China Offered to Bail Out Troubled Malaysian Fund in Return for Deals

The secret discussions show how China uses its  financial clout to corrupt and bolster its position overseas
By Tom Wright and Bradley Hope

Former Malaysian Prime Minister Najib Razak, third from left, in 2017 reviewed a model of a railway China agreed to build. Current PM Mahathir Mohamad has suspended the $16 billion project. 

Senior Chinese leaders offered in 2016 to help bail out a Malaysian government fund at the center of a swelling, multibillion-dollar graft scandal, according to minutes from a series of previously undisclosed meetings reviewed by The Wall Street Journal.
Chinese officials told visiting Malaysians that China would use its influence to try to get the U.S. and other countries to drop their probes of allegations that allies of then-Prime Minister Najib Razak and others plundered the fund known as 1MDB, the minutes show.
The Chinese also offered to bug the homes and offices of Journal reporters in Hong Kong who were investigating the fund, to learn who was leaking information to them, according to the minutes.
In return, Malaysia offered lucrative stakes in railway and pipeline projects for China’s One Belt, One Road program of building infrastructure abroad. 

Within months, Najib signed $34 billion of rail, pipeline and other deals with Chinese state companies, to be funded by Chinese banks and built by Chinese workers.
Najib also embarked on secret talks with China’s leadership to let Chinese navy ships dock at two Malaysian ports, say two people familiar with the discussions. 

Such permission would have been a significant concession to Beijing, which seeks greater influence across contested waters of the South China Sea, but it didn’t come to pass.

A Journal examination of the China-Malaysia projects, based on documents and interviews with current and former Malaysian officials, offers one of the most detailed accounts to date of the political forces at work behind China’s Belt and Road program, a signature initiative of building ports, railways, roads and pipelines in some 70 countries to generate trade and business for Chinese companies.
China is using the program to increase its sway over developing nations and trap them in debt while advancing its military aims. 

Several countries, including Pakistan and the Maldives, have been reviewing One Belt, One Road projects amid allegations deals unfairly advanced Beijing’s interests.
American national-security officials regard the Chinese efforts in Malaysia as Beijing’s most ambitious attempt to leverage the program for geostrategic gain, said a person familiar with U.S. discussions.
Minutes of the Chinese-Malaysian meetings say that although the projects’ purposes were political in nature—to shore up Najib’s government, settle the 1MDB debts and deepen Chinese influence in Malaysia—it was imperative the public see them as market-driven.
The Chinese government information office didn’t respond to requests for comment.

China's Infrastructure Initiative
China is building and financing a global network of trade and energy links to fill gaps in existing infrastructure spanning Asia, Europe and Africa.

China has said its Belt and Road projects promote development that benefits all sides. 

Nations wouldn’t welcome the program as they have if it carried the financial and geopolitical risks asserted by critics, China’s Foreign Ministry has said. 

It has denied that money in the program was used to help bail out the troubled Malaysian fund.
Documents reviewed by the Journal show Malaysian officials suggested that the infrastructure projects be financed at above-market values, generating excess cash for other needs. 

Investigators from the current Malaysian government, which replaced Najib’s last year, believe some of the money helped Najib finance his political activities and cover maturing debts of 1MDB, a fund he set up in 2009 to finance local development.
Najib was aware of the 2016 Malaysian-Chinese meetings, according to people familiar with them. Asked about them, the former prime minister issued a statement saying the rail project would have brought tens of thousands of jobs to Malaysia and stating that under his leadership, the country experienced nine years of continuous economic growth.
Current Malaysian Prime Minister Mahathir Mohamad, who ousted Najib in an election last May, put the Chinese projects on hold. 

Malaysia has since charged Najib with crimes that include money laundering and breach of trust. 

He has denied them, is free on bail and faces trial this year.

A tunnel approach for a $16 billion rail link China agreed to build for Malaysia. The government that took over in Malaysia last year has suspended the project. 

Malaysia, rich in natural resources and on a sea lane, is a prized ally in the U.S.-China contest for influence in Asia. 

The U.S. once courted Najib as it sought alliances in the region.
In July 2015, the Journal reported that $681 million of funds originating with 1MDB, known formally as 1Malaysia Development Bhd., had flowed into Najib’s personal bank accounts. 

Najib’s office said the money was a gift from a Saudi Arabian it didn’t identify and said most of it was eventually returned.
The U.S. Justice Department began investigating. 

