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Malaysia in transition

Mahathir strives for balance on ties with China

New PM expected to be pragmatic on economic ties with Beijing

Many experts believe Malaysia's Prime Minister Mahathir Mohamad will refrain from drastically changing relations with China.   © Reuters

KUALA LUMPUR -- Since Mahathir Mohamad won Wednesday's Malaysian general election, the world has been trying to predict the consequences of the unprecedented change in power. As the new Prime Minister gets down to work with the new government, relations with China are one of the topics in the spotlight.

Mahathir's predecessor, former Prime Minister Najib Razak, clearly leaned toward China during his term of office, which many admit supported the economy to a certain extent.

In contrast, Mahathir strongly criticized some of the country's Chinese-backed infrastructure projects during the campaign for not benefiting local people. He promised to review them in the manifesto of his then-opposition coalition Pakatan Harapan, or Alliance of Hope.

Among the projects mentioned in the past for review is the East Coast Rail Link, Malaysia's largest single railway project, connecting Kuala Lumpur to the Thai border via Kuantan on the east coast. Mahathir has also criticized the Forest City, a development project near the Singapore border.

"We are entitled to study [the terms of the projects] and if necessary, we will renegotiate the terms," Mahathir said in a news conference on Thursday. He pointed out that China itself in the past had "a long experience of dealing with unequal treaties," and had solved the issues by renegotiation.

To back up his argument, Mahathir said he was concerned about the public debt that the government has taken on in exchange for projects that in theory stimulate the economy. The East Coast Railway alone is said to account for 55 billion ringgit ($13.7 billion) worth of debt.

In this 2001 photo, China's then-President Jiang Zemin, left, greets Malaysian Prime Minister Mahathir Mohamad before the start of the APEC summit in Shanghai.   © Reuters

Mahathir is apparently wary of falling into a so-called "debt-trap," a problem often seen in relation to the Belt and Road infrastructure initiative, where China takes over a port or other infrastructure when a nation falls behind with its debt payments. Such cases have been reported in Sri Lanka and elsewhere.

Pulling back on large projects such as the East Coast Rail Link will provoke China, the world's second-largest economy, if not infuriate it. Despite what Mahathir has said in the past, some experts see this as an unlikely scenario.

"China-baiting is seen as an easy vote-winner, especially among ethnic Malays," said Udith Sikand of Gavekal Research. He believes Mahathir's criticism of these projects was just for the purposes of the campaign, and that at heart he is aware of the country's need for infrastructure investments. "There will be some cosmetic changes to existing contracts, which in their essentials will proceed as before."

But even just changes and delays could hurt businesses. BMI Research, a Fitch Group Company, does not expect that the incoming government will cancel projects outright, but pointed out that "there is an increased likelihood for construction or finance-related delays as it reviews, and potential attempts to renegotiate contracts." BMI warns such actions will pose downside risks to the construction sector.

Just as Mahathir was frank in talking of China's debt trap, he was also ready to raise the security issue stemming from China's stronger presence in the South China Sea. "We would not like to see too many warships in this area," he told reporters. Malaysia is one of the claimants to the region, a strategic waterway along which $3 trillion to $5 trillion worth of trade passes annually.

"Warships attract other warships, and this region may become tense," Mahathir said. Referring to the days when he was the Prime Minister for the first time, he mentioned the Southeast Asian Nuclear-Weapon-Free Zone Treaty. "So we would not like to hear [about having] potential warfare in this country."

It is unclear if Mahathir actually meant to warn China on the issue, or was just stating the obvious. In Friday's news conference he indirectly hit at U.S. President Donald Trump. "Sanctions by big powers will not influence our policies," he said, without naming Trump.

One expert said Mahathir's words cannot be taken at face value.

Looking back to Mahathir's leadership the first time around, Joshua Kurlantzick, senior fellow for Southeast Asia at the Council on Foreign Relations, wrote on a blog: "Mahathir often showed that his harsh words toward many foreign states -- including the United States and the United Kingdom -- concealed a pragmatic willingness to cooperate on economic and strategic issues."

Nikkei staff writer Justina Lee contributed to this article.

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