MALAYSIA, CHARTING ITS OWN COURSE IN SOUTHEAST ASIA / GEOPOLITICAL FUTURES

Malaysia, Charting Its Own Course in Southeast Asia

China needs regional middle powers like Malaysia as much as they need China.

By Phillip Orchard

In most ways, Malaysian Prime Minister Mahathir Mohamad’s four-day visit to Beijing last week stuck to what’s becoming the standard script for visiting leaders from China’s weaker neighbors. Mahathir praised China’s development model and asked for Beijing’s support in helping shore up Malaysia’s economic problems at home.

And like his counterparts across Southeast Asia, Mahathir didn’t leave empty-handed; the two sides inked several deals, including a bilateral currency swap agreement and a Chinese pledge to import Malaysian palm oil and agricultural products. This script may seem to echo elements of Imperial China’s tributary system, in which peripheral vassal states would seek trade and favor with the Middle Kingdom in exchange for shows of deference. That’s because a China-centric regional order, with its weaker neighbors economically and strategically tethered to Beijing’s orbit, is essentially what Beijing is trying to convince the region to accept today.

The historical parallels of modern China’s ambitions are probably not lost on the spry 93-year-old Mahathir, who first entered government in Malaysia in 1964, when Beijing was still grappling with the fallout of Mao’s Great Leap Forward. Yet, the prime minister has not been playing the role of supplicant. Rather, to put the strained bilateral relationship on more equal footing, Mahathir has been portraying Malaysia as following in China’s footsteps after less glorious episodes of Chinese history. Shortly after his election in June, for example, Mahathir cited China’s experience renegotiating “unequal treaties” – a series of humiliating pacts that the Qing dynasty signed at gunpoint with Western powers in the 19th and early 20th centuries – as his rationale for suspending some $23 billion in China-backed Belt and Road Initiative projects signed with Malaysia’s previous administration. And in a news conference with Chinese Premier Li Keqiang last week, shortly after rebuffing Beijing’s efforts to revive the projects, Mahathir effectively described BRI as “a new version of colonialism” in the region. (Parts of China, of course, were colonized as a result of the unequal treaties.)

That the prime minister was received so warmly (and sent home with a bundle of goodies) anyway suggests that Beijing is learning from past mistakes, navigating political minefields in partner states at a time when BRI projects are facing intensifying scrutiny across the globe. It also illustrates just how much China still needs Malaysia – and how middle powers like Malaysia today can bend “tributary” relationships to their own aims.

 

What China Sees in Malaysia

The sprawling, vaguely defined Belt and Road Initiative serves a range of Chinese goals. Some infrastructure projects are intended to open up trade routes that bypass maritime chokepoints which, if blocked, would bring the Chinese economy to its knees while integrating less developed provinces in the Chinese interior to the global economy, helping reduce China’s steep wealth imbalances between the coast and the interior. Some BRI projects are aimed at cultivating political influence that Beijing hopes it can use to pull strategically important states into its orbit. Some projects (deep-water ports, for example) are intended to eventually function as bases for China’s burgeoning blue-water navy – or at least that’s what BRI critics claim. In some countries, Beijing is simply using its diplomatic power to win contracts for firms back home and keep China’s vast industrial base humming while the Chinese economy enters a protracted period of slowing growth.

Malaysia’s role in BRI embodies all of these objectives. The country’s strategic value stems primarily from its position at one of the world’s busiest sea lanes. The gap between peninsular Malaysia and Malaysian Borneo is the southern gateway to the South China Sea and a thoroughfare for seaborne trade bound for the Malacca Strait, the length of which peninsular Malaysia runs. Some 80 percent of China’s oil imports pass through these waters; roughly half of Chinese exports do as well. Denial of this passage would be a threat Beijing could not abide. Malaysia also happens to be a party to the dispute over China’s voracious territorial claims in the South China Sea. Naturally, Beijing is keen to discourage the country from banding together with other claimants like the Philippines and Vietnam to push back against China’s assertiveness in the waters – not to mention aligning tightly with the U.S., Japan, India and Australia.

