Malaysia wrestles with Chinese colonialism

By Shibani Mahtani

A saleswoman talks to visitors at the Country Garden Holdings property showroom in Johor Bahru, Malaysia. Malaysia’s new government has moved to block or amend rules for major Chinese projects.

FOREST CITY, Malaysia – On a recent morning, cleaners rushed to sweep around the models showing the future dreams of Forest City developers: residential skyscrapers, malls, parks, a Jack Nicklaus-designed golf course.
The hopeful buyers, busloads of Chinese for a Chinese-built project, were guided around the showroom. 

They all got the pitch about how a new city of 700,000 people – “jade carved out of the ocean” – would rise out of coastal palm plantations and reclaimed land just north of Singapore.
But there was one important element left out of the glowing promises for Forest City.
Malaysia’s new government, led by senior statesman Mahathir Mohamad, has swiftly moved to block or amend the rules for major Chinese-led works in the country, canceling a slew of projects including a $20 billion railway and two gas pipelines totaling $2.3 billion.
For the $100 billion Forest City project, it could mean no sales for foreigners, effectively killing the target Chinese market for the planned development.
The tougher line by Malaysia – and the 93-year-old Mahathir – marks perhaps the most powerful slap yet at China’s fast-moving economic expansionism in the region and beyond.
Beijing calls it the “Belt and Road” initiative. 

Critics, like Malaysia’s Mahathir and others in Asia, call it an attempt by China to become the unchallenged economic big brother in the region and indirectly influence political affairs through its spending.
There are also long-term fears that Chinese-funded projects will leave countries with decades of debt – on the hook to maintain the ports, railways and other points on what many call Beijing’s modern Silk Road.
“You don’t want a situation where there’s a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mahathir said during a visit to Beijing in August.
The blowback from Malaysia is particularly worrisome for Chinese leaders.
Malaysia is wealthy and strategically located, making the projects more important to China’s broader agenda of developing new trade routes. 

China also cannot come down too hard on Malaysia, one of its largest Asian trading partners.
To rub it in, Mahathir announced the policies at a joint news conference with Li Keqiang during his talks in Beijing.
Days after his return to Malaysia, he took aim at Forest City, announcing that no foreigners will be allowed to live there even as crews rush to complete some residential towers before buyers move in later this year.
This was a surgical strike against Country Garden PacificView, China’s largest property developer by sales. 

About 80 percent of buyers of the 18,000 units so far have been Chinese. 

Sales galleries for Forest City are scattered all over China.
Signs across the island are in Mandarin, and a branch of a Minnesota-based private school there offers only two languages: English and Mandarin.
The project is tantamount to “building a huge Chinese city in Malaysia,” said Lim Guan Eng, Malaysia’s finance minister. 

“That leads to questions about not only our national sovereignty but the social contract, [which will] have to be worked out or there will be imbalances.”
Country Garden says it has “complied with all laws and regulations with the necessary approvals to sell to foreign purchasers” and is “in talks” with the prime minister’s office.
The company “is unable to provide any information as discussions are in the initial stage,” a spokesman for Country Garden said. 

Malaysia’s Housing Ministry has also formed a committee that will “review whatever terms that were agreed to previously” and decide how to move forward.
Privately, though, the Chinese developer is worried it may be too late.
Speaking to The Washington Post, a Country Garden official said his company “was kind of forced” to bill its projects as part of Chinese dictator Xi Jinping’s broad “Belt and Road” initiative in a bid to gain Beijing’s support.
Promotional banners at Forest City’s showroom boast of the support the project has from the Chinese embassy in Malaysia and senior Chinese government figures. 

Forest City’s website describes the duty-free zone as the “standard demonstration zone of ” ‘One Belt One Road’ in Southeast Asia.”
Mahathir, in a campaign speech before his opposition coalition reclaimed power in the May elections, said he would rather the Forest City project turn into an actual forest, with baboons and monkeys living there instead.
Malaysia does not “want to see the Chinese taking over Malaysian land,” said the Country Garden official, who spoke on the condition of anonymity as he was not authorized to speak to the media. 

“They hate the way we do business. It is clear that the price of the property is too high for Malaysians, and [we have] specifically marketed toward the Chinese.”
“Things,” he added, “have been tense.”
Malaysia is not the first country to turn against Chinese-backed projects. 

Pakistan, Nepal, Myanmar and other nations are working to scale back efforts pushed by Beijing, some under new political leadership.
“The domino effect certainly is something to worry about,” said Tan Chong, a professor at Jinan University who studies the relationship between China and Malaysia.
“It does serve as an alarm to other projects,” he added. 

