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Research Article ‍ ‍
Journal of Current Chinese Affairs
Malaysia’s Hedging
2020, Vol. 49(1) 106–131
© The Author(s) 2020
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DOI: 10.1177/1868102620964219
China Under Mahathir journals.sagepub.com/home/cca
Mohamad (2018–2020):
Direct Engagement, Limited Balancing,
and Limited Bandwagoning
Alfred Gerstl ‍ ‍
Abstract
To mitigate the risks and maximise the opportunities arising from China’s great power
behaviour, Malaysia employed a hedging strategy during Mahathir Mohamad’s second
term as prime minister. From 2018 until 2020, the middle power Malaysia applied direct
engagement and elements of limited balancing and limited bandwagoning in a flexible
yet consistent manner. Neither China’s Belt and Road Initiative (BRI) nor its actions in
the South China Sea caused a sea change in Malaysia’s hedging strategy. Crucially, the
policies towards China were embedded in omnidirectional, friendly, and well-balanced
relations with the United States, Japan, and the Association of Southeast Asian Nations
(ASEAN). Theoretically, this contribution applies an updated concept of hedging, ini-
tially introduced by Cheng-Chwee Kuik. As an important innovation, it adds a specific
component to assess the perceptions of the political leader(s) of risks and opportuni-
ties related to the hedging target as well as the strategic value of potential balancing
partners.
Manuscript received 17 October 2019; accepted 15 September 2020
Department of Asian Studies, Palacky University Olomouc Faculty of Arts, Olomouc, Czech Republic
Corresponding Author:
Alfred Gerstl, Department of Asian Studies, Palacky University Olomouc Faculty of Arts, Vodarni, Olomouc
779 00, Czech Republic.
Email: alfred.gerstl@upol.cz
Creative Commons CC BY: This article is distributed under the terms of the Creative Commons
Attribution 4.0 License (https://creativecommons.org/licenses/by/4.0/) which permits any use, reproduction
and distribution of the work without further permission provided the original work is attributed as specified
on the SAGE and Open Access page (https://us.sagepub.com/en-us/nam/open-access-at-sage).
Gerstl 107
Keywords
Malaysia, hedging, China, Belt and Road Initiative, South China Sea
Introduction
Traditionally, Malaysia and China share “a cautiously friendly relationship” (Kwek and
Hoo, 2020). Despite the ongoing tensions in the South China Sea, bilateral – and in par-
ticular economic – relations improved under Prime Minister Najib Razak (2009–2018).
All in all, he continued the use of a hedging strategy towards China, already employed
by Mahathir Mohamad during his first term in office (1981–2003; Goh, 2016; Kuik,
2016a: 156; Wey, 2017: 397). After his surprising return to power in May 2018, Mahathir,
however, stopped certain key projects that Malaysia and China had signed under the
framework of the Belt and Road Initiative (BRI). This move raised questions as to
whether Malaysia would abandon its hedging strategy in the era of Mahathir 2.0, possi-
bly opting either for balancing against the rising power or bandwagoning with it.
China’s economic importance for Malaysia was already significant at the end of
Mahathir’s first term; after that it further increased, notably after the introduction of the
BRI in autumn 2013. This contribution regards the New Silk Road as a key frame for
Beijing’s conduct of its bilateral relations. While the BRI, at first sight, seems to offer the
developing nation Malaysia significant economic opportunities, due to the unresolved
South China Sea dispute – the two parties have overlapping territorial claims in the
Spratly Islands group – China also poses considerable security risks. Since 2019, ten-
sions have increased due to Chinese exploration activities in Malaysia’s Exclusive
Economic Zone (EEZ). The BRI and the South China Sea dispute will therefore be used
as the two key variables for assessing Putrajaya’s strategy towards the People’s Republic
of China (PRC) during Prime Minister Mahathir’s second term from May 2018 until
February 2020.
The research questions are as follows. First, why does the middle power Malaysia
hedge against China? And second, how did the BRI and the South China Sea dispute
impact Malaysia’s hedging strategy under Mahathir?
To answer these questions, an updated concept of hedging, originally introduced by
Kuik (2008), will be applied. It consists of five components: the hedger’s perceptions of
risks and opportunities posed by the hedging target and of the strategic value of potential
balancing partners; political-diplomatic engagement; economic engagement; limited
balancing; and limited bandwagoning.
The first part of this article critically reviews the academic debate on hedging and intro-
duces the theoretical and methodological framework. Afterwards a brief assessment of
Malaysia’s relations with China in the context of the BRI and the South China Sea dispute
will be provided. Subsequently, the analytical framework will be applied. Thereby, first, the
perceptions of Malaysia’s leadership on risks and opportunities in its relations with China
and its views on the potential balancing partners United States, Japan, and the Association
of Southeast Asian Nations (ASEAN), will be assessed. In the following, the four other
108 Journal of Current Chinese Affairs 49(1)
elements of Malaysia’s hedging strategy will be investigated. Finally, the conclusion will be
drawn, including a critical discussion of the applied hedging framework.
Theoretical Frame
Hedging – A Plurality of Competing Concepts
Hedging is currently a fashionable concept in international relations (IR) theory. The
main reason is that in both a bipolar and a multi-lateral order, it offers smaller nations an
additional strategic option to react to the policies of more powerful states, not least to the
uncertainties and risks posed by the behaviour of a rising power. Hedging conceptually
challenges the usually strict dichotomy between balancing and bandwagoning in the
neorealist balance of power theory (Waltz, 1979). Rather than following either a pure
balancing or pure bandwagoning strategy, middle powers can simultaneously mix ele-
ments of both balancing and bandwagoning to insure themselves against sudden changes
in the behaviour of great powers. Hedging thus conceptually reconciles apparent oppo-
sites within a new theoretical framework. However, this reconciliation can confuse the
concept of hedging, if hedging – and in particular balancing – are conceptually not prop-
erly distinguished (Haacke, 2019: 389–391).
Another reason for the popularity of hedging is that many authors find empirical evi-
dence for countries simultaneously engaging with and partly balancing against the same
great power – especially in Southeast Asia (Beeson, 2019; Goh, 2005: 2; Wu, 2019:
569). While usually strongly engaging economically with China, they hedge through
security co-operation with the United States against negative strategic impacts of China’s
rise. Yet the specific hedging strategies of Southeast Asian governments vary consider-
ably, but are also interpreted differently by different authors, as Haacke (2019: 381–388)
demonstrates convincingly.
This assessment shows that although hedging is increasingly applied in the literature,
due to the different meaning and understanding of the concept, its “analytical value is no
longer obvious” (Haacke, 2019: 375). There exists a broad variety of conceptualisations
and competing definitions, but no undisputed definition (Ciorciari and Haacke, 2019;
Wu, 2019: 558–560). It is therefore sometimes contested whether a country hedges –
and, if so, how exactly it hedges, that is, which set of policies it applies. Thus it comes as
no surprise that there exists no consensus on criteria to measure the actual hedging
behaviour and the success of the hedging strategy (Ciorciari, 2019: 527–533; Koga,
2018: 636–637). Thus, hedging is still a theoretically and analytically vague, sometimes
blurred or overstretched concept.
The theoretical confusion about hedging, however, is also at least partly owed to the
competitive logic of academia, as authors, in order to attract more citations, use a pleth-
ora of different adjectives (such as “heavy,” “light,” “moderate,” “limited,” “extensive,”
“security,” or “diplomatic”) to distinguish between specific types and forms of hedging
(e.g. Koga, 2018: 641–642). Therefore, students of IR should remain critical of many
self-proclaimed novel approaches. An illustration is the special issue of International
Relations of the Asia-Pacific (2019) with important contributions, inter alia, from
Gerstl 109
Ciorciari (2019), Ciorciari and Haacke (2019), Haacke (2019), and Korolev (2019). The
authors provide an excellent critique on the current state of theory-building and method-
ological deficiencies. However, even some of their intriguing new approaches contain
certain shortcomings, notably a lack of clearly defined criteria to operationalise hedging.
In other words: conceptualising hedging is still a work in progress.
Ideally, hedging provides smaller powers insurance against negative impacts of the
uncertain behaviour of a great power. As Kuik (2008: 171) puts it, hedging is “a strategy
that works for the best and prepares for the worst.” Goh (2005, 2006) regards hedging as
a “middle position” between pure balancing and pure bandwagoning. Small and middle
powers cultivate a position “that forestalls or avoids having to choose one side (or one
straightforward policy stance) at the obvious expense of another” (Goh, 2006: 1; cf.
Goh, 2005: 3). While there is a strong consensus in the literature on this notion (Kuik,
2008: 165), early studies on hedging did not clearly distinguish between hedging on the
one hand, and balancing and bandwagoning on the other hand. The distinction between
hedging and especially balancing is indeed blurred, because the latter “is sometimes
nebulous” (Goh, 2006: 3), not least as it is sometimes further split into various categories
such as hard and soft balancing.
In line with Goh (2005), Kuik (2008), and Koga (2018), this contribution regards
hedging as a mixed policy approach. Accordingly, hedging can be defined as “a behaviour
in which a country seeks to offset risks by pursuing multiple policy options that are
intended to produce mutually counteracting effects […]” (Kuik, 2008: 163). Inherent for
this understanding is that a hedging behaviour is not restricted to the political-diplomatic,
security, or economic dimension. Rather, a promising hedging strategy needs to combine
policies and approaches from all three policy areas. Certain authors, however, are more
restrictive, arguing that a hedging concept should be focused on either the security or
non-security sphere (Lim and Cooper, 2015: 700).
Due to the origins of the concept in finance theory, mitigating risks is the starting
point for conceptualising hedging. Accordingly, in IR, hedging can in a basic form be
conceived “as a risk management strategy” (Haacke, 2019: 377). A hedger applies a set
of policies to respond to broadly defined risks and uncertainties rather than specific,
clearly defined threats. The distinction between risks and threats sets hedging apart from
balancing and bandwagoning, as they later deal with threats rather than risks (Ciorciari
and Haacke, 2019: 369). However, the notion of hedging should include the possibility
that a risk may develop in a threat (Haacke, 2019: 393).
Furthermore, the concept of hedging should not be limited to solely mitigating risks
– a hedging strategy can also be utilised to reap benefits from the relations with the hedg-
ing target (Goh, 2016; Kuik, 2008: 171). In the finance sector, investors apply a hedging
strategy to insure themselves against falling stock market prices, but also utilise addi-
tional instruments to generate positive returns. Hedging in IR is also inherently both a
reactionary and a precautionary approach. For both dimensions, a crucial tool in the
hedging policy basket is direct political and economic engagement. Through a compre-
hensive hedging strategy secondary powers can reap in an almost opportunistic manner
current and future economic and security benefits from the hedging target, while
maintaining their insurance options through close relations with other nations. A hedger
can therefore pursue both “risk-contingency” and “returns-maximising” options within
a single strategy (Kuik, 2008: 171, 2016a: 3–7).
Lim and Cooper (2015) add another important element to the hedging equation, namely
upholding ambiguity in regard to security alignments of the hedger. Hedging is therefore
“also a fundamentally dynamic strategy” (Goh, 2016), as it requires constant adjustments to
ensure maintaining this ambiguity. It aims to reduce the risk of being forced to make an
alignment choice, because, while alignment with a great power provides insurance against
another great power, the likely price is reduced autonomous decision-making (Wu, 2019:
560). However, in case of a conflict, great powers may demand a clear commitment from a
secondary power. Consequently, without a conducive international environment its only
option might be to choose between balancing or bandwagoning.
Accordingly, an inherent conceptual danger of hedging is that it may overstate the degree
of autonomous decision-making of middle powers in international politics to respond to the
behaviour of the hedging target with a planned elaborated and coherent strategy. A major
criticism of hedging is that it is a broad umbrella framework comprising seemingly very
opposite policies. A sound hedging framework must therefore be able to reveal whether a
nation follows a consistent hedging strategy – or whether it merely reacts to the policies of
a great power with ad hoc actions that are not directly related to each other.
Introducing an Updated Hedging Concept

