Malaysia’s Economic Affairs Minister, Azman Ali, said on January 26 that the Malaysian government has made a final decision to cancel the country’s US$20 billion East Coast Rail Link (ECRL) project with Chinese contractor China Communications Construction Co. (CCCC). Following an official visit by China’s Vice-Premier Kong Xuanyou on January 29, however, Malaysian PM Mahathir backtracked from the Minister’s earlier comments, suggesting that his government has yet to reach a final decision.
These recent announcements on the possible cancellation of the ECRL project are part of a larger political narrative. During Malaysia’s general elections, which took place in May 2018, Mahathir, as the opposition candidate, assailed the then incumbent PM Rajak Najib for “selling off” the country to China in exchange for help in settling debts linked to the multibillion-dollar 1MDB Scandal. The ECRL project, which the Najib administration awarded to CCCC without a tendering process, was one of the key targets of Mahathir’s critique. After winning the elections in August 2018, however, Mahathir declared that he intended to cancel the project.
But scrapping the project has proven fraught with difficulty. First, Malaysia would have to pay high cancelation fees earlier agreed upon by both sides. Second, Malaysia is reluctant to irk China, which is a major trading partner. For this reason, PM Mahathir was hesitant to publicly declare the death of the deal. Mahathir also remarked that his country is considering discontinuing the ECRL because it cannot afford paying for the costly project, and that he otherwise welcomed Chinese investment in Malaysia. According to The South China Morning Post, Mahathir’s comments appeared to be aimed at mollifying China.
The cancellation of the ECRL – one of the biggest deals China has signed under its signature Belt and Road Initiative – attests to the challenges that China is now facing in promoting this Initiative across Asia. The recent cases of Malaysia potentially backing out of a BRI contract, and the Maldives’ renewed commitment to an ‘India First Policy’ at the expense of China, attest to the fact that Chinese investment has become a politically contentious issue across the region.