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During his visit to Beijing last month, Dr Mahathir reached an understanding of sorts with the Chinese leadership on the need to cancel or defer the troublesome mega projects of his predecessor. Both sides subsequently expressed their determination to work together to resolve outstanding issues. 

Recent developments, however, suggest that working out the details of an acceptable exit plan may be more difficult than anticipated. 

Putrajaya seems increasingly frustrated by the impossible situation it finds itself in because of the actions of the previous government. Projects like ECRL are proving to be too costly to afford but too expensive to cancel. Thus far there are no clear indications as to how Putrajaya will proceed but it is making its unhappiness known. 

Beijing, on the other hand, seems increasingly perturbed by some of the statements emanating from Malaysia and is signalling its displeasure. 

Piercing remarks 

The recent August 28th op-ed piece in the Global Times (a Chinese government mouthpiece) suggests that tensions are perhaps rising ahead of negotiations.   

Remarks that China directly or indirectly aided or abetted Najib to divert funds from some of the projects to help pay for 1MDB-related losses and might have, in fact, been complicit in money laundering, have clearly stung the Chinese leadership.

The Global Times asserted that such remarks, together with comments alleging that China was attempting to subvert Malaysia’s sovereignty or colonize parts of the country, were “piercing.”  

It went on to add that, “It is startling to equate the controversy surrounding a factory wall [in Kuantan] with state sovereignty,” and insisted that “Chinese investors have no intention of eroding Malaysia’s sovereignty,”

BRI fallout 

There is also concern that Malaysia’s decision to cancel the much-publicised ECRL may have wider implications for China’s Belt and Road Initiative (BRI), a central pillar of President Xi Jinping’s presidency.

Malaysia’s pushback, the first of its kind against BRI projects, could encourage other countries to follow suit, especially as some projects in other countries are proving to be equally problematic.

Such is the alarm in Beijing over the negative publicity from Malaysia’s actions that it felt compelled to launch a media offensive to contain the damage. In recent days, BRI recipients from Africa and Asia have been paraded on Chinese global television networks to praise BRI and play up its positive impact. An on-going summit in Beijing with African leaders is also being used to extol the virtues of BRI. 

Quiet diplomacy 

For all these reasons, China wants discussions with Malaysia to be handled away from the limelight and with minimal public rhetoric. 

The Global Times op-ed emphasized this in stronger than usual terms, warning that unfavourable rhetoric might “spread to China via the internet” and cause the Chinese public to view Malaysia negatively. It added that “how the Chinese public sees China-Malaysia cooperation is by no means inconsequential to Malaysia’s interests.”

That’s as close as it gets to a public rebuke. It is a warning, as well, that China considers at least some of the rhetoric too “piercing” to ignore.

Protecting Chinese interests 

The other point that China seems to be making is that while it may be sympathetic to Malaysia’s plight, it will stand fully behind its own companies (many state-owned) in any renegotiations. As the Global Times stressed, “The Chinese government should help [them] safeguard their interests.” 

It suggests that Chinese corporations will insist that contractual obligations be fully honoured. China drove a hard bargain with Sri Lanka’s new government, insisting on taking over a strategic port on a 99-year lease in exchange for debt relief; it is unlikely to let Malaysia’s new government off too easily. 

There are also indications that China is concerned about the rights of its citizens who purchased property in Malaysia (Forest City, for example) in the expectation that they will be allowed to live in the country.

Taken together, these comments are a reminder to Putrajaya that the stakes are high and that Malaysia needs to be more mindful of China’s interests going forward. Air Asia’s recent setback (with the China Everbright Group and the Henan government) might be a harbinger of a hardening position. 

Challenging times ahead

Hardening positions, however, may prove counterproductive. Malaysia may be a small country but it will be just as resolute in defending its interest as any other country. And, while Putrajaya has clearly no desire to do anything that would embarrass China, there’s no running away from the fact that the issue has become a very emotive and high-profile one domestically. Billions in public funds have been misappropriated or squandered on dubious projects and a full accounting is needed. The Malaysian public has feelings too.

Mistakes were clearly made on both sides. The change of government in Putrajaya now requires both countries to work together to resolve outstanding issues and reset relations for the better. It is also an opportunity to improve BRI governance issues, something that is very much in China’s interest as well. In the meantime, neither side can afford misunderstandings or mixed signals. 

Dennis Ignatius | Kuala Lumpur | 1st September 2018