In applying an updated hedging framework, based on Kuik (2008, 2016a, 2016b) and
with interesting amendments made by Hiep (2013), this article aims at making a humble
contribution to the theoretical discussion and empirical analysis of hedging in Southeast
Asia. Kuik introduces five components, namely, indirect balancing, dominance-denial,
economic pragmatism, binding engagement, and limited bandwagoning. This contribu-
tion also applies five components, significantly differing in major aspects: (1) percep-
tions of risks and opportunities posed by the potential hedging target and perceptions of
the strategic value of potential balancing partners, (2) political-diplomatic engagement,
(3) economic engagement, (4) limited balancing, and (5) limited bandwagoning
(Table 1).
The renaming of some of Kuik’s components does not occur for the sake of renaming,
but to emphasise substantial distinctions, notably the more prominent and complex dimen-
sion of engagement and the broadening of the balancing component. In addition, the author
does not believe that Kuik’s “dominance-denial” needs to be a separate component, as
upholding a regional balance of power through maintaining (relatively) equal relations with
all great powers is traditionally a fundamental objective of the Southeast Asian governments
and ASEAN alike. Moreover, not even all Southeast Asian countries together have the
power to prevent a major external actor from becoming dominant in the region. The very
aspect of dominance-denial, however, has been incorporated into the three components
political-diplomatic, economic engagement, and limited balancing.
The re-conceptualised hedging framework is deliberately comprehensive, but not too
broad to become arbitrary, ensuring its analytical power. All in all, the five components
Gerstl 111
Table 1. Hedging – Components and Criteria.

Component Criteria
Why does a state hedge?
Perception of risks and opportunities Risks: security (sovereignty and territorial integrity),
related to the hedging target economics (dependency), domestic politics (autonomous
decision-making)
Opportunities: security (increase), economics (increased
exchange), domestic politics (increased regime legitimacy
due to socio-economic development)
Perception of the strategic value Politics, security, and economics (i.e. their strategic value as
of other great powers and potential balancing partners)
international organisations
How does a state hedge?
Political-diplomatic engagement Political-diplomatic relations (political visits, number and
depth of agreements)
Economic engagement Economic relations (trade, FDI, tourism, etc.)
Limited balancing Security relations (1) – internal (economical and military
capacity building) and soft balancing (bi- and multi-lateral
non-military partnerships)
Limited bandwagoning Security relations (2) – political and security agreements with
hedging target
Note: FDI = Foreign direct investment.
illustrate a mix of co-operative and confrontative measures that can be applied simulta-
neously by a hedger. The most significant amendment made by the author is the intro-
duction of a component addressing the perceptions of a hedger. The reason for its
inclusion and prioritisation in the framework is the convincing assumption of Hiep
(2013: 337) that how a nation prioritises and utilises the policy tools a hedging strategy
provides “depends on a state’s security perception of the partner to which the strategy is
to be applied.”
While the first component “perceptions” ascertains why a country hedges instead of
pursuing either a balancing or bandwagoning strategy, the other four assess if and how a
nation hedges against a superior power. The explanatory variable “perceptions” exam-
ines, first, the perceptions of the hedger of the risks posed by the hedging target in the
realms of security (sovereignty and territorial integrity), economics (dependency), and
domestic politics (autonomous decision-making). Second, it simultaneously investigates
perceived opportunities offered by close relations with the hedging target in the areas of
security (general increase), economics (increased exchange), and domestic politics
(increased regime legitimacy due to socio-economic development thanks to better bilat-
eral security and/or economic relations; this last sub-criteria will not be addressed in this
contribution). Additionally examined in this component will be leaders’ perceptions of
the strategic value of potential balancing partners, namely other great powers and inter-
national organisations. Due to the selection of clear sub-criteria, the comprehensive
dimension “perceptions” is operationalisable. Future studies, however, may further nar-