“We need to have contingency plans.”
China has responded by trying to "gently" reframe the Belt and Road Initiative. 

In a recent speech, Xi described the projects not in economic terms, but rather as a diplomatic tool that could unite much of the world.
China “should be considerate of image issues” around Belt and Road, said Yanmei Xie, an analyst in Beijing.
In Forest City, the contrast is stark.
Country Garden says it has awarded contracts to 150 local companies and created 1,200 job opportunities for Malaysians since beginning in 2014. 

Company officials claim buyers from almost 30 countries have purchased Forest City property.
It is hard to see anything but Chinese links at the city-in-progress.
Sales strategies included offering free trips to Malaysia and Singapore to Chinese nationals who purchased Country Garden property back home, according to multiple buyers interviewed by The Washington Post.
Showrooms were set up across major Chinese cities and, in 2016, a new flight route was launched between Guangzhou and Johor Bahru, adjacent to Forest City’s headquarters in Foshan.
In August, a Forest City branch of Shattuck-St. Mary’s school, a hockey powerhouse in Minnesota, opened in Forest City. 

Sixty percent of 78 students enrolled here are Chinese. 

Tuition for a day student between grades 6 and 12 average $24,000 per year – about four times the average annual wage in Malaysia.
The school’s Olympic-size pool, tennis courts, basketball court, yoga studio and boarding facilities – all deserted on a recent visit – were built for 1,000 students.
“The people who are working in the area can’t afford to live here,” admitted one salesperson, declining to be named as he was not authorized to speak to media. 

“The majority of our buyers are foreign, and we are worried it would be an empty city if they don’t come.”
The shift in sentiment in Malaysia have spooked Forest City buyers, some of whom have sold businesses back in China and moved their families in the hope of a better education for their children or to have a second home for retirement.
“I thought it was a good investment, and I could live there in the future,” said Zhan Xinwu, a 24-year old from Shenzhen who bought a two-bedroom apartment in 2016, using all his savings for the down payment.
Even if he chose not to live in Malaysia, he hoped to sell the flat in a few years for a profit, but thinks that might be “impossible” now.
The Country Garden official said Malaysian government officials now are pushing them to market their project to Vietnamese, Indonesians and those from the Persian Gulf states to diversify Forest City’s residents, and change perceptions that this is a Chinese-developed project for the Chinese market.
“We aren’t very good at doing that,” he admitted. 

“We basically rely on the Chinese market.”

‘We Cannot Afford This’: Malaysia Pushes Back Against China’s Paranoia

A country that once courted Chinese investment now fears becoming overly indebted for big projects that are neither viable nor necessary — except to China.

By Hannah Beech

Melaka Gateway, a set of artificial islands in Malaysia, is a joint project between a Malaysian group and Chinese companies.

KUANTAN, Malaysia — In the world’s most vital maritime chokepoint, through which much of Asian trade passes, a Chinese power company is investing in a deepwater port large enough to host an aircraft carrier.

Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea.
Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. 

And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people and are being heavily marketed to Chinese citizens.
Each of these projects is being built in Malaysia, a Southeast Asian democracy at the heart of China’s effort to gain global influence.
But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a pushback against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary — except in their strategic value to China or use in propping up friendly strongmen.
At the end of a five-day visit in Beijing, Malaysia’s new leader, Mahathir Mohamad, said on Tuesday that he was halting two major Chinese-linked projects, worth more $22 billion, amid accusations that his predecessor’s government knowingly signed bad deals with China to bail out a graft-plagued state investment fund and bankroll his continuing grip on power.
His message throughout his meetings with officials, and in public comments, has been unambiguous.
“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mr. Mahathir said on Monday at the Great Hall of the People in Beijing after meeting with Li Keqiang.

For a time it appeared that China’s standard playbook for gaining favor was working in Malaysia. 

