China in Malaysia: State-Business

Relations and the New Order of

Investment Flows 1st ed. Edition
Edmund Terence Gomez
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China in Malaysia
State-Business Relations and the
New Order of Investment Flows

Edmund Terence Gomez

Siew Yean Tham · Ran Li
Kee Cheok Cheong
China in Malaysia
Edmund Terence Gomez · Siew Yean Tham ·
Ran Li · Kee Cheok Cheong

China in Malaysia
State-Business Relations and the New Order
of Investment Flows
Edmund Terence Gomez Siew Yean Tham
Faculty of Economics and Regional Economic Studies
Administration ISEAS-Yusof Ishak Institute
University of Malaya Singapore, Singapore
Kuala Lumpur, Malaysia
Kee Cheok Cheong
Ran Li Asia-Europe Institute
Institute of China Studies University of Malaya
University of Malaya Kuala Lumpur, Malaysia
Kuala Lumpur, Malaysia

ISBN 978-981-15-5332-5 ISBN 978-981-15-5333-2 (eBook)

https://doi.org/10.1007/978-981-15-5333-2

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 Preface and Acknowledgments

After President Xi Jinping announced his flagship Belt and Road Initiative
(BRI) in 2013, a significant increase in investments flowed from China
into Southeast Asia. China’s foreign direct investments flows into Malaysia
were particularly noteworthy given the close ties that were subsequently
forged between Xi and the then prime minister, Najib Razak. China’s
investments in Malaysia’s infrastructure projects as well as in numerous
other sectors grew appreciably from 2015. However, as in other coun-
tries, media attention and academic research in Malaysia have focussed
on the mega infrastructure projects, a number of them controversial in
nature, with much discussion about potential debt-traps and the limited
transparency surrounding the award of these contracts.
Meanwhile, very little attention has been paid to investments in the
industrial sector, even after a significant inflow of such funds from China
into Malaysia, as well as other Southeast Asian countries. This served as
the reason for our decision to assess what was occurring in this sector, after
we started discussing our respective work on BRI-based projects. Many
intriguing points emerged during our discussions, prompting us to delve
further into this lacuna in the research on the BRI. An initial typology of
the different projects in the industrial sector convinced us of the need for
a new framework. Although there are three economists among us, it was
unanimously agreed that a purely economic framework was not suitable
as it cannot explain the varied nature of these investments, the complexity
of the transactions and the different outcomes in each project. Indeed,

v
vi PREFACE AND ACKNOWLEDGMENTS

a careful assessment was required of the stakeholders involved in these

projects. Hours of intense discussions eventually paved the way for a new
approach towards the framing of our analysis for this monograph, leading
to a unique perspective as well as fresh insights about the nature of China’s
investments in the industrial sector.
The sheer heterogeneity of investors and outcomes in the different
projects indicated to us the need to employ a case study approach to
examine the diverse features of these investments. The selection of the
cases was based on the classification of the projects, to ensure each cate-
gory was covered in our study. Since the BRI projects are rather new,
with most of them less than five years old at the time of our research, we
had to use a combination of methods to extract the data for our anal-
ysis, including primary (interviews) and secondary sources. This was not
the easiest of tasks as firm-level data from the Department of Statistics
(DOS), Malaysia, is not available due to the Statistics Act, which keeps
confidential the information obtained from individual respondents. This
information cannot be disclosed to any third party. There is also a three to
two-year time-lag between DOS’s surveys and published data. This meant
that aggregated data would probably not capture some of the relatively
new investments. The directors and senior managers of these companies
were not always keen to be interviewed because of the many controversies
surrounding China’s foreign investments. We have, however, attempted,
to the best of our abilities, to capture the perspectives of investors from
Malaysia and China when assessing these cases, creating a balance in the
views of the host and investing countries.
The projects were assessed based on their stated objectives, as well as
their long-term developmental implications. The latter was necessary as
foreign direct investments, including inflows from China, are courted for
their potential contribution to a host country’s economic growth and,
particularly in the case of Malaysia, the development of domestic enter-
prises, primarily small- and medium-scale enterprises through the creation
of supply chains. This is particularly important when investment projects
are costly and will be in the host economy over a protracted period.
Malaysia’s dilemma in moving towards a higher stage of industrialisa-
tion is well covered in academic and public policy debates. As such, this
assessment of the long-term objectives of China’s ventures in Malaysia
provides invaluable lessons for managing these investments, not just for
this country but for other emerging economies.
 PREFACE AND ACKNOWLEDGMENTS vii

Although the process of writing this slim volume was shorter than
usual, the journey was exceptionally rich and fruitful for us as we learnt
to untangle the evolution of each investment, based on our many conver-
sations. As in all joint writing endeavours, it is the researchers who are
enriched through knowledge-sharing and we hope that this will be the
case for the readers as well.
The funding for this study was obtained from the Competing Regional
Integrations in Southeast Asia (CRISEA) project, supported by the Euro-
pean Union’s Horizon 2020 Framework Programme. We acknowledge
with gratitude the support of the CRISEA management for this project, in
particular, Jacques Leider and Elisabeth Lacroix. We are deeply indebted
to Lau Zheng Zhou and the team of young research assistants he assem-
bled to gather the data reviewed in this study. When we began this project,
we were constantly told that it would be difficult to obtain informa-
tion about the companies from China that had invested in Malaysia. This
team of young researchers worked diligently to collect the information we
required. Lengthy discussions were held with them to determine how to
classify and present the data that had been obtained. We thank this team
of young researchers for the time they devoted to compiling this database
and we hope they benefited from this research exercise.
We thank the ISEAS-Yusof Ishak Institute in Singapore for encour-
aging research involving BRI projects. The discussions during the
numerous seminars on the BRI at ISEAS served as a venue where we
obtained useful insights for this study. We thank members of the Ministry
of International Trade and Industry, IJM Corporation, Malaysia Airport
Holdings Bhd and Alliance Steel for the interviews we had with them. We
further acknowledge, and with much gratitude, Ban Yandong, from Sino
Trade Crest Sdn Bhd, and Zhai Yibo, from the Embassy of the People’s
Republic of China in Malaysia, who helped us contact Chinese companies
for interviews and arranged site visits. We thank those we interviewed
when we visited these Chinese companies for they generously provided
the information we required for this study. We appreciate that Associate
Professor Dr. Kuik Cheng Chwee from the Institute of Malaysian and
International Studies, Universiti Kebangsaan Malaysia shared his research
findings with us. We acknowledge the support of the director of Institute
of China Studies, University of Malaya, Dr. Ngeow Chow Bing. We are
deeply indebted to Palgrave Macmillan’s Vishal Daryanomel for arranging
the review of the manuscript—indeed, even the extremely useful feedback
viii PREFACE AND ACKNOWLEDGMENTS

we obtained was sent to us very quickly—and for his tireless efforts in

making this research project possible as a monograph.
While we are indebted to those mentioned here for their kind support
to our research, we, the authors, remain solely responsible for the contents
of this book.

March 2020 Edmund Terence Gomez

Siew Yean Tham
Ran Li
Kee Cheok Cheong
 Contents

1 Introduction: State-State Relations and New

State-Business Relations—China in Malaysia 1

2 State-Business Relations—Multinational SOEs, GLCs,

and SMEs 15

3 Chinese Investment Case Studies from Malaysia 25

4 Analysing Chinese Investments in Malaysia 75

5 Conclusion 97

Appendix 1: Investments by Firms from China in Malaysia 105

Bibliography 113

ix
 About the Authors

Edmund Terence Gomez is Professor of Political Economy at the

Faculty of Economics and Administration, University of Malaya. His
publications include Malaysia’s Political Economy: Politics, Patronage and
Profits (Cambridge University Press, 1997), Chinese Business in Malaysia:
Accumulation, Ascendance, Accommodation (University of Hawaii Press,
1999), Political Business in East Asia (Routledge, 2002), Government-
Linked Companies and Sustainable, Equitable Development (Routledge,
2014) and Minister of Finance Incorporated: Ownership and Control of
Corporate Malaysia (Palgrave Macmillan, 2017).

Siew Yean Tham is Visiting Senior Fellow at ISEAS-Yusof Ishak, Singa-

pore and Professor Emeritus, Universiti Kebangsaan Malaysia. She was
formerly Director and Professor of International Trade at the Institute
of Malaysian and International Studies (IKMAS), Universiti Kebangsaan
Malaysia. Her research interests cover trade in goods and services as
well as foreign direct investment (FDI). She has published extensively
on trade-related issues in journals such as Journal of Contemporary
Asia, Emerging Markets, Finance and Trade, Asian Economic Panel and
Prague Economic Papers, besides co-editing several books published by
international publishing houses.

xi
xii ABOUT THE AUTHORS

Ran Li is Senior Lecturer at Institute of China Studies, University of

Malaya. She obtained her doctoral degree in Economics from Univer-
sity of Malaya in 2014. Her specialisation is in the transformation of
China’s state enterprises and China’s political-economic system. Her areas
of research include China’s global strategy and China–Malaysia economic
relations. Her writings have appeared in a number of international jour-
nals such as China: An International Journal, Cities, International
Journal of China Studies and Journal of Contemporary Asia. Her doctoral
thesis was published as a book by Palgrave Macmillan in 2019.