row down the sub-criteria. It is, however, important to stress that even though the per-
ceptions of the leader(s) guide the foreign policy, they are usually strongly embedded in
the established foreign policy traditions and practices of their country. National interests
and the perceptions thereof do not change from one day to the other, because the element
of continuity is usually strong in foreign policy (for Malaysia, see Noor, 2019).
Engagement is covered by two components: “political-diplomatic” and “economic
engagement.” The former addresses the state and quality of the diplomatic and political
relations with the hedging target and other great powers; it can be measured by the num-
ber of political visits and the number and depth of agreements (Hiep, 2013: 344).
Through “economic engagement,” a state aims at maximising the economic benefits of
its relations with the hedging target and other key partners. It covers criteria such as
trade, trade agreements, investments, tourism, student exchange, and so on.
In including the hedger’s relations with other key partners, this framework deepens
Kuik’s related components. This broadening is important to put the economic and polit-
ical influence of the hedging target in a necessary comparative perspective. It thus
enables an assessment of whether the hedger has risk mitigation options at all, that is,
potential economic and security partners.
Components four and five of the framework cover the security dimension. Regarding
hedging as a mixed policy approach, this contribution claims that forms of both balanc-
ing and bandwagoning can be applied in a hedging strategy without blurring the very
concept of hedging (but cf. Ciorciari and Haacke, 2019: 370). “Limited balancing” and
“limited bandwagoning” are conceived deliberately broadly, but below the threshold of
pure balancing and pure bandwagoning, because in the case of the application of one of
the latter two approaches, the behaviour would not be classified as hedging.
“Limited balancing” consists of balancing by internal means, that is, the strengthen-
ing of a nation’s economic capabilities and military self-help capacities, and soft balanc-
ing, that is, the utilisation of non-military bi- and multi-lateral partnerships with states
and international organisations to constrain the freedom of action of a great power.
Unlike in the case of hard balancing, no formal military alliances or coalitions are estab-
lished (Han and Paul, 2020: 4–6). The reason for excluding this form of balancing is that
in Southeast Asia only the Philippines has a mutual defence treaty with a great power,
namely with the United States.
According to Walt (1987: 17), bandwagoning refers to “aligning with the source of
danger” and is driven “by the opportunity for gain” (Schweller, 1994: 74). Thereby the
weaker party concedes that the stronger partner will benefit more from the jointly gained
benefits (Mearsheimer, 2001: 162–163). The weaker form of limited bandwagoning can
be understood as an agreement of the hedger with the hedging target to co-ordinate on
certain policy issues. The difference to traditional diplomacy is that the weaker party has
to make more compromises. This definition includes the possibility that a state bandwag-
ons with a great power, but maintains close relations with other nations. Overall, the
secondary power seeks to avoid losing its autonomy or becoming over-dependent (Kuik,
2008: 168–169). In order to examine a smaller nation’s limited bandwagoning behaviour,
Gerstl 113
its security relations (in this case with a focus on the South China Sea) with the hedging
target will be assessed.
Assessing the hedger’s behaviour in the four components of political-diplomatic
engagement, economic engagement, limited balancing, and limited bandwagoning dis-
closes how it mitigates the perceived risks posed by the hedging target through a mix of
co-operative and confrontative measures. This assessment also reveals how the hedger
utilises the opportunities offered by closer relations with the hedging target. Moreover,
this assessment provides a reality check, that is, whether the hedger’s actual behaviour
is in line with its verbally stated perceptions.
In this article, the component “perceptions” will be assessed through a qualitative
analysis of speeches and interviews of Mahathir Mohamad. Being a strong and outspo-
ken leader, Mahathir’s public statements carried enormous political weight. The criteria
for the selection were references to Malaysia’s relations with China in general as well as
with other great powers and ASEAN, the BRI, and the South China Sea dispute. Using
the categories security, economics, and domestic politics as an analytical matrix, the
texts have been systematically evaluated, identifying and subsequently generalising
statements that address risks and opportunities fitting into these categories.
There are, however, two analytical limitations: Due to a lack of proficiency in Malay,
only speeches and interviews in English could be assessed, and their number is limited
to seven. Nevertheless, as the majority of the interviews were conducted by reputable
international media, they must be regarded as an unfiltered statement of Mahathir’s
views made for a broad audience. In addition, official Malaysian policy papers on for-
eign and security policy have been included in the analysis and embedded in the broader
secondary literature to identify continuity and potential shifts in Malaysia’ foreign policy
under Mahathir 2.0. The analysis of the four other components is based on secondary
literature and quantitative data.
Malaysia, the BRI, and the South China Sea Dispute

A key feature of the political system of the Federation of Malaysia (33.6 million inhabi-
tants) is a strong executive with the prime minister as the dominant political figure.
Malaysia is usually labelled a semi-democracy; yet the surprising victory of Mahathir
Mohamad’s Pakatan Harapan (Alliance of Hope) in the parliamentary elections in May
2018 and the smooth transfer of power proved the maturity of the Malaysian democracy.
The then ninety-two-year-old Mahathir’s return to power triggered, at the first glance, a
significant change of Malaysia’s foreign policy: Putrajaya became – under Mahathir,
who had already ruled the country from 1981 until 2003 – more sceptical about the New
Silk Road. During the electoral campaign, he built on nationalism and anti-Chinese sen-
timents, criticising large-scale and costly BRI projects. Yet he blamed former Prime
Minister Najib and his cronies for the unfavourable deals and lack of transparency, not
Beijing (CNBC, 2018). During Najib’s term, “Chinese-backed projects thrived in what
was later described as a corruption bonanza” (Tritto and Camba, 2019). Under Najib, the
relations with the PRC deepened, but he was also on a good footing with the United
States – up until Washington’s criticism of the 1Malaysia Development Berhad fund

