China a friend in need to Malaysia

Alibaba Group's support for Malaysian Prime Minister Najib Razak's digital economy initiative is the latest indication of burgeoning bilateral ties

Kuala Lumpur, March 23, 2017 5:32 PM (UTC+8)
Malaysian Prime Minister Najib Razak (L) and Chinese President Xi Jinping during a meeting at the Great Hall of the People in Beijing, November 10, 2014. REUTERS/Kim Kyung-Hoon
Malaysian Prime Minister Najib Razak (L) and Chinese President Xi Jinping during a meeting at the Great Hall of the People in Beijing, November 10, 2014. REUTERS/Kim Kyung-Hoon

Malaysian Prime Minister Najib Razak and Alibaba Group executive chairman Jack Ma announced yesterday the establishment of an e-commerce regional distribution center, or e-hub, in Malaysia, Alibaba’s first such facility outside of China.

The center will marry Ma’s Electronic World Trade Platform initiative with Malaysia’s state-run Digital Economy Corporation in a venture that promises to promote online cross-border trade services, e-payment and financing, and develop so-called “e-talent” to transform Malaysia into a digital economy.

The scheme is the outgrowth of Najib’s visit to Beijing last November, where Ma agreed to serve as his government’s digital economy advisor. The move puts Malaysia at the regional center of an industry some analysts estimate could be worth as much as US$50 billion in Malaysia by 2020.

Alibaba’s choice of Kuala Lumpur has also put a spotlight on growing China-Malaysia ties, a warming trend Najib has driven through a series of fruitful trips to Beijing that have given his country a much-needed economic boost.

Malaysian Prime Minister Najib Razak delivers the opening remarks with a portrait of Alibaba Group Founder and Executive Chairman, China's Jack Ma displayed in the background during the Global Transformation Forum, a two-day international business conference in Kuala Lumpur on March 22, 2017. Najib highlighted various government initiatives to help Malaysians and reiterated that his opponents are creating “false propaganda” that the country is on the verge of bankruptcy. / AFP PHOTO / MANAN VATSYAYANA
Connected: Malaysian premier Najib Razak and Alibaba chairman Jack Ma. Photo: AFP/Manan Vatsyayana

Depressed global oil prices and rising competition in the region for investment has weakened the underpinnings of Malaysia’s once booming export-oriented economy. Gross domestic product growth rate fell to 4.2% last year, a far cry from the recent years of between 6%-7%. Economists say growth rates are not expected to rise significantly without significant reforms and new growth engines.

Chinese investments, however, have helped to alleviate much of that economic pain. China has been Malaysia’s largest trading partner since 2009, coinciding with Najib’s rise to the premiership, and is currently the country’s biggest foreign investor. Last year, bilateral trade was worth more than US$50 billion, up 4.4% from 2015, according to Trade and Industry Minister Mustapa Mohamed.

Najib returned from Beijing last November with US$30 billion worth of new deals. The following month, China also agreed to purchase assets in country’s’ embattled state development fund, 1Malaysia Development Berhad (1MDB). Najib created, oversees and has been implicated in the alleged misappropriation of at least US$681 million from the fund into his personal bank accounts.

A construction worker talks on the phone in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. REUTERS/Olivia Harris - RTX2576B
Cash cow: A worker in front of a 1MDB billboard. Photo: Reuters/Olivia Harris

As economic relations deepen, so too are strategic ties. Najib told Chinese media in October that the two nations had reached a “special phase” and that military-military relations were at a “new height.” Malaysian and Chinese armed forces began conducting joint exercises in 2015, including operations in combat and disaster relief. The latest exercises, codenamed “Peace and Friendship”, were held in November last year.

Budding naval cooperation, meanwhile, could have implications for the territorial disputes in the South China Sea. Malaysia announced this week it aims to purchase more military hardware from China, including navy vessels for a complete renewal of its 50-strong fleet. The two sides plan to collaboratively build four littoral mission ships, according to reports.

Unlike Vietnam and the Philippines, Malaysia has been comparatively quiet on its own competing territorial claims with China in the South China Sea, a calculated strategy to avoid angering Beijing, analysts say.

