All Politics is Local: Insights from Malaysia on the Belt and Road Initiative
Julia G. Bentley is a senior fellow at the University of Toronto’s Munk School of Global Affairs and Public Policy. She is on leave from Global Affairs Canada. The views expressed here are her own and do not represent the views of Global Affairs Canada.
There is growing attention to the impact of China’s Belt and Road Initiative (BRI), the accountability and governance of Chinese-funded BRI projects, and how such investment is used by host country elites to advance their own legitimacy and financial interests. As Malaysian academic Cheng-Chwee Kuik highlights, receptivity to BRI projects is conditioned by domestic demand in the host country and the vision of political leaders and special interests of elites. In particular, he underlines that in Southeast Asia, building infrastructure is a critical element of performance legitimation for ruling elites, to increase their authority and re-election prospects through job creation and stability and providing patronage opportunities [i].
Malaysia offers a valuable case study of the push and pull factors related to Chinese investment under the rubric of the BRI. The shortcomings in these projects are often blamed on geopolitics and Chinese partners – consider the pervasive yet unsubstantiated Chinese ‘debt trap’ narrative - yet there is considerable evidence in Malaysia of the need for greater transparency and more effective governance by domestic players, including more engagement with local governments where BRI projects are undertaken. A variety of Malaysian sources sheds useful light on governance and transparency issues which may also apply to BRI projects elsewhere.
In what follows, I draw on these sources to highlight how local communities view BRI projects, how BRI projects have been used to advance elite interests, and to reflect on the tension between federal and state governments. Ultimately, I aim to draw attention to the significance of transparency and honest engagement of local communities by mainland Chinese partners and host governments.
A win-win proposition? Malaysia’s appetite for Chinese infrastructure and China’s quest to invest abroad
In terms of context, it is worth noting the Malayan peninsula’s long history of interaction with China, and the fact that approximately a quarter of Malaysia’s population is ethnically Chinese. Malaysia was the first member country of the Association of Southeast Asian Nations (ASEAN) to recognize the People’s Republic of China, and played an instrumental role in engaging China in the ASEAN-China dialogue process in the early 1990s. China has been Malaysia’s largest trading partner since 2009, and in 2021, China ranked as the 3rd most important source of foreign direct investment in Malaysia, after the Netherlands and Singapore. In addition, in 2020 Southeast Asia became the leading region for BRI investment, with a significant increase in Chinese BRI commitments since then. Malaysia’s BRI projects “including those in construction, transport and digital infrastructure, are the widest in scope and the largest in financial scale of any BRI projects in Southeast Asia” [ii].
Mainland Chinese investment in Malaysia became an election campaign issue in Malaysia’s general election in 2018, which, combined with domestic resentment against then-Prime Minister Najib Razak’s involvement in the 1MDB corruption scandal and the controversial Goods and Services Tax (GST), resulted in ousting the ruling coalition, permutations of which had governed Malaysia for 61 years since independence. The enthusiasm for Chinese investment in Malaysia by subsequent prime ministers has fluctuated with the exceptional vagaries of Malaysian politics since then.
From the perspective of Chinese multinational firms, Malaysia offers a relatively pro-business environment and an entry to the wider Southeast Asian market. During his tenure between 2009 and 2018, then-Prime Minister Najib Razak actively courted Chinese firms for prominent investment projects. These include the East Coast Rail Link (ECRL), the Malaysia China Kuantan Industrial Park (MCKIP), Kuantan Port Expansion (KPE), and the China Malaysia Digital Free Trade Zone (DFTZ). Local civil society groups have shown that several of these projects have significant governance problems.
Why have so many BRI projects in Malaysia been hindered by delay, scandal and corruption? Julia Merican of Malaysian thinktank IDEAS has observed that the issue is not necessarily Beijing’s grand designs or geopolitical machinations, but rather that the Malaysian side has not demonstrated effective quality investment evaluation and monitoring, for example related to advance payments to contractors, high interest rates and closed tenders for procurement [iii].
