What price will Malaysia pay as the embattled 1Malaysia Development Bhd, the state-backed investment fund, sells power plants to China General Nuclear Power Corporation?
Or, for that matter, China’s promise to buy lots of Malaysian government bonds to prop up the ringgit when its weakness has become a major political liability for Prime Minister Najib Razak? The currency has lost more than 20 percent of its value in the past year.
1MDB announced on Nov. 23 that it will sell its power assets to CGNPC for RM9.83 billion (US$2.3 billion at current exchange rates). CGNPC will assume all gross debt and cash of the 1MDB entity, Edra Global Energy Bhd. and its subsidiaries. The transaction is expected to be completed in February according to the statement.
1MDB has become a millstone around the prime minister’s neck, with at least four domestic investigations going as well as probes in the United States, Singapore, the UK and other countries, and with a semi-public dressing down by the President of the United States over the imprisonment of opposition leader Anwar Ibrahim. Najib serves as chief financial advisor to the fund.
Najib knows he must bury the 1MDB scandal, in which an unknown amount of its US$11 billion in debt appears to be unfunded, as deeply as he can and then hope to call an election while the opposition is even more divided than the Barisan Nasional, the ruling national coalition led by the United Malays National Organization, the party he heads.
The only way to do that is to sell off 1MDB assets and get debt down to levels which might look tolerable. Anyone who pays over-the-odds for assets in such circumstances, as GNPC appears to be doing will expect a return. In the case of a major Chinese state enterprise, this will undoubtedly be measured in political more than commercial terms.
Malaysian leaders are forever proclaiming themselves Malay nationalists, stirring communal frictions in the process. But the reality is that money so often speaks louder than words. Having become used to receiving checks for doing nothing in the name of the New Economic Policy and wealth re-distribution, the UMNO leaders are easy prey for those who combine a political agenda with large bags of cash. The Ali-Baba syndrome, in which ethnic Chinese provide capital and labor and Malays the political entrée while acting as figureheads and doing very little, is alive and well at state as well as enterprise level.
Nor is this new. It is worth recalling that over the course of a century the British took control of the entire Malay Peninsula except for the Pattani Sultanate (which wanted to get out from under Thai control but failed) without firing a shot.
The only resistance came briefly in 1875 when Malay chiefs in Perak had an arrogant British Resident (a kind of pro-consul) assassinated. In retaliation, the British executed three Malays and exiled the Sultan. After that all the Sultans stayed in line.
Indeed, it has been the constant minor wars between states and dynastic disputes within them which caused the British, originally content to occupy only Penang, Singapore and Melaka for trading purposes, gradually to involve themselves in governing the country as a whole.
Likewise it was the Sultans as much as the British who, in pursuit of revenues, allowed the entry of tens of thousands of Chinese to grow crops and mine tin – this was before the import of Indian labor by the British for their rubber plantations.
Looking at the sorry state of Malay politics, the greed of ruling party operatives, the hypocrisy of so much of the religious talk, the precarious position of Sabah and Sarawak in the federation, and the unease of the non-Malay communities, it is not difficult to imagine that over time China will exploit these situations to gradually establish itself as the “protector” of Malaysia, just as the British became, through a mix of pressure and commercial opportunity, progressively to become the “protector” of the nine sultanates which still comprise most of the peninsula.
It has long been noted that Malaysia has been fearful of offending China despite the latter’s claim on a vast and lucrative strip of the South China Sea, believed to contain fossil fuel assets, on the doorstep of the East Malaysia states of Sabah and Sarawak. Despite a weak squawk over the past month over China’s claims to hegemony over the area, Putrajaya has shown scant solidarity with Vietnam and the Philippines.
Beijing knows better than anyone the hollowness of Malay nationalism other than as a means of extracting rent from non-Malay communities. And scandals like 1MDB look to provide an ideal opportunity to pursue its long term goal of South China Sea hegemony.