(click to enlarge)

As a result, Malaysia has been a major focus of BRI. Flagship projects like a pair of new rail lines, when connected with lines being built through Laos and Thailand, would ferry exports from China’s underdeveloped Kunming province to China-funded ports on both of peninsular Malaysia’s coasts, potentially undermining the dominance of Singapore (host to a substantial U.S. military presence) over regional shipping. (Mahathir has suspended both rail projects, including a partially complete one for which Malaysia has already paid nearly $5 billion.) Chinese firms also secured a host of major commercial development projects and two natural gas pipelines (also canceled), as well as the massive Forest City real estate and island-building project near Singapore that Mahathir now says will not be open to foreign buyers (read: Chinese buyers). China saw an opportunity to boost its leverage on strategic issues with Mahathir’s predecessor, former Prime Minister Najib Razak. Najib’s United Malays National Organization (which incidentally Mahathir led from 1980-2003) had ruled the country since independence in 1957. Yet, beginning in 2015, Najib became embroiled in a massive corruption scandal related to a heavily indebted sovereign wealth fund known as 1MDB. All told, Najib and his associates are accused of having pilfered off nearly $4.5 billion from the fund, including some $700 million that made its way into the prime minister’s personal accounts. To stabilize the fund and put the scandal behind him ahead of elections, Najib turned to China. According to Mahathir’s new government, at least, Najib sold state assets to Chinese firms at favorable terms and routed Chinese loans through a series of shell companies to replenish 1MDB’s coffers. In exchange, China secured contracts to build out its BRI projects, with Malaysia taking on an unsustainable long-term debt burden. Funding for two such projects, the pair of natural gas pipelines, is believed to have been laundered through a firm linked to a Najib associate at the center of the 1MDB scandal (a figure Malaysian officials say is currently evading arrest in China). All the while, Najib was conspicuously quiet about the two countries’ territorial dispute in the South China Sea. Malaysia even bought a couple of Chinese warships. Of course, Beijing’s bet on UMNO backfired. After 15 years on the political sidelines, Mahathir was able to unite the deeply fractured opposition and oust his former protege in the May elections. He did this, in part, by making Najib’s China bailout a major campaign issue, accusing Najib of selling out Malaysian sovereignty and promising to unwind Chinese influence if elected. The once seemingly bulletproof Najib is now awaiting trial on money laundering charges, a cautionary tale to other governments about how the opacity of BRI can fan the flames of latent anti-China sentiment – and to Beijing about getting caught on the wrong side of local political currents.   Charting Its Own Course Still, Mahathir’s return to power hasn’t exactly dealt a death blow to China’s ambitions in Southeast Asia. During Mahathir’s visit, the prime minister backed off his most strident campaign criticisms of Beijing, going out of his way to pin the blame for the country’s mounting debt burden on his predecessor rather than Chinese predatory lending. Indeed, there’s little clear evidence to suggest that a backlash to Chinese investment was truly what swung the election. For various reasons, Barisan Nasional (the coalition headed by UMNO) has been losing popularity for more than a decade, and anecdotal reports suggest Mahathir’s enduring popularity was enough to put the opposition over the top. The maxim that all politics is local may be trite, but it also happens to generally be true. Doing business with China probably won’t be prohibitively politically risky for Malaysian leaders going forward. Nor does China really need to fear Mahathir ushering in a substantially stronger U.S.-Malaysian partnership or moving forcefully to counter Chinese strategic interests. During his visit, for example, Mahathir reportedly also declined to press Beijing on the territorial dispute in the South China Sea. Since taking power, he’s proposed a ban on all foreign warships being stationed in littoral ports – a proposal that isn’t going anywhere, but one that reflects a non-aligned streak in Malaysia that benefits Chinese strategy to the extent that it limits the U.S. and Japanese presence in the disputed waters. Indeed, during Mahathir’s first 22 years in power, Malaysia’s relations with the West were often rocky, at best. (Inversely, under Najib, Malaysia’s ties with the U.S. remained relatively steady even though the U.S. Department of Justice and U.S. media played pivotal roles in exposing the 1MDB scandal.) Like most countries in Southeast Asia, Malaysia is keen to hedge its bets and avoid decisively backing either China or the U.S. and its allies. (Perhaps the biggest beneficiary of this dynamic will be Japan, Malaysia’s primary benefactor during Mahathir’s first stint in office and where the prime minister made his first visit following the recent election.) Its biggest concerns are internal, given its fractious geography and ethnic makeup, and it has little interest in getting caught in the crossfire between bigger powers. Ultimately, what Mahathir’s visit underscored most was that China needs regional middle powers like Malaysia as much as they need China – and in a strategically competitive region like Southeast Asia, this gives them some latitude to chart their own course.