(1MDB) scandal became stronger.
The BRI, previously known as One Belt, One Road (OBOR), can be regarded as a geo-
economic initiative with increasing intended and unintended geopolitical repercussions on
the participant countries and the bystanders alike. Consisting of the land-based Silk Road
Economic Belt (SREB) and the 21st Century Maritime Silk Road (MSR), the BRI comes as
a package: its overall logic is to forge better connectivity and economic exchange between
Asia, the Middle East, Africa, and Europe as well as to establish overarching institutions
such as the Asian Infrastructure and Investment Bank (AIIB) and the Silk Road Fund.
Initially, it was viewed very positively in most countries – the United States, India, and
Japan being the most prominent exceptions. However, since Sri Lanka was forced to lease
the port of Hambantota for ninety-nine years to a Chinese company due to financial prob-
lems, scepticism increased. In March 2019, the European Union (EU) portrayed the PRC as
a partner, but also as a competitor and, for the first time, even as a “systemic rival promoting
alternative models of governance” (European Commission and High Representative of the
Union for Foreign Affairs and Security Policy, 2019: 1).
Criticism of the BRI and its potential negative economic and strategic impacts on the
participant countries has also been increasingly raised in Southeast Asia (Gong, 2019:
642–647). Due to its strategic location, the region features prominently in the New Silk
Road scheme. Both the SREB and the MSR pass through Southeast Asia, notably
Malaysia. The Chinese President Xi Jinping deliberately announced the MSR in a speech
in Jakarta in October 2013. However, the Chinese government has not yet formulated
coherent BRI objectives for the region (Blanchard, 2018: 333). Conversely, ASEAN has
no common policy on the BRI. The ten member countries only endorsed the BRI bilat-
erally with China in the form of a rather vague Memorandum of Understanding (MOU).
Malaysia, from the very beginning keen to support the BRI, did so in May 2017 and also
signed a series of MSR agreements (Blanchard, 2019: 95).
Soon after his inauguration, Mahathir suspended the most prominent BRI projects,
namely the East Coast Rail Link (ECRL) and two pipeline projects, namely, the Multi-
Product Pipeline (MPP) and the Trans-Sabah Gas Pipeline (TSGP; Liu and Lim, 2019:
226–227). The Kuala Lumpur–Singapore high-speed railway connection was also put on
hold. Citing Malaysia’s fiscal and debt problems (USD 250 billion), Mahathir’s objec-
tive was not to completely cancel the BRI projects. As his country needs foreign invest-
ments and technology, he was keen to obtain better conditions and quality investments
from China. At the same time, Mahathir aimed at increasing exports to the PRC, espe-
cially palm oil and other agricultural products (Jaipragas, 2019).
Malaysia’s geographic proximity to China, its position as maritime gateway to the
Middle East and Europe, together with its large ports makes it a potential hub and distri-
bution centre in the BRI. The ECRL will further strengthen Malaysia’s function as a
regional logistic hub, as it is designed to provide a 650-km-long land link from the Strait
of Malacca to the South China Sea to mitigate China’s “Malacca dilemma.” In general,
“Malaysia is well placed, probably even better than most of its ASEAN neighbors, to
embrace the opportunities brought about by the [MSR] […]” (Yeoh et al., 2018: 298).
Gerstl 115
Freedom of navigation and overflight in the South China Sea, a globally important
sea line of communication, are vital for Malaysia, a maritime trading nation. In the South
China Sea, the power asymmetry between Malaysia and the PRC is especially visible. In
addition to militarising its artificial islands, the number of incursions of Chinese ships in
Malaysia’s EEZ increased after 2013 (Hayton, 2019). The ongoing territorial dispute,
and in particular China’s massive claims, illustrated by the infamous nine-dash line, pose
a considerable risk and even threat to Malaysia’s sovereignty and territorial integrity.
Accordingly, Malaysia’s first-ever Defence White Paper puts a strong emphasis on
defending the nation’s maritime interests, but does not single China out as a specific
source of threat (Ministry of Defence of Malaysia, 2019: 29 and 45–46).
Unlike the Philippines, Malaysia refused to invoke international arbitration to pro-
mote its legal position in the South China Sea – in China’s eyes, a confrontational
approach. Putrajaya was no formal party to the hearings at the Arbitral Tribunal initiated
by Manila in January 2013, but sent a delegation to the hearings in The Hague. It submit-
ted a statement in June 2016, requesting the tribunal to “show due regard” to its rights
(Permanent Court of Arbitration [PCA], 2016: §105 and §§635–641). The tribunal
rejected China’s nine-dash line as incompatible with the United Nations Convention on
the Law of the Sea (UNCLOS; PCA, 2016; United Nations Convention on the Law of
the Sea [UNCLOS], 1982).
Malaysia’s Hedging Strategy

Mahathir’s Perceptions of Risks and Opportunities
Notwithstanding his scepticism towards the BRI during the electoral campaign in 2018,
the element of continuity in Malaysia’s policies towards China – and in its foreign policy
in general – remained strong during Mahathir Mohamad’s second term. Mahathir him-
self emphasised in a speech in Tokyo in June 2018 that, despite the change in govern-
ment, “our policies towards other countries are still the same.” As a key aim, he mentioned
“we want to ensure that we can keep on trading and have access to all the markets of the
world” (quoted in Noor, 2019: 3–4). At the seventy-third session of the United Nations
General Assembly in September 2018, Mahathir highlighted two traditional elements of
his country’s foreign policy: neutrality and non-alignment (New Straits Times, 2018).
Malaysia’s new Foreign Policy Framework highlights continuity as well, notably pursu-
ing friendly relations with all nations and equidistance between the great powers
(Ministry of Foreign Affairs of Malaysia, 2019a).
In the analysed interviews and speeches, Mahathir is very consistent in his wording
and statements that usually cover domestic, economic, and foreign policy aspects. Many
lines of argumentation resemble a neorealist understanding of the dominant influence of
great powers in IR and the acceptance of the limited power of smaller nations. A typical
argument of Mahathir is: “We realise we are a weak nation and China is a powerful
nation, and, you know, powerful nations will do what they like. Weak nations will have
to submit, to a certain extent” (quoted in Council on Foreign Relations, 2018; cf.
BenarNews, 2019). This is, basically, a rephrasing of Thucydides’ key conclusion in the
Melian dialogue. However, this wording does not diminish the possibility that Mahathir’s
verbal kowtow to China was a disguised cry for more financial, diplomatic, and military
support from the United States, Japan and other nations.
Concerning the BRI, Mahathir addressed both opportunities and, albeit to a lesser
extent, risks. During his first visit after his election in China in August 2018 as well as at
the Second Belt and Road Forum in April 2019, Mahathir stated that he is “fully in sup-
port” of the BRI (quoted in Channel News Asia, 2019a). He also accepted China’s lead-
ing role in implementing the initiative (Ngeow, 2019). Several times, Mahathir expressed
his conviction that Malaysia “will benefit from the project” and become a regional hub
in the BRI (quoted in Channel News Asia, 2019a). However, in a strong statement during
a press conference with his counterpart Li Keqiang, he warned: “We do not want a situ-
ation where there is a new version of colonialism happening because poor countries are
unable to compete with rich countries, therefore we need fair trade” (quoted in Hornby,
2018). Yet in his talks with Xi in 2018, Mahathir noted that China, unlike the European
powers, “has historically never colonized Malaysia” and that China’s development is
“not a threat” to Malaysia (quoted in The Japan Times, 2018).
Seemingly viewing China’s actions through the lens of typical great power behaviour,
Mahathir portrayed Beijing’s use of economic power to enlarge its influence as a “natu-
ral reaction” to its rise (quoted in South China Morning Post [SCMP], 2019). He added:
“I can’t predict what China will do. Although, of course, when it becomes strong, it tends
to exert its strength and impose on others its will. But so far it has not been too bad”
(quoted in Council on Foreign Relations, 2018). On several occasions in 2018 and 2019,
Mahathir repeated that despite China’s strong influence on the Southeast Asian econo-
mies and politics, the responsibility to accept or reject Chinese loans and investments
rests with the individual governments – “it is all up to us.” Highlighting China’s eco-
nomic appeal, Mahathir clarified: “But politically, of course, we are not attracted towards
a system of government that is very authoritarian” (quoted in SCMP, 2019).
In the selected interviews, Mahathir did not distinguish between the BRI and the
MSR. Furthermore, neither he nor the governmental policy papers established a direct
connection between the BRI and the South China Sea dispute. Unlike President Duterte
in the Philippines (Bostwick, 2019), Mahathir never considered making territorial con-
cessions in exchange for more Chinese economic engagement. On the contrary, verbally
the government demonstrated “a strong commitment to defending Malaysia’s claims”
(Regilme, 2018: 225). Mahathir stressed that Malaysia wants to retain “the four or five
islands that we have occupied” in the Spratly Islands (quoted in Ibrahim and Jaipragas,
2018). Legally, however, these land features are not islands according to the definition of
the UNCLOS (Part VIII, Art. 121). The features, including Swallow Reef where Malaysia
operates a naval station, fall within China’s nine-dash line and are thus also claimed by
the PRC.
Although Malaysia urges China to clarify its territorial claims, Mahathir believed
“the claims made by China will not affect us very much,” as long as unimpeded trade is
secured (quoted in The Washington Times, 2019). Mahathir’s emphasis rested, in line
with ASEAN, on securing a rules-based, peaceful order in the South China Sea and
Gerstl 117
upholding international norms, notably freedom of navigation and overflight, respect for
international law, including UNCLOS, and establishing an “effective” Code of Conduct
(COC; BBC HARDtalk, 2018; Ministry of Foreign Affairs of Malaysia, 2019b). In order
to not provoke Beijing, he did not address the award of the Arbitral Tribunal of the PCA
in 2016. Mahathir further spoke out in favour of keeping the status quo in the South
China Sea, a position shared by the other Southeast Asian claimants. “The rest – who-
ever thinks it is theirs, they can occupy” (quoted in Ibrahim and Jaipragas, 2018), he
said.
Demanding the non-militarisation of the South China Sea (Ministry of Foreign Affairs
of Malaysia, 2019a: 19) and directed towards both Beijing and Washington, Mahathir
warned against stationing warships, because this could create further tensions and even
a military conflict that may negatively impact on the littoral states. Replacing “big war-
ships” by “small patrol boats” and patrols conducted by ASEAN members could ease the
tensions (quoted in Council on Foreign Relations, 2018; The Straits Times, 2018). In his
statements on the South China Sea, Mahathir made clear that he views neither the United
States – due to President Trump’s unpredictability – nor Japan as completely trustworthy
partners. Japan’s in general positive impact as a “sort of counterbalance for China” is
reduced, as he criticised Tokyo for being “sometimes” too close to Washington, which
“is not healthy” (quoted in Council on Foreign Relations, 2018).
To systematise Mahathir’s perceptions of the China-related risks and opportunities he
verbally accepted both China’s supreme power and its growing economic importance for
Malaysia. Both facts limit Malaysia’s strategic leeway. Mahathir was aware of the potential
economic dependency on China – a risk that could lead to reduced autonomous decision-
making also in the political and security spheres. However, he claimed that political risks
arising from Chinese investments and loans as well as immigration could at least be partly
mitigated through domestic politics. Moreover, he downplayed the security risks to
Malaysia’s sovereignty and territorial integrity stemming from China’s assertive behaviour
in the South China Sea. Mahathir’s logic is based on the view that Malaysia does not pos-
sess the capacity for hard balancing against China. Thus, he preferred “some other less
violent ways not to antagonise China too much” (quoted in BenarNews, 2019). All in all,
Mahathir was in favour of a pragmatic and non-confrontational approach towards China,
while maintaining omnidirectional relations with other nations. Whether Mahathir’s percep-
tions – which are in line with Malaysia’s previous foreign policy – are reflected in the mid-
dle power’s political-diplomatic, economic, and security relations with China, the United
States, and Japan will be examined in the following sections.
Political-Diplomatic Engagement
Directly engaging politically and diplomatically with other nations supports deepening
bilateral structures and mechanisms for regular dialogue and co-operation. Ideally, this
exchange promotes trust and confidence-building, but these channels are also crucial in
times of crisis. Malaysia is an ASEAN founding member with long-lasting ties with the
United States, Japan, and China, but also other regional and outside actors. Despite its
traditional anti-Communist orientation, Malaysia was the frontrunner in Southeast Asia

