Mahathir resets the terms for dealing with China
Malaysian premier's bid to maintain close ties despite canceling US$22 billion worth of BRI projects is a litmus test of Beijing's flexibility
Malaysian Prime Minister Mahathir Mohamad welcomed Chinese trade, technology and investment while cautioning against a “new version of colonialism” during his recently concluded first state visit to China since winning the premiership in May.
During a joint news conference with Chinese Premier Li Keqiang, who reportedly directly asked Mahathir whether there was consensus on upholding free trade between both sides, the 93-year-old premier replied in the affirmative, while also adding that “free trade should also be fair trade.”
The world’s most senior statesman has made the recalibration of ties with China a key foreign policy priority following months of stinging criticism of his scandal-plagued predecessor Najib Razak, who stands accused of unscrupulous borrowing to fund China-backed mega-projects worth billions of dollars.
Mahathir has claimed that Najib’s willingness to assume huge foreign debts and agree to lopsided contracts risked eroding Malaysia’s sovereignty. Malaysian officials also have suspicions that Chinese companies were involved in the multi-billion dollar 1Malaysia Development Berhad (1MDB) graft scandal, of which Najib stands personally accused of foul play. The ex-premier has denied the accusations.
While Mahathir’s outspoken return to form has unnerved Chinese investors skittish over the future of specific projects and broad relations, his closely-watched five-day tour underscored a desire by both sides to cooperate in promoting bilateral and economic ties, even while major Chinese infrastructure projects remain in limbo.
China’s President Xi Jinping called on both sides to increase their “strategic communication” and strengthen cooperation through Beijing’s US$1 trillion Belt and Road Initiative (BRI), a vast infrastructure plan to link China with major continental and maritime zones. Under Najib, Malaysia had been one of the top investment destinations for projects linked to BRI.
Despite vows to scrutinize China-linked projects and complaints of overreliance on Chinese manpower and materials, Mahathir has consistently signaled his support for BRI and Chinese investment, provided it brings opportunities to Malaysian workers and delivers technology and knowledge transfers.
Although a joint statement saw the two sides agree to “enhance political mutual trust” and “adopt a strategic and long-term vision,” no breakthroughs were announced regarding major Beijing-led projects halted by Mahathir’s administration, including the US$20 billion East Coast Rail Link and two pipeline projects worth a combined US$2 billion.
Mahathir confirmed in a press conference at the end of his trip on Tuesday (August 21) that the aforementioned projects had been cancelled and that “China understands our problem and agreed.” Details of the cancellations and compensation would have to be discussed between government officials and the Chinese companies involved, he said.
“I believe China itself does not want to see Malaysia become a bankrupt country,” said Mahathir in a press conference. “I explained to them the projects will not go on because we do not need these and our priority is to reduce debt. They [China’s leaders] see our point our view.”
The positive signals and favorable optics throughout Mahathir’s trip suggest that those difficult discussions will proceed on more conciliatory terms. For regional watchers, the Malaysian premier’s moves to rebalance ties represent both a litmus test of Chinese flexibility and a potential future model for engagement with Beijing.
Analysts have noted how Association of Southeast Asian Nations (Asean) members have been collectively less critical of China since Philippine President Rodrigo Duterte realigned his country’s diplomacy closer to Beijing. Mahathir’s approach, by contrast, has been pluckier and less deferential.
Malaysia’s new approach is a rare gauge of China’s willingness to entertain valid criticism of BRI and its readiness to adopt terms seen as fairer and more mutually beneficial. It’s thus an important test case for Asean countries receiving BRI investments and other initiatives from institutions widely seen as representing a rising China-led global order.
Some Chinese analysts have noted how Beijing’s interests are better served in Malaysia’s case by demonstrating patience, benevolence and a willingness to adjust, especially as China seeks the support of smaller, trade-geared neighboring nations in Southeast Asia amid rising trade tensions with the United States.
Malaysia’s nonagenarian premier has made reducing the national public debt, which stands at 1 trillion ringgit (US$243 billion), a top priority for his Pakatan Harapan coalition government. He told Chinese officials he believed Beijing would sympathize with his country’s “internal fiscal problems.”
Mahathir carefully avoided pinning the blame for those problems on China, arguing instead that his predecessor Najib bore the responsibility for Malaysia’s borrowing in remarks to the China Entrepreneur Club. He told the Chinese business community that debt issues were “not about the Chinese” but rather “about the Malaysian government.”
Analysts believe Mahathir’s emphasis on shifting the burden of responsibility to Najib, who was arrested last month on charges including money laundering and since released on bail, will strengthen his hand in future negotiations on compensation for cancelled projects and raise the prospect for Chinese concessions.
“Since the election, Mahathir and other government figures have been at pains to explain that the ‘anti-China’ election campaign was in fact directed at Najib, and not China,” says Amrita Malhi, a visiting fellow at the Australian National University’s College of Asia and the Pacific.
“China and Malaysia have invested in some heavy PR in recent months, promoting the strength and dynamism of their bilateral ties and mobilizing high-profile businessmen like Jack Ma to project the message that the two nations are closer than ever, and can reset their relationship to deliver wide bilateral benefits.”
“Mahathir has been speaking not only to China’s leaders but to his domestic constituency in Malaysia,” she believes, adding that the Malaysian premier’s aim “is to demonstrate that he can return Malaysia to a policy of non-alignment and deliver a new era of prosperity, even in a climate shaped by heightened great power competition.”
During his visit, both sides signed agreements on currency swaps and plans to increase imports from Malaysia of frozen durian and palm oil. China has been Malaysia’s largest trading partner since 2009, while China is Malaysia’s third-largest export market. Malaysia became the fourth-largest recipient of China’s overseas direct investment last year.
Mahathir visited the Hangzhou headquarters of technology giant Alibaba Group, where he met the Chinese conglomerate’s co-founder Jack Ma. Alibaba’s Malaysia office, the company’s first in Southeast Asia, was launched by Ma in June. Alibaba also manages a major brick-and-mortar logistics center near the Kuala Lumpur International Airport.
There were certain sticking points, however. On the final day of his trip, Mahathir addressed the status of fugitive Malaysian financier Low Taek Jho, who is wanted in connection with alleged 1MDB corruption and money laundering. Low recently eluded arrest in Hong Kong and Macau, where he had been living freely despite an Interpol Red Notice for his arrest.
Malaysian officials reportedly believe the fugitive financier is now being harbored in mainland China and that a request to extradite Low would be high on Mahathir’s agenda, according to a Wall Street Journal report. Mahathir told journalists he believed Low was in China, but admitted he had no proof of the claim, according to reports.
Despite the cancellation of multi-billion dollar high-profile projects, a decision that surely disappointed many in Beijing, Mahathir’s visit ultimately demonstrated the durability of bilateral ties and the potential for more constructive forms of collaboration, an outcome that likely went down well in Kuala Lumpur and further afield in Southeast Asia.