The reverberations from Malaysia’s electoral earthquake, which saw voters sweep aside the party that had been in power for 60 years, are likely to be felt for a long time, especially in China, which had signed huge infrastructure agreements with the ousted Najib regime. Mahathir Mohammed’s new administration has vowed to review the deals and, if necessary, seek to renegotiate.
Malaysia under Najib Razak was an early booster of China’s “One Belt, One Road” Initiative. Last year in Beijing, at the Belt and Road Forum, the then Malaysian prime minister called the initiative a game changer for the entire region from Asia to Europe and Africa. China’s leader, Xi Jinping, said Malaysia was one of the countries that would benefit the most.
Even then, there were suspicions that Malaysia was assuming unsustainable financial obligations. “There are some opposition politicians in my country who say we are selling our sovereignty by agreeing to such projects,” Najib acknowledged. “But I make no apologies for wanting to build world-class infrastructure for Malaysia that will open up huge swathes of our country, bringing more trade and opportunity to our people.”
Now, the Mahathir administration has discovered that things are even worse than what outsiders had suspected.
The finance minister, Lim Guan Eng, discovered after taking office that Malaysia’s debt exceeds one trillion ringgit, or more than US$500 billion. “It is very much higher than what the previous government had disclosed,” he said. In the previous government, Najib had served as minister of finance in addition to being the prime minister.
Mahathir said before the election that, if elected, his government would seek to renegotiate any “unequal treaties” with China, using a term that Beijing uses to describe treaties imposed on a weak China by foreign powers in earlier centuries.
Asked to comment on the new Malaysian government’s possible request for renegotiation, China’s foreign ministry ducked the question but said, “We stand ready to work with the Malaysian side” to move forward their comprehensive strategic partnership and “deliver greater benefits to the two peoples.”
While Mahathir will undoubtedly want to preserve close economic ties with China, Malaysia’s days as a strong advocate for the Belt and Road Initiative – the latest name for what used to be called “One Belt, One Road” – are clearly over. Some huge projects, such as the US$13 billion East Coast Rail Link, which Mahathir during the campaign called a waste of money, may even be dropped.
No doubt, recent events in Sri Lanka have served as a wake-up call for many Malaysians. Last year, the deeply indebted country handed over the strategic port of Hambantotoa to China for 99 years to set off a part of Sri Lanka’s debt to state-owned Chinese enterprises.
Two months ago, Nikkei Asian Review and The Banker magazine issued a report on how Belt and Road Initiative projects are doing in eight countries: Indonesia, Sri Lanka, Kazakhstan, Bangladesh, India, Poland, Laos and Pakistan.
Its key findings included serious project delays, which led to escalating costs; ballooning deficits on the part of some countries, including Pakistan, Sri Lanka, the Maldives and Laos; and sovereignty concerns, such as the takeover of the strategic port in Sri Lanka.
Nor is unhappiness with BRI limited to Asia. In April, 27 of 28 European Union ambassadors based in Beijing signed a report criticizing the BRI, according to Handelsblatt. It said that the BRI “runs counter to the EU agenda for liberalizing trade and pushes the balance of power in favor of subsidized Chinese companies.”
The report was drafted as part of the EU’s preparations for a summit meeting with China in July. The Hungarian ambassador was the only one who refused to sign.
That same month, the Chinese Foreign Ministry issued a statement defending BRI, pointing out that it had been well received and supported by over 100 countries and international organizations.
When it was first launched, the project was promoted as the modern version of the old Silk Road linking China to Europe via Central Asia plus a maritime silk road with ships plying through Southeast Asia to Africa and the Middle East. These twin proposals involved 66 countries in three continents. This bold idea caught the world’s imagination.
However, it takes only a few cases of “debt trap” financing to change minds and attitudes. What Malaysia decides to do in the coming months may well impact China’s plans for enhanced global influence, with countries increasingly sensitive to the danger of becoming too dependent on Chinese money.
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