Malaysia’s East Coast Rail Link was supposed to be a showpiece for China’s Belt-and-Road Initiative. But then the Malaysian government suspended construction, and a battle over the price tag ensued.

By Lingzi (靈子)
Translation by Aaron Wytze Wilson

This piece was first published in Initium Media and is translated with permission of the publisher.

BENTONG, MALAYSIA — The East Coast Rail Link office compound in Bentong should be bustling at this time of day, but it’s unusually quiet. Draped across two office buildings on the site, are a series of slogans written in Malay, English and Chinese:

“Only a solid foundation builds good morality, and proper behaviour a better future; transportation integrates the world, the builder has no boundary.”

But with the exception of two guards, no one was around the office, nor was anyone building any solid foundations. The guards whiled away the hours goofing around. One demonstrates “how to stand straight and salute when leaders come,” making the other guard laugh.

Just one year ago, the scene here was quite different. Malaysia’s then-Minister of Transport, Liow Tiong Lai (廖中萊), was convening a public hearing at the future site of the Bentong Railway station to let the Malaysian-Chinese community understand the construction process and discuss a local training program for Malaysian youth. Funding for the training program came from China Communications Construction Co Ltd (CCCC), a Chinese state-owned enterprise.

But just one month later, Liow’s party, the Malaysian Chinese Association (MCA), lost badly in Malaysia’s 2018 general elections, and Liow did not seek re-election.

The MCA and its coalition partners in the Barisan Nasional (BN) held the reins of power in Malaysia for over half a century. Over the past few years, BN coalition parties have shared closer ties with China, and heaped praise on its Belt-and-Road Initiative (BRI) — a massive infrastructure project connecting Beijing to its neighbours. In 2016, former prime minister Najib Razak visited President Xi Jinping (習近平) in Beijing, and reached an agreement for China to build Malaysia’s East Coast Railway Link (ECRL).

For less developed states along Malaysia’s east coast, like Kelantan, Terengganu and Pahang, the ECRL looks like an economic lifeline. Covering a total length of 688 kilometres, the line would accommodate both passengers and freight trains, with an estimated completion date of 2024.

The Razak government raised $13.6 billion USD in financing to build the ECRL, of which 85 percent came from the Export-Import Bank of China, and the rest through Islamic bonds funded by the Bank of Malaysia. If completed, the project would be China’s single largest BRI project in Southeast Asia.

But soon after Mahathir Mohamad and the Pakatan Harapan (PH) coalition came to power, the Malaysian government said the project “would need to be renegotiated”, and wanted to revisit the costs of the ECRL. On the eve of his first visit to China as prime minister, the government instructed the CCCC — the firm contracted to carry out construction — to pause all work.

"We do not want a situation where a poor country experiences neo-colonialism because it cannot compete with rich countries,” said Mahatir during a meeting with Chinese Premier Li Keqiang (李克強).

Management at CCCC started to worry about cost delays, and how a suspension would impact more than two thousand workers. Initium Media tried to contact local employees, but only one Malaysian worker responded: “Our head office warned us not to speak to external parties.”

ECONOMIC BENEFITS OR A PARTISAN STRUGGLE?

But how do Malaysians feel about the East Coast Rail Link? We visited Bentong, a major stop on the future line, and spoke with residents about the project.

“The Bentong section is over 20 percent complete, making it the section with the fastest progress,” says Wang LI (王力) a local reporter familiar with the ECRL’s situation. Wang has invited us and several of his friends to a local restaurant to drink tea and talk about the ECRL. When asked if the ECRL construction has benefited locals in Bentong, everyone nods approvingly.

“My restaurant is deserted now that ECRL construction is suspended, no one comes any more,” says Mr. Li, whose family runs the restaurant.  

Another guest, Mr. Ye, says the roads from Bentong to Kuala Lumpur are unsafe, and there are one to two accidents on it every week. When the East Coast Rail Link is complete, it will shorten the time to get to the capital, and be a safer route.

Wang adds that the ECRL is not a partisan issue, and that MPs in both the ruling coalition and the opposition support the project. “Even Wong Tack (黃德), an environmentalist and the current MP for Bentong, supports the construction. That means support for the project is truly mainstream public opinion.”

We spoke with Wong about his support for the ECRL. He says that people in Bentong are looking forward to the project, and that the government hopes to find a win-win solution. But he frets that the skyrocketing cost makes it untenable for the general public. “The total cost of the project reached 81 billion ringgit ($19.7 billion USD). Cost of construction is simply too high. It also involves land acquisition across different states,” says Wong.

