Chinese investment in infrastructure is often a diplomatic trap – Banyan

By Matt Dallisson, 04/02/2019

FOR MONTHS Mahathir Mohamad has been plucking up courage to declare that, when it comes to Chinese investment in infrastructure, his is the Malaysia that can say no. At a projected cost of $20bn, the East Coast Rail Link, planned to run down peninsular Malaysia’s eastern seaboard before cutting west, is a big deal. In fact it is the second-biggest of all the projects of the Belt and Road Initiative (BRI), China’s grand scheme to improve infrastructure across scores of countries, to tie East, West and all other compass points together.

For Dr Mahathir’s government, the link is a white elephant: the east coast is much less populated than the west. No process of competitive tenders took place when Dr Mahathir’s predecessor as prime minister, Najib Razak, awarded the construction and financing to Chinese state companies and banks. Mr Najib now faces charges over hundreds of millions of dollars missing from 1MDB, a state investment vehicle. The Malaysian government says it is investigating whether the rail link and lesser projects might have been awarded in an attempt to secure a Chinese bailout of 1MDB.

Either way, to Malaysians deals such as the East Coast Rail Link are lopsided. The project is financed almost entirely by Chinese loans. Chinese workers, not Malaysians, are hired to do the construction work. The returns are questionable, but the bills are not. Malaysia’s government debt has been shooting up. Chinese officials describe BRI as all about openness, mutual respect and “win-win” outcomes. Malaysia’s predicament gives the lie to that.

Yet Malaysia is clearly nervous about offending China by cancelling the deal. A minister recently announced the project was off; Dr Mahathir explained that Malaysia could not afford it. A day later, however, he reversed himself, saying no final decision had been made. There are more than fiscal considerations at stake.

Despite China’s denials, all the concrete-pouring is a giant act of international political engineering. Bruno Maçães, a former Portuguese foreign minister and writer on BRI, argues that its spillovers into politics and society “are not a bug in the project, but its most fundamental feature”. Under way is a return of sorts to earlier, celestial concepts of power and civilisation under which China sat at the heart of things. Moral, not legal, precepts governed relations among states. They included dependence, generosity, gratitude and reciprocity—but also retribution. In the case of Malaysia, ruling-coalition politicians say the Chinese government is exceptionally annoyed. It may punish Malaysia by importing less palm oil and curbing Chinese tourism (the number of visitors is already down for Chinese new year). It is even bringing race to bear, by trying to drive a wedge between the Malaysian government and Chinese-Malaysian businessfolk, many of whom fear that China’s anger will harm their commercial interests.

Meanwhile, others are watching closely. A report last year by the Centre for Global Development listed 23 countries involved in BRI that were at “significant” risk of debt distress. One of them, Myanmar, wants to cut the size of a port and economic zone in Rakhine state, as well as shelve for good a controversial dam on the headwaters of the Irrawaddy. Another, Pakistan, the biggest recipient of BRI projects, is facing a balance-of-payments crisis and has begged China for easier terms. Hawks making the running in the administration of President Donald Trump depict China as out to bankrupt weak governments, all the better to erode their sovereignty and dictate terms: “debt-trap diplomacy”.

That view is certainly overstated. Opportunism, rather than centrally directed purpose, defines many of China’s belt-and-road activities. Besides, there are risks for China. In Malaysia, Myanmar, Sri Lanka and, most recently, the Maldives, democratic forces came to power in part out of revulsion over autocrats cosying up to China. In Pakistan, Chinese diplomats have been murdered by Baloch separatists who see Chinese development as a threat to their lands. And though the Chinese builder of Sri Lanka’s empty Hambantota port took control of it on a 99-year lease when the government struggled to pay interest, how China benefits from the dud project is far from clear (India has, in effect, a veto over the port’s use by the Chinese navy). Still, Malaysia’s decision is important to others. If a fairly prosperous, robust country cannot stand up to China, then poorer, weaker nations certainly won’t be able to.