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Improving Malaysia-China economic relations

Jomo KS  |  Published:  |  Modified:

COMMENT | Various media reports and even remarks by some close to the new government of Malaysia imply that the government will be antagonistic towards improving economic relations with China. This grossly misrepresents the popular Malaysian rejection of the corrupt kleptocracy that ruled the country in the last decade.

To be sure, all Malaysian governments since independence in 1957 have invited foreign direct investment. For decades, some of us have been concerned with the Malaysian government’s seemingly uncritical view of foreign investments. However, to be fair, Prime Ministers Abdul Razak Hussein and Dr Mahathir Mohamad were, in fact, quite circumspect.

How else can we explain the takeovers of mainly British-owned investments in Malaysian trading agencies, plantations and mines of the 1970s? Or for that matter, the technology transfer, employment generation and domestic procurement requirements imposed in the following decade?

Caricaturing the recent Malaysian political debate over some investments associated with China risks misleading all concerned. This may have unpredictable, and even adverse consequences for future bilateral economic relations. Since early 2017, some of us have been portrayed in some quarters as critics of all foreign investments from China.

ECRL

In particular, I had questioned the economic viability of the East Coast Rail Link (ECRL) project as Malaysia would eventually have to pay well over three times the original cost estimates. Even at the much lower costs, the project would never ever pay for itself.

After discounting the original cargo and passenger projections to more realistic levels, the project would have implied permanent haemorrhage of operating costs, even after writing off the gargantuan development costs of RM81 billion plus interest.

As had become the norm with such projects in recent years, the contract was awarded following “direct nego” by the previous Malaysian government to a Chinese company without any competition and little transparency, but generous special privileges, including massive tax exemptions.

To be sure, the ECRL would not have involved foreign investment from China, but rather, huge loans from China’s Export-Import Bank, ostensibly for 85 percent of projected costs. It was expedited to start early this year before GE14. A few months later, with little work done, almost RM20 billion, or half the total loan, had already been disbursed in dubious circumstances.

The sagas of the two Suria Strategic Energy Resources Sdn Bhd (SSER) gas pipelines are similar, with the loans almost all disbursed despite little actual progress on the ground. The huge safety risks for the multi-product pipeline and the likely ecological damage in Sabah only exacerbate the familiar tale of economic infeasibility.

Unsurprisingly, there has been considerable public opposition to such projects and associated debt liabilities, involving likely fraudulent hands already greatly resented by most Malaysians. Needless to say, the mammoth resulting debt burdens will be borne by future generations of Malaysians.

China’s Xi opposes fraud

On May 9, Malaysians resoundingly rejected such irresponsible foreign investments and dubious loans that will burden and ruin our economy, and their greedy enablers. However, public opposition to such abuses does not constitute blanket opposition to all investments from China. Unfortunately, the undiscriminating tend to lump all investments from China together.

Recent full employment, assured by ballooning public sector employment, has obscured the lacklustre growth since the 1997-1998 Asian crisis, especially in the last decade following premature deindustrialisation. The promise of services employment has mainly involved traditional, rather than modern services, despite misleading official hype to the contrary.

Like the government of China, the new Malaysian government is much more discriminating, and recognises that foreign direct investment and technology transfers from abroad will be crucial to future progress. Undoubtedly, there are some dodgy foreign investments in Malaysia involving investors from China, as from elsewhere.

But it is important to recognise that China’s authorities are embarrassed by such opportunistic, irresponsible, and even corrupt behaviour. Hence, they have already taken action to regulate outward capital flows. Before that, a serving Chinese ambassador famously criticised such investors from China, and publicly apologised for their bad conduct.

For over half a decade, Chinese President Xi Jinping has led an ongoing campaign against graft, promising to quash deep-seated corruption at all levels. China’s Central Commission for Discipline Inspection has taken the fight abroad since 2015, and can be expected to co-operate, not least because of the reputational risks for China, especially after recent attempts to diplomatically isolate it by its strategic rivals. 

Making cars

While many Malaysians are understandably wary of a “Perotiga”, we should not throw the baby out with the bathwater. We should consider Mahathir’s plea for a renewed commitment to more technologically advanced industrialisation despite earlier failed “heavy industrial” investments.

For example, Geely should be persuaded to work with Proton to make the country their major export hub for right-hand drive mid-size car production for the world. The collaboration may also build on prescient Mahathir-inspired efforts to develop an electric car in the 1990s, well before the now-near universal appreciation of the urgent need to address global warming and air pollution due to fossil fuels.

After all, electric cars will also dispense with the need for traditional engines, which was the last challenge in developing a Malaysian-made car decades ago. Of course, the world has changed, and it would be crucial to reconsider what would be viable and internationally competitive going forward.

Malaysians appreciate investments which will contribute to the country’s progress, e.g., in 5G telecommunications technologies, useful artificial intelligence applications, new financial technologies, renewable energy, new medicines and electric vehicles. The new government clearly favours productive industrial investments, especially with Mahathir’s well-known commitment to accelerating Malaysian technological progress.

Zopfan

Of all Asean leaders, Tun Mahathir has been the most committed to the 1955 Bandung principles and the Asean commitment to make Southeast Asia a Zone of Peace, Freedom and Neutrality (Zopfan), recently reiterated as keeping foreign warships out of the region. This must surely give comfort to China, which has long strived to break out of decades-long efforts to encircle it.

Rather than rely on an opportunistically compliant leader ever ready to serve those who pay him most, China is surely better off dealing with a Malaysian leader who desires peace, freedom and neutrality based on mutual respect and benefit, and truly commands the respect of the governments and peoples of the region.


JOMO KS was economics professor and Assistant Secretary General for Economic Development at the United Nations. He held the chair at the Institute for Strategic and International Studies (ISIS) Malaysia in 2016-17.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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