in establishing diplomatic relations with the PRC in 1974. Notwithstanding ideological
differences with Beijing, Mahathir improved the relations already during his first term
(Lye, 2018: 2–3). In 2013, Malaysia and China elevated their relations to a strategic
comprehensive partnership. Mahathir attended the Second BRI Forum in Beijing (Najib
was present at the first one) and travelled repeatedly to China between 2016 and 2019.
Xi has not been to Malaysia since 2013, but Chinese politicians and business delegations
have visited the country regularly.
ASEAN offers additional venues for regular multi-lateral meetings at different polit-
ical levels in various policy areas and opportunities for bilateral talks. In addition, the
association aims to socialise China (and the United States), better integrating it in the
ASEAN-led multi-lateral mechanisms (Acharya, 2017: 278–279). Verbally endorsing
ASEAN’s centrality, Beijing actively participates in the ASEAN Regional Forum (ARF),
ASEAN plus Three (APT), the East Asia Summit (EAS), and the China–ASEAN Free
Trade Area (CAFTA). In addition, a plethora of regular ASEAN–China collaboration
formats on different hierarchical levels in security, political, economic, cultural, techni-
cal, and educational issues bind the two strategic partners.
Malaysia’s close political-diplomatic engagement with China was crucial for the suc-
cess of the renegotiations of the contested BRI projects: In April 2019, Putrajaya obtained
Beijing’s approval to better terms for the ECRL. The costs were reduced by one-third
(USD 5 billion), and the length by forty kilometres (Lo, 2019a). The role of the Malaysia
Rail Link company was strengthened, as the project is now carried out as a joint venture
with China Communications Construction Company Ltd. (Prime Minister’s Office,
2019). Putrajaya’s success proved that renegotiations of alleged counterproductive BRI
terms are possible – if certain conditions are fulfilled. Conducive to Malaysia’s bargain-
ing position were, apart from direct diplomatic channels, the utmost strategic importance
of the ECRL for China, Malaysia’s crucial role within ASEAN, and Mahathir’s position
as respected elder statesman. Beijing could politically not ignore Mahathir’s critical
comments, because it seems to be concerned about its international image (McGregor,
2018). In addition, Mahathir and Foreign Minister Saifuddin Abdullah put the PRC
deliberately in a positive light during the negotiations. They publicly appreciated that
“Beijing understands our problems” (quoted in Jaipragas, 2019), notably the fiscal and
debt situation (SCMP, 2019). This argumentation, together with the pledge to pay penal-
ties for suspending the projects, further eased Beijing’s opposition. All in all, in accept-
ing the compromise, the PRC did not lose face; rather, it demonstrated to the world that
it is, in principle, willing to agree on fairer terms.
Three sensitive issues in the bilateral relationship with China are the South China Sea
dispute, the ethnic Chinese minority in Malaysia (approximately a quarter of the popu-
lation), and China’s harsh treatment of its Muslim Uighur population in the autonomous
region of Xinjiang. In general, the middle power Malaysia benefits from the common
position of the ASEAN members in promoting its interests in the South China Sea, not
least concerning the COC negotiations. Malaysia’s bilateral channels to engage with
China, though, play an even more important role for diplomatically mitigating the risks
Gerstl 119
posed by Beijing’s behaviour in the South China Sea (cf. Lai, 2019: 126–129). The eth-
nic Chinese minority in Malaysia “has long played a key role in advancing bilateral trade
and investment” (Liu and Lim, 2019: 217). However, Chinese were in the past also
blamed as scapegoats and are discriminated against in the bumiputra policy (Hrubý and
Petrů, 2019: 123–124). As the perceived interference of the Chinese ambassador in
Malaysia’s domestic affairs after anti-Chinese riots in Kuala Lumpur in 2015 demon-
strates, there remain fears that Beijing uses the ethnic Chinese in Southeast Asia as
“some kind of Trojan horse” (Chong, 2019). Large-scale immigration of Chinese work-
ers and citizens are, according to Mahathir, a negative aspect of BRI investments, as they
“will have bad political effect on the country” (quoted in Heydarian, 2019). Especially
the Forest City project caused fears of growing Chinese immigration (Moser, 2018: 938–
940). Concerning Xinjiang, Mahathir refrained from open criticism, citing China’s
supreme power and warned about doing “something that will fail, and in the process,
also, we will suffer” (quoted in BenarNews, 2019).
During Mahathir’s second term, Malaysia’s relations with Tokyo and Washington
stayed stable and co-operative, too. Since 2014, Malaysia had a comprehensive partner-
ship with the United States, and since 2015 a strategic partnership with Japan. Between
2016 and 2019, high-ranking Malaysian politicians visited Japan and, to a lesser extent,
the United States. Mahathir visited the United States in September 2018, though he did
not meet President Trump. Conversely, leading Japanese and American politicians,
including Secretary of State Mike Pompeo in August 2018, travelled to Malaysia and
used ASEAN events to conduct bilateral talks.
The pattern of the Malaysian–US relations of Mahathir’s first term in office seemed
to repeat itself in the second one: tensions with the United States “at the leader level
would coexist with good ties at the working level” (Parameswaran, 2018), especially in
security matters. This was despite Mahathir’s strong criticism of the United States and of
Western liberalism and individualism in general, which led to the advocacy of contested
Asian values in the 1990s. Notwithstanding opposing views on the Middle East, bilateral
relations improved under Najib and President Barack Obama, who refocused on the
Asia-Pacific and visited Malaysia in 2015. Despite cancelling the Trans-Pacific
Partnership (TPP), the Trump administration did not withdraw from the Indo-Pacific, as
the Asia Reassurance Initiative Act (ARIA) of 2018 and especially the increased number
of Freedom of Navigation Operations (FONOPs) in the South China Sea demonstrate.
Japan had already played a crucial role in Mahathir’s Look East Policy and plans for
an East Asian Economic Grouping (EAEG) during his first term. In June 2018, Mahathir’s
first trip to a foreign country as newly elected prime minister was to Japan. He visited the
country six times in 2018 and 2019, inter alia, to attend annual summit meetings with his
counterpart Shinzo Abe. Japan is “a country that he has long admired” (Waikar, 2018)
– a view shared by his fellow citizens: according to a Merdeka Center survey in 2017,
the most favoured nations of the Malaysians were Japan (51 per cent), Singapore (42 per
cent), Saudi Arabia (38 per cent), and China (35 per cent); the United States ranked only
eighth (26 per cent; Su-Lyn, 2017). Seventy-five per cent have a favourable opinion
about Chinese influence on the region, but only 50 per cent about the American one (Chu
and Chang, 2017: 108–109). Overall, Malaysia engages closely with China and other
key great powers in the Indo-Pacific in the political-diplomatic sphere. It utilises bilat-
eral and ASEAN channels to mitigate potential risks stemming from China, notably
concerning economic and political dependencies.
Economic Engagement
The pattern of actively engaging with all key partners can also be found in Malaysia’s eco-
nomic relations. Comprehensive engagement, however, is driven by Malaysia’s economic
outward orientation and its geographic location in a part of the world where interwoven
transnational and regional production networks characterise economic interactions.
Malaysia is a middle-income country aspiring to become a fully developed nation.
However, the country is indebted (cf. 60 per cent of gross domestic product [GDP]), has
budget deficits, and requires foreign capital and know-how to boost its socio-economic
development (World Bank, 2020). Malaysia is also a globally oriented trading nation that
since 1998 had recorded regular trade surpluses. In 2019, trade between Malaysia and the
PRC reached an all-time high of USD 75 billion. Since 2009 the PRC has been Malaysia’s
main trade partner, with a share of 17.2 per cent in 2019. However, ASEAN’s cumulated
share is higher (26.6 per cent). In 2019, China, already the main source of imports, surpassed
Singapore as Malaysia’s main export market. Putrajaya recorded a trade deficit with Beijing
of approximately USD 8.6 billion. Malaysia’s other major trade partners are the EU (9.5 per
cent), the United States (9 per cent), and Japan (7 per cent; Malaysia External Trade
Development Corporation, 2019).
Since 2010, the amount of foreign direct investment (FDI) that Malaysia attracts has been
very stable, lying in the range of USD 7–12 billion. However, the investment from the source
countries fluctuates significantly on a year-to-year basis. Not least due to the BRI, the PRC
increased its FDI steadily from USD 94 million in 2013 to 1.6 billion in 2017 (ASEAN,
2019: Table 7.9), but has shrunk since then. In 2019, Malaysia attracted approximately USD
7.6 billion in FDI; China invested only USD 112 million, but Hong Kong was the second
biggest investor (USD 2.1 billion) behind Japan (USD 2.5 billion). Significant other inves-
tors were the Netherlands (USD 927 million) and the United States (USD 647 million;
