HOW WILL THE CHINA INVESTMENTS IMPACT GE14?

By Kua Kia Soong, SUARAM Adviser 19 Dec 2017

We cannot deny that the fairly recent inflow of Chinese investments in Malaysia has been a game changer of sorts. I was on a speaking panel recently where one of the speakers railed about how Najib has sold out the country and we have become a colony of China. We know that Dr Mahathir, the “interim Chairman” of PH has been doing the same, blaming Najib for selling the country’s sovereignty to China and that hundreds of thousands of mainland Chinese are about to flood the country.

We can imagine this will form the election theme of the Malay leaders of PH. Will they succeed in swaying the Malay voters against Najib and BN?

Meanwhile, the Chinese-based DAP leaders are maintaining a loud silence vis a vis the China investments as they witness the exuberant response by the leaders of the Chinese associations to this gush of Chinese investments in the local Chinese press. The way they fete the Chinese ambassador to Malaysia is without precedent. No less than the former leader of the Labour Party and a former FUEMSSO (UK students movement) activist are leading the “Malaysia-China Chamber of Commerce” to promote closer trade and investments between our two countries. No doubt, the former Chinese “left” in this country are likewise revelling in China’s high profile in our country and in the world while they make believe that this Chinese capitalism has “socialist” characteristics.

In the light of Najib’s “pivot to China”, how this older generation in the Chinese community including the “old left” will vote in GE14 is anybody’s guess. Will this factor plus the leadership of Mahathir in PH also impact the “reformasi” generation among the Chinese voters who have been voting for the opposition since 2008? We hear that the millennials are not too excited about either coalition…

It is indeed ironic that an UMNO delegation recently paid a fraternal visit to the Chinese Communist Party when in the past, any Malaysian lefty could be arrested and detained under the ISA for associating with the CCP. In fact, one of the Ops Lalang detainees did have this in his “allegations of fact” under the ISA detention order.

CHINA’S CAPITALISM AT ITS HIGHEST STAGE

China arose as a world power during the period that saw a decline of world capitalism. The rise of the PRC as a great economic, political and military power in the world, second only to the US is undeniable. While it still describes itself as socialist and even communist, it is certainly a non-Western variant of state capitalism with private ownership, secure property rights, financial liberalisation and systemic deregulation of economic transactions. For Marx’s sake, even The Economist can see that China is a state capitalism!

The Chinese Communist Party will surely be familiar with Lenin’s analysis of imperialism as the stage which sees a capitalist state exporting capital for exploitation of other lands. Today’s China is the largest exporter of finance capital and corporate investor in the planet. China’s high-speed growth has rested on a general liberalisation of financial policy that has allowed private businesses to flourish in the countryside in the 1980s and switching loan capital into large, rebuilt state-owned enterprises and urban infrastructures, granting massive advantages to foreign capital from the 1990s.

The social consequences of this change have been growing inequality while peasants have lost land while officials raked in vast increases in salaries. The ongoing efforts to drive tens of thousands of “low-end” migrant workers out of Beijing makes the eviction of urban settlers in Kuala Lumpur look like a storm in a teacup!

China’s competition with US imperialism is also textbook inter-imperialist struggle. Confronted with the TPP from which China is excluded, and the extensive US military bases throughout the region, the Chinese regime’s response has been to launch OBOR and the other facilities to finance this vast initiative.

To be sure, China’s capitalist system has helped to keep afloat the world capitalist system during the recent banking crisis that hit Western capitalism in 2008. China played a role in the recovery of Western nations that were affected by the recession through trade impacts. With its huge foreign reserves, the Chinese government was able to bail out Western banks in distress. Through China’s rapid and strong recovery, regions that exported in large volumes to China or that supplied raw materials to power China’s industries also recovered reasonably well from the crisis.

CHINA HELPS BAIL OUT 1MDB

It so happened that the 1MDB scandal and Najib’s problems coincided with Chinese capital’s monumental New Silk Road or One Belt One Road (OBOR) venture, which is partly a venture to solve China’s overcapacity in heavy industrial goods, such as iron, steel, aluminum, cement and glass. Thus, mainland Chinese money has flowed into Southeast Asia as China seeks to expand its influence in the region. There has been a recent surge of Chinese investment in Southeast Asia associated with the OBOR Initiative, including the recent East Coast Rail Link (ECRL) connecting Malaysia’s east and west coasts and China General Nuclear Power Corp’s bailing out the beleaguered 1MDB’s heavy debt load by sealing a $2.3 billion deal to buy a collection of 1MDB’s energy assets. Those assets, known as Edra, consist of 13 power plants across five countries from Malaysia to Egypt and Bangladesh. China General Nuclear will also assume an unspecified amount of debt as part of the deal. For countries like Malaysia, these investments in infrastructure offer clear benefits but also come with costs, both economic and strategic.