It had successfully courted Mr. Mahathir’s predecessor, Najib Razak, with easy loans and showcase projects, and secured deals that were of strategic value for its ambitions.
But in May, Mr. Najib was voted out of office by an electorate tired of the corruption scandals swirling around him, some of which involved China’s highest-profile investment deals in Malaysia.
Mr. Mahathir, 93, was voted into office with a mandate that included getting the country out from under its suffocating debt — roughly $250 billion of it, some of it owed to Chinese companies.
From Sri Lanka and Djibouti to Myanmar and Montenegro, many recipients of cash from Chinese’s huge infrastructure financing campaign, the Belt and Road Initiative, have discovered that Chinese investment brings with it less-savory accompaniments, including closed bidding processes that result in inflated contracts and influxes of Chinese labor at the expense of local workers.
Fears are growing that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and deliberately luring vulnerable nations into debt traps to increase China’s dominion as the United States’ influence fades in the developing world.
“The Chinese must have been thinking, ‘We can pick things up for cheap here,’” said Khor Yu Leng, a Malaysian political economist who has been researching China’s investments in Southeast Asia. “They’ve got enough patient capital to play the long game, wait for the local boys to overextend and then come in and take all that equity for China.”
In his action in Beijing on Tuesday, Mr. Mahathir said he was halting a contract for the China Communications Construction Company to build the East Coast Rail Link, thought to have cost the government around $20 billion, along with a $2.5 billion agreement for an arm of a Chinese energy giant to construct gas pipelines. 

He had earlier suspended the projects, leading some analysts to believe he wanted to renegotiate the terms during his China trip. 

Instead, he announced that the deals were off for now.
“It’s all about borrowing too much money, which we cannot afford and cannot repay because we don’t need these projects in Malaysia,” Mr. Mahathir said.

Prime Minister Mahathir Mohamad has been given an electoral mandate to guide Malaysia out from under $250 billion in debt, some of it owed to Chinese companies.

A rooftop bar at Melaka Gateway.

A Pentagon report released last week said “The ‘Belt and Road Initiative’ (BRI) is intended to develop strong economic ties with other countries, shape their interests to align with China’s and deter confrontation or criticism of China’s approach to sensitive issues.”
“Countries participating in BRI could develop economic dependence on Chinese capital, which China could leverage to achieve its interests,” the report said.
Malaysia’s new finance minister, Lim Guan Eng, raised the example of Sri Lanka, where a deepwater port built by a Chinese state-owned company failed to attract much business. 

The indebted South Asian island nation was compelled to hand over to China a 99-year lease on the port and more land near it, giving Beijing an outpost near one of its busiest shipping lanes.
“We don’t want a situation like Sri Lanka where they couldn’t pay and the Chinese ended up taking over the project,” Mr. Lim said.
In a recent interview with The New York Times, Mr. Mahathir made clear what he thought of China’s strategy.
“They know that when they lend big sums of money to a poor country, in the end they may have to take the project for themselves,” he said.
“China knows very well that it had to deal with unequal treaties in the past imposed upon China by Western powers,” Mr. Mahathir added, referring to the concessions China had to give after its defeat in the opium wars. 

“So China should be sympathetic toward us. They know we cannot afford this.”

Strategic Location

The Malaysia-China Kuantan Industrial Park.

Malaysia has long served as a prize of empire, with a geopolitical importance that belies its relatively small size. 

The Portuguese, Dutch and British flocked here, eager to control a fulcrum linking the Pacific and Indian Oceans. 

China is the latest power to try to share in the riches.
Kuantan, a Malaysian city nestled on the South China Sea coast, had never been a hot spot. 

But then China began adding military heft to its territorial aspirations in the sea, where five other governments, Malaysia’s included, have competing claims.
Chinese financing began washing over Kuantan five years ago. 

Guangxi Beibu Gulf International Port Group, a state-owned firm from an obscure Chinese autonomous region, won a contract supported by the Malaysian government to build a deepwater terminal and industrial park. 

Nearby was a planned stop on the East Coast Rail Link that would mostly be financed by the Export-Import Bank of China, a government institution.
Presiding over the official launch for the Malaysia-China Kuantan Industrial Park in 2013, Mr. Najib conferred on the project a global import.
“China and Malaysia remain closely connected at a time when the balance of global trade is tilting in Asia’s direction,” he said. 

“On economic cooperation — and diplomatic — I am proud to say that Malaysia is ahead of the curve.”
Kuantan residents, though, have long worried that the city could be saddled with white-elephant projects.
“We welcome foreign investment and development, but we question the huge price that we will have to pay,” said Fuziah Salleh, a Kuantan lawmaker for Malaysia’s new governing coalition. 

“Who is the real beneficiary of all this financing? The Malaysians or the Chinese?”
“I am worried that our sovereignty has been sold,” Ms. Fuziah said.
Mr. Mahathir, however, is not averse to standing up to the superpower of the day. 

He was prime minister before, from 1981 to 2003, and back then he railed against the United States and other Western countries for what he said was a plot to hold back developing nations like Malaysia.
“Mahathir thinks China is a hegemonic force that can control economies like Malaysia,” said Edmund Terence Gomez, a political economist at the University of Malaya. 