Statista, 2020). All in all, China is regarded an additional and alternative investor to the
Western countries. Malaysia signed bilateral trade agreements with Australia, Chile, India,
Japan, New Zealand, Pakistan, and Turkey and is actively involved in all ASEAN free trade
agreements, including CAFTA. It also joined the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP), the successor of the TPP project but without the par-
ticipation of the United States. The Malaysia–Japan Economic Partnership Agreement of
2006 underpins the close relations with Tokyo.
The above data illustrate China’s gradually and steadily rising importance for Malaysia, a
trend further amplified by the BRI. Yet the PRC is not dominant in all economic spheres, for
example investments. Overall, Malaysia’s economic relations are very diversified and bal-
anced, providing insurance for becoming too dependent on China. Mahathir’s endorsement
of collaborating with Huawei was therefore not necessarily a sign of power acceptance but a
demonstration of independence towards the United States. He rebuked Washington’s
Gerstl 121
pressure to stop the 5G co-operation, stressing Huawei’s superior technology. Even though
Mahathir acknowledged the possibility that Huawei could spy, he downplayed the impor-
tance of information the company could gather in Malaysia (Toh, 2019). Another example
for Mahathir’s pragmatic and returns-maximising economic approach towards great powers
was the issuing of a JPY 200 billion (USD 1.9 billion) bond (10 years, 0.65 per cent interest
rate) in March 2019, the largest 10 years bond ever guaranteed by the Japan Bank for
International Corporation. In September 2019, the Malaysian and Japanese governments
agreed on a second bond, with a 0.5 per cent interest rate to repay the loans to which the Najib
government committed (New Straits Times, 2019).
To sum up, Malaysia simultaneously engages economically with China, hoping to
benefit even further from the BRI, but also hedges through omnidirectional and balanced
economic relations against becoming economically and potentially politically dependent
on the PRC. With this approach, Malaysia is able to reap economic benefits from all its
key partners.
Limited Balancing
As a developing and outward-oriented nation, the strengthening of its economic base is in
Malaysia’s own national interest and not directed against any other country. Malaysia is also
a weak military power (Lowy Institute, 2020) lacking an ambitious naval modernisation
programme (Haacke, 2019: 400). But strong external balancing has its limits. Unlike the
Philippines, Malaysia has no security pact with Washington – the only power able to con-
strain China – and the relations are not as close as the US–Singapore partnership. On various
occasions, Mahathir criticised the policies of President Trump, notably the power projection
in the South China Sea and his approach to trade (Council on Foreign Relations, 2018;
Pakiam, 2019: 206). Malaysia also faces the need to hedge against Trump’s inconsistency
and the possibility of a US troop withdrawal from the Indo-Pacific. This view was also
uttered by then Deputy Prime Minister Anwar Ibrahim, who concluded: “The best option is
to work with other small countries in ASEAN to defend our security position” (quoted in
Radio Free Asia, 2019). How realistic and deep such a co-operation could be remains to be
seen, especially as Hanoi takes a much more defiant stance against Beijing in the South
China Sea than do Putrajaya and Manila.
Rather than hard balancing, soft balancing is Malaysia’s method of choice to cope with
the security risks posed by the PRC in the South China Sea. Thereby the main tools are bi-
and multi-lateral non-military partnerships as well as regional and multi-lateral platforms,
not least those provided by ASEAN (Ministry of Foreign Affairs of Malaysia, 2019a: 19–20).
ASEAN is a tool for directly engaging China, but ideally also to indirectly balance against it.
The association’s regional centrality, however, is challenged, as the two rivals – the United
States and China – further their own regional initiatives. According to See Seng Tan,
ASEAN’s reaction is to actively promote its relevance as the “‘go to’ regional actor.” This
approach “also reflects ASEAN’s persistent commitment to hedging and non-alignment in
the face of increasing pressures on its member states from China and the United States to
choose sides ” (Tan, 2020: 147). Avoiding taking sides has become almost a political dogma
in Southeast Asia. According to Asian Barometer surveys, not only politicians but also Asian
citizens are not yet willing or do not see the necessity of making a choice between the United
States and China (Chu and Chang, 2017: 110–111).
Similar to Vietnam and, a lesser extent, the Philippines, Malaysia actively engages foreign
companies in oil and gas exploration activities, inter alia, Shell, BHP Billiton, and
ConocoPhillips (Asia Maritime Transparency Initiative, 2020). This further contributes to
the internationalisation of the South China Sea dispute, which is against China’s interests.
The planned COC in the South China Sea would promote a multi-lateralisation of the dis-
pute; thus, the PRC slows down the negotiations. Conversely, Malaysia strongly supports the
ASEAN–China negotiations on the COC. So far, it has exhibited patience. Thus, it came as
a surprise that Malaysia sent a strong message to China in December 2019, as it submitted a
claim to the United Nations Commission on the Limits of the Continental Shelf (CLCS) to
increase its continental shelf beyond 200 nautical miles off the northernmost point of Borneo.
As expected, China protested this remarkable move. However, Foreign Minister Saifuddin
Abdullah stated: “it is our claim and we will maintain our claim” (quoted in David and
Bechtel, 2020). As a last resort, he did not even rule out the possibility of international arbi-
tration. This would be a significant change in Malaysia’s South China Sea policy. Impartial
international arbitration also promotes the internationalisation of a dispute. Utilising it can be
described as a form of soft balancing, though there are strong overlaps with diplomacy.
All in all, to mitigate the risks it faces in the South China Sea, Putrajaya maintains non-
alignment and strategic ambiguity. Except for the submission to the CLCS, its balancing
behaviour is not openly directed towards China. Malaysia conveys the message that it can
deepen its security relations with both the United States and China as well as like-minded
nations, if it needs to respond to certain risks (cf. Goh, 2016). However, security commit-
ments from the Trump administration, the main potential balancing partner, seem to be at
least questionable. Mahathir’s bleak assessment that in case of a major bilateral conflict “like
it or not, we have to deal with China by ourselves” (quoted in BenarNews, 2019) holds true
– and restricts Malaysia’s balancing options. The middle power’s balancing behaviour may,
therefore, be best described as a form of limited and very soft balancing against China’s
actions in the South China Sea.
Limited Bandwagoning
Since 2014, Malaysia has held joint military exercises with China and participated in the
first ASEAN–China maritime exercise in October 2018. However, Malaysia conducts
even more joint naval manoeuvres with Singapore, Indonesia, the Philippines, Thailand,
Japan, the United States, the United Kingdom, Australia, and New Zealand (Lowy
Institute, 2020; cf. Thayer, 2018). The non-binding Five Power Defence Arrangements
with Australia, Singapore, New Zealand, and the United Kingdom provide a frame for
annual military exercises and strengthening the interoperability among the members.
As mentioned above, Malaysia promotes joint resource exploration with foreign
companies in its EEZ. Yet not even the presence of foreign companies has stopped
Chinese vessels from hindering Malaysian exploration ships and even conducting their
own exploration activities in Malaysia’s EEZ without permission (Hayton, 2019).
Gerstl 123
Mahathir confirmed that Malaysia only monitors the movements of the Chinese vessels,
but does not interfere (BenarNews, 2019; Jennings, 2019). Feeling highly exposed and
being aware of ASEAN’s limited usefulness, in a potentially major policy shift, Malaysia
agreed with China in September 2019 on a joint bilateral consultation mechanism on the
South China Sea, led by the foreign ministers (Lo, 2019b). This came despite a clear
rejection of this long-held Chinese demand by Foreign Minister Saifuddin Abdullah
only a few months earlier (Channel News Asia, 2019b). The Philippines accepted a sim-
ilar format in 2017, making a multi-lateral resolution of the dispute even more
doubtful.
Malaysia’s willingness to co-operate with China in South China Sea issues as well as
Mahathir’s acceptance of the limited usefulness of its weak security partnerships for
balancing against China could be an indication of a gradual shift from limited balancing,
with a focus on soft balancing, to the adoption of a cautious, very limited bandwagoning
strategy towards China in the South China Sea. Nevertheless, a more convincing inter-
pretation is that agreeing to joint bilateral consultations with China was in fact in line
with Malaysia’s traditional risk mitigation strategy, notably its aim to directly engage
Beijing politically and diplomatically. Putrajaya employed under Mahathir 2.0 elements
