A report in the influential South China Morning Post today claims that Prime Minister Dr Mahathir Mohamad wants to cancel the East Coast Rail Link (ECRL) and two gas pipeline projects, but will not say so publicly for diplomatic reasons.
Citing unnamed government sources, the report said that cancelling the projects outright would result in a loss of "face" for Beijing, whose government-linked firms are engaged in the projects.
"As we all know, face is very important for the Chinese… but there is agreement on both sides that the projects have to be cancelled because of Malaysia's financial position," said a source who deals directly with Chinese negotiators.
The SCMP report also cited sources claiming that Mahathir was being deliberately vague because Beijing was facing criticisms that its One Belt, One Road (Obor) initiative was a form of debt-trap diplomacy.
"As far as the Chinese are concerned … if there is outright cancellation, the whole world will know. Nobody will want to do business with them. Already there are problems in Sri Lanka, Pakistan, Africa, and so on," a source said.
Mahathir led a delegation to China earlier this month to sign several MoUs and engage top Chinese leaders, including President Xi Jinping.
The prime minister had repeatedly said that he had sought Bejing's "understanding" during the visit that Malaysia could not afford some of the projects initiated by his predecessor Najib Abdul Razak, and that negotiations would follow.
"I said if we can, we would like to cancel it. If we cannot, we would like to defer and look towards other ways of solving our financial problems," Mahathir told Malaysiakini in an exclusive interview.
In a bid to help Beijing "save face," sources told SCMP that the Malaysian government repeatedly pinned the blame for the projects being unviable squarely on Najib.
"This is why we keep saying it's on Najib, it's on Najib, it's on Najib, and not China… we don't want to embarrass you, but you must protect our interests as well."
Meanwhile, Communist Party of China mouthpiece Global Times said Mahathir's "real intention" was to expand cooperation between China and Malaysia.
"It's only that the new government has some different ideals from its predecessors, which is perhaps a normal phenomenon for Malaysia," said the website.
"China should understand and adapt to Malaysia's internal adjustments and remain consistent in cooperation with the country, while Chinese firms should protect their own interests.
"The Chinese government should also help them safeguard their interests so that expanding cooperation and settling disputes according to laws and regulations will become the norm."
However, the report warned that the dissonance from Putrajaya on China-linked projects could unsettle its citizens.
Such remarks sounded "piercing" to the Chinese, it said, and would cause investors from the country to worry about public sentiment in Malaysia affecting their investments.
"How the Chinese public sees China-Malaysia cooperation is by no means inconsequential to Malaysia's interests," said the Global Times.