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‘We Cannot Afford This’: Malaysia Pushes Back Against China’s Vision

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KUANTAN, Malaysia — In the world’s most vital maritime chokepoint, through which much of Asian trade passes, a Chinese power company is investing in a deepwater port large enough to host an aircraft carrier. Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea.

Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people and are being heavily marketed to Chinese citizens.

Each of these projects is being built in Malaysia, a Southeast Asian democracy at the heart of China’s effort to gain global influence.

But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a pushback against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary — except in their strategic value to China or use in propping up friendly strongmen.

Mr. Mahathir, 93, was voted into office with a mandate that included getting the country out from under its suffocating debt — roughly $250 billion of it, some of it owed to Chinese companies.

From Sri Lanka and Djibouti to Myanmar and Montenegro, many recipients of cash from Chinese’s huge infrastructure financing campaign, the Belt and Road Initiative, have discovered that Chinese investment brings with it less-savory accompaniments, including closed bidding processes that result in inflated contracts and influxes of Chinese labor at the expense of local workers.

Fears are growing that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and perhaps even deliberately luring vulnerable nations into debt traps to increase China’s dominion as the United States’ influence fades in the developing world.

“The Chinese must have been thinking, ‘We can pick things up for cheap here,’” said Khor Yu Leng, a Malaysian political economist who has been researching China’s investments in Southeast Asia. “They’ve got enough patient capital to play the long game, wait for the local boys to overextend and then come in and take all that equity for China.”

In his action in Beijing on Tuesday, Mr. Mahathir said he was halting a contract for the China Communications Construction Company to build the East Coast Rail Link, thought to have cost the government around $20 billion, along with a $2.5 billion agreement for an arm of a Chinese energy giant to construct gas pipelines. He had earlier suspended the projects, leading some analysts to believe he wanted to renegotiate the terms during his China trip. Instead, he announced that the deals were off for now.

“It’s all about borrowing too much money, which we cannot afford and cannot repay because we don’t need these projects in Malaysia,” Mr. Mahathir said.

Sitting at his desk during an interview after the election, Mr. Mahathir pointed to a sheaf of papers before him. It was a proposal from a Malaysian construction company that he said contained evidence that the East Coast Rail Link could have been developed by a Malaysian company for less than half of the $13.4 billion contract won by the China Communications Construction Company, a state-owned Chinese firm with extensive operations overseas.

Notably, the bidding process for the rail contract was closed.

Last week, Mr. Lim, the finance minister, told Parliament that Malaysia would not be able to cover the operational cost for the railway, much less the capital expenditure, which he estimated at nearly $20 billion rather than $13.4 billion.

Neither the Chinese company nor its Malaysian partner responded to requests for comment.

“It looks like not all the money is being used for building the railway line,” Mr. Mahathir said of the East Coast Rail Link deal. “The likelihood is the money has been stolen.”

Malaysian investigators are looking into whether an associate of Mr. Najib’s stepson may have brokered the rail deal to alleviate the debt accrued by 1MDB or to fund Mr. Najib’s re-election campaign.

The United States Treasury Department considers that associate, Jho Low, an exiled financier who has an arrest warrant out on him, to be the prime agent in the 1MDB scandal. On the eve of Mr. Mahathir’s trip to China, Malaysian finance ministry officials said they believed that Mr. Low had been hiding out in China.

Malaysia’s new administration, which unseated a coalition that had ruled, in one form or another, since independence in 1957, has also been scrutinizing the $2.5 billion deal for a subsidiary of the China National Petroleum Corporation to build energy pipelines in Malaysia. Mr. Lim said he had discovered upon taking up his post that the Malaysian government had already disbursed more than $2 billion for the project.

More than any other project, Forest City helped turn local sentiment against Chinese cash, amid suspicions that a private Chinese property developer was somehow secretly plotting to reshape Malaysia’s delicate ethnic balance.

“This is not Chinese investment but a settlement,” Mr. Mahathir said during the election campaign, using Forest City as a frequent punching bag.

Forest City is not a strategic play by the Chinese People’s Liberation Army to station warships in Malaysia. Nor is it viewed as a way for Beijing to finance the excesses of a corrupt leader. Instead, it represents something even more alarming to the average Malaysian — four man-made islands on which Chinese can live as they like and, in the process, dilute the Malaysian national identity.

Although the majority of Malaysians are Malay Muslims, the country’s second largest ethnic group is Chinese, followed by an Indian population. Many Chinese migrated to Malaysia during the colonial era, and the feeling that they were given preferential treatment by the British lingers to this day.

Affirmative action programs that gained full force during Mr. Mahathir’s first stint as prime minister ensure that Malays and indigenous populations get a leg up over ethnic Chinese Malaysians.

In that context, the prospect of a new wave of Chinese migration, even if only a population of part-time sunbirds, is politically sensitive in Malaysia.

But what if that wave doesn’t even materialize? Capital controls in China have made it far more difficult for Chinese to get their money out to pay for overseas real estate, worrying the Mandarin-speaking sales staff at Forest City. Who will buy all these condominiums, which are priced far above the local property market, if not the Chinese?


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