of both limited balancing and limited bandwagoning in coping with China’s policies in
the South China Sea.
Conclusion
In order to understand why Malaysia chose to further hedge against China during Mahathir
Mohamad’s second term in office, it is crucial to examine the perceptions of the Malaysian
leadership on the risks the PRC poses as well as on the opportunities it offers. Prime Minister
Mahathir generalised China’s behaviour as ideal-typical for a great power and was clearly
aware of Malaysia’s limited influence on Beijing. Based on this reading of the power asym-
metries, the middle power could have in principle followed either a hedging, balancing, or
bandwagoning strategy. Due to the mixture of risks and opportunities related to China’s
behaviour and its available strategic options, though, realistically Malaysia opted for hedg-
ing (see Table 2).
Mahathir highlighted the opportunities in the bilateral relationship, in particular by
way of the New Silk Road and closer economic relations with Beijing in general. He also
clearly stated the risks – economic dependency, reduced autonomous decision-making,
and Chinese immigration – but downplayed their danger. In addition, in his view, domes-
tic policies are responsible for mitigating these risks. Verbally even more downplayed by
Mahathir were the risks posed by China’s behaviour to Malaysia’s territorial integrity
and its sovereignty claims in the South China Sea. Rather, impeded freedom of naviga-
tion was portrayed as the major, yet more abstract, threat for the trading nation Malaysia.
The PRC was not depicted as a direct threat.
A major finding of this study is that neither the BRI nor China’s actions in the South
China Sea caused a sea change in Malaysia’s hedging strategy towards China. Rather,
they amplified existing trends. Consequently, continuity and pragmatism in the foreign
Table 2. Malaysia’s Hedging Strategy Towards China Under Mahathir (2018–2020).
Component Criteria
Why does Malaysia hedge?
Mahathir’s perception of Risks:
risks and opportunities Security: sovereignty and territorial integrity in the South China
related to China Sea – downplayed, instead freedom of navigation highlighted.
Economics: dependency – responsibility to avoid rests by
domestic politics.
Domestic politics: autonomous decision-making, Chinese
immigration – responsibility to mitigate rests with domestic
politics.
Opportunities:
Increased economic exchange, deeper overall relations, pacifying
and stabilising situation in the South China Sea.
Perception of the Limited strategic usefulness of the United States, Japan, ASEAN
strategic value of in the South China Sea dispute, but importance of the United
other great powers States and Japan as political and economic partners and
and international potential counterweights in general.
organisations
How does Malaysia hedge?
Political-diplomatic Omnidirectional and balanced relations with all major powers.
engagement Strong bi- and multi-lateral (ASEAN) engagement of China.
Returns-maximising behaviour towards all partners.
Economic engagement Omnidirectional and balanced relation, with growing importance
of relations with China, but no dependency.
Returns-maximising behaviour towards all partners.
Limited balancing Weak internal balancing.
Overall cautious, very soft, and indirect balancing against China in
the South China Sea, utilising the United States, other middle
powers, ASEAN, and possibly international arbitration.
Risk-contingent behaviour towards China.
Limited bandwagoning Cautious, very limited bandwagoning with China in the form of
co-ordination in selected South China Sea issues.
Returns-maximising behaviour towards China.
Note: ASEAN = Association of Southeast Asian Nations.
policy of the middle power prevailed under Mahathir 2.0. Due to the BRI, Sino–
Malaysian relations further improved in the political, diplomatic, and economic realms.
A major success of Malaysia’s hedging strategy was that the actively promoted omnidi-
rectional economic and political-diplomatic ties with the United States, Japan, and the
ASEAN members ensured Putrajaya’s ability to attract economic benefits from all part-
ners. It also reduced the risk of becoming economically and politically dependent on
China. The main tangible success of Malaysia’s hedging strategy towards China was the
Gerstl 125
renegotiation of better BRI project terms – a direct result of strongly engaging China in
a politically-diplomatic way.
In regard to the complex situation in the South China Sea, the findings about the suc-
cess of Putrajaya’s hedging behaviour are less conclusive. The dispute offered incentives
for both balancing and bandwagoning behaviour. Under Mahathir, the middle power
clearly stated its legal claims, but also made political concessions and was not able (or
willing) to stop incursions from Chinese vessels in its EEZ. Yet Malaysia managed to
maintain equidistance between China and the United States. Overall, in regard to miti-
gating the risks caused by China’s assertiveness in the South China Sea, Malaysia
responded with what at first sight appear to be contradictory measures. However, due to
the power asymmetries, it is logical and consistent that Malaysia applied limited balanc-
ing against China when appropriate and limited bandwagoning when necessary. This
mixed risk-mitigation and returns-maximising approach reflects the recognition of
China’s superior power. The announced possibility of international arbitration, however,
is a verbal demonstration of dominance-denial.
As Malaysia traditionally pursues a policy of neutrality and non-alignment, pure
bandwagoning with China was never an option – nor was pure balancing. Apart from
Mahathir’s traditionally critical view of the United States, and more recently of Trump’s
unpredictability and brinkmanship in particular, the lack of a strong and binding security
pact with the United States is the major impediment for a credible pure balancing strat-
egy against the PRC. Conversely, with a pure bandwagoning strategy, Malaysia could
not secure its national interests in the South China Sea. Despite many concessions of the
Duterte administration, China has not stopped its assertive behaviour towards the
Philippines in the South China Sea.
All in all, the empirical findings prove that it is a requisite to combine the political,
economic, and security dimensions in a hedging concept, as a successful hedging strat-
egy must not be restricted to one of these spheres. The main innovation of the re-
conceptualized hedging framework – the introduction of a component covering the
perceptions of the political leader(s) of risks and opportunities in their nation’s relations
with the potential hedging target and other great powers – proved crucial to explaining
why Malaysia hedges against China. The second amendment was the broadening of the
initial components to enable a comparison of the comprehensively defined relations of a
hedger with other great powers to examine their strategic value as potential balancing
partners. Due to these two innovations, Malaysia’s hedging strategy towards the PRC
could be assessed in its full complexity. One criticism on the updated concept is that
there are some content overlaps between the components – political-diplomatic engage-
ment on the one side, and limited balancing and limited bandwagoning on the other side
– which need to be further reduced in upcoming studies.
In conclusion, overall in order to mitigate the risks and maximise the opportunities aris-
ing from China’s great power behaviour, Malaysia employed during Mahathir’s second
term a hedging strategy in which direct engagement with China politically, diplomatically,
and economically as well as elements of limited balancing and limited bandwagoning were
applied in a flexible yet consistent manner. Crucially, the policies towards China were
embedded in omnidirectional, friendly and well-balanced relations with other great powers
and ASEAN, signalling strategic ambiguity. This enabled the broadening of the middle
power’s strategic leeway in regional politics and made hedging possible. All in all, Malaysia
followed during the second era Mahathir a planned hedging strategy, not an opportunistic or
contradictory ad hoc policy that merely responded to China’s actions.
Acknowledgements
I want to thank the three anonymous reviewers for their insightful and helpful remarks and
criticism. I am also grateful for the recommendations made by Jeremy Garlick, Le Hong Hiep,
Farizal Bin Mohd Razalli, and Ute Wallenböck on previous drafts.
Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship,
and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/
or publication of this article: Marie Sklodowska-Curie Individual Fellowship (CZ.02.2.69/0.0/0.
0/18_070/0010285).
ORCID ID
Alfred Gerstl ‍‍ https://orcid.org/0000-0002-1193-3186
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Author Biography
Alfred Gerstl, MIR, is a specialist on international relations in Southeast Asia. Since 2019, he has
held a Marie Sklodowska-Curie Individual Fellowship (CZ.02.2.69/0.0/0.0/18_070/0010285) at
the Department of Asian Studies at Palacký University in Olomouc (Czech Republic). He is also
president of the Central European Institute of Asian Studies (CEIAS), a transnational think tank.
His research interests include regional co-operation in Northeast and Southeast Asia, ASEAN’s
regional centrality, the Belt and Road Initiative, and the South China Sea dispute.
E-mail: alfred.gerstl@upol.cz