“He’s always been worried about powerful forces. Before it was the U.S., now it’s China.”
Mr. Mahathir’s administration has been in power for little more than 100 days. 

In that time, Malaysian officials say, they have discovered that billions of dollars in inflated Chinese contracts were used to relieve debts associated with a Malaysian state investment fund at the heart of a graft scandal that led to Mr. Najib’s downfall.

Former Prime Minister Najib Razak arriving at court in Kuala Lumpur last month after his arrest on corruption charges.

The construction site of a deepwater port in Kuantan.

The United States Treasury Department has accused Mr. Najib and his family and friends of plundering billions of dollars from that fund, 1Malaysia Development Berhad, or 1MDB. 

When the indebted fund began a fire sale of assets, two Chinese state-owned giants, the China General Nuclear Power Corporation and the China Railway Engineering Corporation, moved in, prompting speculation that Beijing was happy to keep Mr. Najib’s cash-strapped government afloat.
Sitting at his desk during an interview after the election, Mr. Mahathir pointed to a sheaf of papers before him. 

It was a proposal from a Malaysian construction company that he said contained evidence that the East Coast Rail Link could have been developed by a Malaysian company for less than half of the $13.4 billion contract won by the China Communications Construction Company, a state-owned Chinese firm with extensive operations overseas.
Notably, the bidding process for the rail contract was closed.
Last week, Mr. Lim, the finance minister, told Parliament that Malaysia would not be able to cover the operational cost for the railway, much less the capital expenditure, which he estimated at nearly $20 billion rather than $13.4 billion.
Neither the Chinese company nor its Malaysian partner responded to requests for comment.
“It looks like not all the money is being used for building the railway line,” Mr. Mahathir said of the East Coast Rail Link deal. 

“The likelihood is the money has been stolen.”
Malaysian investigators are looking into whether an associate of Mr. Najib’s stepson may have brokered the rail deal to alleviate the debt accrued by 1MDB or to fund Mr. Najib’s re-election campaign.
The United States Treasury Department considers that associate, Jho Low, an exiled financier who has an arrest warrant out on him, to be the prime agent in the 1MDB scandal. 

On the eve of Mr. Mahathir’s trip to China, Malaysian finance ministry officials said they believed that Low had been hiding out in China.
Malaysia’s new administration, which unseated a coalition that had ruled, in one form or another, since independence in 1957, has also been scrutinizing the $2.5 billion deal for a subsidiary of the China National Petroleum Corporation to build energy pipelines in Malaysia. 

Mr. Lim said he had discovered upon taking up his post that the Malaysian government had already disbursed more than $2 billion for the project.
There was one catch. 

“From what we understand,” Mr. Lim said, “zero percent of the construction work has been carried out.”

Building Big Ports

Melaka Gateway includes three artificial islands and an expanded natural islet.

While the role of Chinese money in bailing out Mr. Najib’s indebted administration has received the most attention, another Chinese megaproject raises even sharper questions about Beijing’s geopolitical aims.
The Malaysian city of Malacca was once a conduit for spices and treasures that flowed from Asia to Europe. 

The strait named after the city is still the channel through which much of Asia’s seaborne trade — and most of China’s oil imports — flows.
But Malacca’s port silted up centuries ago and is now a backwater. 

Instead, nearby Singapore, which sits at the southern end of the Strait of Malacca, ranks as the world’s busiest transshipment hub.
A $10 billion development project — backed by PowerChina International, a major Chinese utility, and two Chinese port developers — is supposed to propel Malacca back into global significance, as a vital stop on a maritime trade route that stretches from Shanghai to Rotterdam.
The plan for this project, Melaka Gateway, includes three artificial islands and an expanded natural islet, which will hold an industrial park, cruise terminal, theme park, marina, offshore financial hub and self-styled seven-star hotel.
And there will be a new deepwater port, with berths large enough to host an aircraft carrier. 

The port operator was given a 99-year lease for the deepwater terminal, rather than the more common 30-year time frame.
The local partner in Melaka Gateway is KAJ Development, which counts among its previous accomplishments building the local zoo and bird park.

Chinese tourists posing in front of an “I Love Melaka” sign in Malacca.

A road worker sweeping near the entrance to Melaka Gateway.

To explain how a little-known company was able to work with Chinese firms to transform such a strategic spot, locals have remarked on the close ties between the head of KAJ Development and Mr. Najib’s party machine. 

