Malaysia’s geographical location, status as an influential middle power and its substantial coordination and implementation structures multiplies its importance to the node of Chinese, One Belt One Road. Geographically positioned between Thailand and Singapore, Malaysia is a useful connector in China’s broader infrastructure plans which include a high-speed railway Beijing envisions would eventually run from Kunming, China down to Laos and Thailand and onwards to Malaysia and Singapore.
For two reasons Malaysia is significant to OBOR, firstly, it is sitting on a strategic spot, in that Kuala Lumpur is quite close to the Malacca Strait, the second busiest waterway in the world. Trade statistics show that almost half of the world’s total annual seaborne cargo passed through this passage, which is jointly administered by Malaysia, Singapore and Indonesia. Secondly, Malaysia is now China’s largest trading partner in ASEAN and the third largest in Asia and its policy option can be used as reference for some other countries.
The Melaka Gateway is one such project, and provides a case study for a closer examination of the potential for OBOR investments in Malaysia to further Beijing’s strategic objectives. The strategic value of OBOR investments in Malaysia will not only increase China’s economic clout, but would also provide a solid logistical foundation to enable Beijing’s military aspirations. China has strong motivations to leverage its OBOR investments in Malaysia for strategic purposes, consistent with the plan’s revitalized focus. China’s 2015 defence white paper outlined a combination of ‘near seas defense’ and ‘distant seas protection’.
As Malaysia becoming gradually the major ASEAN partner in OBOR initiative being the beneficiary of more than US$200 billion worth of Chinese infrastructure and real estate investment. Malaysia’s need to upgrade its infrastructure to attract larger foreign investors and boost its slowing economy merges with China’s OBOR ambitions. But some of those investments have provoked suspicion about their potential to enable a Chinese military presence.
In addition, Malaysia can help China expand markets in other ASEAN and neighboring countries. All these factors together make Malaysia’s position key to the prospects of Belt Road. Several key areas and projects have been highlighted by both Malaysia and China under the umbrella of OBOR, including infrastructure, transportation, energy, property and even education and some progress have been made on each to date. For example, 60% of the equity of the 1MDB-owned Bandar Malaysia project in Kuala Lumpur was sold to a consortium led by a Malaysian company and China Railway Engineering Corp (CREC, a stated owned Chinese company) at RM7.41 billion in early 2016.
Since 2009, China supposed to been Malaysia’s largest trading partner. In 2015, China invested US$2 billion in Malaysia and total bilateral trade was US$100 billion. Given the strategic partnership initiative between both countries, Malaysia continues to be highly attractive outbound investment destination in China. China foreign investments in Malaysia will essentially translate to improved infrastructure and logistics and high-value job creation which ultimately facilitates Malaysia to become a high-income country by 2020.
With trade volume registering US$102 billion in 2014 , Malaysia has already been China’s largest ASEAN trading partner since 2008 and its third biggest Asian trading partner after Japan and South Korea. It is expected that the bilateral trade, which is growing at 8% yearly, will continue to expand.  This strong bonding is going to be strengthened in the face of the Chinese president Xi Jin-ping’s efforts to enhance regional connectivity. At the highest level, Prime Minister Najib Razak has agreed to support China in principle in MSR at the Boao Forum for Asia 2015 . Transport Minister Liow T iong Lai also indicated that Malaysia had looked into how it should prepare itself and the emphasis is on ports, railways and the aviation sector, seaports in particular.
As for now OBOR and MIC (made in china) 2025 strategies, Malaysia has a higher potential to attract Chinese Multinational companies (“MNCs”) to grow their business in Greater Kuala Lumpur (“GKL”). GKL’s optimal location in Asia enables them to leverage GKL as a gateway into the ASEAN region on the back of 633 million populations, with growing household income and increasing high standard of living. The alignment will enable Malaysia to benefit from the sharing of advanced technology, knowledge and experience, increased exposure to a global perspective, cultivate innovation and the creation of high-value job opportunities.