Kee Cheok Cheong is Senior Advisor, Asia-Europe Institute, University

of Malaya. A graduate of the University of Malaya, he obtained his Ph.D.
at the London School of Economics. He has held the positions of Dean
at the Faculty of Economics and Administration, University of Malaya,
and senior economist at the World Bank, Washington D.C., for which
he continues to consult after he left. Since his return to Malaysia, he
has co-authored a number of books, book chapters and over 40 papers
in academic journals. His research interests include economic develop-
ment, transition economies, particularly China and Vietnam, international
economic relations, education and human capital and economic history,
specifically relating to the Chinese overseas.
 Abbreviations

1MDB 1Malaysia Development Bhd

ACA Automation Capital Allowance
AFTA ASEAN Free Trade Agreement
AIIB Asia Infrastructure Investment Bank
ASZ1 Aeronautical Support Zone 1
B2B Business-to-Business
B2C Business-to-Consumer
BRI Belt and Road Initiative
CCB China Construction Bank
CCCC China Communication Construction Co. Ltd.
CCM Companies Commission of Malaysia
CEO Chief Executive Officer
CFO Chief Financial Officer
CGBGIP China Guangxi Beibu Gulf International Port Group
CKD Completely-Knocked-Down
CMQIP China-Malaysia Qinzhou Industrial Park
CNTAC China National Textile and Apparel Council
CRRC CRRC Corporation Ltd
CRRC CRM CRRC Rolling Stock Center (Malaysia) Sdn Bhd
CRRC ZELC CRRC Zhuzhou Locomotive Co. Ltd.
CTO Chief Technical Officer
DFTZ Digital Free Trade Zone
DMU Diesel Multiple Unit
DSI Drivetrain Systems International
ECER East Coast Economic Region
ECERDC East Coast Economic Region Development Council

xiii
xiv ABBREVIATIONS

ECRL East Coast Rail Link

EMU Electric Multiple Unit
EPU Economic Planning Unit
ETP Economic Transformation Programme
e-WTP Electronic-World Trade Platform
FDI Foreign Direct Investment
fwt Freight Weight Tonnes
GBG Guangxi Beibu Gulf Port International Group Co. Ltd.
GDP Gross Domestic Product
GLCs Government-Linked Companies
GSM Guangxi Shenglong Metallugical
HICOM Heavy Industries Corporation of Malaysia Bhd
HKTDC Hong Kong Trade Development Council
HST High Speed Train
IFC International Finance Corporation
IR4.0 Industrial Revolution 4.0
ISGA Turkey’s Sabiha Gokcen International
JCC Joint Cooperation Council
KLIA Kuala Lumpur International Airport
KPI Key Performance Indicator
KTMB Keretapi Tanah Melayu Bhd
LCCT Low-Cost Carrier Terminal
LRT3 Light Rail Transit Line 3
LRV Light Rail Vehicle
M&As Mergers and Acquisitions
MAHB Malaysia Airports Holdings Bhd
MARii Malaysia Automotive Robotics and IoT Institute
MCKIP Malaysia-China Kuantan Industrial Park
MICE Meetings, Incentives, Conferences and Exhibitions
MIDA Malaysian Investment Development Authority
MITI Ministry of International Trade and Industry
MNCs Multinational Companies
MRL Malaysia Rail Link Sdn Bhd
MRT Mass Rapid Transit
NCER Northern Corridor Economic Region
NDB New Development Bank
NTU Nanyang Technology University
PERC Passivated Emitter Rear Cells
PONSB Perusahaan Otomobil Nasional Sdn Bhd
PPPs Public-Private Partnerships
PV Photovoltaics
QJIC Qinzhou Jinqu Investment Company Ltd
R&D Research and Development
 ABBREVIATIONS xv

REIT Real Estate Investment Trust

RHD Right-Hand Drive
SASAC State-Owned Assets Supervision and Administration Commis-
sion of the State Council
SBRs State-Business Relations
SCO Shanghai Cooperation Organisation
SCORE Sarawak Corridor of Renewable Energy
SDC Sabah Development Corridor
Sinopec China Petroleum and Chemical Corporation
SMEs Small- and Medium-Scale Enterprises
SOEs State-Owned Enterprises
SUV Sports Utility Vehicle
TDA Technology Depository Agency
TPP Trans-Pacific Partnership
UOB United Overseas Bank
VDP Vendor Development Programme
VP Vice President
 List of Figures

Fig. 1.1 FDI Net Inflows, 2010–2019 (RM million) (Source

Compiled from Statistics on Foreign Direct Investment
in Malaysia, Department of Statistics, Malaysia, [various
years]) 7
Fig. 1.2 China-Related Projects in Malaysia (Source Extracted from
Appendix 1) 9
Fig. 1.3 China in Malaysia: Different forms of State-Business
Relations (Source Based on Appendix 1) 11
Fig. 1.4 Approved Investments in Manufacturing, 2010–2018
(Source Malaysian Investment Development Authority
[MIDA], unpublished data) 14

xvii
 List of Tables

Table 1.1 China’s Importance in the Trade of Southeast Asian

Countries, 2017 3
Table 1.2 Patterns of Chinese Greenfield Investments in
BRI-Linked Areas, 2015 (in US$ millions) 5
Table 1.3 China in Malaysia: Different forms of State-Business
Relations 13
Table 4.1 Summary of the seven cases 76

xix
 CHAPTER 1

Introduction: State-State Relations and New

State-Business Relations—China in Malaysia

The Context
In September 2013, when President Xi Jinping announced China’s intent
to implement its Belt-Road Initiative (BRI),1 its breadth and scope
promptly spawned an extensive debate about its actual objectives. The
BRI’s often-cited objective is that this plan serves as a mechanism for
China to secure access to the energy and resources of countries in
emerging economies in Southeast Asia, Central Asia and Europe. What’s
more, the BRI professedly serves to cultivate a network of economic inter-
dependence involving inter-linked countries in these continents, a method
that, presumably, would help to maintain regional stability. The BRI’s
official objectives are five-fold: policy coordination, connecting infrastruc-
ture, unimpeded trade, financial integration and people-to-people bonds.
Beyond these specific objectives are broader perspectives of China’s desire
to re-make a world order that it feels is heavily biased in favour of the West
(Chatsky and McBride 2019; Macaes 2019). There is a history and logic
to these narratives.
In 2001, with China’s sponsorship, the Shanghai Cooperation Organi-
sation (SCO) was established. The constituent members of the SCO were

1 For a comprehensive historical review of the BRI, since its inception, see Chang
(2019). See also Frankopan’s (2018) account of the ‘new silk roads’ for a broader history
of China’s inter-connectedness with emerging economies. Miller (2017) provides a more
contemporary review of China’s entry into emerging economies through the BRI.

© The Author(s) 2020 1

E. T. Gomez et al., China in Malaysia,
https://doi.org/10.1007/978-981-15-5333-2_1
2 E. T. GOMEZ ET AL.

China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan.2 India

and Pakistan joined the SCO in 2017. There are considerable similarities
in the objectives and roles of the SCO and BRI. For instance, the offi-
cial BRI goals are similarly espoused by the SCO. There are overlaps in
their economic domains. And, the SCO’s principal objective is economic
integration of the entire Asian continent (Rowden 2018; Cai 2017). In
October 2012, Wang (2012), at Peking University, proposed that China
rebalance its geopolitical strategy towards Central Asia and Eurasia.3 The
BRI would go on to expand this coverage to include nations of the Indian
and Pacific Oceans. The BRI combines two initiatives—the (land-based)
Silk Road Economic Belt, comprising six development corridors, and the
21st-Century Maritime Silk Road.4
Another aspect of the BRI, one related to its execution was the launch
of the Asia Infrastructure Investment Bank (AIIB) and the New Devel-
opment Bank (NDB), both in 2015.5 By 2017, China had become a
key stakeholder in Southeast Asia’s economic development, being the
top trading partner of more than half the countries of Southeast Asia
(Table 1.1). There has also been a surge in investments by China into
Southeast Asia.
Based on a review of China’s investments in Southeast Asia, this
volume argues, with case studies of specific enterprises as evidence, that an
important outcome of the BRI is that of growing ‘state-state’ ties.6 These

