Asia Politics

Malaysia's prime minister, a vocal critic of Chinese investment, heads to Beijing

Key Points
  • Malaysian Prime Minister Mahathir Mohamad has criticized Chinese ventures in his home country for being too expensive and has suspended three China-backed projects worth around $22 billion that were signed under the previous administration.
  • As he begins a five-day visit to the world's second-largest economy on Friday, Mahathir is expected to try and renegotiate the terms of the deals brokered between the two countries.
Malaysian Prime Minister Mahathir Mohamad (center) after his coalition, Pakatan Harapan, won the 2018 general elections.
Lai Seng Sin | Reuters

As Malaysian Prime Minister Mahathir Mohamad — a critic of Chinese investment in his home country — visits the world's second-largest economy, he's expected to renegotiate a number of Beijing-backed deals that were signed before he entered office.

The 93-year-old leader, who marks his first 100 days in office this weekend, has repeatedly criticized Chinese ventures for being too expensive and not supporting Malaysian labor. He lands in Beijing on Friday and will be in the country until next Tuesday.

A former authoritarian leader who first ruled Malaysia from 1981 to 2003, Mahathir took his predecessor Najib Razak to task over the issue, accusing the scandal-ridden politician of "selling off" the country in exchange for Beijing's help in settling debts linked to troubled state fund 1MDB. Kuala Lumpur has received billions through the Belt and Road Initiative, Chinese President Xi Jinping's continent-spanning infrastructure venture.

Mahathir, the world's oldest prime minister, has also suspended three China-backed projects worth around $22 billion — two gas pipelines and a rail link — that were signed under Najib's watch. Explaining his decision at a news conference last month, the veteran politician said the contract and loan terms behind the deals were unfair, noting that the interest rates on China's loans were much higher than the 3 percent figure at which the government normally borrowed, the Associate Press reported.

Mahathir, whose approval ratings stand at 71 percent, is now expected to use his five days in China to win better terms on the agreements.

"A lot of people in Malaysia think most of those deals were overpriced so if the Chinese are willing to take a price cut, I suspect we'll hear some good news coming out of Beijing," said James Chin, director of the Asia Institute at the University of Tasmania.

This economist is 'optimistic' on the outlook for Malaysia
This economist is 'optimistic' on the outlook for Malaysia

The Malaysian leader doesn't want to take on too much Chinese debt and he's also looking to diversify foreign direct investment, which is currently dominated by Beijing, Chin explained. The Muslim-majority nation was the fourth biggest recipient of Chinese overseas direct investment in 2017, according to the Economist Intelligence Unit.

With national debt at $250 billion, or 80.3 percent of gross domestic product, Mahathir's coalition government is exploring ways to minimize pressure on state finances while still upholding its populist "manifesto." In fact, the cost savings achieved from delayed and canceled infrastructure projects with foreign partners, which includes a high-speed rail link with Singapore, allowed for some populist measures, such as the removal of a goods and services tax and a reintroduction of fuel subsidies, Peter Mumford, Asia director at political consultancy Eurasia Group, wrote in a note.

Mahathir's concerns on China highlight broader worries about the Asian giant's range of influence in Southeast Asia.

The Alibaba-led digital trade zone, for example, which is part of the Belt and Road, is expected to make cross-region shipments more affordable for Malaysian small and medium-sized companies. But many have argued that Alibaba holds too much control over the process, and that Chinese firms could sideline Malaysian players.

Tan Yew Sing, president of the Malaysia-China Chamber of Commerce, offered an optimistic assessment about Beijing and Kuala Lumpur ultimately reaching an agreement.

"In Malaysia, the majority of people are very confident that an amicable solution will arrive," said Tan, who is part of a business group accompanying Mahathir on the trip.

Malaysia's tax system 'isn't very robust' currently: Investor
Malaysia's tax system 'isn't very robust' currently: Investor

But renegotiating deals will be just one aspect of bilateral discussions, according to Tan. Rather, the visit is a broader opportunity for Beijing to understand Malaysia's new development policy as well as explore new areas of cooperation, he said.

In an interview with Chinese state-controlled news agency Xinhua on Thursday, Mahathir said he was still open to working with China, as long as it benefited Malaysia's economy. Foreign investment that brought in capital, technology and factories to produce goods for either domestic use or export, is welcomed, he told Xinhua.

He also stressed how Malaysia has benefited from China's development: "China's growth is much welcome to us, because it means that Chinese are richer," Xinhua quoted him as saying. "Malaysia is a trading nation, and we like to have our partners rich."