The China investments come at a convenient time since foreign direct investment (FDI) inflows to both Malaysia and ASEAN have begun to decline especially following the US withdrawal from the TPP. Accumulated China FDI in Malaysia as at end-June 2017 was US$3.38bil (RM14.19bil). China topped the FDI country list last year, surpassing the United States, Japan and Singapore in FDI value. China continued to be Malaysia’s largest trade partner and surpassed Singapore as the largest investor in Malaysia’s real estate.

Besides weakening ASEAN cohesion over the South China Sea controversy, the main risks cited by the PH leaders are that Malaysia is becoming increasingly dependent on Chinese money and that critical infrastructure and businesses will be Chinese controlled, translating into reduced sovereignty and local businesses losing out. These PH leaders conjure up images of hundreds of thousands of mainland Chinese buying land and flooding development precincts such as at Iskandar and Forest City in Johore.

MALAYSIA’S economy is also being transformed by huge and high-tech investments from China in the manufacturing and construction industries. In manufacturing, Malaysia has become the world’s third largest solar cell manufacturer – after mainland China and Taiwan. It has also become a glass exporter after China firms poured in billions into the sector recently. Chinese companies are involved in building the new iconic Tun Razak Exchange tower; Penang’s second bridge; there is the strategic partnership of Proton and Geely; the Digital Free Trade Zone (DFTZ) with Alibaba as the main partner; the pipeline from Melaka to Jitra, Kedah; the multi-billion ringgit gas pipeline linking Sandakan to Kimanis in Sabah.

Nonetheless, the former governor of Bank Negara, Zeti has urged Malaysians to view China’s investments rationally, pointing out that China’s investment only amounts to two per cent of the foreign funds invested locally.

APPROACH CHINA’S INVESTMENTS WITH CAUTION

While the alarmist protests by Mahathir et al are too far-fetched, there is no denying that these China projects are motivated by both geopolitical and commercial considerations. Thus, while there is justification for the East Coast Rail Line (ECRL) in the integration of East and West coast states in the peninsula for example, there is hardly any need for the Malacca port which seems to merely serve Chinese interest in securing access to the Strait of Malacca.

Knowing the lessons from Western imperialist domination, Malaysians do need to be wary of the mode of Chinese involvement. It has been reported that major government-led projects would be funded primarily by loans from Chinese state-owned banks rather than greenfield FDI, which could lead to the difficulties incurred by indebted countries. There are also concerns that the materials, companies and even labour involved in the projects will be mainland Chinese. It would be beneficial to Malaysia if China’s investments can create job opportunities and investment opportunities for domestic investors and wokers. If China invests in industries which we have the intention to develop, this will be beneficial but we have to be wary of China’s investments in property development considering the current property glut.

Dam construction and other infrastructure projects in OBOR will also lead to the displacement of communities and environmental destruction that we have seen in the Bakun and Murum dams and there will be resistance. This resistance represents hope in a world of growing inequality and while capitalists salivate at what OBOR can do for international commerce, it is also an opportunity for workers in the affected countries to build greater international workers’ solidarity.

Thus, how will China’s investments affect Malaysian voters in GE14? I have pointed out the apparent positive response of the older Chinese voters. How the Malay and Indian voters will respond will depend on whether they fall for the propaganda by Mahathir and other Malay leaders of PH. Most important of all, desperado politicians must be reminded to steer clear of racism – they may rant and rail about pirates and imperialists but they should keep their ethnic origins out of the picture.

NAJIB MERELY MODELING MAHATHIR ON FOREIGN INVESTMENTS

Press statement by SUARAM Adviser Kua Kia Soong 5 Mar 2017

It is amusing to watch Tun Mahathir continuing criticisms of China investments in Forest City in Johor and other multi-billion foreign direct investments (FDI) in the country. You would think that this is a new policy by Prime Minister Najib to seek such multi-billion inflow of FDIs.

When Japan was Flavour of the Month

In fact, it was Tun Mahathir’s policy in 1982 to “Look East” that started the trend of encouraging FDIs from a singular source. When he looked east then, without a 20/20 vision he could only see Japan. Beyond the fluffy talk of equating “Eastern values” with Japanese values, the Look East policy was actually a camouflage for an influx of Japanese foreign direct investments into Malaysia.