Its probe damaged Washington’s relationship with Najib, according to officials in both countries, helping drive Malaysia into Beijing’s arms.
By 2016, Najib was in a bind because the fund had borrowed $13 billion it couldn’t repay. 

He turned to Jho Low—a Malaysian financier the U.S. Justice Department has alleged was the mastermind of a multibillion-dollar theft of 1MDB funds—to negotiate with China to resolve the crisis, according to current and former Malaysian officials.

Jho Low, a central figure in a multibillion-dollar scandal at a Malaysian development fund. A now-suspended Chinese ‘Belt and Road’ project in Malaysia has partially bailed out the fund’s debts. 

Mr. Low faces criminal charges in both Malaysia and the U.S. related to the Malaysian fund. 

The U.S. has sought to seize hundreds of millions of dollars of his luxury assets acquired with the fund’s money. 

He is a fugitive, living in China under Beijing’s protection. 

Chinese officials have declined to comment on that.
Low drew up plans for Malaysian meetings with Chinese officials and attended some of them, according to current and former Malaysian officials.
Malaysia’s new government discovered the documents, including minutes from Chinese-Malaysian meetings over several months, after a sweep of Najib’s offices, according to members of the government. 

The Journal, besides reviewing the documents, interviewed people in position to know the events, among them a former official of Najib’s government.
The documents describe a plan proposed by Malaysian officials for Chinese state companies to build two large projects with funding from Chinese banks. 

One, the $16 billion East Coast Rail Link, would be a railway across Malaysia connecting two ports. 

The other, the $2.5 billion Trans Sabah Gas Pipeline, would be built partly on Malaysia’s portion of the island of Borneo.
Armed with a bottomless supply of cash, Jho Low staged the ultimate extravaganza. Leonardo DiCaprio, Pharrell Williams, Swizz Beatz, Jho Low, Paris Hilton, Kim Kardashian and Kanye West all attended the Vegas party.

The projects would provide “above market profitability” to the Chinese state companies, the documents say. 

The rail link should have cost only $7.25 billion to build, according to an earlier estimate by a Malaysian consultancy, said a Malaysian government official.
The public must believe “all initiatives are market driven for the mutual benefit of both countries,” Chinese official Xiao Yaqing said at a meeting on June 28, 2016, according to minutes of the meeting.
Xiao, chairman of China’s State-owned Assets Supervision and Administration Commission, said he had “cancelled all his key engagements in Beijing to attend” because the matter “has been approved by President Xi Jinping, Premier Li Keqiang” and another senior Chinese official, according to the minutes. 

Xiao’s agency didn’t respond to requests for comment.
At a meeting the next day, Sun Lijun, then head of China’s domestic-security force, confirmed that China’s government was surveilling the Journal in Hong Kong at Malaysia’s request, including “full scale residence/office/device tapping, computer/phone/web data retrieval, and full operational surveillance,” according to a Malaysian summary of that meeting.

Chinese official Xiao Yaqing, seen at a June summit of China’s ‘Belt and Road’ program of building infrastructure in dozens of other countries. 

“Sun says that they will establish all links that WSJ HK has with Malaysia-related individuals and will hand over the wealth of data to Malaysia through ‘back-channels’ once everything is ready,” the summary reads. 

“It is then up to Malaysia to do the necessary.”
It couldn’t be determined whether China provided any information. 

Sun didn’t respond to requests for comment.
A Journal spokesman said, “We employ experts on security and cybersecurity to work with our journalists on safety and secure communications with sources of information.”

Derailed
Malaysia has frozen work on a Chinese-funded project called the East Coast Rail Link amid concerns its cost was inflated to divert money to help pay off the debts of 1Malaysia Development Bhd.
Sun also promised to use China’s “leverage on other nations” to get the U.S. and others to drop their 1MDB investigations, according to the meeting summary. 

The Justice Department investigation continued, as did probes in Singapore, Switzerland and elsewhere.
At one meeting, the Malaysians asked that the Chinese state company that would build the rail link assume $4.78 billion of 1MDB debt, a plan they hoped China would agree to quickly “due to the time sensitive nature” of the fund’s debts, according to the documents.
A Chinese negotiator worried this would be “very noticeable” in financial statements of the builder, China Communications Construction Co. , meeting minutes show.
A month later, the Malaysians proposed that Chinese state companies instead make payments that would “indirectly be used to repay 1MDB debt,” according to meeting minutes.
Notes of a discussion on Sept. 22, 2016, say the sides agreed to move ahead with the infrastructure deals even though “they may not have strong project financials.”
Participants needn’t “waste time studying the actual project financials to see if they can sustain the debt etc.,” because Malaysia’s government backed the deals for "strategic" reasons, the documents say.
Notes from that meeting said Malaysia was working to enhance bilateral ties, citing support Najib voiced for China’s position in the South China Sea during a regional summit in Laos.
Two months later, Najib went to Beijing and signed the deals. 

