Analyst: Is RM43b Melaka Gateway for China trade or military?

Melaka-GatewayPETALING JAYA: Questions are being raised about a RM43 billion harbour project in Malacca to be developed under a Malaysia-China joint venture.

The need for added port capacity along the west coast of Malaysia, China’s military ambitions as well as the risk of the superpower pulling out of its commitment to the proposed port are the three key points addressed in a Singapore Straits Times (ST) report today.

“There is the strategic element of the Malacca Strait. It always starts with an economic presence, which can then develop into a naval one, because China will be obliged to ensure the safe passage of its commercial ships,” the daily quoted Dr Johan Saravanamuttu of the S Rajaratnam School of International Studies as saying.

Called Melaka Gateway, the joint venture between little-known KAJ Developments and energy giant PowerChina International is said to be part of an increasing alliance in the port sector between the two nations.

According to ST, Chinese firm Guangxi Beibu International Port Group owns 40 per cent of Kuantan port, while China’s access to Kota Kinabalu, a crucial dock in Sabah, is seen as being strategic for its construction activities in the disputed Spratly Islands in the South China Sea.

Currently, up to 80 per cent of the oil supplied to China passes through the Malacca Strait. Most of its trade also goes through the waters between Peninsular Malaysia and the island of Sumatera, as it is the shortest passage to the Indian Ocean.

The Melaka Gateway project by the KAJ Developments-PowerChina International JV will cost RM30 billion to reclaim three islands off Malacca’s coast.

The first phase, being the construction of the deep sea port, is targeted for completion 2019. The greater Melaka Gateway development, however, is expected to be completed in 2025.

What is of greater concern to some analysts who spoke to ST is that the reclaimed islands would allegedly be given freehold status while the port would allegedly be granted a 99-year concession. The analysts called such terms “rare and generous”.

According to ST, upon his return from Beijing last week, Transport Minister Liow Tiong Lai deflected questions by reporters on the need for the port and concerns on the commitment by China saying: “With the economy growing, we need more ports”.

“The port alliance has seen results, bringing more competitiveness to our ports and logistic sectors,” he added.

According to Putrajaya, Melaka Gateway was needed because Port Klang will be full in 2020.

However, ST said analysts contended that with the two operators in Port Klang, Westports and MMC, having made expansion proposals to double the port’s capacity, this argument was doubtful.

Sources were quoted as saying that even a World Bank study commissioned by Putrajaya last year had showed there was no need for a new port on Malaysia’s west coast because existing facilities had not reached capacity.

Military interests

Therein lies the suspicion that the JV is not about trade as much as it is a military move.

“Because there seems to be no logic to the Melaka deal, many are questioning if this has more to do with military rather than commercial interests,” a logistics player told ST.

Such a move did not surprise the source, when taking into consideration a six-day joint exercise by all three branches of the Chinese armed forces in the Malacca Strait in September last year. The Chinese authorities called it an exercise on “disaster relief”.

However, the biggest risk for Malaysia, according to a former port authority chief, is that China has already made moves to reduce its reliance on the Malacca Strait with the construction of port-and-rail and pipeline projects to Pakistan, Myanmar and Eastern Europe.

“We cannot take Beijing’s commitment here for granted.

“If China pulls out her support, the port becomes useless because it has no hinterland, unlike Klang and Penang which serve a big local market. In fact, many businesses prefer to send their goods to Klang by road instead of the existing Malacca or Penang ports because it is more efficient,” he was quoted as saying by ST.

Aside from the Melaka Gateway, Malaysia is also involved in another major transport infrastructure project with China with the development of the East Coast Rail Link, which will cost RM55 billion.

These and other deals signed between the two countries worth a total of RM144 billion have some critics questioning Malaysia’s over-reliance on China.

“There is the question of over-dependence, and the diplomatic leverage involved if Beijing were to move in more aggressively. So far, Najib is still hedging, but when it comes to investments, you can’t expect as much from America as you can from China.

“However, if you want to go up against Singapore, then this port makes sense, especially when it is in the form of foreign investment, given Malaysia’s fiscal constraints,” said Dr Saravanamuttu.