EXECUTIVE SUMMARY
- Malaysia experienced transitional period during 2018-2020 after Barisan Nasional’s government defeat against Pakatan Harapan in 2018 General Election.
- Pakatan Harapan led by Mahathir as his second’s premiership has to reassess relations with China especially its BRI motivations and involvement in domestic economic in the country.
- First, the government has to tackle the issue of financial mismanagement and reevaluating China’s role on Malaysia’s economy. Mahathir implemented the suspension and renegotiations of megaprojects to secure more favorable terms for Malaysia. This is to gain transparency and financial viability of the projects that depends on China’s investments.
- Second, Malaysia has to redefine approach with China and be more pragmatic and prioritize domestic interest. This involves on exploring new opportunities by signing new agreements and mutual understanding as well as continues with the policies that seemed beneficial for Malaysia’ economic growth.
- After the fall of Pakatan Harapan in 2020, Perikatan Nasional government does not have clear policy approach towards China and only resume Mahathir’s approach in dealing with China.
- Finally, after Pakatan Harapan back in power under Anwar Ibrahim aims to redefine approach with China as he focuses on establishing a foundation built on mutual respect, shared goals, and clear communication.
INTRODUCTION
Diplomatic and economic relation between Malaysia and China has witnessed many changes since official relations begins in 1971 under Tun Razak’s premiership where mutually beneficial relations become the frameworks for the relations that transcend geographical boundaries. The relation was strengthened by Mahathir’s first administration (1981-2003) through Look East Policy which applied more comprehensive economic policy towards East Asia and emphasizing on economic diplomacy instead of states relations that depends on political ideology or economic preferences.
This policy frameworks continued by Barisan Nasional (BN) under Najib Razak administration, who is supportive of China Belt and Road Initiative (BRI) where he approves around 20 memorandums of understanding with China throughout his administration period. Najib’s eagerness to build close ties with China was also gauged by large numbers of mega projects that involve China involvement in the country has received criticism from public and opposition party because there was no clear directive of the policy at that time. This issue has led to the fall of the BN government ending BN’s government since the independence.
Under PH’s Mahathir Muhamad second premiership (2018-2020), strengthened bilateral relation between two countries has been observed as one significant change particularly in economic aspects. This considered as a crossroad period for Malaysia because they have to become assertive in renegotiating over previous China’s investments and at the same time still maintain close ties politically and economically for future economic advantages and investments. This brief article will explain the dynamical changes between these two countries under Mahathir’s second premiership by examining key projects, agreements, and the broader implications of this collaboration for both countries in the future.
TACKLING FINANCIAL MISMANAGEMENT AND REEVALUATING CHINA'S ROLE ON MALAYSIA’S ECONOMY
Mahathir 2.0 government economic approaches mainly driven by PH election promises to investigate and address economic issues and financial scandal. This action is an important step to stabilize the nation’s financial strength, restoring investor confidence, and upheld rule of law which become PH strategic governance throughout Mahathir’s administration. Mahathir 2.0 prioritized in tackling China-led investments that were approved under Najib that has unclear investment and questionable motive to ensure economic viability and Malaysia’s best interest. This approach addresses concerns about Malaysia's financial obligations, potential debt burdens, and
the possibility of undue influence from China.
The figure shows net foreign direct investment (FDI) flows from China to Malaysia from 2013- 2022 in Malaysian Ringgit (RM). There is big decline from RM 6.8 billion (2017) to RM 562 million (2018) of China’s FDI after PH gain power in 2018 because of the domestic policy to renegotiate on biased and unfavorable agreements and also to reduce China’s influences in Malaysia economy.
The reassessment of the projects was implemented because of the growing concerns regarding transparency and financial viability of these BRI projects under previous administration (Najib’s Barisan Nasional) which consumed high amounts of money and risking Malaysia into debt-trap situation. The influx of the investments during BN government (before 2018) has raised concerns about potential dependency on China’s financial aids in economic sectors and sovereignty concerns. This situation has made Malaysia might seem on becoming too reliant on Chinese’s capital to boost its economic and limiting its own autonomy in economic decision-making process.
Mahathir has suspended prominent BRI mega projects in the country like East Coast Rail Project (ECRL), Multi-Product Pipeline (MMP), and Trans-Sabah Gas Pipeline (TSGP), Bandar Malaysia and also Kuala Lumpur-Singapore High Speed Rail (HSR) in attempt to renegotiate for more favorable terms. ECRL for example, were resumed after Malaysia succeed to get more favorable cost in reducing $2.45 billion from it original cost and agree on 40% of the works will be given to local contractors. Although ECRL were resumed with more favorable terms like reduced cost and joint construction with local companies, it has raised question about infrastructure and work safety, labor welfare etc. However, HSR railway connectivity project with Singapore was suspended resulting S$102.8 million of compensation has to be paid to Singapore for HSR project delay and suspension costs that make Malaysia has to endure additional financial burden.
