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Thayer Consultancy Background Brief

ABN # 65 648 097 123


Malaysia: PM Mahathir to Visit
China - What’s on the Agenda?
August 10, 2018

We are writing a report on China-Malaysia ties and the upcoming visit of Malaysia’s
Prime Minister Mahathir to Beijing. We request your assessment of the following
issues:
Q1. What do you think of PM Mahathir's suspending the projects from Chinese
companies? He said that he was more concerned with whether the project will bring
benefit to Malaysians, what do you think of this?
ANSWER: Prime Minister Mahathir led a coalition to power on the basis of opposition
to corruption and favoritism by former Prime Minister Najib. There was an
undercurrent of anti-China feeling in Malaysia that surfaced during the election
campaign. This sentiment was based on projects that imported Chinese workers and
equipment and aroused nationalist sentiment against the then Prime Minister Najib
who was portrayed as too China friendly.
Prime Minister Mahathir is mainly concerned about the lack of oversight by Najib that
let to contracts perceived as being overly generous to Chinese business. Mahathir
main concern is about debt burden his government must bear; that is why he
cancelled the East Coast high speed rail link and suspended two energy pipeline
projects. Mahathir seeks to review and renegotiate loans provided for infrastructure
projects.
Q2. What do you think the reasons of the PM Mahathir's visit later in August? How do
you evaluate the relations between the two countries?
ANSWER: Prime Minister Mahathir’s first visit was to Japan. His visit to China is part of
his larger commitment to his old idea of an East Asia Economic Caucus in which Asian
nations unite economically in promoting their prosperity. He formulated the EAEC in
response to United States membership in APEC. In other words he seeks a seat at the
table for Malaysia in the region’s economic affairs. At the same time, Malaysia in now
part of the Trans-Pacific Partnership 11.
State-to-state relations between Malaysia and China are quite good and Mahathir will
do nothing to undermine relations with Beijing. Malaysia is China’s second biggest
trading partner in Southeast Asia after Vietnam. Malaysia is one of the few countries
in the region to have a trade surplus with China and access to China’s domestic market
is important. Chinese investment in Malaysia has grown quite quickly but it has
produced a backlash in Malaysian nationalist circles. Mahathir will discuss this issue
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frankly with Premier Li Keqiang. Chinese tourism is a big contributor to Malaysian


economy. Chinese tourists rank third. Mahathir will continue to support Chia’s Belt
and Road Initiative.
Q3. What's your expectation towards the visit of PM Mahathir to China? What are the
main topics that they will discuss? How will the bilateral relations develop after the
visit?
ANSWER: Prime Minister Mahathir will seek to reset bilateral relations and economic
issues such as trade and investment will dominate discussions. Prime Minister
Mahathir will rise his concerns about domestic sensitivities over Chinese investment
and how the two sides might mitigate Malaysian nationalist sentiment. Mahathir will
want to exchange views with Premier Li and President Xi Jinping on President Trump’s
protectionism and the impact of a trade war on China, Malaysia and the region. As for
political relations, Mahathir will reassure his Chinese hosts that relations are good and
will continue on a steady course. There is the possibility that Mahathir will raise the
issue of Low Taek Jho (Lho Low) a fugitive from the 1MBD scandal who fled abroad
possibly to Macau or China.
Q4. PM Mahathir has also said that he would renegotiate the terms of the projects
with China, what's your take on this? Will the Belt and Road projects continue?
ANSWER: Mahathir will want to renegotiate the terms of $23 billion n Chinese loans
for infrastructure projects and increase the benefits that Malaysia receives. Mahathir
faces domestic pressure to take action against corruption in infrastructure projects
and the appearance that Malaysian sovereignty has been undermined by too much
reliance on Chinese loans and investment under PM Najib. Mahathir will take a
pragmatic approach; he will not be anti-China and will continue to support the Belt
and Road Initiative because it benefits Malaysia economically and politically.
Q5. Do Chinese companies have to worry about their investment in Malaysia? Why or
why not?
ANSWER: Chinese companies generally will not have to be concerned about
investment in Malaysia because Malaysia has benefitted from Chinese investment in
the past. But there is a risk of a negative impact on future Chinese investmen due to
sensitivities raised during the election campaign. Mahathir’s focus is on specific
projects and specific instances of corruption or favoritism towards Chinese-based
companies at the expense of Malaysian interests. Mahathir will not adopt across the
board anti-Chinese policies.

Suggested citation: Carlyle A. Thayer, “Malaysia: PM Mahathir to Visit China -What’s


on the Agenda?” Thayer Consultancy Background Brief, August 10, 2018. All
background briefs are posted on Scribd.com (search for Thayer). To remove yourself
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.