Chinese naval sailors look on as a helicopter gets ready to take off from Chinese naval frigate Linyi during multi-country maritime joint exercises off the coast in Qingdao, Shandong province April 23, 2014. The Chinese People's Liberation Army (PLA) Navy organized its first multilateral maritime exercises, dubbed "Maritime Cooperation - 2014", off the coast of the eastern Chinese city Qingdao on Wednesday, where 19 ships, seven helicopters and marine corps from eight countries including China, Bangladesh, Pakistan, Singapore, Indonesia, India, Malaysia and Brunei took part in the drills, Xinhua News Agency reported. REUTERS/China Daily (CHINA - Tags: MILITARY POLITICS) CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA - RTR3MAG0
Assertive: Chinese naval sailors on the Linyi frigate during maritime joint exercises Photo: Reuters via China Daily

This is widespread speculation in Kuala Lumpur that Najib’s close relationship with Beijing has a personal dimension. Najib’s father, Tun Abdul Razak, Malaysia’s second prime minister, oversaw normalization of diplomatic relations between the two nations in 1974, making Malaysia the first country in the Association of Southeast Asian Nations (Asean) to establish diplomatic relations with China in an era when Beijing was exporting communist revolution in the region.

Fast forward to the present, China has stood by Najib as Western pressure has mounted on his alleged role in the 1MDB scandal. The US Justice Department’s investigation into the case has left Najib feeling “angry” and “humiliated”, according to Murray Hiebert, a Southeast Asia expert at the Center for Strategic and International Studies in Washington.

While Najib has not reacted publicly to what analysts say he likely views as US interference in Malaysia’s internal affairs, his rhetoric to date has been less forceful and anti-Western than that of his combative predecessor Mahathir Mohamad, who served as prime minister from 1981 until 2003 and has remained active in politics ever since.

Khadijah Md. Khalid, an associate professor at the University of Malaya, has described Mahathir as having a “penchant for interpreting the global environment in polarized, ideologically laden terms… East versus West, North versus South.”

In comparison, he says instead of “anticipating how to influence international relations – Mahathir’s approach – Najib is content to adapt to the existing world order. This reflects a conservative temperament grounded in his experience.”

U.S. President Barack Obama and Malaysian Prime Minister Najib Razak (R) talk during the gala dinner at the 27th Association of Southeast Asian Nations (ASEAN) summit in Kuala Lumpur, Malaysia, November 21, 2015. REUTERS/Olivia Harris - RTX1V5QT
Pragmatic: Former US President Barack Obama (L) and Malaysian premier Najib Razak. Photo: Reuters/Olivia Harris

Indeed, Najib’s defense minister, Hishammuddin Hussein, said in a speech in January that “we are apparently being forced to choose the East or West, between China or the United States, between liberalism and populism.” Instead, he said, Malaysia has built into its “DNA” a commitment to pluralism and multilateralism, a pragmatism that analysts identify as a cornerstone of Najib’s foreign policy.

In that direction, Najib was known to have a warm relationship with former US president Barack Obama, who, in 2014, became the first sitting US premier to visit Malaysia since 1966.

It was also only three years ago that Kuala Lumpur reportedly invited the US navy to fly spy planes out of bases in east Malaysia to conduct surveillance over contested features and islands in South China Sea. P-8 spy planes were deployed in response to China’s rising assertiveness in the area the following year.

Rather than a Malaysian ‘pivot’ towards China – which would necessarily entail a calibrated move away from the US – Najib is adapting to a new world order, which happens to be a more economically assertive China and a less geo-strategically commanding US.

The fact that Najib’s November visit to Beijing coincided with the US presidential election was not overlooked by commentators. US President Donald Trump’s rise, they say, has meant that all Southeast Asian nations, including Malaysia, have had to realign their economic and foreign policies to a potential more isolationist and protectionist US.

Analysts say that warming China-Malaysia ties, including the recent Alibaba deal, are best understood as a continuation of already good relations rather than any “domino effect” of Southeast Asian nations away from the US, as some have insinuated started in Manila with President Rodrigo Duterte’s hard turn from the US and towards China.

Rather than a Malaysian ‘pivot’ towards China – which would necessarily entail a calibrated move away from the US – Najib is adapting to a new world order, which happens to be a more economically assertive China and a less geo-strategically commanding US.

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