Malaysia Cancels Megaprojects Under China’s OBOR to Save Country From Debt

Mahathir stands firm as he asks for fair trade with China
August 21, 2018 Updated: August 22, 2018

Malaysia’s Prime Minister Mahathir Mohamad announced the cancellation of two major Chinese state-backed infrastructure projects, valued at a total of about $23 billion, during a press conference on the final day of an official visit to China.

Mahathir canceled the East Coast Rail Link (ECRL) and the Trans-Sabah Gas Pipeline (TSGP) projects, which were part of China’s “One Belt, One Road” (OBOR) initiative, saying his country’s top priority is now to minimize its debt and loans.

“The projects will not go on…it will be deferred until such time when we can afford, then maybe we will reduce the cost. I believe China itself does not want to see Malaysia become a bankrupt country,” he said on Aug. 21, before departing for Kuala Lumpur.

Mahathir added: “If we have to pay compensation, we have to pay. This is the stupidity of our negotiations before. We must find a way to exit these projects.”

Mahathir was wrapping up a five-day trip to China, at the invitation of Premier Li Keqiang.

OBOR, first announced in 2013 by President Xi Jinping, is a trade and infrastructure project which currently aims to connect 70 countries across Europe, Asia, Africa, and Oceania to China.

The outcome of the diplomatic trip was highly anticipated around the globe after the 93-year-old leader warned last week that his government, Pakatan Harapan (Alliance of Hope), was looking to either cancel or renegotiate the controversial Belt and Road initiative. The multibillion-dollar initiative backed by the Chinese state was signed under the administration of Datuk Seri Najib tun Razak, Mahathir’s predecessor.

Malaysia’s Finance Minister Lim Guan Eng called the initiative “completely lopsided,” while Mahathir told the Associated Press last week: “Where we can drop this project, we will. But we may have to postpone some because we have made agreements, and to breach the agreements will cost us a lot.”

When asked by Li whether Malaysia stands together with China on free trade during a press briefing on Aug. 20, the Malaysian leader replied, “Free trade should also be fair trade.”

Mahathir warned that less developed nations should not be taken advantage of by wealthier countries.

“You don’t want a situation where there’s a new version of colonialism happening because poor countries are unable to compete with rich countries in terms of just, open, free trade,” he said.

Mahathir’s Concerns About China’s Belt and Road Initiative

Since returning to power three months ago, Mahathir has heavily criticised the $23 billion Chinese state-backed infrastructure projects signed by his predecessor amid corruption allegations. Just this month, Najib was charged with three counts of money-laundering breaches linked to state fund 1Malaysia Development Berhad (1MDB).

Malaysia is currently investigating whether Najib’s coalition government, Barisan Nasional (BN), used cash intended for the multibillion infrastructure project with China to pay off its own debts.

Sums of as much as $700 million owed by 1MDB may have been paid with the funds transfered through offshore shell companies, according to government officials involved in reviewing the projects.

The charges, for which Najib pleaded not guilty, could see the former leader face up to 15 years behind bars, along with a fine of no less than five times the amount of the funds involved. In June, the former Malaysian prime minister also pleaded not guilty to charges of criminal breach of trust and corruption.

There are also increasing concerns over the Belt and Road’s long-term benefits for the nation. Mahathir fears the current deals, which were agreed to by Najib, could lead to high levels of debt and financial dependence on China—the world’s second-largest economy.

The ambitious $20 billion ECRL project and the $2.5 billion deal for two gas pipeline projects, which were to be constructed by an arm of the state-owned energy giant China National Petroleum Corporation, are among the plans cancelled by Malaysia’s leader, who said they made no financial sense for the country.

OBOR May Be Harmful for Malaysia Long Term

Some countries already committed to the OBOR initiative have run into financial difficulty since their infrastructure projects began, triggering further alarm bells over how beneficial the projects would be for Malaysia.