Before long, Malaysia’s iconic building at the time, the RM400 million Dayabumi Complex was built by a Japanese company and in a very short time, Japanese and South Korean construction companies bagged about RM5 billion in major contracts, frustrating local builders. (AWSJ, 8 March 1984) Malaysia’s national car was a partnership between HICOM and Mitsubishi; Japanese companies were favorites to win energy contracts during the Eighties and Nineties, and there were many more contracts won by Japanese investors. Before long, more and more Japanese were making Malaysia their “second home”. Did Tun Mahathir raise any alarm bells about any suspicious “Project IC” that might be used by these Japanese second homers?

And like a good student of his former mentor, Prime Minister Najib seems to be keen to carry out the second phase of the Look east Policy especially after the Japanese Prime Minister Abe’s recent visit to Malaysia. The Japanese investors are certainly eyeing the multi-billion KL-Singapore High Speed Rail project.

The East used to be Red

Ironically, in recent years it has been “Red China” that has rescued world capitalism, especially the US and the Eurozone from their sovereign debt crisis. China’s financial resources helped to contribute to solving the eurozone’s debt problem and to continue to sustain the US’ deficit. In the process, China has increased its investments in European industrial and infrastructure projects.

Closer to home, China’s latest mission is the timely purchase of our national assets that needed rescue after the recent 1MDB fiasco. Thus we can say that former “Red China” has rescued Malaysian capitalism and especially the political fortunes of Prime Minister Najib in the nick of time!

Thus, while Singapore, the US, and Japan have traditionally been Malaysia’s main trading partners, the People’s Republic of China (PRC) has now become the country’s most important trading partner and source of FDIs. China has invested in manufacturing projects as well as in real estate such as the Malaysia-Kuantan Industrial Park as well as Bandar Malaysia, the main terminus of the planned High Speed Rail, Forest City in Johor Bahru, port development in Klang, Malacca, Kuantan and Tumpat. In infrastructure development, the PRC government-linked corporations have secured contracts for the RM55 billion East Coast Rail Link, the RM9 billion Gemas-Johor Bahru dual tracking project, as well as provisions of rolling stoc

Certainly, without transparency, such increased FDI will see more rent-seeking activities and strengthen Najib’s grip on power just as it did for Mahathir during the Aching Eighties.

Lessons from Mahathir’s Look East Policy

Mahathir’s Look East Policy should be a lesson for Malaysia to be wary of these multi-billion inflows of FDIs from singular sources. Despite the hype, Mahathir’s Look East Policy with massive Japanese FDI inflows failed to lift Malaysia out of the middle-income trap chiefly because the strategy was founded on utilizing unskilled and semiskilled local labour. Japanese companies were slow to invest in skill-intensive industries in Malaysia and even slower to transfer new technology to their Malaysian units. They tended to employ more expatriate managers than other foreign investors.

Will the latest purveyors of FDI largesse – the PRC and Saudi Arabia – be any different from the Japanese investors of the 1980s? Will they also be using mainly expatriate managers and relying on their own supply chains and raw materials? We should ensure that the failures of the past are not repeated and these foreign investors adhere to our local requirements.

Transparency in award of contracts

First, for a very different outcome, we need transparency over the award of all these multi-billion contracts to ensure that the successful tenders are made in the people’s interest, for the good of all. Next, we must ensure that the terms and conditions agreed in the contracts with foreign investors fully commit to: engaging and developing local human capital, enhancing enterprise development and applying clean technologies to Malaysian projects.

Most important of all, we have to ensure that these development projects do not violate or degrade our environment or encroach on the customary lands of our indigenous peoples such as the Mah Meri on Carey Island or in Sarawak and Sabah. If the PRC still claims to be Socialist, we could depend on it being more discriminating in its choice of investments to ensure that indigenous peoples’ rights are not violated.

Consolidating rule of law and good governance

For a firm people-centred strategy with foreign investors, the government must do much more to build trust at home by consolidating the rule of law and good governance, including stepping up efforts against corruption and enhancing policy and regulatory frameworks. Otherwise, there will be opportunities for rent-seeking activities and corruption, which will continue to suck the nation dry.

If foreign investors are to be rid of the excuse that we cannot provide the high skills they need, then we have to thoroughly reform our education system to provide specialised skills beyond basic education and to curb the brain drain. To ensure a healthy workforce, we need a good public health infrastructure, including a secure supply of clean water. Workers’ rights to unionise and collective bargaining are essential to eliminate child labour, workplace discrimination and will help to upgrade their skills and raise the motivation of Malaysian workers.