Lumpur | 16th August 2018
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