Together with other projects, they made Malaysia the second-biggest recipient of One Belt, One Road funding after Pakistan.
Money was flowing by the middle of 2017 as the Export-Import Bank of China issued the first loans. By fall the bank had paid out 80% of the $2.5 billion pledged to state-owned China Petroleum Pipeline Bureau to build the pipeline, although little work had been done, according to Malaysian officials.

Malaysian Prime Minister Mahathir Mohamad, center, suspended plans for Chinese companies to build costly rail and pipeline projects in Malaysia. 

When campaigning for Malaysian parliamentary elections began early in 2018, China openly sided with Najib, its ambassador at one point campaigning with members of his coalition. 

Against the odds, Mr. Mahathir, a prominent former prime minister then 92 years old, led his coalition to victory.
Now, Mr. Mahathir is negotiating with Beijing over potential new terms for the railroad project and seeking the return of Low. 

Excavators for the rail projects are idle, and workers’ quarters are vacant. 

Mr. Mahathir is expected to cancel the pipeline deal.

Malaysian Traitor

How Najib Sold Out Malaysia To China

www.sarawakreport.org
Najib Razak Arrested Again Over Corruption Scandal

The latest six charges laid against Najib and his trusty lieutenant, Treasury secretary-general Irwan Serigar Abdullah, confirm again how blatantly the previous prime minister and his government were prepared to lie in the face of evidence leaked by brave insiders to Sarawak Report.
They also lay bare the outrageous extent to which this former prime minister was willing to rob his country, laying it open to China's economic imperialism, which was naturally quite happy to suck Malaysia into a vortex of debt that would have destroyed the nation’s independence.
Way back in 2016 Sarawak Report published the secret agreement that lay behind the sudden inflation of the budget for the East Coast Rail Link to double the original proposed cost of $30 billion. 

 The secret deal with China’s state owned CCCC (China Communications Construction Company) laid out in clear detail (including amounts and dates) how the repayments on the debts owed by 1MDB were to be concealed through those inflated figures.
The Chinese government had effectively sanctioned the corrupt deal, offering Najib a 2% loan and various up-front incentives, after Najib’s fugitive proxy Jho Low negotiated the terms on his behalf in Beijing. 

 And, as the figures showed, Jho Low had taken care to look after himself in the process by apparently using the deal to also purchase shares in companies he had originally bought using 1MDB’s stolen money.
Najib and his ministers, including then Public Works Minister, Sarawak’s Fadillah Yusof, (brother to Bustari Yusof a key collaborator of Najib and major recipient of money diverted from 1MDB) at the time claimed the story was nonsense.
However, within just a few weeks Najib had visited China and signed off on exactly the contract terms that had been leaked to Sarawak Report for the now massively expensive rail project that experts predicted could never be made profitable for Malaysia.
And this week, following the new charges, the Malaysian Anti-Corruption Commission (MACC) has made clear that the money to fund 1MDB’s loan repayments was being funneled through the project just as had been detailed in Sarawak Report. 

Inflated pipe line projects in East Malaysia were being employed for the same reason.
Further tranches of cash were also purloined using an inflated and unnecessary land purchase by Bank Negara (no wonder the long standing deputy resigned) and, perhaps even more disgracefully, a straight theft of money from BRIM, the payments supposed to alleviate the lives of the poor.

Given Najib had time and again boasted of BRIM to curry votes it is particularly notable that he was prepared to raid it to pay for the massive hole in 1MDB accounts punctured by thefts used, for example, to pay for his step-son’s production of Wolf of Wall Street and Jho Low’s massive payment of a quarter of a billion dollars for one of the world’s largest super-yachts.
And yet today the ex-PM’s lawyer (Shafee Abdullah, himself facing charges for laundering money from 1MDB and failing to declare tax) called the charges laughable. 

Few others in Malaysia are likely to see the joke as the sums officially misappropriated by Najib have leapt by a further staggering RM6.6 BILLION to RM 9 BILLION (and rising).

