Mahathir casts a cold, hard gaze at China

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Malaysian Prime Minister Mahathir Mohamad on the campaign trail at Langkawi island, Malaysia, April 28, 2018. Photo: Reuters/Lai Seng Sin

Last week’s election of nonagenarian ex-leader Mahathir Mohamad in Malaysia, widely hailed as an important democratic milestone for the region, will also likely have wide-reaching strategic implications.

Mahathir’s return to power promises to bring a more robust and assertive Malaysian foreign policy, particularly vis-à-vis China, and with it a possibly firmer collective regional position.

As an undisputed strong leader who for decades played a central – and often controversial – role in regional affairs, Mahathir is expected to resume quickly his previous outsized role at the Association of Southeast Asian Nations (Asean), a ten-member regional bloc.

His critical position on China, a stark contrast to his predecessor Najib Razak, who struck a cozy and lucrative accommodation with Beijing, is already notable. From Mahathir’s perspective, Chinese investments have not necessarily been beneficial to ordinary Malaysians or local companies.

“Here we gain nothing from the [Chinese] investment…[w]e don’t welcome that,” he said on the campaign trail before the May 9 elections. He has also questioned the terms and economic value of Chinese investments in the country, particularly in the real estate and infrastructure sectors.

The former Malaysian strongman and current prime minister has also warned about an “influx of huge numbers of foreign [Chinese] people” into the country’s luxury real estate market, which he says could push up housing costs across the country.

UEM Sunrise's Estuari Gardens in Iskandar Puteri. UEM regards the hype generated by the huge Chinese investment as a bonus as it has raised awareness of the Iskandar Malaysia development and given its own projects a lift.

China’s UEM Sunrise’s Estuari Gardens housing project in Iskandar, southern Johor state, Malaysia, April 2017. Photo: AFP Forum 

In particular, he has questioned the Country Garden Holdings Co Ltd, a Guandong-based company that plans to invest as much as US$100 billion in Malaysia’s southern Johor state to build apartments with an average price tag of US$258,000. “We don’t have enough people with wealth to buy all those very expensive flats, so you’re bringing in foreigners,” exclaimed Mahathir in an interview with Bloomberg.

He has also raised doubts about the viability, as well as long-term strategic implications, of large-scale Chinese investments in Malaysia. Mahathir has cited examples like Sri Lanka, which recently conceded to a century-long debt-for-equity lease of public infrastructure (the Hambantota port) to China as repayment for debts it could not service.

“Lots of people don’t like Chinese investments,” Mahathir said. “We are for Malaysians. We want to defend the rights of Malaysians. We don’t want to sell chunks of this country to foreign companies who will develop whole towns,” he continued.

China was the top investor in Malaysia last year, responsible for as much as 7% of total foreign direct investment inflows. But many of those investments could soon become ensnared in local politics, as Mahathir moves to open investigations into his predecessor Najib’s financial and business dealings.

China became Najib’s main external backer, a relationship that may have pulled Beijing into the now notorious 1Malaysia Development Berhad (1MDB) scandal, in which the ex-leader stands accused of pilfering billions of dollars from a state fund.

“One of our partners in building the high income, high skills Malaysia of the future is China’s business community. I make no apology for saying that,” argued Najib earlier this year amid rising criticism over his reliance on Chinese investment.

Malaysian Prime Minister Najib Razak (L) and Chinese President Xi Jinping during a meeting at the Great Hall of the People in Beijing, November 10, 2014. REUTERS/Kim Kyung-Hoon

Malaysian ex-Prime Minister Najib Razak (L) and Chinese President Xi Jinping during a meeting at the Great Hall of the People in Beijing, November 10, 2014. Photo: Reuters/Kim Kyung-Hoon

Najib’s critics believe China essentially bailed out his administration by providing a financial lifeline to 1MDB, a state investment arm Najib created.

In recent years, traditional partners ranging from the United States to Singapore and France have launched criminal probes and frozen accounts associated with the 1MDB fund, which Najib oversaw as the chairman of its advisory board.

By going after the former administration’s questionable deals, Mahathir’s government is bound to reevaluate, if not downgrade, some of Najib’s major business deals with China. In fact, Mahathir has promised to place Chinese investments under greater scrutiny.

Malaysia may follow in the footsteps of the Philippines in the early 2010s, when the former Benigno Aquino administration launched investigations into major corruption scandals under the predecessor Gloria Macapagal-Arroyo regime.

Aquino’s government zeroed in on various big-ticket Chinese infrastructure projects, including a scheme to outfit government offices with broadband internet, which were mired in irregularities and graft that allegedly benefited Arroyo’s family and allies.

Setting a new tone, Mahathir has also taken a tougher stance on the South China Sea disputes. In previous years, Malaysia adopted a “keep quiet” diplomacy vis-à-vis China’s maritime assertiveness, in apparent hopes of preserving robust economic ties.

Mahathir Mohamad, former Malaysian prime minister and opposition candidate for Pakatan Harapan (Alliance of Hope) attends a news conference after general election, in Petaling Jaya, Malaysia, May 9, 2018. REUTERS/Lai Seng Sin

New Malaysian Prime Minister Mahathir Mohamad, Petaling Jaya, Malaysia, May 9, 2018. Photo: Reuters/Lai Seng Sin

In a departure, Mahathir has raised concerns over China’s militarization of the disputes and seeks to “ensure our voice is heard because Malaysia does have islands in the area and this we must uphold.”

In an interview with the Financial Times, he described China’s new leadership as “more ambitious” in its willingness to “flex their muscles a bit and that is very worrisome.”

He also raised has concerns over China’s ability to rapidly “increase their influence over many countries” in Southeast Asia, even “[w]ithout actually conquering” them.

Mahathir is expected to leverage his influence within Asean to push for a more robust and coherent regional approach to the South China Sea disputes.

Along with former Singaporean Prime Minister Lee Kuan Yew, Mahathir played a sustained and influential role in shaping Asean into a geopolitical force in the world.

And in a regional body where seniority carries weight, the 92-yeear-old Mahathir’s larger-than-life figure could portends a more assertive Asean via-a-vis China and in handling regional security crises.

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