China's clout in Malaysia on the rise

Signs at one of the entrances to Kuala Langat Power Plant (KLPP), majority owned by troubled state investment fund 1MDB.
Signs at one of the entrances to Kuala Langat Power Plant (KLPP), majority owned by troubled state investment fund 1MDB.PHOTO: REUTERS

In tussle for influence with Washington, Beijing is pulling ahead with investment deals

Malaysia welcomes foreign direct investment like most countries but the surge of Chinese money in recent months has raised eyebrows, fuelling talk that Beijing could leverage on its economic presence here.

Kuala Lumpur has always strived for a delicate balance between China and the United States, as the two countries tussle for influence in the region.

But the scales appear to be tipping towards Beijing, analysts say, especially after two deals late last year involving asset purchases from debt-laden state investor 1Malaysia Development Berhad (1MDB).

Dr Oh Ei Sun, a senior fellow at the S. Rajaratnam School of International Studies, said: "When push comes to shove, China comes up with the money to help Malaysia weather economic challenges. So, it is only natural the government and people are friendly to China."

Up until 2013, the US was among Malaysia's top three foreign investors.

But in the year to September last year, China - including Hong Kong, where most of its largest firms are headquartered or financed - surged to the top, with more than double the US' RM2.2 billion (S$722 million).

This does not include the sale of 1MDB's Edra Global Energy to China General Nuclear Power Corp for RM17 billion in November and, a few weeks later, China Railway Engineering Corporation's stake in Bandar Malaysia, which gave it nearly a quarter of the property project's 197ha land bank worth RM12.4 billion.

On the flip side is the impending signing of the US-led Trans-Pacific Partnership (TPP) agreement. But that is a slow-burning policy that may be overtaken by China's growing influence in the region.

"People are talking about theTPP possibly leading to American domination of our economy but China is already here and dominating," the chief of policy think-tank Ideas, Wan Saiful Wan Jan, told The Straits Times.

China is Malaysia's top trade partner, and is a key influence in diplomatic ties between Asean economies, as evidenced in the reticence of the regional bloc to put its foot down over Beijing's territorial claims in the South China Sea.

It is a challenging juggling act for Malaysia, which last year was caught in a bind after a China Coast Guard vessel was reportedly chasing local fishermen away in the resource-rich sea off Sarawak. Malaysia allowed the Chinese navy use of a key port in Sabah facing the disputed waters.

In September last year, there was a public uproar over remarks by Chinese ambassador Huang Huikang about race relations in Malaysia - seen as interference in Kuala Lumpur's affairs - which resulted in a reluctance from Malaysia's Foreign Ministry to describe a subsequent meeting with the envoy as a "summons".

In the marketplace, talk is growing that the 1MDB deals are just precursors to further tender awards to Chinese entities.

A version of this article appeared in the print edition of The Straits Times on January 20, 2016, with the headline 'China's clout in Malaysia on the rise'. Print Edition | Subscribe