Last year, in a debt deal, Sri Lanka handed over a major strategic port, along with 15,000 acres of land to China on a 99-year lease, after its debts to Chinese state-owned firms ballooned. The Hambantota Port was acquired by China after several months of negotiations and intense pressure.

Jens Roehrich, Professor of Supply Chain Innovation at the University of Bath, told The Epoch Times, “Concerns about owing unmanageable debts to China have been raised by countries such as Sri Lanka, and with China’s takeover of the troubled port, this has raised questions about a loss of sovereignty.”

Roehrich said there are fears that China’s slowing economy and sluggish growth may force its companies to migrate production facilities to other countries within Asia to help them build their infrastructure.

He added, “This may have a negative impact on a country’s own market.”

Gwadar Port in Pakistan OBOR China
The Gwadar Port in Pakistan, a multibillion-dollar infrastructure project that China has invested in as part of Its ‘One Belt, One Road’ initiative. Beijing also has ambitions to extend the initiative to the Arctic, opening up shipping routes that would form a “Polar Silk Road.” (Amelie Herenstein/AFP/Getty Images)

Similarly, the Pakistani component of China’s OBOR initiative—the $62 billion China-Pakistan Economic Corridor (CPEC) that was supposed to promise the country development and prosperity—has proven to be largely unpopular with its people.

Balochistan—at the center of CPEC and Pakistan’s largest province by area—has seen protests led by children for being neglected by the multibillion dollar energy and infrastructure projects. Only two of the 21 planned CPEC energy projects will be installed in the area despite electricity shortages, and there are no plans to construct a six-lane highway in the region, the Financial Times reported.

Meanwhile, the China-Laos railway, which began construction in 2016, is thought to cost up to 50 percent of the country’s GDP.

Upon returning to office, Mahathir said, “We cannot afford to take on too much debt from China.”

Malaysia’s national debt currently stands at $250 billion.

Could Mahathir’s Decision Compromise Malaysia-China Relations?

While addressing 400 Chinese entrepreneurs and business leaders on Aug. 19, Mahathir made clear his aims to better ties with Malaysia’s biggest trading partner.

Last year, Malaysia’s total trade with China amounted to over $92 million—over $30 million more than with Singapore, in second place, according to Bloomberg data.

The 93-year-old told the China Entrepreneur Leaders Forum that instead of confrontation, Malaysia should focus on bettering economic ties, as Malaysia-China ties go back almost 2,000 years, he said.

Mahathir said, “We’re not against any Chinese companies but against Malaysians who borrow huge sums of money to carry out unnecessary projects.”

Mahathir also urged Beijing to sympathise with Malaysia over its current fiscal problems during a joint press conference with Li Keqiang on Aug. 20.

In an interview with The Epoch Times, Syed Ahmad Israa’, chief executive officer of the Interdisciplinary Research & International Strategy (IRIS) Institute, said he believes disagreements with China over the Belt and Road initiative won’t end positive ties with the country.

“Mahathir is trying to find and demand fairer terms and deals with China, so that we won’t be overdependent—we will not just simply close our door to anyone because we have some disagreements,” he said.

Li told Mahathir, “China will not change its longterm friendly policies toward Malaysia because of changes in domestic situations.”

Small Fish Welcomes Investment From Big Fish, Conditions Apply

While canceling the two projects linked to China’s Belt and Road initiative, Mahathir insists he is open to foreign investment.

“Chinese investors felt worried because I took over, people were saying I was anti-Chinese, but what I said to them is we have to look after Malaysian interests.

“What we are worried about is the projects which are not viable and the huge debts that were incurred,” Mahathir said in a press conference on Aug. 21.

He added: “As far as being business friendly, it’s still on. They must conform to the normal conditions of foreign investment.”

In terms of investment from China in the future, Mahathir said it would be “deferred until such time when we can afford, then maybe we will reduce the cost”.

Israa’ said, “Mahathir has shown that although we’re smaller, and we really have to depend on China’s finance, we still have the position and ability to determine what is the best for us, and we should not just be subservient to what China wants.”

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