2 The SCO, an extension of the Shanghai Five, founded in 1996, now included
Uzbekistan.
3 See also Lim (2015).
4 What constitutes the BRI for this study is as stated in its official website: https://
www.beltroad-initiative.com/belt-and-road. The BRI website also draws reference to the
Polar Silk Road that embodies China’s Artic Policy. This website also provides a list of
BRI projects.
5 The AIIB’s articles of agreement entered into force on 25 December 2015 and the
bank opened for business on 16 January 2016. As of January 2019, the AIIB has 74
members and is headquartered in Beijing https://www.aiib.org/en/about-aiib/govern
ance/members-of-bank/index.html. The NDB, originally called the BRICS Development
Bank, was proposed by India at the 4th BRICS Summit in 2012. In July 2015, at the
7th BRICS Summit, the Agreement of the NDB came into force. The NDB’s members
are the five BRIC countries, with the bank headquartered in Shanghai.
6 For example, one Chinese SOE, China Railway No. 3 Engineering Group Co.
Ltd, has cooperated with the Ministry of State-Owned Enterprises of Indonesia on
 1 INTRODUCTION: STATE-STATE RELATIONS … 3

Table 1.1 China’s Importance in the Trade of Southeast Asian Countries, 2017

Country China’s Rank as Export China’s Rank as Import China’s Rank as

Destination Source Trading Partnera

Brunei >5 1 4
Cambodia >5 1 1
Indonesia 1 1 1
Laos 1 2 2
Malaysia 2 1 1
Myanmar 1 1 1
Philippines 4 1 1
Singapore 1 1 1
Thailand 1 1 1
Vietnam 2 1 1
a Trade refers to the sum of exports and imports
Source Cheong and Yong (2019: 20)

state-state ties forged by China with Southeast Asian countries are partic-
ularly visible in Malaysia. Based on these state-state ties, enterprises owned
by the governments of both countries have been employed to jointly
mount projects, creating what can be classified as ‘public-public partner-
ships’. However, private investors are still privy to government incentives.
In the process, novel and diverse forms of ‘state-business relations’ have
emerged, with some ventures controversial in nature, with evidence of
anomalies, while others have potentially productive outcomes.

The State’s Central Role

This book focuses on the implications of two core and related issues:
first, the central role of the state in economic development in Southeast
Asia. Second, the active role of the Chinese state in business, through
its state-owned enterprises (SOEs),7 has contributed to the building of
a new state-business order, one fundamentally different from the domi-
nant neoliberal system created by the United States and its allies after the
Second World War.

the Jakarta-Bandung high-speed rail project, see: https://www.straitstimes.com/asia/

se-asia/jakarta-bandung-high-speed-rail-project-back-on-track-says-indonesias-investment-
chief and http://www.xinhuanet.com/world/2019-05/14/c_1124494049.htm.
7 For an in-depth review of China’s SOEs, see Li and Cheong (2019).
4 E. T. GOMEZ ET AL.

On the first issue, a lack of democratic tradition among diverse polit-

ical systems and widely reported rising authoritarianism are factors that
have contributed to a strong state in Southeast Asia.8 In this book,
the centrality of the state in Southeast Asian economies is reviewed
through an assessment of business links fashioned by the governments of
China and Malaysia, a nexus that has contributed to an escalation of the
phenomenon of state-state relations.9 The economic relations between
China and Malaysia, cultivated through the active deployment of compa-
nies owned by these two governments, have fostered the rise of important
novel and innovative forms of state-business relations (SBRs), or affilia-
tions between governments and businesses. A different mode of entry
by multinational companies into developing economies has emerged,
through investments implemented by SOEs and state-supported private
enterprises.10 To ensure the implementation of these projects, the funds
have been provided by China’s state-owned financial institutions.
Soon after the BRI was introduced, numerous countries in Southeast
Asia promptly endorsed this plan as it proposed the creation of major
infrastructure and industrial projects in the region, with funding provided
by China-based financial institutions. In fact, the number of countries
linked to the BRI has increased since 2013, from 64 to 130, and now
includes an industrialised G7, Italy (The Diplomat, 24 April 2019).11
However, as Table 1.2 indicates, Southeast Asian countries have benefited
most from greenfield-based investments related to the BRI, compared to
other regions in Asia and Europe. This is in line with overall inflows of

8 See Barber (2018) and Thompson (2019) for an account of the re-emergence of
authoritarian trends in democratised Southeast Asian countries.
9 For another perspective on the concept of state-state relations involving China, see
Singh and Chen (2017).
10 State-supported private enterprises refer to influential privately-owned companies that
are closely linked to elites in power. Such well-connected firms, in which the state has no
equity ownership, are privy to significant support through government-generated rents,
such as contracts and licences, as well as funds from government-linked financial insti-
tutions. State support of this sort is ostensibly a means to ‘pick winners’ who will play
a role in the development of a country. State support is also provided through strategic
public policies promulgated to develop core sectors of the economy. Examples of major
enterprises in China that have benefited from state support are Huawei and Alibaba.
11 See also: https://thediplomat.com/2019/04/china-italy-relations-the-bri-effect/.
However, according to the official BRI website, by early 2020, there were 118 BRI-
based projects. These differing figures indicate that there are diverse viewpoints among
people in the media, academia and government about what constitutes a BRI project.
 1 INTRODUCTION: STATE-STATE RELATIONS … 5

Table 1.2 Patterns of Chinese Greenfield Investments in BRI-Linked Areas,

2015 (in US$ millions)

Sectors ASEAN South West CISa Central Central Total

Asia Asia and Asia
Eastern
Europe

Manufacturing 436.5 164.8 165.5 156.7 75.4 46.9 1064.8

Electricity 129.6 175.7 20.1 11.5 12.9 8.9 358.7
Mining 55.3 35.4 79.3 5.1 0.0 16.0 196.0
Construction 55.7 8.7 3.9 28.4 3.8 0.8 103.6
Logistics 33.8 5.6 3.5 2.0 4.4 26.9 76.4

Note a Commonwealth of Independent States

Source FDI Intelligence Database (https://www.fdiintelligence.com/)

foreign direct investments (FDI) into Asia, with most of them entering
the economies of East and Southeast Asia. This is because these coun-
tries, particularly China and ASEAN, are more open to FDI, compared
to other countries in the region. To implement these mutually beneficial
economic ties, fostered through active state-state relations, multi-national
SOEs from China have created joint-ventures with government-owned as
well as private enterprises in Southeast Asia.
Another factor shaping the construction of new forms of SBRs is
that of the political system of a country. Southeast Asia is interesting as
countries in this region are characterised by different political systems,
the products of their respective histories since the Second World War.
Cambodia and Singapore–Malaysia too, before May 2018–are governed
by hegemonic single dominant parties. Laos and Vietnam have one-party
communist systems. Brunei is under monarchical rule, while Thailand,
after a period of military rule is now a democracy though governed
by leaders of the previous military regime. Indonesia, the Philippines
and Timor-Leste are democratic countries, though they are far from
consolidating it, while Myanmar is in transition to a functioning democ-
racy.12 In most of these countries, characterised by autocratic leadership
(Kurlantzick 2018) and extensive state intervention, state-state relations

12 For an in-depth discussion on the political systems in Southeast Asia, see McCarthy
and Thompson (2019).
6 E. T. GOMEZ ET AL.

have facilitated investment flows from China for BRI-based projects to be

implemented by Chinese SOEs.
On the second core issue, the economic dominance of the Chinese
state can be explained by the history of the People’s Republic (PRC).
Since its establishment, the PRC had adopted a system of central plan-
ning in which all economic decisions were made by the state; the private
sector did not exist. The private sector emerged from two milestones in
China’s economic transformation. The first was President Deng Xiaop-
ing’s economic liberalisation which entailed the introduction of market
principles in economic transactions, the so-called ‘contract responsibility
system’ (Koo 1990). The second was a series of state enterprise reforms,
particularly those initiated in the early 1990s by then Premier Zhu Rongji.
This led to the restructuring of a large number SOEs that were priva-
tised or closed (Li and Cheong 2019). Indeed, most private enterprises
in China began life as SOEs. These private firms now have—or have had—
close ties with SOEs, while also adhering faithfully to economic strategies
promulgated by the state. In that sense then, the separation between the
Chinese state and private enterprises is nowhere as sharp as in a market
economy, as this study will also show.
Table 1.2 further highlights the stress on manufacturing, in terms
of the total value of the investments. Investments in manufacturing
are frequently in the form of FDI. Meanwhile, the mode of financing
of investments in other sectors, especially in the case of infrastructure,
such as electricity projects as in the case of hydro-power, tends to be
in the form of loans. Logistics investments, evidenced in the case of
Alibaba’s activities in Southeast Asia, are undertaken through mergers and
acquisitions (M&As), rather than greenfield investments.
Malaysia is a fascinating case study as it was quick to endorse the
BRI, in order to tap into the investment funds that would flow in from
China.13 Malaysia was particularly keen in 2013 to identify new sources
of FDI as such fund flows served as an important mechanism to offset