As she points out, both government and private companies need to be held accountable and to ensure that these projects deliver what they promise. Based on research by the BRI Monitor co-hosted by IDEAS, Merican identifies three key issues resulting in setbacks [iv]:
- Inadequate legal framework
- Engagement with unfavourable Chinese loans
- Lack of transparency
Early attention to improving Malaysia’s legal framework for foreign investment could help protect Malaysian national interests, including but not limited to economic interests, and shield foreign funding from unwarranted politically motivated criticism, for example during election campaigns. Lack of transparency is a major issue in Malaysia in the political and economic spheres, where the line between public and private interests often seems murky and elites are widely perceived to be benefiting personally from their positions of influence. Greater transparency would draw public attention to the terms and conditions of Chinese loans, contracts and other financial commitments by Malaysian public sector and private sector players. It might also reduce the facility with which Chinese projects can be used by elites for personal, political, and financial gain. This points to the value of public consultation and stakeholder engagement at early stages of consideration of BRI investments, and of ongoing monitoring and public scrutiny as accountability mechanisms during implementation.
Local community perceptions of Chinese projects in Malaysia
A survey done by the Asia Foundation provides a rare micro-level perspective on how two local communities perceive BRI projects in their respective locality [v]. It focuses on the Malaysia-China Kuantan Industrial Park in Kuantan (the state capital of Pahang) and the China Railway Rolling Stock Corporation Rolling Stock Centre (CRRC) in Batu Gajah (Perak). Kuantan Port is the largest port on the east coast of Peninsular Malaysia. It will be connected via the southern route of the ECRL to Port Klang, located in the Greater Kuala Lumpur area on the west coast. This is intended to form a “land bridge” linking the two ports and the two ocean regions.
On balance, these two projects were locally perceived as positive in terms of job creation and economic stimulus to the local economy, yet there were numerous unmet expectations and concerns, including: “land rights, regulatory framework for joint ventures, labor rights and employment practices, public consultation, transparency and communication, community investment, as well as language and cultural issues.”
The survey report formulates four recommendations for both Chinese and Malaysian policy makers:
- Foster greater public involvement and participation through more outreach, community assistance and two-way communication between mainland Chinese and local Malaysians.
- Improve transparency to overcome significant dissatisfaction with the level and type of communication by BRI project management with local communities.
- Improve labour relations by strengthening cross-cultural capacity of mainland Chinese managers, hiring more local workers at all levels, and diversifying the pool of suppliers and subcontractors.
- Undertake closer collaboration with state and local government and authorities, including district and municipal councils.
Based on feedback from the survey, the Asia Foundation report points to a dichotomy in BRI project decision-making: typically, decisions on BRI projects involve powerful federal and state decision-makers, without necessarily actively engaging local representatives. However, once the project is underway, when issues arise, project managers (generally representatives of mainland Chinese companies) tend to consult key agencies or authorities, local business figures (often Malaysian Chinese businesspeople) and possibly local government representatives. Involving district and municipal councils earlier in the project cycle could be helpful in positioning them to help address issues cropping up during project implementation.
Federal imperatives versus state interests: The case of Johor
Federal and state politicians in Malaysia have divergent objectives in attracting BRI projects, which shapes the way Chinese capital is attracted and contested. Guanie Lim and Keng Khoon Ng probe political dynamics between Malaysia’s federal government and the state government of Johor in relation to Chinese real estate investment in Iskandar Malaysia, with a focus on Forest City, a luxury real estate project developed by Guangdong-based Country Garden [vi]. The economic corridor of Iskandar Malaysia was established by the federal government in Johor, adjacent to Singapore, and ultimately has become a source of competition for capital and physical resources between the federal government and the state government of Johor. Via the Iskandar Regional Development Authority, the federal government controls development planning, policy formulation and investment facilitation, while the state of Johor controls land management and local service delivery.
They highlight how Chinese real estate investment in Iskandar corresponded to efforts from mainland China to export capital-intensive infrastructure in response to China’s slowing economy and domestic overcapacity after 2013. They also describe how Chinese real estate investment resulted in disruption of existing dynamics between the Malaysian federal government and the Johor state government, in some cases serving as a tool to advance the economic and political interests of specific Malaysian stakeholders.
