Behind the Suspended Chinese Rail Project in Malaysia

11 July 2018 Jarryd de Haan, Research Analyst, Indian Ocean Research Programme

Background

Work on the Chinese-funded (ECRL) project in Malaysia was suspended on 4 July, following concerns about Chinese investment expressed by the newly-elected Malaysian government. Higher-than-expected costs for the project are partly to blame for the suspension.  Speaking to reporters on 3 July, Malaysian Finance Minister Lim Guan Eng noted that completing the project would cost US$20 billion; which is fifty per cent higher than estimates provided by the previous government. He later added that the project will not go ahead unless the price can be drastically reduced, backtracking on earlier statements that it would not make sense to cancel the project given the money already spent on it. Malaysia East Coast Rail

Comment

There appears to be growing apprehension about Chinese investment throughout South-East Asia. China’s overarching economic policy, known as the “Belt and Road Initiative” (BRI), is focused on creating a China-centred trade network across Eurasia, through infrastructure development and increased connectivity. According to some analysts, those economic goals are closely linked to China’s geopolitical goals.

Malaysian authorities may also be warier of Chinese investment after Sri Lanka handed over to China a 99-year lease of Hambantota port and 60 square kilometres of surrounding land. The handover, which was completed in December 2017, came after the Sri Lankan Government failed to pay off the mounting debts owed to Chinese firms for helping to build the port. While the port itself was a commercial failure, its close proximity to India and vital shipping routes has raised concerns that China could potentially use it for military purposes. For that to happen, the Sri Lankan Government would need to revise previous agreements that forbid such use by the Chinese military.

In the case of the ECRL, however, it appears that the suspension of the project has more to do with commercial interests, rather than apprehension about China’s political goals. As noted by Aaron Connelly, Director of the South-East Asia Project at the Lowy Institute, ‘Though Mahathir has indicated that the new government will review Chinese contracts made under its predecessors, he has characterised this as primarily a commercial matter. Those who were expecting a geopolitical shift will be disappointed.’

Chinese interest in funding the railway also appears to be predominately economic. The railway link does not have the same strategic significance as the Hambantota port and there would be little use for it apart from transporting people or goods. Economic benefits from funding the railway, from China’s perspective, include increased connectivity to facilitate further trade and future business opportunities in the maintenance and repair of the railway tracks and railcars.

The suspension of the ECRL is a bump in the road for China. It is likely that the project will continue following pending negotiations in China by the Malaysian Prime Minister and Finance Minister. If the negotiations fall through, it is possible that another contractor could take up the project. That option is still unlikely, however. Even though construction only started in August 2017, news reports have claimed that thirteen per cent of the project is already complete, so starting with a new contractor could incur even higher costs.

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