The company did not respond to a request for comment.
“We have so many questions about the project but no answers,” said Sim Tong Him, a former lawmaker from Malacca. 

“How did KAJ get the contract? What might happen if the Malaysian side can’t pay up? The Chinese are so secretive about this. It leaves us with a very bad feeling.”
Malacca State’s new chief minister has promised an investigation into the feasibility of the entire project, including the possibility that land on one island could be sold as a freehold to a Chinese state-owned company.
Melaka Gateway’s necessity, at least for locals, has never been clear. 

After all, the nearby Singaporean port is unlikely to be eclipsed. 

And Malaysia is already expanding other ports, even as many are running under capacity.
“We are very concerned because in the first place we don’t need any extra harbor,” Mr. Mahathir said of the Malacca project.
“We don’t have to depend upon foreigners to come,” he added. 

“When they build, they use foreign labor, foreign materials. What do we get? Nothing.”
But Beijing has funded the building of ports across the Indian Ocean, a strategy known as the string of pearls. 

Military experts have said that these ports could one day welcome Chinese warships and submarines.
“You look at a map and you can see the places where China is plotting ports and investments, from Myanmar to Pakistan to Sri Lanka, on toward Djibouti,” said Liew Chin Tong, Malaysia’s deputy defense minister. 

“What’s crucial to all that? Our little Malaysia, and the Malacca Strait.”
Under Mr. Najib, Malaysia conducted joint military drills with China and allowed Chinese attack submarines to make a port call. 

Mr. Mahathir has shifted course.
“I say publicly that we do not want to see warships in the Strait of Malacca or the South China Sea,” he said.

City of Dreams

A showroom model of Forest City, a China-financed real estate project in Johor Bahru, Malaysia.

In Forest City, a new metropolis being built at the tail end of the Malaysian peninsula, a tour guide gazed up at a bank of screens showcasing the latest in Chinese facial-recognition technology, and gave his best pitch to a group of would-be investors from a coal town in northern China.
Forest City, he said in Mandarin, was a jewel on the South China Sea.
Best of all, he said, everything in the city was designed for a Chinese clientele, from the layout of the luxury apartments to the signage in Mandarin.
The development — four artificial islands covering around eight square miles, or enough space for around 700,000 people — was conceived of by Country Garden, one of the largest private Chinese property developers, in cooperation with an investment entity whose largest shareholder is the local sultan.
In the sales gallery, an electronic display plays up Forest City’s “strategic location” and places it at the center of a map of Beijing’s Belt and Road Initiative projects.
“We are doing something that will alter the world map,” the sales pitch reads.

Forest City showroom employees putting on a show in Chinese for the children of prospective buyers.
Ceramic sea lions on the beach at Forest City.

More than any other project, Forest City helped turn local sentiment against Chinese cash, amid suspicions that a private Chinese property developer was somehow plotting to reshape Malaysia’s delicate ethnic balance.
“This is not Chinese investment but a settlement,” Mr. Mahathir said during the election campaign, using Forest City as a frequent punching bag.
Forest City is not a strategic play by the Chinese People’s Liberation Army to station warships in Malaysia. 

Nor is it viewed as a way for Beijing to finance the excesses of a corrupt leader. 

Instead, it represents something even more alarming to the average Malaysian — four man-made islands on which Chinese can live as they like and, in the process, dilute the Malaysian national identity.
Although the majority of Malaysians are Malay Muslims, the country’s second largest ethnic group is Chinese, followed by an Indian population. 

Many Chinese migrated to Malaysia during the colonial era, and the feeling that they were given preferential treatment by the British lingers to this day.
Affirmative action programs that gained full force during Mr. Mahathir’s first stint as prime minister ensure that Malays and indigenous populations get a leg up over ethnic Chinese Malaysians.
In that context, the prospect of a new wave of Chinese migration, even if only a population of part-time sunbirds, is politically sensitive in Malaysia.
But what if that wave doesn’t even materialize? 

Capital controls in China have made it far more difficult for Chinese to get their money out to pay for overseas real estate, worrying the Mandarin-speaking sales staff at Forest City. 

Who will buy all these condominiums, which are priced far above the local property market, if not the Chinese?
“We all want Forest City to succeed, because we cannot afford for it to fail and become an empty ghost city,” said Wong Shu Qi, a member of parliament for the Democratic Action Party, which is part of the governing coalition.
“The reality is that wishing for a Chinese concession in Malaysia is the best thing we can hope for,” she added. 

“How sad is that?”

A residential tower project under construction at Forest City.