[Mahathir’s decision is a big blow for China, said Marina Rudyak, who studies Chinese foreign aid at Heidelberg University. “Xi Jinping frames BRI as China’s contribution in a ‘new era’ where China is a responsible global player,” she wrote in an email. “This means the canceled projects signify a failure of China’s economic diplomacy.”]
By
Amanda Erickson
 |
|
Malaysian
Prime Minister Mahathir Mohamad speaks during a news conference
at
the Great Hall of the People in Beijing on Aug. 20, 2018.
(How
Hwee Young/AFP/Getty Images)
|
BEIJING
— Malaysian Prime Minister
Mahathir Mohamad announced Tuesday he will shelve two major infrastructure
projects by Chinese companies for being too expensive for his debt-ridden
country.
The rejection of the projects, part of
China’s signature Belt and Road Initiative (BRI), was in stark contrast to the
prime minister’s cozy dinner with Chinese President Xi Jinping the day before,
when they said they were “optimistic” about their shared future and promised to
“enhance mutual political trust.”
“I believe China itself does not want to see
Malaysia become a bankrupt country,” he said. “China understands our problem
and agreed.”
One of the projects, dubbed the East Coast
Rail Link, would have connected the South China Sea with strategic shipping
routes in Malaysia’s west, providing an essential trade link. The other was a
natural gas pipeline in Sabah, a Malaysian state on the island of Borneo.
Mahathir said several key details, including
compensation, still have to be worked out.
At a Tuesday news conference, a Chinese
spokesman said Xi was “deeply satisfied” with the visit. “China has always
carried out economic and trade and investment cooperation with other countries
on the principle of mutual benefit,” he said.
“Of course, cooperation between any two
countries will inevitably lead to some problems, and different views may emerge
at different times,” the official said, adding that the countries would
continue to work together.
Mahathir’s decision is a big blow for China,
said Marina Rudyak, who studies Chinese foreign aid at Heidelberg University.
“Xi Jinping frames BRI as China’s contribution in a ‘new era’ where China is a
responsible global player,” she wrote in an email. “This means the canceled
projects signify a failure of China’s economic diplomacy.”
With its Belt and Road Initiative, China
thought it could outperform Western projects “while at the same time helping
Chinese companies to internationalize,” Rudyak said. “Turns out, there is a
reason for all those bulky international standards China had frequently
portrayed as obsolete and obstructing development.”
The World Bank, which funds infrastructure
projects in many developing countries, has said the Belt and Road Initiative
comes with potential benefits and risks. In a blog post this spring, a senior
World Bank economist said successful BRI projects could improve infrastructure
and commerce in countries that have had difficulty integrating into the world
economy.
But the economist, Michele Ruta, added that
for some countries, “the financing required for BRI projects may expand debt to
unsustainable levels.” Big infrastructure projects can also carry
“environmental, social, and corruption risks,” he said, especially “in
countries involved in the BRI, which tend to have relatively weak governance.”
Much of Asia’s trade passes through
Malaysia’s waters, between the Indian and Pacific oceans. The country also
boasts one of the most advanced economies in Southeast Asia, giving partners a
stable foothold in the region.
At one time, the country was happy to partner
with China. Mahathir’s predecessor, Najib Razak, accepted billions of dollars
in loans from China, giving Beijing opportunities to expand its presence in the
small country.
In the past few years, a major Chinese power
company began funding a giant deepwater port, part of a maritime trade route
designed to reach from Shanghai to Rotterdam. A Foshan-based developer is
installing artificial islands off the country’s coast that may someday house
nearly 1 million people, including Chinese citizens.
Now, though, that is changing.
In May, Najib was voted out of office. Among
other things, the corruption-plagued leader was accused of signing bad deals
with China to bail out his graft-plagued state investment funds. Malaysia is
struggling under $250 billion in debt. Mahathir said his decision to freeze two
big projects will help his country save money.
Last week, the Malaysian leader said he had
some concerns with how the projects were carried out. Bidding was closed, and
Chinese projects often import Chinese laborers rather than hiring locals.
In an interview with the New York Times,
Mahathir said he had evidence that the East Coast Rail Link could have been
built by a local company for about half of the $13.4 billion sum his
predecessor agreed to pay state-owned China Communications Construction.
(Malaysia’s finance minister predicted that the railway would end up costing
nearly $20 billion.)
He also said that Malaysia had already paid
$2 billion toward the $2.5 billion pipeline project, carried out by a
subsidiary of the China National Petroleum Corporation, but nothing had yet
been built.
“We do not want a situation where there is a
new version of colonialism happening because poor countries are unable to
compete with rich countries,” Mahathir said at a Monday news conference in the
Great Hall of the People in Beijing.
China’s Belt and Road Initiative has made the
country popular throughout Africa and Asia. China has spent $500 billion to
help redevelop key infrastructure, creating new shipping and rail lines that
will speed trade. But lately, some of the country’s recipients have said the
investment comes with too many strings, including closed bidding processes and
unfavorable leases and deals that give China prime access to many of these
projects once completed.
Several countries have begun trying to
renegotiate their deals with the Chinese government and key countries, says
Agatha Kratz, an associate director of the Rhodium Group who studies China’s
infrastructure investments.
And some countries are “realizing that
accepting too many Chinese (most often debt-financed) projects is weighing on
their fiscal strength, and can endanger their broader economic health,” she
wrote in an email. For example, China invested heavily in struggling Sri Lanka
after its civil war ended in 2009. But that investment came in the form of
loans for roads, ports and conference centers.
Today, Sri Lanka spends about 80 percent of
its government revenue paying down what it calls “unprecedented” debt — often
for near-empty highways or glossy international airports that host just one
flight a day.
“Projects with doubtful economic returns can
have significant economic as well as strategic consequences,” she wrote.
Several Western countries have even begun to
worry that there are security risks. Last week, a Pentagon report suggested
that China is using the initiative to gain control of the developing world.
“Countries participating in BRI could develop
economic dependence on Chinese capital, which China could leverage to achieve
its interests,” the report said.
Jeanne Whalen in Washington contributed to
this report.
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