13 Malaysia was the first ASEAN country to establish diplomatic relations with China
in 1974. But economic exchanges between the two territories, in the form of migration
and remittances, preceded these diplomatic relations by about two centuries. But relations
between the two countries were disrupted when the PRC was established in 1949, and
not normalized until the premiership of Mahathir Mohamad in about 1990.
 1 INTRODUCTION: STATE-STATE RELATIONS … 7

50,000

40,000

30,000

20,000

10,000

0
2010 2011 2012 2013 2014 2015 2016 2017 2018
-10,000

Total FDI FDI from China FDI from Hong Kong

Fig. 1.1 FDI Net Inflows, 2010–2019 (RM million) (Source Compiled from
Statistics on Foreign Direct Investment in Malaysia, Department of Statistics,
Malaysia, [various years])

declining domestic investments.14 As Fig. 1.1 indicates, a surge in invest-

ments into Malaysia from China occurred after 2013, particularly after
then Prime Minister Najib Razak signed 14 memoranda of understanding
with Chinese companies for economic cooperation. Although the share
of FDI from China to Malaysia is relatively small to the total, invest-
ments were also channelled through Hong Kong.15 FDI from Hong
Kong had also increased over time, especially after 2015. The slow-down
observed in 2017 and 2018 can be attributed to the general deterioration
in Malaysia’s investment climate, due possibly to the exposé of the 1MDB

14 One reason for this decline in domestic investments was the outcome of the general
election in 2013, when the then ruling coalition, the Barisan Nasional (National Front),
fared badly. In response, the government introduced an ethnically-based discriminatory
policy to muster political support from Malays, Malaysia’s majority ethnic group. However,
this policy, based on, among other things, affirmative action in business, undermined
domestic investor confidence. For an in-depth analysis of this issue and the implications
of the introduction of this race-based policy which eventually contributed to the fall of
the Barisan Nasional in the May 2018 general election, see Gomez and Mohamed Nawab
(2020).
15 Investments by privately-owned companies from China into Malaysia through Hong
Kong will be indicated in the case studies of Geely, which acquired an interest in Proton,
the national car, and Cainiao’s venture in the digital free trade zone (DFTZ).
8 E. T. GOMEZ ET AL.

scandal in 2015,16 while regional competitors such as Vietnam have

progressively improved their economies by reforming their investment
laws.17
These funds from China were also channelled to implement numerous
major infrastructure and construction-based projects around Malaysia,
with the largest ones indicated in Fig. 1.2. Not long later, after the
approval of a number of these projects, President Xi described China’s
relationship with Malaysia as ‘being at its best’.18 These infrastructure and
construction-based projects have received an inordinate volume of media
attention because a number of them have been mired in controversy.
The most controversial of these projects was the East Coast Rail
Link (ECRL), one that constituted a major segment of China’s BRI.
This project entailed the construction of a 688 km railway line between
the industrialised state of Selangor, on the west coast of the penin-
sula, and the under-developed eastern states of Pahang, Terengganu and
Kelantan. In November 2016, Malaysia Rail Link Sdn Bhd (MRL), an
enterprise owned by the Malaysian government, entered into a contract
valued at RM55 billion with a leading Chinese SOE, China Communica-
tion Construction Co. Ltd. (CCCC). A loan, amounting to 85% of the
contract value, was secured from a finance-based SOE, the Export-Import
Bank of China, to implement the project, to be repaid over 20 years. The
Malaysian government justified the acceptance of this huge loan on the
grounds that it was given at a favourable interest rate and that the project

16 In 2015, the misappropriation of funds from a public enterprise, 1Malaysia Develop-

ment Bhd (1MDB) was exposed. This scandal linked missing money from 1MDB to the
deposit of RM2.6 billion (approximately US$700 million in 2015) into the personal bank
account of Prime Minister Najib. The funds from this account were allegedly used during
the 2013 general election. For a detailed account of the 1MDB scandal, see Wright and
Hope (2018).
17 Media statement by Ong Kian Ming, then Deputy Minister of the Ministry of
International Trade and Industry (MITI), on 10 January 2019, “How much more
Foreign Direct Investment (FDI) would Malaysia have attracted without Najib and
the scandal of 1MDB hanging over the heads of foreign investors?” https://ongkia
nming.com/2019/01/10/media-statement-how-much-more-foreign-direct-investment-
fdi-would-malaysia-have-attracted-without-najib-and-the-scandal-of-1mdb-hanging-over-
the-heads-of-foreign-investors/.
18 Rachel Lau, “China’s Belt and Road: What’s in it for Malaysia?” Borneo Post,
3 September 2017. http://www.theborneopost.com/2017/09/03/chinas-belt-and-road-
whats-in-it-for-malaysia/.
 1 INTRODUCTION: STATE-STATE RELATIONS … 9

PENANG PAHANG
Jinko Solar Kuantan Port
Technology Sdn Malaysia-China
Bhd Industrial Park
(No Malaysian (MCKIP)
partner) Alliance Steel

PERAK
CRRC ZELC
(Malaysian MELAKA
partners: Tegan Melaka Gateway
Dinamik Sdn Bhd (Port and mixed
and Keretapi Tanah development)
Melayu Bhd)

JOHOR
SELANGOR
D&Y Textile
East Coast Railway
(Malaysia) Sdn
Link
Bhd
Proton-Geely
(No Malaysian
DFTZ-Cainiao and
Partner)
MAHB

Fig. 1.2 China-Related Projects in Malaysia (Source Extracted from Appendix

1)

would help fulfil its longstanding objective of industrialising the under-

developed eastern states in the peninsula.19 However, the ECRL project
was reportedly extremely over-valued, with allegations that funds from
this loan were channelled to 1MDB to resolve its debt crisis (see Wright
and Hope 2018).
A large number of the projects listed in Fig. 1.2, emerging from
investments from China, were implemented by its multinational SOEs, in
collaboration with government-linked companies (GLCs) from Malaysia;

19 For in-depth reports about the controversy surrounding the ECRL project, see:
http://www.theedgemarkets.com/article/world%E2%80%99s-costliest-railway; https://
www.edgeprop.my/content/962916/ecrl-not-world%E2%80%99s-costliest-rail-project;
http://www.theedgemarkets.com/article/rafizi-ecrl-deal-signed-rm2-company-formed-wit
hout-parliaments-approval; and https://www.edgeprop.my/content/954096/release-ecrl-
feasibility-study-say-opposition-mps.
10 E. T. GOMEZ ET AL.

in some cases, privately-owned firms were included in these joint-

ventures. However, what has not been adequately noted is that SOEs, as
well as privately-owned companies, from China had also begun actively
investing in Malaysia in projects that were not necessarily BRI-linked,
reinforcing the view that this plan was inaugurated to support China’s
longstanding ‘going out’ strategy,20 introduced in 1999.21 These Chinese
private firms in Malaysia have a marked presence in the industrial and
manufacturing sectors; in some cases, joint-ventures were created between
them and Malaysian companies. State-state relations between China and
Malaysia had demonstrably opened avenues for private firms from both
countries to venture into business areas that can contribute to productive
economic outcomes, including generating employment and creating new
products and services.
An in-depth study of China’s investments in Malaysia uncovered 92
SOEs and private firms operating in this Southeast Asian country.22 These
92 enterprises were involved in a diverse range of sectors. When imple-
menting these projects, these Chinese enterprises had created different
sorts of SBRs that can be classified as ‘state-state’, ‘state-state-private’,
‘state-private’ and ‘state-private-private’ (see Fig. 1.3). In some cases,
private firms from China and Malaysia had forged ‘private-private’ ties,
through joint-ventures. In other projects, private enterprises, as well as
SOEs, from China ran projects without the participation of Malaysian
companies. It should be noted that a number of these private enterprises
from China originated from the state sector. A large number of them

20 When the Chinese government introduced its ‘going out’ strategy in 1999, it
was described as an endeavour to, among other things, develop export trade and
speed up ‘adjustment of industrial structure’ as well as to transfer abroad ‘mature
technology and industry’. This was to be done by ‘strong enterprises’ that would
invest overseas through methods such as ‘foreign processing and assembling’ and
by driving the ‘export of domestic equipment, technology, materials and semi-
finished products’, a means also to ‘expand the foreign trade’. These quotes were
retrieved from the government’s official ‘going out’ development
strategy. For full details, see: http://history.mofcom.gov.cn/?newchina =
%E4%B8%AD%E5%9B%BD%E4%BC%81%E4%B8%9A%E8%B5%B0%E5%87%BA
%E5%8E%BB%E5%8F%91%E5%B1%95%E6%88%98%E7%95%A5.
21 For a review of the ‘going out’ strategy, see Shen and Mantzopoulos (2013) and Li
(2018).
22 Appendix 1 provides a list of these 92 enterprises from China that have invested in
the Malaysian economy.
 State-State
12%

State-State-Private
China Firms Only 8% State-Private-Private
30%
1

1%

State-Private
Private-Private 35%
14%

Fig. 1.3 China in Malaysia: Different forms of State-Business Relations (Source Based on Appendix 1)
INTRODUCTION: STATE-STATE RELATIONS …
11
12 E. T. GOMEZ ET AL.

