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For Malaysia, relations with China are good -- maybe too good

Massive projects are welcome, as long as they benefit both sides

Construction workers at the site of the China-backed East Coast Rail Link in Kuantan, Malaysia (Photo by CK Tan)

KUALA LUMPUR China and Malaysia are closer than they have ever been in over four decades of diplomatic relations. And if remarks by the outgoing Chinese ambassador are anything to go by, this may be only the beginning -- much to the discomfort of certain critics.

"The Sino-Malaysian relationship should move up over the next 40 years to reach mutual dependency, like lips and teeth," Huang Huikang said in a recent farewell speech marking the completion of his four-year posting to Kuala Lumpur. Mao Zedong, the founder of Communist China, famously used "lips and teeth" to describe the bond between his country and North Korea.

Chinese Ambassador Huang Huikang, center (Photo by CK Tan)

In the last decade alone, China and Malaysia have reached a number of milestones together. China in 2016 became the top source of foreign direct investment in Malaysian manufacturing. It has been Malaysia's largest trade partner since 2009.

China is also one of the main sources of tourists to the Southeast Asian country.

Huge infrastructure projects involving Chinese contractors have underscored the deepening ties, as much as they have caused unease among detractors. Prime Minister Najib Razak alluded to this when, at an event in March for a new railway line to be built by a Chinese company, he asked, "What's wrong with us fostering closer ties with China, which is expected to be the biggest economy in 2030?"

Najib has been cozying up to Beijing since he became prime minister in 2009, following in the footsteps of his father, Abdul Razak Hussein -- Malaysia's second prime minister. It was Abdul Razak who took the bold step of establishing diplomatic relations with China in 1974, at the height of the Cold War and Cultural Revolution. Malaysia was the first Southeast Asian country to do so.

China, Ambassador Huang said, appreciates Malaysia's ice-breaking gesture to this day.

MYRIAD PROJECTS Despite their different ideologies, the Chinese ties fit neatly with a broader diplomatic approach Malaysia has followed consistently since independence in 1957: forging relationships without allying itself with any single big power.

The big infrastructure projects can be considered the fruits of that diplomacy. Chinese investment in Malaysia has reached unprecedented levels in recent years, according to Abdul Majid Khan, head of the Malaysia-China Friendship Association.

"We complained to Li Keqiang about the lack of investment a few years ago," Majid said, referring to the Chinese premier.

After that, the money really started flowing in. China General Nuclear Power's 2015 acquisition of Edra Global Energy -- a power company that belonged to scandal-tainted state fund 1Malaysia Development Berhad -- is a case in point.

More recently, this year, state-owned China Communications Construction secured the contract for the $12.8 billion East Coast Rail Link -- Malaysia's single largest railway project and Beijing's biggest investment there.

The 688km line will run from Port Klang, near the Malaysian capital, to Pengkalan Kubor at the border with Thailand. Financing will come mainly through a soft loan with the "best terms" ever extended by the Export-Import Bank of China, according to Huang.

China is also developing a 12-sq.-km industrial park in Kuantan, on the east coast of the peninsula. Located near an existing port, the Malaysia-China Kuantan Industrial Park will help China secure an alternative route for energy products such as oil and gas, BMI Research noted in an analysis in May. This, the report said, will make the country less dependent on the current single route via the Strait of Malacca, Singapore and the South China Sea.

A consortium led by Guangxi Beibu Gulf International Port Group, the Chinese developer of the industrial park, is also expanding the nearby Kuantan port.

Some Malaysians are alarmed about the rapid influx of Chinese investment. Former Prime Minister Mahathir Mohamad is one.

"It is not being anti-Chinese but pro-Malaysia," he said in a blog posting on the subject earlier this year. The elder statesmen is worried that local businesses will lose out to the "powerful companies of China."

TIME WILL TELL Economists say Malaysia may not feel the benefits of the massive investments anytime soon.

Nearly $50 billion worth of projects are slated for development in Malaysia under China's Belt and Road Initiative, according to RHB Research. But since they are long-term plans, taking between seven and 10 years to complete, the economic impact is projected at anywhere from 0.9% to 2.2% annually.

Malaysian Prime Minister Najib Razak, second from left, looks at a model of the East Coast Rail Link in Kuantan, Malaysia, in August.   © Reuters

"This suggests that the spillover effect to Malaysia as a beneficiary, in terms of boosting local production and employment creation, may be relatively small over the short to medium term," RHB said in a report in June.

Even so, the report noted that once they are completed, the projects should help boost trade over the longer term.

Regardless of the viability of big-ticket projects -- including a proposed high-speed rail link between Kuala Lumpur and Singapore, which China is eagerly eyeing -- Najib's government remains committed to its model of development.

Thanks to FDI, Najib said, inflation and unemployment are both kept at low levels. His economic vision for Malaysia, unveiled on Oct. 24, hails the 144 billion ringgit ($33.9 billion) worth of deals signed with China this year for lifting business sentiment.

Researcher Ying Xian Wong contributed to this article.

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