Mahathir Shuts Down China

It probably needed a leader of Dr Mahathir’s age and stature to use an official visit to China to warn of “new colonialism.” The re-installed Malaysian prime minister, now 93, had already put China on the back foot with his electioneering attacks on mega-infrastructure developments financed by China but threatening Malaysia with heavy debt burdens for probably uneconomic projects.

Mahathir was also upset its role in helping bail out Najib Razak’s scandal-ridden state-backed investment firm 1Malaysia Development Bhd. by buying some of its assets, which according to the New York Times on Aug. 20 have reached into tens of billions of US dollars.

So it was all sweetness and light from President Xi Jinping and Premier Li Keqiang as China sought to shore up relations with a Malaysia that has so far been largely spared from Chinese attempts to enforce its claims over almost the whole South China Sea – its infamous nine-dash line which goes almost to the territorial sea limits off the coast of East Malaysia.

China’s speed in getting Mahathir to Beijing was indicative of its concern not to make an enemy of the notoriously prickly Mahathir. But China’s leaders probably didn’t foresee such a blunt statement about “new colonialism” which could only refer to itself and to demands that trade be “fair” as well as free, a warning to China not to abuse its might.

The statement may well help Malaysia re-negotiate contracts signed by Najib, whether to cancel projects or improve the terms. But Mahathir is also well aware that Malaysia’s own position is quite weak and that the country still needs to attract funds from China. Government debt, much owned by foreigners, has been rising inexorably and election commitments to cuts taxes and fuel costs is making matters worse for a government which is not only a sometimes-uneasy coalition of interests but whose ministers are mostly inexperienced.

The concrete outcomes of the visit were minimal – understandably so as notice was short and the aim was purely political. Malaysia and China renewed a currency swap arrangement – which was due to happen anyway. China is to buy more frozen durian and more palm oil. The first is a tiny item of trade and the second is meaningless given that palm oil is globally freely traded commodity. This deal is a zero-sum game. India, the leading importer, will buy more from Indonesia, by far the largest exporter, and less from Malaysia.

Mahathir also visited the Hangzhou plant of Geely, the auto manufacturer which last years acquired 49 percent of Malaysia’s Proton, the national car project beloved by the prime minister. Though Geely has promised to make Proton cars in China, the visit may have been one of mixed feelings for Mahathir. He launched the Proton project 35 years ago, a key component of his plan to bring heavy industry to Malaysia. Geely only started making cars in 2002 but in addition to its own brand now owns Volvo Cars and a chunk of Daimler AG.