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Are the Chinese steering clear of Malaysia?

May 11, 2017

Given government's past record, will it be able to fully unleash economic potential of Bandar Malaysia, or will it be reduced to just another white elephant.

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By Lim Sue Goan

In the absence of an accurate official explanation on the collapse of the Bandar Malaysia deal, various speculation has since sparked tremendous market concerns.

TRX City said in a statement on May 3 that the collapse of the deal was a result of the joint venture between Iskandar Waterfront Holdings and China Railway Engineering Corp being unable to fulfill their payment obligations. However, the joint venture company said they had performed all their payment obligations and that TRX City’s accusation was unsubstantiated.

There are currently two kinds of rumours circulating in the market – that Umno has steered a dramatic U-turn for the sake of the elections for fear of anti-Chinese sentiment among the Malays; and that Beijing is imposing capital controls to restrict Chinese companies’ investments overseas.

TRX City said in the statement that the finance ministry would retain 100% ownership to ensure Malaysians would benefit from the development, which is consistent with the ruling party’s political interests.

However, the national economy is now facing serous threats from a host of domestic as well as external factors, that we need the support of funds from China now, more than ever.

As a matter of fact, Chinese funds have indeed relieved the debt pressure of 1MDB. Moreover, Prime Minister Najib Razak has always held in very high regard the country’s ties with Beijing, and is about to visit China again later this weekend.

If the U-turn has been effectuated out of political considerations, it could leave a negative mark on the mutual trust already established between our two counties, which is not a very smart thing to do.

Capital outflows

China imposed capital control measures to restrict capital outflows as a result of the renminbi falling to its lowest levels against the US dollar in eight years at the end of 2016. Such a policy will invariably affect the oversea acquisitions of Chinese companies, including real estate development projects.

Nevertheless, Bandar Malaysia is not just another ordinary investment. It also entails China’s national interests because the project will facilitate China’s bid for the KL-Singapore high-speed rail (HSR) project. Staying away from Bandar Malaysia will risk the HSR project eventually falling into the hands of the Japanese or South Koreans.

As such, these two guesses are not really very logical. A report by The Star perhaps gets closer to the facts.

It was reported that the abortion of the deal was due to Malaysia being unable to fulfill Beijing’s “shopping list” that would include an assurance on China’s HSR bid, as Malaysian officers could not commit to many of the proposed terms due to national interest and social reasons.

The report has basically explained the doubts we had, namely Umno leaders are concerned the issue of Chinese funds will dampen the party’s winning chances in the election, while the Chinese authorities are applying pressure on Malaysia owing to the strategic importance of the KL-Singapore HSR project.

The government’s announcement of the deal’s collapse was made in a hurried manner, otherwise Najib would not have cancelled his visit to Bandar Malaysia at the last minute.

The collapse of the deal will nevertheless have a negative impact on the country’s development.

1. The 1MDB debt restructuring exercise could be at stake. An out-of-court settlement was reached between 1MDB and IPIC whereby 1MDB would pay IPIC US$7.01 billion whereas 1MDB would raise RM7.41 billion from the sale of Bandar Malaysia shares.

Uncertainties surrounding 1MDB’s debts will deal a severe blow to the local currency.

2. If the issue eats into the bilateral relationship between us and Beijing, it will affect other major Chinese investments in this country, including the East Coast Rail Line (ECRL) project.

It is absolutely necessary for the government to provide a clear explanation on this matter before it erodes other investors’ confidence in the country.

Can Najib once again harness his diplomatic acumen to persuade Beijing to maintain the current cordial relationship between our two countries?

3. Given the government’s past record and competency, will it be able to fully unleash the economic potential of Bandar Malaysia, or will the project be reduced to just another white elephant?

Against the backdrop of sluggish sale of KL’s commercial and luxury residential units, Bandar Malaysia may not be a hen that lays the golden eggs in the absence of any value-added and innovative solution.

Bandar Malaysia is one of the mega projects that will showcase the country’s vision for the future. The collapse of the deal proves that mega projects do not necessarily assure the country of its future without us putting in some real effort.

It appears that everything is within our grip, from 1MDB to Bandar Malaysia, but unfortunately these projects have lagged far behind the dramatic changes taking place in our world.

Lim Sue Goan is deputy executive chief editor of Sin Chew Daily.

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