The list of 1MDB repayments agreed with amounts and dates as part of the secret deal with CCCC to inflate the cost of the ECRL by over 100%

‘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.

China's Corruption Trap

The 'great-grandmother of all scandals' comes to China
By Michael Bristow
Former Malaysian Prime Minister Najib Razak arrives in court in Kuala Lumpur, following his arrest in connection with a corruption probe.

There is a new twist in the multi-billion-dollar financial scandal surrounding the Malaysian investment fund 1MDB -- Chinese involvement.
Malaysia's new government -- which took office only in May -- has suspended three major construction projects with Chinese firms.
A senior ministry official told the BBC that two of the contracts, for pipelines, were used to launder money for Malaysia's previous administration, led by the former Prime Minister, Najib Razak.
These allegations open a new front in the inquiries into 1MDB, which is already being investigated in the US, Switzerland and Singapore.
The finance ministry's accusations also represent a sharp change in mood in Malaysia towards China since Najib lost power.
The investigations into 1MDB are being led by Malaysia's finance ministry, housed in a vast curved building in Putrajaya, a purpose-built town to the south of Kuala Lumpur that has been the country's administrative capital for the past two decades.
Until the election in May, Tony Pua was an opposition MP who spent much of his time talking about 1MDB, which he calls "the great grandmother of all scandals".
He made a series of scurrilous videos about the fund and its connection to Najib.

The 1 Malaysia Development Berhad development company is being investigated in Malaysia, Singapore, Switzerland and the US

But now Mr Pua's party is in government and he has been employed as a special officer to the finance minister to look through the mountains of documentation related to 1MDB.
Before his current job, he said he worked with "dribs and drabs" of information about 1MDB -- but not any more. 

"Now, anything you ask for, the tap opens like a beer barrel," he told the BBC in an interview at the ministry.
Mr Pua said the new administration had been astounded by what it had found, which has extended the scope of what was previously known about 1MDB, including links to Chinese firms.
Earlier this month (6 July), the ministry announced that it had suspended three big contracts with Chinese companies.
Two of those are pipeline schemes worth a combined total of $2.3bn (£1.7bn).
The ministry's new leaders were staggered to discover that 88% of the contract cost had been paid to the Chinese company in charge, China Petroleum Pipeline Bureau -- but only 13% of the work had been completed.
Mr Pua said building work had not even started; only consultancy studies had so far been completed.
"The entire project smelt like a scam. [There were] clearly elements of money laundering taking place," he said.
"We were giving money out -- to a Chinese company -- and this money is being funnelled to parties related to the previous administration."

MP Tony Pua is leading the investigation into 1MDB

He said the ministry believes the money was being used to cover debts linked to 1MDB, which he said now stand at more than $12bn.
Emails to China Petroleum Pipeline Bureau about Mr Pua's allegations went unanswered.
Malaysia's finance ministry has also suspended the East Coast Rail Link, which is being built by the China Communications Construction Company.
It said the cost of the rail line, $20bn, "must be reduced significantly to make it viable financially".
The ministry said the suspension of both the pipelines and the rail link were not directed at "any particular country", but the new government in Malaysia has certainly brought about a change in attitude to links with China.Mahatir Mohamad was sworn in as Malaysia's prime minister on 10 May

The new Prime Minister, Mahathir Mohamad, is expected to travel to China in August, when some of the suspended contracts could be renegotiated.
But China's nationalistic newspaper, the Global Times, warned Malaysia not to push China too hard.
"If [Mr] Mahathir wants to review big projects agreed to by his predecessor and damage the interests of Chinese companies, those companies have the right to claim compensation," it said in an editorial.
Professor Terence Gomez, of the University of Malaya, said the close relationship between China and Malaysia that existed until the election in May was convenient to both sides.
He said Najib needed foreign investment and China under Xi Jinping was willing to provide it as part of its Belt and Road initiative, which aims to connect the country with the rest of Asia and beyond.
"Two state governments, both authoritarian regimes, both single dominant party states with powerful leaders, had an agenda," he said.
Professor Gomez said there was still an appetite in the new government for Chinese money. 

He pointed out that one of the first businessmen to visit Mr Mahathir when he took office was the Chinese e-commerce billionaire, Jack Ma.
But some Chinese investments now appear to be tangled up with the investigations into 1MDB, which was set up by Najib Razak in 2009 to spur economic development in Malaysia.
So far, the only tangible product of 1MDB is a new business district being built in central Kuala Lumpur called Tun Razak Exchange, where workmen swelter in the heat to complete the project.

