Rocky times feared for China investments in Malaysia

Mahathir's remarks targeting such projects draw Chinese ire, hit investors' confidence

KUALA LUMPUR • Investments and mega contracts linked to China will face rocky times ahead if Prime Minister Mahathir Mohamad continues unchecked with his incessant tirade against Chinese endeavours in Malaysia, according to a report in the Sunday edition of The Star newspaper.

The golden era for Chinese investments, which possibly peaked during the rule of former prime minister Najib Razak, seems to have come to an unceremonious end.

The future of foreign direct investment (FDI) from China is now seen as unpredictable - at least for the next three to five years - under the new government of Tun Dr Mahathir, according to Datuk Keith Li, president of China Entrepreneurs Association in Malaysia.

"The series of comments made on Chinese investments by the PM have affected the confidence of Chinese investors. Those who originally wanted to come are adopting a wait-and-see attitude, while those already in are careful about their expansion plans," said Mr Li in an interview with The Sunday Star.

"Malaysia must remember that by targeting Chinese investors in an unreasonable way, this will scare away FDI from not only China, but also other countries."

Since his five-day official visit to China that ended on Aug 21, the 93-year-old Malaysian leader has caused anxiety to all by making shocking announcements.

He has declared he would cancel the RM55 billion (S$18 billion) East Coast Rail Link (ECRL) and two gas pipelines being built by Chinese firms. As the ECRL is of strategic importance to China's Belt and Road Initiative, Beijing would expect a renegotiation of the contract terms rather than an outright cancellation.

Dr Mahathir had reasoned that with national debt of over RM1 trillion, Malaysia could not afford these projects. Although the Prime Minister said Chinese leaders understood Malaysia's situation, reactions of Chinese nationals on social media were unforgiving, with many suspecting he "has other motives".

  • >600b

  • Total value in ringgit of Chinese deals in Malaysia.

Many see Dr Mahathir as attempting to increase Malaysia's bargaining power in the negotiation for compensation for the cancelled projects. On social media, there are also suggestions that Dr Mahathir is targeting his predecessor as most China-linked projects were launched during Najib's rule.

And with Chinese nationals all riled up by the cancellation of the ECRL, Dr Mahathir also recently ordered the tall walls surrounding Alliance Steel, a subsidiary of a China steel company which is investing US$1.4 billion (S$1.9 billion), to be demolished. This was seen as unreasonably targeting a genuine FDI.

Although the Foreign Ministry later clarified the leader had mistakenly thought that the wall was built around the whole Malaysia-China Kuantan Industrial Park (MCKIP) that includes the steel plant, the anger of Chinese nationals lingers.

Dr Mahathir's comments have caught the attention of China's Global Times, the mouthpiece of the Communist Party of China. In an editorial on Aug 28, it said: "Many words of Kuala Lumpur can spread to China via the Internet, causing different reactions. How the Chinese public sees China-Malaysia cooperation is by no means inconsequential to Malaysia's interests."

It noted that "while Dr Mahathir advocates pursuing a policy of expanding friendly cooperation with China... when it comes to specific China-funded projects, his remarks gave rise to confusion. Like this time, it is startling to equate the controversy surrounding a factory wall with state sovereignty".

The MCKIP is co-owned by the Chinese, Malaysia's IJM Corp and the Pahang state government, and has drawn more than RM20 billion in Chinese FDI.

And then last week, Dr Mahathir said foreigners would be barred from buying residential units in the US$100 billion Forest City in Johor, causing another uproar.

Forest City is being developed by China's Country Garden Holdings, and aims to eventually house 700,000 people. As about 70 per cent of the home buyers are Chinese, some locals fear it could turn into a Chinatown. Country Garden has said all its property transactions complied with Malaysian laws.

Forest City and the ECRL, together with major construction contracts won by the Chinese and the inflow of industrial investments, bring the total value of Chinese deals to over RM600 billion in Malaysia.

If Dr Mahathir's comments on Forest City were meant to target the project and its owners, his move has certainly backfired.

The country will have to pay a price for his off-the-cuff statement.

The "new policy" will have serious ramifications as it will hit the value of properties not just in Forest City, but also in other China-linked and non-Chinese projects. Country Garden's Danga Bay project in Johor will also be hit. It faces a more daunting task to sell the balance of about 2,000 units, according to The Star's Starbiz section. Other Chinese developers like R&F Princess Cove and Greenland Group will be affected.

The change in government and the insensitive remarks on China-funded projects have turned Malaysia into a high-risk investment destination for the Chinese, according to Mr Li. "In the immediate future, more tourists from China are likely to shy away from Malaysia," Mr Li added. "Malaysia may not hit the target of having three million visits from China this year."


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A version of this article appeared in the print edition of The Straits Times on September 03, 2018, with the headline Rocky times feared for China investments in Malaysia. Subscribe