Malaysia US$6.8 billion deal with three Chinese state-owned companies to construct and manage a deep-sea port and Maritime Industrial Park on three reclaimed islands off Malacca city, as part of the larger US$9.7 billion Melaka Gateway mega-development. The facilities will include a container and bulk terminal, shipbuilding and repair services, and marine engineering and manufacturing services. On the other hand China General Nuclear Power Corp. (SOE) acquired Malaysia’s second largest power producer, Edra Global Energy Bhd, in a USD 2.3 Billion deal from Malaysia’s 1Malaysia Development Berhad (1MDB), a state fund.
The deal gives China major foothold in the Malaysian energy sector. China Railway Construction Corp. joined forces with Malaysian Iskandar Waterfront Holdings to acquire a 60% stake in a major 1MDB property project ‘Bandar Malaysia’. The parties formed a 40-60 joint venture, through which they have access to one of the largest sustainable urban development projects being conducted in Malaysia. These acquisitions happened after 1MDB defaulted on its bond payments. 1MDB is a development company owned entirely by the Malaysian government. China also ranks as the top foreign backer of Malaysian real estate projects, with total investments topping 2.1 billion US dollars.
Recent projects include upgrading and building new ports, creating industrial parks and iconic urban developments, power generation, train construction, building new rail lines, investments in manufacturing plants, logistics, and information and communication technology. “This idea of upgrading ports and building new ports is actually a dream come true. The government policy for the last 10 to 15 years has been to make Malaysia a hub because of the location. I think now with the Chinese idea of trying to help and upgrade the infrastructure it will become a reality,” said Abdul Majid Ahmad Khan, former Malaysian Ambassador to China.
Currently, there is cooperation between Malaysia and China on ports through a port alliance arrangement estimated to involve 11 Chinese and six Malaysian ports. China is keen to invest in Malaysia’s infrastructure projects for several reasons. Malaysia is viewed as politically stable, has favourable economic growth prospects, is highly ranked in trade competitiveness and has both traditional as well as new emerging areas for development in which to invest. Although BRI envisions major economic benefits, some fundamental challenges remain, such as geopolitical mistrust and economic constraints on China’s side. Examining China’s other major investments in Malaysia brings the strategic picture into sharper focus.
At Kuantan on Malaysia’s east coast, China jointly owns an industrial park and a 40% stake in the construction of a deep-sea port. Sand’s being rapidly dredged there to facilitate the US$12.4 billion East-Coast Rail Link, 85% of which is financed by China. The line will run from Port Klang on the west coast to Kuantan Port in the east, ending at Tumpat, near Malaysia’s northwest border with Thailand. Once complete, the railway will be a land bridge between Klang and Kuantan, enabling China-bound goods to bypass Singapore and the southern Malacca Strait. That’ll divert significant volumes of traffic away from Singapore and enhance China’s ability to control the flow of goods.
In 2016, during his visit to China Malaysian Prime Minister, Najib Razzak witnessed signing of fourteen agreements on several iconic and mega agreements between Malaysia and China worth RM144 billion. High Speed Rail (HSR) connecting Malaysia and Singapore is important but final results of final bidding will not be available until 2018. However, it is a general consensus that a Chinese-led consortium is one of the two most promising competitors (the other is Japanese-led consortium) because of its successful precedent as set in Indonesia.
Geopolitically, Malaysia is trying to seek a balance between the two big powers of the United States and China. If its getting involved in OBOR, Malaysia is also a member of TPP, a US-led trade agreement. Since OBOR and TPP are widely considered to be part of a rivalry between China and the US, the involvement of both projects clearly shows that Malaysia hopes to benefit from both but not to overly rely on any.
In a sense, the choice of “OBOR or TPP” reflects the choice of “US or China”, which is a common issue facing almost all the ASEAN countries, which is largely due to the geographic location of these countries. Although ASEAN countries try to speak with one voice, each of them have different responses to the “US or China” issue — some are more pro-American and others seem more pro-China. Of course, such is subject to change depending on their leadership and certain circumstances and the dispute over the South China Sea plays a key role in the policy option.
Last but not least, skepticism and concerns about OBOR can also be found in Malaysia. In addition to the dispute concerning the South China Sea, the “indifference” of Malay ethnic people as opposed to the “enthusiasm” of Chinese ethnic people and the exaggeration of the potential effect of OBOR are also challenges. However, it seems that the Malay-Chinese cooperation on OBOR hasn’t been influenced much by such opinions.
DISCLAIMER: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy and position of Regional Rapport.