Are the Chinese steering clear of Malaysia?

The deal between China Railway Engineering Corp (CREC) and Malaysian partner Iskandar Waterfront Holdings to buy a 60-per-cent stake in Bandar Malaysia, a major property development in Kuala Lumpur, from Malaysia’s scandal-hit state-investment fund 1 Malaysia Development Berhad (1MDB) fell through last week.
Last Wednesday TRX City, a former 1MDB division now owned by the Malaysian finance ministry, said that the collapse of the deal came after the Chinese-Malay partnership failed to fulfil payment obligations. The joint-venture company denied that accusation.
Two rumours are now circulating in the market – that President Najib Razak’s ruling Umno Party made a dramatic U-turn amid fear of anti-Chinese sentiment ahead of the August election; and that Beijing is imposing capital control to restrict Chinese companies’ investments overseas.
TRX City said that the finance ministry would retain 100-per-cent ownership to ensure Malaysians would benefit from the development, which is consistent with the ruling party’s political interests.
However, with the national economy facing serious threats from a host of domestic as well as external factors, Malaysia desperately needs Chinese investment.
Chinese funds have indeed relieved the debt pressure of 1MDB. Moreover, PM Najib has always placed great value on ties with Beijing, and will visit China again later this month.
If the U-turn was made out of political considerations, it could threaten the healthy mutual trust between our two counties – not a smart thing to do.
China imposed capital control measures to restrict capital outflows after the renminbi fell to its lowest levels against the greenback in eight years at the end of 2016. Such a policy affects the overseas acquisitions of Chinese companies, including real estate development projects.
Nevertheless, Bandar Malaysia is not just another ordinary investment. It also entails China’s national interests since Bandar facilitates China’s bid for the Kuala Lumpur-Singapore high-speed rail (HSR) project. If Beijing decides against investing in Bandar it would risk having the HSR project fall into the hands of the Japanese.
As such, these two rumours fail the test of logic. A report by The Star perhaps gets closer to the truth. It stated that that the deal was aborted because Malaysia was unable to fulfil Beijing’s “shopping list”, which included an assurance on China’s HSR bid.
The report explained that Umno leaders are concerned Chinese investment would dampen the party’s winning chances in the election, while the Chinese are applying pressure on Malaysia owing to the strategic importance of the KL-Singapore HSR project.
Malaysia’s announcement of the deal’s collapse was made in a hurried manner, evidenced by Najib’s last-minute cancellation of his visit to Bandar Malaysia.
The cancellation will nevertheless have negative impacts on the country’s development.
1. The 1MDB debt restructuring exercise could be at stake. 1MDB reached an out-of-court settlement to pay Abu Dhabi state fund International Petroleum Investment (IPIC) US$7.01 billion, hoping to raise $7.41 billion from the sale of Bandar Malaysia shares.
Uncertainties surrounding 1MDB’s debts will now deal a severe blow to the ringgit and Najib’s political hopes.
2. If the issue eats into the bilateral relationship with China, it will affect other major Chinese investments in Malaysia, including the East Coast Rail Line project.
The government must now provide a clear explanation on this matter before it further erodes investor confidence in the country.
Can Najib once again harness his diplomatic acumen to persuade Beijing to maintain cordial ties?
3. Can the Malaysian government unleash the economic potential of Bandar Malaysia, or will it be reduced to just another white elephant?
Against the backdrop of sluggish sale of KL’s commercial and luxury residential units, Bandar Malaysia could languish in the absence of any value-added and innovative solution.
Bandar is one of the mega-projects under the country’s vision for the future. The collapse of the deal proves that mega-projects do not assure progress unless they are managed properly.
It appears that everything is within our grip, from 1MDB to Bandar Malaysia, but unfortunately these projects have lagged behind the dramatic changes taking place in our world.