The Tun Razak Exchange - the only tangible project built with 1MDB funding.

As for Najib, earlier this month he appeared in Kuala Lumpur High Court charged with four counts of stealing a total of $10m from a subsidiary of 1MDB.
He denies the charges, and has always denied other wrongdoing related to the investment fund. 

Many of the hundreds of people who turned up for his first court appearance were supporters who believe in the former prime minister's innocence.
But the current government has already indicated that these are just the first of what could be many more charges brought against Najib.
"We have to pace ourselves to make sure we do not miss anything," said Tony Pua, before heading back to his office to study more documents.

The Malaysian election result could hit Chinese investments

• A stunning win by the opposition bloc in Malaysia's general election on Wednesday could have implications for the nation's ties with China.
• Mahathir Mohamad said the country could renegotiate several agreements that had been struck with China.
• Mahathir criticized the previous administration for selling out to China.

By Cheang Ming | Huileng Tan

A stunning win by the opposition bloc in Malaysia's general election on Wednesday could have implications for the Southeast Asian nation's ties with China, a major invsetor.
Mahathir Mohamad, a former Malaysian prime minister who led his opposition alliance to victory over the ruling coalition, said Thursday the country could renegotiate several agreements that had been struck with China.
Mahathir said he had no problem with China's Belt and Road Initiative (BRI), a wide-reaching infrastructure investment program, but added that "we would not like to see too many warships in this area, because [a] warship attracts other warships," Reuters said on Thursday.
Those comments come on the back of warmer ties between Malaysia and China in recent years under the administration of Prime Minister Najib Razak.
Malaysia was the fourth-largest recipient of China's overseas direct investment last year, a 2017 report from the Economist Intelligence Unit said. 

That compared to the country's position of 20th place in the 2015 ranking.
That came as China seeks to expand its influence overseas, spurring concerns internationally about the reach of the Chinese Communist Party.
Mahathir took issue with vast mainland Chinese investments under Najib's administration during his campaign, arguing that his country has been selling out to Beijing.
In Malaysia, a number of major port and rail projects have been scheduled for development. 

A Citi report estimated they would receive as much as 400 billion ringgit ($101 billion) in Chinese investments over the next two decades.
The Alibaba-led Digital Free Trade Zone, also regarded as part of the BRI, was established in Kuala Lumpur earlier this year in a bid to improve trade between China and the Southeast Asian region.
A project that has been singled out by Mahathir in the lead up to the general election for being wasteful is the East Coast Rail Link in peninsular Malaysia. 

A 688-kilometer (430-mile) rail project costing $13 billion, it is being built by China Communications Construction and is also considered part of the Belt and Road Initiative.
The necessity of that project would be reviewed and its development halted if it is found inessential, Mahathir was quoted as saying by the state-run Bernama news agency in April.
"It wouldn't be particularly surprising if this is the first project they review," Brian Tan, Southeast Asia economist at Nomura, told CNBC.
While there will be greater uncertainty over Mahathir's coalition's targeting of Chinese infrastructure projects, Tan said the alliance had been careful to emphasize that it was reviewing, rather than immediately calling off, those projects.
Fidelity International said in a note that the new government was likely to go back to the drawing board over large-scale infrastructure projects: "Mahathir in the past has said he will scrap the large 'unnecessary' mega projects such as the [high speed rail] as he disagreed with the large debt taken to fund these projects."
Mahathir has also taken issue with a massive private residential project from a Chinese company in the state of Johor, just north of Singapore. 

Most Malaysian's, he has said, cannot afford the apartments there.
Responding to the election results in Malaysia, Chinese international real estate website Juwai.com was upbeat about opportunities under the incoming government, but acknowledged that some Chinese buyers may hold back if there are uncertainties.
However, current policies regarding visa, home-buying and education remain "very appealing," said Juwai.com CEO, Carrie Law said an email.
Law said Chinese buyer inquiries on Malaysian properties in the first three months of 2018 were up 103 percent from the same time a year ago. 

Inquiries in April rose 120 percent from a year ago, she added.
"If there is no change, we expect Chinese investment in Malaysian property to continue to grow in the months and years to come. Chinese acquisitions could at least double by 2025," she added.