How Malaysia's new government could test ties with Singapore

Key Points
  • A high-speed railway project connecting Singapore and Malaysia has become representative of strengthened ties between the two nations.
  • But there's a chance the project, scheduled for completion in 2026, may be cancelled by the new government of Malaysian Prime Minister Mahathir Mohamed.
  • Bilateral relations could weaken in that scenario.
A view from Singapore of the border crossing into the Malaysian southern city of Johor Bahru.

Singapore and Malaysia may find their relationship under pressure if the latter's new government withdraws from a rail project that's become emblematic of improved bilateral ties.

Uncertainty clouds the future of a 2016 deal to construct a high-speed rail network between Kuala Lumpur and Singapore after Malaysian Prime Minister Mahathir Mohamad said this week that all foreign infrastructure programs will be reviewed. His administration will be assessing existing initiatives on feasibility of as well as the sum of borrowed money.

Scrapping the 350km rail network, which is expected to slash travel time between the two cities to 90 minutes from a four to five-hour car journey, could reintroduce tensions into Malaysia's interactions with its wealthy, next-door neighbor.

For decades, relations between the two were uneasy after Singapore separated from Malaysia to become an independent nation in 1965. The two now enjoy a warm alliance — despite occasional hiccups over issues such as territory and water — that the Kuala Lumpur-Singapore high speed rail project is meant to represent.

"The rail is a very important project symbolizing the mending of ties between Singapore and Malaysia in the 2010s," said Chan Xin Ying, a Malaysia-focused research analyst at Nanyang Technological University.

Malaysia's new coalition government will pursue 'sensible' economic policies
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Mahathir, a 92 year-old veteran politician who swept to power in last week's election, has previously opposed the rail link, referring to several mega-projects sanctioned by his predecessor Najib Razakparticularly Chinese investments — as "wasteful" and "unnecessary."

"Diplomatic ties with Singapore may not be as warm as they were under Najib but will only become strained if Mahathir cancels the rail link," Peter Mumford, Asia director at political consultancy Eurasia Group wrote in a Wednesday note. "It would be surprising, but not unimaginable, if [Mahathir] pulls out," Mumford continued.

Shares of YTL, a conglomerate awarded part of the contract to build the railway, fell more than 8 percent Monday when the Malaysian stock market resumed trade post-election.

For now, it's still too early to make any conclusions.

"Any decisions on economic projects and foreign relations, including the high-speed railway, will not be the PM's decision alone," according to Chan. Mahathir himself has stated that if the project is deemed feasible, it could even extend up to the Malaysia–Thailand border, she continued.

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According to BMI Research, the Kuala Lumpur-Singapore train is politically popular and economically sound so it's likely to move forward.

"Its business case is supported by the fact that Singapore to Kuala Lumpur is the world's busiest international air route," the analysis firm said in a report. "Contracts and tendering processes are likely to be reviewed, however, given that the Malaysian implementing agency MyHSR was directly under the control of former Prime Minister Najib Razak," it said.

Aside from the rail link, Mahathir's electoral victory is seen as a positive for Singapore.

"Singapore will likely welcome a stronger Malaysian voice in ASEAN pushing for regional integration, and delays or cancellations of China-backed rail and port investments in Malaysia would reduce the risk of a competitive threat to its leading status as a logistics hub," Mumford stated.