Malaysia Investigates China-Backed Project Links With Scandal-Ridden State Fund

July 5, 2018 Updated: July 5, 2018    

KUALA LUMPUR—Malaysia is investigating whether part of a loan from a Chinese state-owned bank for projects worth $2.3 billion was used to repay dues of a scandal-ridden state investment fund, a finance ministry official told Reuters.

The projects to build two pipelines were signed in 2016 by the administration of former Malaysian premier Najib Razak, who courted Chinese investment but was ousted in a May election amid allegations of corruption at the fund, called 1Malaysia Development Berhad.

Najib, who was charged in connection with the investigation, has denied wrongdoing. He pleaded not guilty on July 4.

The Financial Times first reported the links between 1MDB and the loan from the Export-Import Bank of China (EximBank), which was issued for the pipeline projects.

The loan was given to Suria Strategic Energy Resources (SSER), a subsidiary of the Malaysian finance ministry which oversees the two pipelines.

SSER has instructed contractor China Petroleum Pipeline Bureau (CPPB) to suspend work on the pipelines on July 4, said the finance ministry source, who declined to be identified.

The source added that Malaysia was seeking the Chinese regime’s cooperation with the investigation into the loan, while exploring whether funds invested in the pipeline projects could be recouped.

A ministry spokesman, asked about the loan for the projects and 1MDB, declined to comment.

EximBank and CPPB did not immediately respond to Reuters request for comment.

The new Malaysian government, led by Mahathir Mohamad, has disclosed in recent weeks how the Najib administration used federal agencies and government money to bail out the debt-ridden 1MDB, which is being investigated in at least six countries.

Last month, Finance Minister Lim Guan Eng had already raised questions over the payments for the pipeline projects to CPPB.

He said the Najib government had paid about $2 billion, or 88 percent of the projects’ total value, despite the pipelines being less than 15 percent complete.

Since taking office, Mahathir has pledged to review major projects agreed by the scandal-plagued Najib administration, saying they did not benefit the country economically.

Work on the $20 billion East Coast Railway Link (ECRL), which would connect parts of Malaysia, was suspended on June 4. The project was a key part of China’s Belt and Road Initiative, the Chinese regime’s ambitious plan to expand its geopolitical influence through partnering with countries in Asia, Africa, and Europe to build infrastructure projects. Beijing has especially focused on Southeast Asian nations.

Mahathir has been vocal about concerns that projects with China could leave Malaysia in serious debt.

In May, Mahathir announced that Malaysia would withdraw from a high-speed rail project linking Kuala Lumpur with Singapore. Chinese companies were among those eyeing a contract to build, operate, and finance the trains and rail assets.

The finance ministry source said ECRL and the two pipeline projects were suspended pending high-level talks with China to renegotiate the terms of the projects.

Malaysian and Chinese officials are in talks for Mahathir to visit Beijing soon, sources told Reuters on July 5.

By Philip Wen. Epoch Times staff member Annie Wu contributed to this report.