News & Views

MALAYSIA’S BELT AND ROAD SUCCESS

Posted on 26th April 2019

China’s “One Belt One Road” (OBOR) initiative has far reaching political and economic ramifications for the Asia Pacific region as well and the rest of the world, as it boldly endeavours to connect nations through trade and business networks. However, it has also come under criticism for its apparent exploitative terms of engaging with countries that are unable to negotiate balanced terms for needed infrastructure projects that China is prepared to build or finance.

One strategic project in the OBOR initiative involves the construction of a rail link across the Malaysian peninsular that would enable goods to move from the Straits of Malacca to the South China Sea without having to traverse the tip of the peninsular. Known as the East Coast Rail Link (or ECRL) the project could  give rise to huge costs and time savings for the transhipment of goods from the West to East Asia and, vice versa. Currently, vessels moving from the West across the Indian Ocean have to travel through the Straits of Malacca, pass Singapore before journeying on to the South China Sea and northwards towards ports in Vietnam, China, Japan and Korea. Whilst the costs savings are debatable, the geopolitical implications and economic impact for Malaysia and China are vast.

Initially launch and approved by the Malaysian government under Najib Razak, it was temporarily shelved due to its excessive costs and the disproportionate involvement of Chinese resources for the project. Many saw the new Malaysian government’s turnaround on the project a snub towards China. That position has since changed with the recent announcement by the Malaysian government that it had successfully renegotiated the terms of the ECRL and that the parties had agreed a 30% reduction in the overall cost of the project.

One of the positives from the megaproject will be the generation of jobs for the construction industry and its economic multiplier effect. 40% of the total cost of the project or US$4.2 billion will be allocated to local players according to CIMB Equities Research which will ensure that there will be a sizable local involvement. Malaysia also negotiated the waiver of the termination penalty of about US$5.2 billion, another boon to its economy.

There were clear incentives on both sides to reach a successful conclusion. Malaysia needs an injection of new capital and government spending for its economy and a successful OBOR outcome with a key player in South East Asia would allow China to salvage its credibility under the programme that has been tarnished by questionable projects in countries such as Sri Lanka and Pakistan where China has been accused of debt trap diplomacy. 

As Dr. Ng Cheow Beng of the University of Malaya points out,

 “China wants to show the world that it can be flexible and is willing to work with and renegotiate with host countries over problematic projects”.

RLSE Corporate Team