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Research Article ‍ ‍

Journal of Current Chinese Affairs

Manuscript received 17 October 2019; accepted 15 September 2020

Introducing an Updated Hedging Concept

Table 1. Hedging – Components and Criteria.

Note: FDI = Foreign direct investment.

dimension “perceptions” is operationalisable. Future studies, however, may further nar-

Malaysia, the BRI, and the South China Sea Dispute

States – up until Washington’s criticism of the 1Malaysia Development Berhad fund

Malaysia’s Hedging Strategy

traditional anti-Communist orientation, Malaysia was the frontrunner in Southeast Asia

Note: ASEAN = Association of Southeast Asian Nations.

Declaration of Conflicting Interests

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Ksiskm

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Research Article ‍ ‍

Journal of Current Chinese Affairs

Manuscript received 17 October 2019; accepted 15 September 2020

Introducing an Updated Hedging Concept

Table 1. Hedging – Components and Criteria.

Note: FDI = Foreign direct investment.

dimension “perceptions” is operationalisable. Future studies, however, may further nar-

Malaysia, the BRI, and the South China Sea Dispute

States – up until Washington’s criticism of the 1Malaysia Development Berhad fund

Malaysia’s Hedging Strategy

traditional anti-­Communist orientation, Malaysia was the frontrunner in Southeast Asia

Note: ASEAN = Association of Southeast Asian Nations.

Declaration of Conflicting Interests

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traditional anti-Communist orientation, Malaysia was the frontrunner in Southeast Asia