continue to be partially-owned by the government or depend on SOEs as

sources of technology.23
The reach of the state in China’s corporate sector is rather exten-
sive, one that a simple state-private dichotomy does not capture. The
enterprises in these different SBRs are involved in the industrial, manu-
facturing, services, property development and agriculture sectors, though
a majority of these investments were channelled to infrastructure and
construction-based projects (see Table 1.3). From these diverse SBR
forms have emerged different outcomes, some predatory in nature,
reflecting elements of rent-seeking. Other projects, however, have been
more developmental in nature, resulting in the creation of infrastructure
that facilitates trade as well as the incorporation of new industries that
foster technological progress.
The case studies in this volume focus on manufacturing and services
due to the higher number of projects in these two sub-sectors, as
compared to the other sectors (see Table 1.3). The volume of investments
in manufacturing has also increased appreciably between 2010 and 2018,
as indicated in Fig. 1.4. Moreover, the focus on manufacturing indicates
that the sectors that China’s SOEs and private firms have invested in are
what are seen as priority areas when overseas investments are undertaken.
The ‘Guideline of the State Council on Promoting International Cooper-
ation in Production Capacity and Equipment Manufacturing’ stresses the
Chinese government’s desire to deepen national development through
the BRI, a mechanism also to accelerate its longstanding ‘going out’
strategy. However, before assessing China’s SOEs and private enterprises
in Malaysia, a review is required of the newly-formed SBRs, manifested
through these investments derived from state-state ties.

23 For a discussion on the emergence of well-connected private companies in China, see

Pei (2016).
Table 1.3 China in Malaysia: Different forms of State-Business Relations
1

Forms of ownership Industrial/Manufacturing Services Construction Infrastructure Agriculture Total by Type

State-State 4 1 2 5 0 12
State-State-Private 3 0 1 2 0 6
State-Private-Private 0 1 0 0 0 1
State-Private 4 1 13 10 0 28
Private-Private 3 2 8 3 1 17
China Firms Only (SOEs & 20 1 6 1 0 28
private
Total by sector 35 6 30 20 1

