Malaysia’s bid to reset testy relations with China hit a nasty bump

 

Leslie Lopez

Malaysia’s bid to reset its testy relations with China hit a nasty bump last week.

A carefully planned high-level bilateral pow-wow in Beijing was thrown off the tracks by a set of synchronised anti-corruption raids here on two China state-owned entities handling billions of dollars in infrastructure projects.

Diplomatic sources familiar with the situation said Tun Daim Zainuddin, the special envoy sent by the new Malaysian government for the talks, was stumped when he was informed by his counterparts in China about the raids on the two Chinese concerns by the Malaysian Anti-Corruption Commission (MACC) just moments before his meeting with Foreign Minister Wang Yi.

Mr Daim, who is Prime Minister Mahathir Mohamad’s chief trouble-shooter and head of the country’s powerful Council of Eminent Persons (CEP), told Beijing the raids were unfortunate. He also stressed that Malaysia remained serious about maintaining strong ties with China following the government’s decision earlier this month to temporarily suspend the multi-billion-dollar infrastructure projects entered into by the previous Najib Razak administration.

The Chinese government has made no official comment on the MACC move and, in a statement after Mr Daim’s visit, insisted that relations between the two countries were strong.

The MACC has also not commented on why it carried out the raids during Mr Daim’s visit to China, which was nearly two weeks after Kuala Lumpur suspended the projects led by China Petroleum Pipeline Bureau and China Communications Construction Company.

Senior Malaysian construction sector executives involved in the projects speculated that their Chinese counterparts viewed last Wednesday’s raids as some hardball strategy by the new Mahathir administration in a bid to extract concessions from China when renegotiating the two multibillion-dollar pipeline projects and the proposed ambitious East Coast Rail Link (ECRL) that connect the east coast of Peninsular Malaysia with the strategic Strait of Malacca.

Close associates of Mr Daim dismissed suggestions that the raids had been coordinated to extract leverage with China.

Malaysian government officials, who spoke to The Sunday Times on condition of anonymity, also insisted they were unrelated and that investigations into alleged abuses in the award of contracts by the previous government had to proceed without any favour.

Still, there is strong speculation that the country’s restive political environment may be behind the attempts to undermine Mr Daim’s push to get ties with China back on track ahead of Tun Dr Mahathir’s official visit to Beijing next month.

One theory floated by close Daim associates is that rogue elements in the civil service aligned to the previous administration may have instigated the MACC to carry out the raids in a bid to complicate already touchy diplomatic ties with China.

There are also suggestions that the raids were carried out to directly embarrass the 80-year-old Mr Daim, who has come under attack from several political factions in the new government because of the sweeping clout he enjoys as head of the CEP. (The council’s members include the Hong Kong-based Malaysian tycoon Robert Kuok and former central bank governor Zeti Akhtar Aziz.)

Originally intended to assist the new government in its first 100 days, there is strong speculation that the CEP’s tenure will be extended as the list of alleged financial shenanigans by the previous administration grows.

That, in turn, has led to criticism from several political factions in the new government that Mr Daim could force restructurings and management changes in state-owned entities to benefit his coterie of supporters and business associates.

Getting relations with China back on track is a major priority for Dr Mahathir.

The Najib administration had sided with Beijing over sensitive issues such as disputes over competing claims in the South China Sea and regional defence arrangements, in return for financial support to deal with the mountain of debt at state-controlled 1Malaysia Development Bhd (1MDB).

In 2016 alone, the Najib administration sought Chinese investments to pare back huge 1MDB debts. The scandal-plagued Malaysian entity sold its stakes in strategic power and real estate assets in Malaysia valued at close to RM30 billion (S$10 billion) to Chinese investors.

The previous administration also signed the other major infrastructure contracts with state-owned Chinese entities, which the new Mahathir-led administration has declared to be hugely lopsided against Malaysia’s interests. Kuala Lumpur wants to renegotiate the contracts.

But Malaysia can hardly afford the hardball approach.

China not only has binding contracts with the Malaysian government for the infrastructure development projects, but these undertakings also come with large amounts of borrowing from Chinese banks as financing that carry stiff penalties in the event of a default.

Source: The Straits Times

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