But is the new ruling coalition concerned about national economic interests, or is this all about a domestic political struggle?

The primary task of Mahathir and the Pakatan Harapan (PH) coalition is to stabilize the economy, but they’re also looking to quash six decades of anti-democratic tendencies under the Barisan Nasional (BN) and its leading party -- the United Malays National Organisation (UMNO). Under the former BN government, prime minister Najib moved over 2.6 billion ringgit ($700 million USD) from the government-run 1Malaysia Development Berhad (1MDB) company to his personal account.

The PH coalition-led government says “improper management” by the former BN government has led to a national debt of 1 trillion ringgit ($251.7 billion USD), about 80.3 percent of Malaysia’s annual GDP.

But according to Moody’s, Malaysia’s debt in 2018 was only 50.8 percent of its GDP, which is consistent with data provided during the Najib government, and the former prime minister has accused the new PH government of misleading the public.

Both the ruling and opposition coalitions disagree on the total cost of the rail project, with the Mahathir government saying the cost will reach $19.6 billion USD while Najib maintaining it will only cost $13.5 billion USD.

Some members of the public are asking the new government to reassess every project established during the BN years in order to cut off illegal revenue sources. Belt and Road Initiative (BRI) projects connected to Najib are coming under greater scrutiny as well.

Shortly after the new government announced it was suspending ECRL construction, Malaysian Finance Minister Lim Guan Eng (林冠英) said its actions should not be seen as “targeting any particular country” but rather a focus on the terms of the contract itself. If the CCCC drastically reduces its price, the East Coast Rail Link project can remain feasible in terms of financial and economic return.

AN INVESTMENT OR A LOAN?

In an interview with the South China Morning Post, Prime Minister Mahathir was candid about his misgivings with the cost of the ECRL. “We cannot borrow large sums of money to build something that is not going to be profitable; the return-on-investment is nothing.”

Tang Siew Mun (鄧秀珉), a senior researcher at ISEAS-Yusof Ishak Institute, says its misleading for Beijing to describe the BRI as a form of investment, when in fact, many projects come in the form of loans. That means risks are borne by countries like Malaysia. Locals in Malaysia accept the narrative that the BRI is an “investment” and feel betrayed when the project meets difficulties and local government are stuck with massive loan repayments to China.

Others are more sanguine about the BRI’s role in Malaysia. Ngeow Chow Bing (饒兆斌), acting director of the University of Malaya’s China Institute, says ECRL construction “hasn’t formed a contradictory or competitive relationship, and in certain ways, has even provided locals with economic opportunities, so they’re welcoming in general.” Construction contractors in Malaysia, however, aren’t pleased that ECRL work has gone to a Chinese firm, adds Ngeow.

DOUBT AND THE BRI

Malaysia isn’t just hitting the brakes on one BRI project. The government suspended the “Bander Malaysia” redevelopment project — the future terminal station of the Kuala Lumpur-Singapore High-Speed Rail — then later decided to revive the project. However, there is still no start date for construction of the high-speed rail line itself. The government also canned a gas pipeline in Sabah, as well as a massive port project in Malacca.

Wo Seon Loeng (何順良), a member of the Malaysian government’s Investigation Council,  says many of these projects are likely to continue with new contractors. “This is all just a repeat of Malaysia’s MRT2 situation,” says Wo.

The MRT2 is a mass-rapid transit line that will connect Kuala Lumpur with its growing suburbs. The project was negotiated under the Rajik government, but with Mahatir in the driving seat, the new government re-negotiated the contract with Malaysian firm MMC-Gamuda to reduce construction costs.

Mahatir is now angling for similar terms with China. The CCCC initially rejected a new maximum budget of $9.8 billion USD, but relented to terms of $10.7 billion USD.

“Reports that the ECRL is dead are exaggerated, both parties are looking for a better bargaining position, and haven’t given their final response on the project yet,” says a source familiar with the CCCC’s bargaining position.

Another source familiar with CCCC says closing a new deal was never in doubt. Malaysia “doesn’t have the audacity” to break the terms of the initial contract, which would mean paying billions in compensation to the CCCC.

As for China, the ECRL re-negotiations could have both positive and negative repercussions for the BRI. The new terms for the ECRL are a sign that the BRI can be inclusive and flexible, and that China isn’t only looking out for its own interests, says Ngeow Chow Bing.

It’s also a signal to other countries looking to renegotiate their own lopsided BRI projects, and push for better terms.

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