Source Based on Appendix 1

INTRODUCTION: STATE-STATE RELATIONS …
13
Another random document with
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 ultimate philosophical questions about the nature either of
matter or of energy. His Natural Philosophy has recently been
translated into English (Holt & Co., 1910). Its Pragmatism lies
in the fact of his looking upon concepts and classification as
“not questions” of the so-called “essence” of the thing, “but
rather as pertaining to purely practical arrangements for an
easier and more successful mastery of scientific problems” (p.
67). He also takes a pragmatist, or “functional,” conception of
the mental life towards the close of this book. Professor
Ostwald lectured some years ago in the United States, and his
lectures were attended by students of philosophy and students
of science. Professor (now President) Hibben has written an
interesting account of his theory in its philosophical bearings in
the Philosophical Review, vol. xii.
69
The philosophy of Avenarius (born in Paris, but died as
Professor of Inductive Philosophy in Zurich) is called “Empirical
Criticism,” which differs from Idealism by taking a more realistic
attitude to ordinary human experience. There is an excellent
elementary account of Avenarius in Mind for 1897 by
Carstanjen of Zurich. Avenarius goes back in some respects to
the teaching of Comte as to the need of interpreting all
philosophical theories in the terms of the social environment
out of which they come.
70
Logic, vol. ii. p. 17. English translation by Miss Dendy. In this
same section of his work, Lotze talks of the demands of our
thought as “postulates” whose claims rest in the end upon our
will—auf unserm Wollen.
71
To be traced to Fichte’s well-known initial interpretation of Kant
from the standpoint of the Practical Reason of the second
“Critique,” and to Schelling’s late “positive” philosophy, and to
Schopenhauer, the will philosopher par excellence. See my
Schopenhauer’s System in its Philosophical Significance.
72
As an illustration of this “conceptual shorthand,” I take the
following lines from Professor Needham’s book upon General
 Biology (p. 222) in respect of “classification” and its relative
and changing character. “Whatever our views of relationship,
the series in which we arrange organisms are based upon the
likenesses and differences we find to exist among them. This
is classification. We associate organisms together under group
names because, being so numerous and so diverse, it is only
thus that our minds can deal with them. Classification furnishes
the handles by which we move all our intellectual luggage. We
base our groupings on what we know of the organisms. Our
system of classification is therefore liable to change with every
advance of knowledge.”
73
Professor Jerusalem (the translator of James’s Pragmatism
into German) is known as one of the German discoverers of
Pragmatism. His Introduction to Philosophy (translated by
Professor Sanders, Macmillan & Co., N.Y., 1910) is an
admirable, easy, and instructive introduction to philosophy from
a pragmatist point of view. It has gone through four editions in
Germany. It is quite free from any taint of irrationalism and has
sections upon the “theory of knowledge” and the “theory of
being.” Its spirit may be inferred from the following quotations.
“My philosophy is characterized by the empirical view point,
the genetic method, and the biological and the social methods
of interpreting the human mind” (the Preface). “Philosophy is
the intellectual effort which is undertaken with a view to
combining the common experiences of life and the results of
scientific investigation into a harmonious and consistent world
theory; a world theory, moreover, which is adapted to satisfy
the requirements of the understanding and the demands of the
heart. There was a time when men believed that such a theory
could be constructed from the pure forms of thought, without
much concern for the results of detailed investigation. But that
time is for ever past” (pp. 1 and 2).
74
Author of a work on Philosophy and Social Economy
(Philosophie und Wirthschaft), in which the fundamental idea is
that philosophy is essentially nothing more or less than a
“conception of life” or a view of the world in general, and that
 the older rationalistic philosophy will therefore have to be
modified in view of modern discoveries and modern ways of
looking at things. It has, of course, the limitations of such a
point of view, in so far as its author seems to forget that
philosophy must lead human life and not merely follow it. My
present point is merely to mention of the existence and work of
this man as one of the continental thinkers who have
anticipated the essentially social conception of philosophy
taken by the pragmatists.
75
It is easy to see the influence of Fichte’s will philosophy and
practical idealism in Schellwien’s books (Philosophie und
Leben, Wille und Erkenntniss, Der Geist der neuern
Philosophie). He speaks of the primacy of the will (in point of
time only, of course), or of the “unconscious” in the life of man,
allowing, however, that man gradually transforms this natural
life in the life of “creative activity” that is his proper life. He
states (in the Spirit of the New Philosophy) the pragmatist idea
that “belief” (p. 32) or the “feeling” that we have of the ultimate
“unity” of “subject and object,” precedes (also in point of “time”)
knowledge, pointing out, however, in the same place the
limitations of belief. These latter, he supposes, to be overcome
in the higher knowledge that we have in creative activity—an
idea which, I think, may be associated to some extent with the
position of Blondel.
76
In the Phil. Rev. (xvi. p. 250) Dr. Ewald speaks of this work of
this psychologizing school as existing alongside of the
renewed interest in Fichte and Schelling and Hegel. It is an
attempt to revive the teaching of Fries, a Kantian (at Jena) who
attempted to establish the Critique of Pure Reason upon a
psychological basis, believing that psychology, “based on
internal experience,” must form the basis of all philosophy. It
stands squarely upon the fact that all logical laws and
“categories,” even the highest and most abstract, in order to
“come to consciousness in man,” must be given to him as
“psychological processes”—a position which is certainly true
as far as it goes, and which supports, say, the genetic
 psychological attitude of Professor Dewey. Its attitude has
been sharply criticized in some of his books by Dr. Ernst
Cassirer of Berlin, a well-known upholder of a more
rationalistic form of Neo-Kantianism.
77
Dr. Simmel of Berlin (like Stein) is a prominent representative
of this school (even in a recent striking book that he wrote
upon the philosophy of Kant). He has written, for example, a
most erudite work upon the Philosophy of Money, and this at
the same time with all his university work as a fascinating and
learned lecturer upon both ancient and modern philosophy.
78
Without attempting to enter upon the matter of Harnack’s
philosophy as a Neo-Kantian of the school of Ritschl, I am
thinking simply of things like the following from his book on the
Essence of Christianity. “It is to man that religion pertains, to
man, as one who in the midst of all change and progress
himself never changes” (p. 8). “The point of view of the
philosophical theorists in the strict sense of the word will find
no place in these lectures. Had they been delivered sixty years
ago it would have been our endeavour to try to arrive by
speculative reasoning at some general conception of religion,
and then to define the Christian religion accordingly. But we
have rightly become sceptical about the value of this
procedure. Latet dolus in generalibus. We know to-day that life
cannot be spanned by general conceptions” (p. 9). See also
his protest (on p. 220) against the substitution of a “Hellenistic”
view of religion for religion itself—a protest that is, according to
Pfleiderer in his Development of Theology (p. 298), a marked
characteristic of Harnack’s whole History of Dogma.
79
I am thinking of Ritschl’s sharp distinction between “theoretical
knowledge” and “religious faith” (which rises to judgments of
value about the world that transcend even moral values), and
of his idea that the “truth” of faith is practical, and must be
“lived.” Pfleiderer says (in his Development of Theology, p.
184) that Ritschl’s “conception of religion is occupied with
judgments of value [Werturtheile], i.e. with conceptions of our
 relation to the world which are of moment solely according to
their value in awakening feelings of pleasure and pain, as our
dominion over the world is furthered or checked.” His
“acceptance of the idea of God as [with Kant] a practical
‘belief,’ and not an act of speculative cognition,” is also to
some extent a pragmatist idea in the sense in which, in this
book, I reject pragmatist ideas. Ritschl seems to have in the
main only a strongly practical interest in dogmatics holding that
“only the things vital are to be made vital in the actual service
of the church.” He goes the length of holding that “a merely
philosophical view of the world has no place in Christian
theology,” holding that “metaphysical inquiry” applied to
“nature” and to “spirit,” as “things to be analysed, for the
purpose of finding out what they are in themselves, can from
the nature of the case have no great value for Christian
theology.” Of course he is right in holding that the “proofs for
the existence of God, conducted by the purely metaphysical
method, do not lead to the forces whose representation is
given in Christianity, but merely to conceptions of a world-unity,
which conceptions are neutral as regards all religion” (The
Theology of Albrecht Ritschl, Swing. Longmans, Green & Co.,
1901). I think this last quotation from Ritschl may be used as
an expression of the idea of the pragmatists, that a true and
complete philosophy must serve as a “dynamic” to human
endeavour and to human motive.
80
See the reference to Windelband in the footnote upon p. 150.
81
I am thinking of Münsterberg’s contention in his Grundzüge
and his other books, that the life of actual persons can never
be adequately described by the objective sciences, by psycho-
physics, and so on, and of his apparent acceptance of the
distinction of Rickert between the “descriptive” and the
“normative” sciences (logic, ethics, aesthetics, and so on).
82
The leaders of this school are the two influential thinkers and
teachers Cohen and Natorp, the former the author of a well-
known book upon Kant’s Theory of Experience (1871),
 formerly much used by English and American students, and
the latter the author of an equally famous book upon Plato’s
Theory of Ideas, which makes an interesting attempt to
connect Plato’s “Ideas” with the modern notion of the law of a
phenomenon. Cohen has given forth recently an important
development of the Kantian philosophy in his two remarkable
books upon the Logic of Pure Knowledge and the Ethic of the
Pure Will. These works exercise a great influence upon the
entire liberal (Protestant and Jewish) thought of the time in
Germany. They teach a lofty spiritualism and idealism in the
realm of ethics, which transcends altogether anything as yet
attempted in this direction by Pragmatism.
83
See the instructive reports to the Philosophical Review by Dr.
Ewald of Vienna upon Contemporary Philosophy in Germany.
In the 1907 volume he speaks of this renewed interest, “on a
new basis,” in the work of the great founders of
transcendentalism as an “important movement partly within
and partly outside of Neo-Kantianism,” as “a movement
heralded by some and derided by others as a reaction,” as the
“fulfilment of a prophecy by von Hartmann that after Kant we
should have Fichte, and after Fichte, Schelling and Hegel.”
The renewed interest in Schelling, and with it the revival of an
interest in university courses in the subject of the Philosophy of
Nature (see the recent work of Driesch upon the Science and
Philosophy of the Organism) is all part of the recent reaction in
Germany against Positivism.
84
We may associate, I suppose, the new German journal Logos,
an international periodical for the “Philosophie der Kultur,” with
the same movement.
85
See Chapter VII. upon “Pragmatism as Americanism.”
86
See an article in the Critical Review (edited by the late
Professor Salmond, of Aberdeen), by the author upon “Recent
Tendencies in American Philosophy.” The year, I think, was
either 1904 or 1905.
87
See p. 180.
88
Without pretending to anything like a representative or an