Lim and Ng note the limited success of mainland Chinese firms in adapting to Malaysian politics in order to diffuse political opposition to their exclusive real estate projects. Often, they were not attuned to local commercial practices and sentiment – for example, they expected staff to work unpaid overtime including on weekends and holidays. Nor were they sensitive to the issue of affordable housing and its disproportionate impact on the local Malay population. Clearly, Chinese multinational firms need to navigate local politics in the places they invest, and analyze political risk in the host economy, factoring in historical, demographic, and socioeconomic considerations. In this context, they observe that the unique selling point of Chinese infrastructure investments – speed to market – can be a liability in terms of political risk analysis. This serves as a reminder that countries aiming to attract Chinese investment and capital would do well to ensure productive and equitably shared benefits, to avoid backlash from political opponents, predatory terms, and unproductive investment.
Conclusion: Engaging BRI projects at the local level
These Malaysian sources helpfully capture local perspectives on Chinese investments in Malaysia, contributing further practical insights at the local level to global commentary on the impact of BRI projects. Rather than laying the blame for shortcomings in these projects chiefly on geopolitics and Chinese partners, they clearly call for greater accountability by Malaysian players. IDEAS’ BRI Monitor and the Asia Foundation report both recommend greater transparency and improved governance by Malaysian authorities in planning and implementing BRI projects, including legal and regulatory frameworks. IDEAS further emphasizes the need for better monitoring and evaluation of BRI projects, while the Asia Foundation also touches on issues such as labour rights and land rights.
Among Malaysia’s governance challenges is managing ethnic diversity and equity, as well as overcoming the trust deficit which has eroded political legitimacy. The application to BRI projects – in Malaysia as elsewhere – of governance principles and guidelines used by international financial institutions and global donors could help dispel the common perception of Chinese infrastructure funding as exploitative and benefiting only host country elites at the expense of the public or society at large [vii]. Further research along the lines of enquiry cited here would be welcome, such as surveys of community perceptions of other BRI projects in Malaysia, and examinations of the economic and political dynamics at play among Malaysian actors involved in Chinese financing of projects such as the ECRL, MCKIP and CRRC. Attention to the apparent lack of feasibility studies and environmental impact assessments, and to the importance of avoiding aggravating existing inequities in distribution of benefits, would be particularly worthwhile.
The ultimate success or failure of BRI projects hinges on the active engagement of local stakeholders. For effective governance of such investments, careful coordination of engagement with local governments is essential – respectively at the state level to avoid such investments playing into pre-existing federal-state tensions, and at the municipal and district levels, to factor in community-level perspectives at the planning and development stages. The tendency for political and business elites to use BRI projects to advance their own interests and gain domestic leverage underscores the importance of understanding the political and economic context of host countries rather than seeing the BRI primarily in geopolitical terms. All of these factors are pertinent not just in Malaysia, but wherever projects undertaken under the Belt and Road Initiative are being implemented.
[i] Cheng-Chwee Kuik, Irresistible Inducement? Assessing China’s Belt and Road Initiative in Southeast Asia | Council on Foreign Relations (cfr.org), 15 June 2021.
[ii] Robin Bush, Belt and Road Initiative in Malaysia – a tool for domestic political elites - Devpolicy Blog from the Development Policy Centre, 2 August 2022.
[iii] Julia Merican, “Monitoring the Belt and Road Initiative”, BRI Monitor, Ideas: Monitoring the Belt and Road Initiative | IDEAS, 27 June 2022.
[iv] The website BRI Monitor – Civil Society Organizations documents research on the BRI in five countries in Southeast Asia and the Pacific, compiled collaboratively by a partner institution in each of those five countries: Malaysia, Cambodia, Philippines, Myanmar and Papua New Guinea. The stated purpose of this BRI monitoring project is to inform policy advocacy and “promote transparency and accountability in major infrastructure projects funded through the Belt and Road Initiative (BRI) in the region.”
[v] Asia Foundation report, Social Impact and Community Perception of Belt and Road Initiative Projects in Malaysia (asiafoundation.org), March 2022. The survey was sponsored by the Asia Foundation in collaboration with the Merdeka Centre for Public Opinion and the Rongzhi Corporate Social Responsibility Institute. See page 32 for concerns identified by communities surveyed.
[vi] Guanie Lim and Keng Khoon Ng, How Malaysian Politics Shaped Chinese Real Estate Deals and Economic Development - Carnegie Endowment for International Peace, 8 June 2022.
[vii] Pascal Abb, Infrastructural transformation in high-risk environments: The BRI’s impact on conflict states - Belt & Road in Global Perspective (utoronto.ca), May 2022.