Mahathir: The wise old man
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Mahathir: The wise old man

“We welcome foreign direct investment, from anywhere, certainly from China. But when it involves giving contracts to China, borrowing large sums of money from China and the contract goes to China, and Chinese contractors prefer to use their own workers from China, use everything imported from China, even payment is not made here but in China, we are given nothing at all. This kind of contract is not something I welcome”.

Malaysian Prime Minister Mahathir Mohammad remains as courageous, out-spoken and decisive at 93, in his second innings, as he was during his 22 year first spell from 1981 to 2003. He is convinced that his country cannot afford some of projects that his predecessor Najib Razak had accepted from China under the Belt and Road Initiative (BRI). Hence, after assuming office in May this year he suspended the high profile US $ 20 billion East Coast Rail Link (ECRL) and the US $2.5 billion gas pipeline project. He has adhered to his decision despite an official visit to China last week. Surely, China would have been unhappy with Mahathir for his step has reinforced the view that some BRI projects are leading to unsustainable debt for the countries where they are located. Thus, they expose these countries to grave risks while promoting China's interests.

Within weeks of becoming Prime Minister in May this year Mahathir expressed his determination to continue Malaysia's close ties with China. At the same time, he was critical of some Chinese investment practices. He said, "We welcome foreign direct investment, from anywhere, certainly from China. But when it involves giving contracts to China, borrowing large sums of money from China and the contract goes to China, and Chinese contractors prefer to use their own workers from China, use everything imported from China, even payment is not made here but in China, we are given nothing at all. This kind of contract is not something I welcome". Mahathir was pointedly negative regarding housing projects that were being designed in such a manner that only Chinese would be able to afford to live in them and their ambience would be totally Chinese. These projects are being developed through private entrepreneurs but are sensitive in view of Malaysia's ethnic situation.

China may take steps to ensure that no BRI project in Malaysia is abandoned. It may try to renegotiate them, learning, as some observers are suggesting, from its mistakes. Therefore, the last word has not been said on either the ECRL or the gas pipeline projects and nor on some of the others including those in the housing sector. It would be interesting to see how far would China be willing to go to assuage Mahathir's concerns. This is not only because of Malaysia's importance in south-east Asia but also because all countries that are associated with the BRI would be closely observing Chinese negotiations with Malaysia in this area.

Another country whose experience with Chinese projects has attracted global attention is Sri Lanka. The island country's Hambantota port project is a case-study in rising debt forcing a country to lease a vital geo-strategic asset. This development sent alarm bells ringing throughout the region. As the Malaysian finance minister told the New York Times, "We don't want a situation like Sri Lanka where they couldn't pay and the Chinese ended up taking over the project". The facts of the project, therefore, merit a brief mention. 

Former Sri Lankan President Mahinda Rajapaksa was committed to developing the Hambantota port which was situated in his native region. He went against basic financial logic and expert advice which had evaluated that Sri Lanka's Colombo port was sufficient for the country's needs. Except for China no other country, including India, was willing to invest or finance what would be a white elephant. Ten years ago, China agreed to finance the project and its first phase was completed in 2010. Subsequent years only established what was predicted—the Hambantota port did not take off. It became impossible to service its debt. Meanwhile China included the project within the BRI ambit even though it had begun before it.

In 2015 Rajapaksa lost the election and the new government of President Sirisena and Prime Minister Wickremesinghe found that their country's debt servicing requirements had soared for Rajapaksa had borrowed heavily from the Chinese among others. Clearly, China was unwilling to ease debt servicing by writing off or favourably restructuring the Hambantota debt. It was insisting that it gain equity control of the Hambantota project company and also on the port being leased to it. In July 2017 the Sri Lankan government leased the port for 99 years to a Chinese controlled company. Some observers assert that China's objectives are geo-strategic rather than economic in Hambantota despite the bar on the entry of Chinese naval vessels in Hambantota without the approval of the Sri Lanka government. 

India and some other countries have indirectly warned against the BRI becoming an instrument of Chinese acquiring strategic assets in the region on the basis of the Hambantota model. Speaking at the 3rd Indian Ocean Conference in Hanoi on August 27 External Affairs Minister Sushma Swaraj said, "We support transparent debt financing matched by responsible lending practices. We understand that following universally recognised international norms, transparency, openness and financial responsibility, and promoting a sense of local ownership are essential for better and more sustainable development outcomes".

Pakistan is relying very heavily on China-Pakistan-Economic-Corridor (CPEC) projects to lift up its economy. The CPEC is a part of the BRI. It involves around US $ 60 billion in power generation, connectivity and the Gwadar port project. Some of this investment would be useful but thoughtful Pakistanis are pointing to the Hambantota example. Perhaps it would be prudent for the new Pakistan government to look at Mahathir's words and decisions. 

vivekdkatju@gmail.com

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