exhaustive statement in the case of this magazine literature, I
may mention the following: Professor Perry of Harvard, in his
valuable articles for the Journal of Philosophy and Psychology,
1907, vol. iv., upon “A Review of Pragmatism as a
Philosophical Generalization,” and a “Review of Pragmatism
as a Theory of Knowledge”; Professor Armstrong in vol. v. of
the same journal upon the “Evolution of Pragmatism”; and
Professor Lovejoy in the 1908 vol. upon the “Thirteen
Pragmatisms.” These are but a few out of the many that might
be mentioned. The reader who is interested in looking for more
such must simply consult for himself the Philosophical Review,
and Mind, and the Journal of Philosophy and Psychology, for
some years after, say, 1903. There is a good list of such
articles in a German Doctor Thesis by Professor MacEachran
of the University of Alberta, entitled Pragmatismus eine neue
Richtung der Philosophie, Leipzig, 1910. There is also a
history of pragmatist articles in the 1907 (January) number of
the Revue des Sciences, Philosophiques et Theologiques.
89
That this has really taken place can be clearly seen, I think, if
we inspect the official programmes of the Proceedings of the
American Philosophical Association for the last year or two.
90
P. 144.
91
See p. 149.
92
See Chapter VI., p. 149, upon the doctrine and the fact of
“Meaning.”
93
Professor Pratt, What is Pragmatism? (Macmillan & Co.,
1909); H. H. Bawden, The Principles of Pragmatism, a
Philosophical Interpretation of Experience, Boston, 1910 (a
useful book presenting what may be called a
 “phenomenological” account of Pragmatism); Moore,
Pragmatism and Its Critics.
94
In Pragmatism and Its Critics (Univ. of Chicago Press).
95
The manifesto has now become a book. The New Realism
(Macmillan). For a useful account of the New Realism and the
Old see Professor Perry, Present Philosophical Tendencies,
Part V.
96
The following are my reasons for saying that the “New
Realism” was already to some extent lurking in the “radical
empiricism” of James. (1) Although teaching unmistakably the
“activity” of mind, James seemed to think this activity
“selective” rather than “creative” (falling in this idea behind his
much-admired Bergson). (2) Despite this belief in the activity of
the mind, he had the way of regarding consciousness as (to
some extent) the mind’s “content”—an attitude common to all
empirical psychologists since Hume and the English
associationists. And from this position (legitimate so far from
the psychological point of view) he went on to the idea
(expressed in a troublesome form in the article, “Does
Consciousness exist?”) that consciousness is not an entity or
substance—of course it is not in the ordinary sense of “entity.”
(3) Then from this he seemed to develop the idea that the
various “elements” that enter into consciousness to be
transformed into various “relationships” do not suffer any
substantial change in this quasi-subjective “activity.” Therefore,
as Professor Perry puts it (Present Tendencies, p. 353), “the
elements or terms which enter into consciousness and become
its content may now be regarded as the same elements which,
in so far as otherwise related, compose physical nature [italics
mine]. The elements themselves, the ‘materia prima,’ or stuff of
pure experience, are neither psychical nor physical.” It is in this
last absurd sentence [simply a piece of quasi-scientific
analysis, the error of which Critical Idealism would expose in a
moment] that the roots, I think, of “new realism” are to be found
 —a doctrine whose unmitigated externalism is the negation of
all philosophy.
97
See p. 164 and p. 230.
98
I refer to his Aberdeen “Gifford Lectures” on “The World and
The Individual,” and to a well-known address of his upon “The
Eternal and the Practical” in the Proceedings of the American
Philosophical Association. In this latter pamphlet he shows that
Pragmatism and the philosophy of Consequences are
impossible without “the Eternal” and without Idealism.
99
The criticisms of which I am thinking are (to select but a few
from memory) Green’s well-known admission in respect of
Hegelianism, that it would have “to be done all over again”; Mr.
Bradley’s admission that he is “not a Hegelian” and (recently)
that he has “seen too much of metaphysics” to place any
serious weight upon its reasonings; Jowett’s complaint (in the
“life” by Campbell) that the Oxford Hegelianism of his day was
teaching students to place an undue reliance upon “words” and
“concepts” in the place of facts and things; Dr. Bosanquet’s
admission (many years ago) that, of course, “gods and men”
were more than “bloodless categories”; Professor Pringle
Pattison’s criticism of Hegel in his Hegelianism and
Personality; Professor Baillie’s criticisms at the end of his Logic
of Hegel; Mr. Sturt’s criticism of Neo-Hegelianism in his Idola
Theatri, etc.
100
See the following, for example, from Professor Stout: “Every
agreeable or disagreeable sensation has a conative or quasi-
conative aspect” (Manual of Psychology, p. 233). Also:
“Perception is never merely cognitive” (ibid. p. 242); it has a
“conative character and a feeling tone,” etc.
101
A. Sidgwick’s “Applied Axioms” (Mind, N.S. xiv. p. 42). This is
extremely useful, connecting the recent pragmatist movement
with the work of the English logicians. See in the same
 connexion the articles of Captain Knox in the Quarterly Review
(April 1909) on “Pragmatism.”
102
During the last ten years Mind has contained articles on the
pragmatist controversy by nearly all our prominent academic
authorities: Dr. Bradley, Dr. McTaggart, Professor Taylor,
Professor Hoernle, Dr. Schiller, Dr. Mellone, Dr. Boyce-Gibson,
Mr. Hobhouse, and so on.
103
Particularly in his valuable book on Truth in which the
weakness of the Hegelian conception of truth is set forth along
with that of other views.
104
In Idealism as a Practical Creed, in his Browning as a
Religious and Philosophical Teacher, and elsewhere.
105
In his Elements of Metaphysic, and in many of his recent
reviews; in his review, for example, of Professor Bosanquet’s
Individuality and Value, in the Review of Theology and
Philosophy, and in his Mind (July 1912) review of Professor
Ward’s Realm of Ends.
106
In his book upon the Philosophy of Eucken, in God With Us,
and elsewhere.
107
In Idola Theatri (an important criticism of Neo-Hegelian
writers), and elsewhere.
108
In Essays in Philosophical Construction, and in his book upon
Logic.
109
In his Introduction to Logic.
110
See p. 154.
111
“If God has this perfect authority and perfect knowledge, His
authority cannot rule us, nor His knowledge know us, or any
human thing; just as our authority does not extend to the gods,
nor our knowledge know anything which is divine; so by parity
of reason they, being gods, are not our masters, neither do
 they know the things of men” (Parmenides, 134, Jowett’s
Plato, vol. iv.).
112
This is, of course, a very old difficulty, involved in the problem
of the supposed pre-knowledge of God. Bradley deals with it in
the Mind (July 1911) article upon “Some Aspects of Truth.” His
solution (as Professor Dawes Hicks notices in the Hibbert
Journal, January 1912) is the familiar Neo-Hegelian finding,
that as a “particular judgment” with a “unique context” my truth
is “new,” but “as an element in an eternal reality” it was “waiting
for me.” Readers of Green’s Prolegomena are quite ready for
this finding. Pragmatists, of course, while insisting on the man-
made character of truth, have not as yet come in sight of the
difficulties of the divine foreknowledge—in relation to the free
purposes and the free discoveries of mortals.
113
There is, it seems to me, a suggestion of this rationalist
position in the fact, for example, that Mr. Bertrana Russell
begins his recent booklet upon The Problems of Philosophy
with the following inquiry about knowledge: “Is there any
knowledge in the world which is so certain that no reasonable
man could doubt it?” I mean that the initial and paramount
importance attached here to this question conveys the
impression that the supreme reality for philosophy is still some
independently certain piece of knowledge. I prefer, with the
pragmatists and the humanists, to think of knowledge as
concerned with the purposes of persons as intelligent beings,
or with the realities revealed in the knowing process. Although
there are passages in his book that show Mr. Russell to be
aware of the selves and the psychical elements and processes
that enter into knowing, they do not affect his prevailingly
rationalistic and impersonal conception of knowledge and
philosophy.
114
In his sympathetic and characteristic review of James’s
“Pragmatism” in the Journ. of Philos., 1908.
115
See p. 203 (the note), and p. 263, where I suggest that no
philosophy can exist, or can possibly begin, without some
direct contact with reality, without the experience of some
person or persons, without assumptions of one kind or another.
116
See p. 162.
117
In this attitude Pragmatism is manifestly in a state of rebellion
against “Platonism,” if we allow ourselves to think of
Pragmatism as capable of confronting Plato. Plato, as we
know, definitely subordinates “belief” to “knowledge” and
“truth.” “As being is to becoming,” he says, “so is truth to belief”
(Timaeus, Jowett’s translation). To Plato belief is a conjectural,
or imaginative, estimate of reality; it deals rather with
“appearance” or “becoming” than with “reality.” “True being” he
thinks of as revealed in the Ideas, or the rational entities that
are his development and transformation of the “definition” of
Socrates. Against all this rationalism Pragmatism (it is enough
meantime merely to indicate the fact) would have us return to
the common-sense, or the religious, position that it is invariably
what we believe in that determines our notion of reality.
118
Cf. p. 159.
119
From Dr. Schiller’s Humanism.
120
Pragmatism, p. 207.
121
It is this dissatisfaction at once with the abstractions of science
and of rationalism and with the contradictions that seem to
exist between them all and the facts of life and experience as
we feel them that constitutes the great dualism, or the great
opposition of modern times. I do not wish to emphasize this
dualism, nor do I wish to set forth faith or belief in opposition to
reason when I extract from both Pragmatism and Idealism the
position that it is belief rather than knowledge that is our
fundamental estimate of reality. I do not believe, as I indicate in
the text above, that this dualism is ultimate. It has come about
 only from an unfortunate setting of some parts of our nature, or
of our experience in opposition to the whole of our nature, or
the whole of our experience. That the opposition, however,
between reason and faith still exists in many quarters, and that
it is and has been the opposition of modern times, and that the
great want of our times is a rational faith that shall recall the
world of to-day out of its endless “distraction” (the word is Dr.
Bosanquet’s), I am certainly inclined to maintain. In proof of
this statement it is enough to recall things like the words of
Goethe about the conflict of belief and unbelief as the unique
theme of the history of the world, or the “ethical headache
which was literally a splitting headache,” that Mr. Chesterton
finds in the minds of many of our great Victorian writers. I shall
take leave of it here with three references to its existence
taken from the words or the work of living writers. The first
shall be the opposition which Mr. Bertrand Russell finds in his
Philosophical Essays (in the “Free Man’s Worship”) between
the “world which science presents for our belief” and the “lofty
thoughts that ennoble his little day.” The second shall be the
inconsistency that exists in Mr. Hugh S. R. Elliot’s book upon
Modern Science and the Illusions of Professor Bergson,
between his initial acceptance of the mechanical, evolutionary
system of modern science and his closing acceptance of
feeling and poetry and love as the “deepest forms of
happiness.” The third shall be the declaration of Professor Sir
Henry Jones of Glasgow (in the Hibbert Journal, 1903) that
“one of the characteristics of our time is the contradiction that
exists between its practical faith in morality and its theoretical
distrust of the conceptions on which they rest.”
122
See p. 203 (note).
123
See p. 7.
124
From Pragmatism and its Misunderstanders.
125
See p. 173.
126
“You will be surprised to learn, then, that Messrs. Schiller’s and
Dewey’s theories have suffered a hailstorm of contempt and
