November 3, 2016 11:20 pm JST

Malaysia awards record contracts to China

CK TAN, Nikkei staff writer

KUALA LUMPUR -- Malaysia appears to be warming up to China after its relations with the U.S. chilled following the seizure of assets there related to a scandal-plagued state fund.

Companies from China have this week secured record-breaking business deals worth 143 billion ringgit ($34 billion) in total, which include construction of an "underground metropolis", railways, ports, and naval vessels.

"Ties between our two countries are now set to reach new highs," Prime Minister Najib Razak wrote in the China Daily, a state-run newspaper, on Wednesday after beginning his official visit on Monday.

Najib also revealed that the Malaysian navy is buying four littoral class, close-to-shore ships from China. The purchase is part of heightened military cooperation that included a joint troop exercise last year.

At least 14 memorandums of understanding were signed following Najib's talks with Premier Li Keqiang. One is for construction of a 55-billion-ringgit rail line connecting Kuala Lumpur to less-developed states on the east coast of the Malaysian peninsular.

The 620km line is nearly double the length of the proposed Kuala Lumpur-Singapore high-speed link. It will be built by state-owned China Communications Construction (CCC) and financed by the Export Import Bank of China.

Details about the project are unclear, including whether or not it was an open tender, but a top finance official accompanying Najib told Malaysian reporters that the 20-year loan rate would be "very competitive".

The five-year project is expected to begin its three phases early next year, creating the first link between the capital and the coastal towns of Kuantan and Tumpat near the Thai border.

A consortium that includes CCC and China Railway Group won another rail project to connect Gemas to Johor Bahru in the south. The 8.9-billion-ringgit, 191km line is due for completion by the end of 2020, and will give Malaysia electrified up and down tracks from north to south. The consortium will undertake everything from design to maintenance, China Railway Group said in a filing to the Hong Kong Stock Exchange on Wednesday.

Analysts described the pace for rolling out the rail contracts coming this year as "unprecedented". The infrastructure projects should help with a recent slowdown in economic growth, and bring development to rural areas, but they are not cheap. For example, the 620km east coast line is 80% higher in cost than similar projects proposed recently, according to CIMB Research in a note to clients on Tuesday.

"We suspect that the higher cost for the [line] could be due to the rolling stock and land acquisition components, among others," it said.

Najib may also have a certain sentimental attachment to China. It was his late father, Malaysia's second Prime Minister Abdul Razak, who normalized diplomatic relations with China in 1974 during the Cold War.

"Decades later, my father's decision to place his trust in China has been validated, and we have harvested the fruits of his vision," Najib said in his article.

Some observers noted that Najib has been courting investment from China for years "without much success". It was only after the U.S. began investigations into troubled state investment fund 1Malaysia Development Berhad that things changed.

In July, the U.S. Department of Justice filed a civil forfeiture suit to seize assets purchased there from over $3.5 billion believed to have come from 1MDB. The lawsuit singled out persons closed to Najib, including his stepson Riza Aziz, as suspects in the embezzlement of funds from 1MDB.

The "multifaceted engagement" announced during Najib's visit "would not have been possible if Malaysia's ties with the U.S. had not soured", said Tang Siew Mun, a senior fellow at Singapore's ISEAS-Yusof Ishak Institute.

Tang said for China winning Malaysia's trust is a "major coup, in addition to the Philippines". Beijing has been expanding its regional interests, and has controversially laid claim to almost the entire South China Sea.

Najib's visit to Beijing follows President Rodrigo Duterte of the Philippines who recently met President Xi Jinping and smoothed over a longstanding maritime dispute between the two nations.

In his article, Najib chided "former colonial powers" and told them to mind their own business. He said both Malaysia and China are united in the belief that the "individual histories, values and governance of systems of different countries must be respected".

Deals aside, Tang was cautious about whether pronouncements about greater political relations will amount to much. "China needs to deliver on its pledges," he said. "Failing to do so will damage China's credibility in the region."

Asia300

China Communications Construction Co. Ltd.

China

Market(Ticker): HKG(1800)
Sector:
Industry:
Industrial Services
Engineering & Construction
Market cap(USD): 30,357.74M
Shares: 16,174.73M
Asia300

China Railway Group Ltd.

China

Market(Ticker): HKG(390)
Sector:
Industry:
Industrial Services
Engineering & Construction
Market cap(USD): 27,681.90M
Shares: 22,844.30M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

Resubscribe now to continue reading.
BEST OFFER:
Only US$ 9.99 per month for a full-year subscription

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.