Time for clarity on Belt and Road Initiative – what’s really in it for Malaysia?

Malaysians are still waiting for a detailed feasibility study of the ECRL.

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Published by The Malay Mail, image from South China Morning Post.

The overamplification of issues like race and religion in Malaysian politics make them a shortcut to people’s sentiment when politicians want to achieve their goals. Most recently, this malicious strategy is increasingly used by the opposition against the incumbent government, resulting in the public being distracted by petty skirmishes over issues that matter the least.

The East Coast Rail Link (ECRL), a part of the China’s Belt and Road Initiative (BRI) was previously an instrument of swaying public sentiment in an attempt to depose the BN government. At the same time, the economic aspects of Malaysia embarking on this global journey with China, cannot be approached superficially.

The reports on ECRL have been controversial, with statements regarding the overall feasibility of the project up to the moment when its continuation was recently announced being contradictory and vague.

The flow of messages on the project, its cost, and Malaysia’s commitment to participate or not, has been inconsistent over the recent years – especially so since PH came to power. PH campaigned on its criticism towards BN’s commitment to BRI, especially in the light of the project being overpriced so China could buy out some assets of the scandalous 1MDB. The PH argument at that time apparently targeted only the Malaysian side of the deal, while Mahathir’s government deliberately became ready to turn a blind eye to China’s complicity later on.

The PH Manifesto did not state that the coalition will terminate all the contracts related to China’s grand plan but promised significant revision. International analysts started to refer to the case of Malaysia as another in the row of concerned with the potential “debt trap” set by China for developing nations lured into BRI. When on his trip to China in August 2018, Mahathir did not hesitate to speak of China’s “neocolonialism”, and when visiting the Philippines in March 2019, he warned president Rodrigo Duterte of the potential debt trap and the influx of foreigners, pointing at some 200,000 of Chinese based in the country.

In an interview with the South China Morning Post, Mahathir evasively stated that the conditions for possible continuation of the project were still being negotiated.

Then, in April 2019, a couple of weeks before Mahathir was supposed to attend the 2nd Belt and Road Forum (BRF) on International Cooperation, the news broke that Malaysia and China finalised the talks, the ECRL cost is being reduced by a third to RM44 billion from the previous price of about RM66 billion, with the amount of local contractors being elevated to 40 per cent against previous 30 per cent, as well as some other terms.

On the way to the BRF, Foreign Minister Saifuddin Abdullah said that the Malaysian delegation is going there “in high spirits”, in anticipation of “renewed relations”.  “We saved RM21.5 billion [implying the cuts of the project cost], I think it’s reasonable,” he said.

Juggling with key numbers to impress the public somewhat rewrites the previous narrative or helps to cover unpleasant truths. A thorough approach towards an expensive infrastructural enterprise such as the ECRL demands detailed and transparent analysis. Malaysian governments, both old and new, spoke of the need to release a feasibility study, and there was another promise to shed light on details recently. However, it concerned details of the contract itself, not the calculations on how much Malaysia needs the project.

According to Bernama, Daim Zainuddin who was appointed a special envoy to renegotiate the terms for ECRL, blamed the previous government for no due diligence done, no feasibility study and the lack of transparency during negotiations. However, the details still remain undisclosed, and Mahathir was recorded saying “we don’t want to say anything that might hurt their [the Chinese] feelings”, meaning sensitivities that the Chinese government has about disclosing information.

This might be the right time to be cautious about not hurting feelings of fellow Malaysians, instead. The results of Merdeka Centre research showed not only the plunge in support levels for PH (to 39 per cent) and to Mahathir personally (to 46 per cent), but the high priority people give to the economic situation as a primary cause for dissatisfaction. From the economic perspective, renegotiation of the terms for ECRL also implied possible re-evaluation of the overall need that Malaysia has for the project.

One factor is the need to maintain a stable relationship with the Malaysia’s number one trading partner, to navigate the situation concerning the RM20 billion being paid as an advance and progress payment, and to find a way to take care of the small palm oil producers by getting China willing to buy more of the product, or to take a certain political stand internationally by aligning with China as opposed to American expansionist projects in the region. Another is to soberly evaluate the prospective economic worth and investment-return ratio of ECRL.

Yet, even some of the arguments in favour of being lenient towards China require clarification. First, even though it has been said that the initial contract had no exit clause and thus the money could not be retrieved, in October 2018 Finance Minister Lim Guan Eng claimed that in fact RM10 billion of that actually could be claimed back. The overall cost of the project at that moment stood at about RM81 billion.

Strikingly, the feasibility study by the HSS Group referred to by YB Tony Pua in 2016 showed that RM29 billion was enough to cover the project costs, in contrast to the RM44 billion final cost.

There are some others numbers, that are not being highlighted enough when praising the negotiating skills of the current government. Based on the previous estimates of RM66 billion, the final amount with interest could amount to a total of over RM100 billion or even balloon up to RM130 billion. Therefore, the current project cost of RM44 billion as per contract with China still needs to have the interest factored in, as well as related expenses, including the purchase of land. Even though the analysis shows that Malaysia is not in the list of eight countries under high risk of slipping into China’s debt trap, it expressed its concern about the hawkish Chinese financial behaviour.

Secondly, Malaysia is balancing between the need to take care of its own interests and to pay for joining the China’s grand vision, which fits into a paradigm of having a concerted motion from Asia westwards and not the opposite. In 2015, retired Chinese General Qiao Liang described the BRI as “a hedge strategy against the eastward move of the US,” which Malaysia currently sympathises with.

How much joining does this global vision benefits Malaysia? For now, it boasts its strategic position in the Malacca Straits, through which 80 per cent of China’s oil supply passes. However, if one pays attention to how China has been showcasing its success in constructing the China-Pakistan Economic Corridor (CPEC) linking the city of Kashgar to the Indian Ocean via the Gwadar Port in the province of Baluchistan, this will turn out to be an alternative route to both ECRL and the maritime passage via the so-called choke point in Malacca Straits. P. Gunasegaram correctly pointed at that fact in his latest piece at Malaysiakini, but it is worth expanding the argument by saying that BRI is all about diversification of supply routes, and therefore, there are also other options apart from Malacca Straits, ECRL or CPEC.

China is primarily pursuing its own interest in presenting its global vision in the form of BRI, despite President Xi Jinping promising to address the issues of financial sustainability for the participating countries during the BRI Forum in Beijing on 26-27 April.

If there is no clause in the contract that guarantees that the rail line will be loaded with freight to the extent of sustainability, or at least to some fair margin in comparison to alternative routes, how the profitability of ECRL will be secured?

PH or no PH in power, the post-Mahathir government and people will have to live with the consequences of large-scale economic decisions that can’t be undone. While clearing the 1MDB mess and disputing the utility of acceding to the Rome Statute, there must a moment for the political businessmen to think of those who look at projects like ECRL with a sober patriotic attitude – what it brings to Malaysia and what it means for its future. It isn’t too much to ask to think of future Malaysians and to have a proper feasibility report disclosed to public.

Julia Roknifard is a Director of Foreign Policy at EMIR Research – a think tank focused on data-driven policy research, centred around principles of Engagement, Moderation, Innovation and Rigour

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