Strategic Analysis: Chinese Business Activity in Malaysia (Abstract)

Over the past sev­eral decades, the eco­nomic and finan­cial rela­tion­ship between Kuala Lumpur and Bei­jing has grown con­sid­er­ably, with clear polit­i­cal impli­ca­tions that have become more pro­nounced over the past few years. More­over, Malaysias posi­tion along the Strait of Malacca increases the stature bestowed on the coun­try by Bei­jing as a val­ued strate­gic part­ner.

Although Kuala Lumpur has seem­ingly pur­sued a strat­egy of hedg­ing between East and West, the rela­tion­ship with Bei­jing under the present tenure of the embat­tled Prime Min­is­ter Najib Razak has arguably been as friendly as it has been in recent mem­ory. In addi­tion to emerg­ing as Malaysias largest sin­gle trad­ing part­ner, China report­edly over­came the U.S. as the largest investor in the coun­try in 2015 due to sev­eral sig­nif­i­cant invest­ments at the end of the year (linked to the 1MDB scan­dal).

Tra­di­tion­ally, Malaysia has relied more on the West for for­eign invest­ment (i.e., Japan, Sin­ga­pore, the U.S., etc.) than on China. From 2003 to 2012, only 3% of total Chi­nese FDI in South­east Asia went to Malaysia. After the ascen­sion of Prime Min­is­ter Najib in 2009, how­ever, this trend began to shift, as Chi­nese FDI activ­ity in the coun­try became more sig­nif­i­cant, increas­ing upwards start­ing in 2010 and par­tic­u­larly focused on infra­struc­ture. Most recently, Chi­nese merg­ers and acqui­si­tions (M&A) in Malaysia were among the worlds most promi­nent.

As Prime Min­is­ter Najib has sought to extract him­self from a num­ber of high-pro­file scan­dals, there is con­cern that Chi­nese invest­ments in Malaysia, which have helped to dig the Prime Min­is­ter out of these suf­fo­cat­ing con­tro­ver­sies, will influ­ence the coun­trys abil­ity to think crit­i­cally about issues related to China (espe­cially with regard to national and regional secu­rity). Sim­i­lar to Bei­jings approach to other coun­tries, Chi­nese invest­ments may, in part, be a strat­egy to secure diplo­matic loy­alty, par­tic­u­larly in thwart­ing any ASEAN ini­tia­tives deemed insult­ing by Bei­jing.

For fear of dis­rupt­ing eco­nomic rela­tions, the Malaysian lead­er­ship has gen­er­ally (though not nec­es­sar­ily always) been less vocal about Chi­nas ille­gal and provoca­tive actions in the South China Sea, includ­ing its island-building/militarization efforts, and has expressed its pref­er­ence to address related con­cerns, as Bei­jing has requested, through bilat­eral, pri­vate dis­cus­sions.

 

Excerpted Deals and Transactions:

  • A $2.3 bil­lion pur­chase of 1Malaysia Devel­op­ment Berhad (1MDB) by China Gen­eral Nuclear Power Corp. (CGNPC) of 100% of the funds energy assets, col­lec­tively held by Edra Global Energy (com­prised of 13 power and desali­na­tion plants, mak­ing up 14% of the coun­trys total power assets), instantly made CGNPC the sec­ond largest inde­pen­dent power pro­ducer in Malaysia.
  • China Rail­way Engi­neer­ing Corp. pur­chased, for $1.7 bil­lion, 1MDBs 60% share in Ban­dar Malaysia, a prop­erty devel­op­ment com­plex that is to house a ter­mi­nal for the planned Kuala Lumpur-Sin­ga­pore high-speed rail­way. There is con­cern that this invest­ment was made strate­gi­cally to gain a leg up in the bid­ding com­pe­ti­tion for this broader $11 bil­lion rail­way project.
  • Huawei was granted a con­tract to con­struct the Malaysia-Cam­bo­dia-Thai­land (MCT) Sub­marine Cable Sys­tem, a 1,300 km sub­marine cable net­work con­nect­ing between Malaysia and Thai­land, as well as Chi­nas strate­gic port in Sihanoukville, Cam­bo­dia and even­tu­ally con­nect­ing ter­res­trial net­works through Laos and Myan­mar.
  • China has pledged some $10 bil­lion to fund the devel­op­ment of a mas­sive 246 hectare Malacca Gate­way project, emblem­atic of the impor­tance it attrib­utes to Malaysia with regard to its One Belt, One Road ini­tia­tive. The project, located at Malacca City, involves the devel­op­ment of a series of arti­fi­cial off­shore islands, a deep-sea port at Ocean Park as well as com­mer­cial and res­i­den­tial prop­erty com­plexes.
  • The deep-water Kuan­tan Port is being devel­oped by a joint ven­ture involv­ing Chi­nas Guangxi Beibu Gulf Hold­ing (Hong Kong) Ltd. The port sits on the South China Sea fac­ing China, near Sin­ga­pore, along a strate­gi­cally impor­tant ship­ping lane.