ridicule. All rationalism has risen up against them. In influential
quarters, Mr. Schiller in particular has been treated like an
impudent school-boy who deserves a spanking. I should not
mention this but for the fact that it throws so much light upon
that rationalist temper to which I have opposed the temper of
pragmatism. Pragmatism is uncomfortable away from facts.
Rationalism is comfortable only in the presence of
abstractions. This pragmatist talk about truths in the plural,
about their utility and satisfactoriness, about the success with
which they ‘work,’ etc., suggests to the typical intellectualist
mind a sort of coarse, lame, second-rate makeshift article of
truth” (James, Pragmatism, pp. 66–67; italics mine). The words
about Rationalism being comfortable only in the world of
abstractions are substantiated by the procedure of Bosanquet,
to whom I refer in Chapter VIII., or by the procedure of Mr.
Bertrand Russell, referred to on p. 169.
127
See p. 235 in the Bergson chapter where it is suggested that
perception is limited to what interests us for vital or for practical
purposes.
128
Cf. p. 92.
129
See p. 65.
130
See p. 234 upon the “anti-intellectualism” in the philosophy of
Bergson.
131
See p. 4 and p. 237.
132
From “Truth and Copying,” Mind, No. 62.
133
From “Truth and Practice,” in Mind. Cf. “This denial of
transcendence, this insistence that all ideas, and more
especially such ideas as those of God, are true and real just so
far as they work, is to myself most welcome” (Bradley, in Mind,
1908, p. 227, “Ambiguity of Pragmatism”). Mr. Bradley has of
recent years made so many such concessions, and has
philosophized with such an admirable degree of
independence, and has (also admirably) attached so much
weight to his own experience of “metaphysics,” and of other
things besides, that many thinkers like Knox and Dewey and
Schiller have been discussing whether he can any longer be
regarded as a rationalist. One could certainly study, profitably,
the whole evolution of philosophy in England during the last
forty years by studying Mr. Bradley’s development. He never
was, of course, a Hegelian in the complete sense (who ever
was?), and he has now certainly abandoned an abstract,
formalistic Rationalism.
By way of an additional quotation or two from Mr. Bradley,
typical of his advance in the direction of the practical
philosophy for which Pragmatism stands, we may append the
following: “I long ago pointed out that theory takes its origin
from practical collision [the main contention of Professor
Dewey and his associates]. If Pragmatism means this, I am a
pragmatist” (from an article in Mind on the “Ambiguity of
Pragmatism”—italics mine). “We may reject the limitation of
knowledge to the mere world of events which happen, and
may deny the claim of this world to be taken as an ultimate
foundation. Reality or the Good will be the satisfaction of all the
wants of our nature, and theoretical truth will be the perception
of ideas which directly satisfy one of those wants, and so
invariably make part of the general satisfaction. This is a
doctrine which, to my mind, commends itself as true, though it
naturally would call for a great deal of explanation” (from Mind,
July 1904, p. 325). And, as typical of the kind of final
philosophy to which the philosophical reconstruction of the
future must somehow attain out of the present quarrel between
Pragmatism and Rationalism, the following: “If there were no
force in the world but the vested love of God, if the wills in the
past were one in effort and in substance with the one Will, if in
that Will they are living still and still are so loving, and if again
by faith, suffering, and love my will is made really one with
theirs, here indeed we should have found at once our answer
 and our refuge. But with this we should pass surely beyond the
limits of any personal individualism” (from Mind, July 1904, p.
316). Dr. Schiller, by the way, has a list of such concessions to
Pragmatism on the part of Mr. Bradley in Mind, 1910, p. 35.
134
Cf. the saying of Herbert Spencer (Autobiography, i. 253) that
a “belief in the unqualified supremacy of reason [is] the
superstition of philosophers.”
135
See p. 147.
136
“Truth and Practice,” Mind, No. 51.
137
It would be easy to quote to the same effect from other
Hegelian students, or, for that part of it, from Hegel himself.
138
Elements of Metaphysics, p. 411.
139
Ibid. p. 414.
140
Cf. p. 14.
141
See the well-known volume Personal Idealism, edited by Mr.
Sturt.
142
Cf. pp. 147 and 193.
143
By this notion is meant the common-sense idea that truth in all
cases “corresponds” to fact, my perception of the sunset to the
real sunset, my “idea” of a “true” friend to a real person whose
outward acts “correspond to” or “faithfully reflect” his inner
feelings. See the first chapter of Mr. Joachim’s book upon The
Nature of Truth, where this notion is examined and found
wanting. It is probably the oldest notion of truth, and yet one
that takes us readily into philosophy from whatever point of
view we examine it. It was held by nearly all the Greek
philosophers before the time of the Sophists, who first began
to teach that truth is what it “appears to be”—the “relativity”
position that is upheld, for example, by Goethe, who said that
“When I know my relation to myself and to the outer world I call
 this truth. And thus every man can have his own truth, and yet
truth is always the same.” The common-sense view was held
also by St. Augustine in the words, “That is true what is really
what it seems to be (verum est quod ita est, ut videtur),” by
Thomas Aquinas as the “adequacy of the intellect to the thing,”
in so far as the intellect says that that is which really is, or that
that is not which is not (adaequatio intellectus et rei), by
Suarez, by Goclen, who made it a conformity of the judgment
with the thing. Its technical difficulties begin to appear, say in
Hobbes, who held that truth consists in the fact of the subject
and the predicate being a name of the same thing, or even in
Locke, who says: “Truth then seems to me in the proper import
of the word to signify nothing but the joining or separating of
signs, as the things signified by them, do agree, or disagree,
one with another” (Essay, iv. 5. 2). How can things “agree” or
“disagree” with one another? And an “idea” of course is,
anyhow, not a “thing” with a shape and with dimensions that
“correspond” to “things,” any more than is a “judgment” a
relation of two “ideas” “corresponding” to the “relations” of two
“things.”
144
“The mind is not a ‘mirror’ which passively reflects what it
chances to come upon. It initiates and tries; and its
correspondence with the ‘outer world’ means that its effort
successfully meets the environment in behalf of the organic
interest from which it sprang. The mind, like an antenna, feels
the way for the organism. It gropes about, advances and
recoils, making many random efforts and many failures; but it
is always urged into taking the initiative by the pressure of
interest, and doomed to success or failure in some hour of trial
when it meets and engages the environment. Such is mind,
and such, according to James, are all its operations” (Perry,
Present Philosophical Tendencies, p. 351). Or the following: “I
hope that,” said James in the “lectures” embodied in
Pragmatism (New York, 1908) ... “the concreteness and
closeness to facts of pragmatism ... may be what approves
itself to you as its most satisfactory peculiarity. It only follows
 here the example of the sister sciences, interpreting the
unobserved by the observed. It brings old and new
harmoniously together. It converts the absolutely empty notion
of a static relation of ‘correspondence’ between our minds and
reality, into that of a rich and active commerce (that any one
may follow in detail and understand) between particular
thoughts of ours and the great universe of other experiences in
which they play their parts and have their uses” (p. 68; italics
mine).
145
“On any view like mine to speak of truth as in the end copying
reality, would be senseless” (Bradley in Mind, July 1911, “On
some Aspects of Truth”).
146
See p. 143 and p. 265.
147
See p. 127 and p. 133.
148
See pp. 148–9.
149
See p. 162.
150
What is Pragmatism? (Pratt), p. 21.
151
Principles of Pragmatism, Houghton Mifflin, 1910.
152
Ibid., Preface. This last sentence, by the way, may be taken as
one of the many illustrations that may be given of the crudities
and difficulties of some of the literature of Pragmatism. It
shows that Pragmatism may sometimes be as guilty of
abstractionism as is Rationalism itself. It is not “experience”
that becomes “self-conscious,” but only “persons.” And,
similarly, it is only “persons” who pursue “ends” and “satisfy”
desires, and who may be said to have a “method.” Professor
Bawden, of course, means that it is to the credit of Pragmatism
that it approaches experience just as it finds it, and that its
chief method is the interpretation of the same experience—an
easy thing, doubtless, to profess, but somewhat difficult to
carry out.
153
Principles of Pragmatism, Houghton Mifflin, 1910, pp. 44–45.
154
P. 253.
155
P. 256.
156
See p. 146.
157
See p. 240 et ff.
158
Wallace’s Logic of Hegel, p. 304.
159
There is a sentence in one of Hawthorne’s stories to the effect
that man’s work is always illusory to some extent, while God is
the only worker of realities. I would not go as far as this,
believing, as I do, with the pragmatists, that man is at least a
fellow-worker with God. But I do find Pragmatism lacking, as 1
indicate elsewhere, in any adequate recognition of the work of
God, or the Absolute in the universe.
160
I am thinking of such considerations as are suggested in the
following sentences from Maeterlinck: “As we advance through
life, it is more and more brought home to us that nothing takes
place that is not in accord with some curious, preconceived
design; and of this we never breathe a word, we scarcely let
our minds dwell upon it, but of its existence, somewhere above
our heads, we are absolutely convinced” (The Treasure of the
Humble, p. 17). “But this much at least is abundantly proved to
us, that in the work-a-day lives of the very humblest of men
spiritual phenomena manifest themselves—mysterious, direct
workings, that bring soul nearer to soul” (ibid. 33). “Is it to-day
or to-morrow that moulds us? Do we not all spend the greater
part of our lives under the shadow of an event that has not yet
come to pass?” (ibid. 51). I do not of course for one moment
imply that the facts of experience referred to in such sentences
as these should be received at any higher value than their face
value, for there are indeed many considerations to be thought
of in connexion with this matter of the realization of our plans
and our destiny as individuals. But I do mean that the beliefs to
 which men cling in this respect are just as much part of the
subject-matter of philosophy as other beliefs, say the belief in
truth as a whole, or the beliefs investigated by the Society for
Psychical Research. And there may conceivably be a view of
human nature upon which the beliefs in question are both
natural and rational.
161
See p. 101.
162
See p. 198 on Dr. Bosanquet’s dismissal of the problem of
teleology from the sphere of reasoned philosophy.
163
Appearance and Reality, p. 561.
164
See p. 155.
165
I think that I have taken this phrase from Some Dogmas of
Religion.
166
From “Truth and Copying,” Mind, No. 62.
167
By action in this chapter and elsewhere in this book, I do not
mean the mere exhibition or expenditure of physical energy. I
mean human activity in general, inclusive of the highest
manifestations of this activity, such as the search for truth,
contemplation, belief, creative activity of one kind or another,
and so on. There is no belief and no contemplation that is not
practical as well as theoretical, no truth that fails to shape and
to mould the life of the person who entertains it. I quite agree
with Maeterlinck, and with Bergson and others, that the soul is
to some extent limited by the demands of action and speech,
and by the duties and the conventions of social life, but I still
believe in the action test for contemplations and thoughts and
beliefs and ideas, however lofty. It is only the thoughts that we
can act out, that we can consciously act upon in our present
human life, and that we can persuade others to act upon, that
are valuable to ourselves and to humanity. It is to their discredit
that so many men and so many thinkers entertain, and give
expression to, views about the universe which renders their