Moreover, Mahathir also committed to resolve issues on China-led investment that raised questionable motive that was approved under Najib like Forest City projects and 1MDB scandal. Forest City project for example, faced criticism over issues such as land ownership, environmental impact, and its potential impact on local housing market. This project caused debates because of locals were excluded from construction projects and ownerships but instead prioritize Chinese company and citizens. 1Malaysia Development Berhad (1MDB) perhaps the controversial financial scandal in the country which led to the fall of Najib’s government because of the allegations of money embezzlement and misuse of funds. There are also debates about China involvement in this scandal because some China’s money might be used to finance ECRL, Bandar Malaysia and Forest City projects which mainly financed by 1MDB. However, the extent of China's involvement and any wrongdoing remains a subject of investigation and debate.
However, Mahathir was not to completely cancel the all the projects approved un previous administration but instead most were negotiated or put on hold to get a more favorable and quality investments from China. Reassessment and renegotiation of mega projects like ECRL, HSR, and pipelines projects reflected Malaysia’s concerns about financial dependency and cautious approach to ensure equitable agreements with China and reduce the risk of debt burden in the future. It also demonstrated Malaysia commitment to safeguarding its national interest and economic sustainability. These measures are important for economic recovery and rebuild Malaysia’s international reputation and political stability for long-term growth.
MALAYSIA PRAGMATIC APPROACH WITH CHINA UNDER MAHATHIR 2.0
Mahathir’s government emphasizes on more realistic and practical stance in its relations with China. He tries not completely rid of China due to China’s financial capability but to cautiously engage with them to ensure the best interest for the country. Malaysia recognizes China as an important economic partner and investor, particularly in sectors like manufacturing, technology, and agriculture. This pragmatic approach involves engaging with China to maximize economic benefits while also safeguarding Malaysia's security and sovereignty.
Throughout his administration, China remained an important source of foreign direct investment (FDI) for Malaysia with the focus on infrastructure, manufacturing and technology sectors. Economic agreements like Malaysia-China Comprehensive Strategic Partnership (2018) and Regional Comprehensive Economic Partnership (RCEP) (2020) were signed to boost trade and investment between two countries. These agreements have opened up new opportunities for trade and investment, positioning Malaysia as a key player in the global supply chain, particularly within the Southeast Asian region. For instance, under RCEP, Malaysia has seen increased access to markets in Asia-Pacific countries, providing opportunities for its businesses to expand and export products with reduced tariffs and trade barriers. These strategic partnership with China has attracted Chinese investments into Malaysia's infrastructure and manufacturing sectors, creates new employment opportunity and deepened the economic ties for two countries. All these bilateral agreements were signed although main criticism of PH then opposition towards BN before 2018 was that the country is on the financial crisis and exposed to debt ridden with China.
Moreover, PH also continues some agreements or collaborations that were started by BN like in automobile and technology collaboration because it has contributed to the country’s economic growth and development. For example, China’s Geely has acquired of a 49.9% stake in Proton in 2017 led to a revitalization of national car, Proton's brand and production. China’s Geely involvement in automobile sector with Proton has resulted in increased sales and market shares for the company after the introduction of new and improved models, many of which were developed in collaboration with Geely. Despite international concerns and accusations regarding Huawei's involvement in espionage and data security, Malaysia pursued collaborations with Huawei in the 5G technology sector during this period. Malaysia recognized the importance of 5G technology for its digital economy and overall technological advancement. Between 2018 and 2022, the Malaysian government worked with Huawei to roll out 5G networks in various regions of the country for faster internet connectivity and support for Internet of Things (IoT).
These collaborations were continued despite Mahathir’s criticizations before the government transition because while these collaborations with Chinese companies brought tangible benefits in terms of economic growth, job creation, and technological advancement. After all, Mahathir did not see China as antagonistic, but he views China as economic superpower and Malaysia should benefited from China rapid growth and development and at the same time prioritize its security and sovereignty concerns. Hence, Malaysia- China relations during PH governance can be seen as balancing act in benefitting from China’s economic growth development and protecting its own interests and autonomy to truly benefited the country.
CONCLUSION
In conclusion, Malaysia-China relations under Pakatan Harapan led by Mahathir was an era marked with challenges and opportunities. The period from 2018 to 2020 for Malaysia-China relations focuses on FDI investments, economic agreements, and the BRI as the highlight the economic narrative of the country. While these initiatives held promises for economic growth, they also raised concerns about debt dependence, economic inequality, and sovereignty. Throughout the period, Malaysia has to revise engagement with China in economic cooperation for economic benefits while protecting its national interests.
Looking forward, after 2020, the Perikatan Nasional (PN) government under Muhyidin Yasin (2020-2021) and Ismail Sabri (2021-2022) does not have clear policy approach towards China and both of them only continues some of Mahathir’s policies like renegotiation and emphasizes on close relation with China for investments. However, Pakatan Harapan under Anwar Ibrahim faces the challenges to redefine relations with China as he seeks to focus on establishing a foundation built on mutual respect, shared goals, and clear communication in order to achieve mutually prosperous relationship. It is important to note that in this complex relation, Malaysia has to prioritize diplomacy as key tool to balances its own strategic interests and pursuing economic cooperation with China.
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Prepared by:
Farhan Suzaki
16 September 2023
