Saturday, January 16, 2021

China’s Malacca Dream Shattered; Malaysia Expels Three Chinese Firms From $10 Billion Infra Project

China’s dream of controlling the strategically-important Malacca Straits lies shattered, at least for now. In November, the state government of Melaka in Malaysia terminated a $10.5 billion worth agreement with a local firm for the development of the Melaka Gateway Project.

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The local developer partnered with three Chinese companies over a sea reclamation project involving the building of a mixed-harbor development, including three man-made islands, in the strategic Malacca Strait. The project has come under intense scrutiny in Malaysia.

The termination was due to the expiration of the agreement on October 3. However, the local developer, KAJ Development Sdn. Bhd., “was found to have failed in completing the project,” the Melaka government had said in a statement.

The project was awarded to KAJ, a Malaysian developer, in 2016 during the administration of then-Prime Minister Najib Raza. The company had roped in Chinese companies PowerChina International Group (an entity of China’s state-owned State Power Investment), Shenzhen Yantian Port Group, and Rizhao Port Group to develop the project jointly.

Prime Minister Mahathir Mohamad, who came to power in 2018, has been a vocal opponent of Chinese influence, labeling it as  “modern-day colonization.” The project is not only a reflection of China’s expansion under the Belt and Road Initiative but it also has major environmental implications.

In its efforts to wipe-out the Chinese trail in the country, the administration has also canceled the $16.2 billion East Coast Rail Link and two gas pipelines worth $2.3 billion that were awarded to the China Petroleum Pipeline Bureau.

Part of BRI or Not?

What was supposed to be a 546-hectare, seaport-driven new urban area with glistening shopping malls, tourist resorts, luxury condos, and theme parks is now just mounds upon mounds of sand scattered across the island.

While the company has claimed that the project was not part of China’s BRI, a Forbes report quotes China’s then-Minister of Transport, H.E. Yang Chuantang, reinstating confidence in Melaka Gateway’s project.

“With Melaka as the forefront flagship in support of the One Belt, One Road program initiated by the People’s Republic of China, we will soon taste the fruits of success, especially with the plans for infrastructure,” he said.

A high-ranking state government official told Nikkei Asia that KAJ’s failure to acknowledge the extent of Chinese involvement in the development led to it being labeled a “China project” among state authorities.

“We are left with no choice. Our project is canceled after we spent millions of our own resources to conduct various environmental studies and pay licensing fees,” said Michelle Ong, chief executive of KAJ, as per media reports.

“The developer was also seen to be awarding more contracts to Chinese companies, thus raising our doubts,” the person, who did not want to be named, told Nikkei Asia. The cancellation of the project, however, was not related to any supposed Chinese influence, the person was quoted as saying.

What is China’s Malacca Dilemma?

China’s interest in Malacca is known worldwide. The country’s 80% of oil and gas passes through the Strait of Malacca. Singapore, which can be said aligned with the US policy, dominates the narrow passage, which can stifle China’s survival.

In the event of a geopolitical upheaval, it wouldn’t be very difficult for China’s primary maritime lifeline to be severed. In 2003, then-President Hu Jintao had termed this the “Malacca Dilemma” and made it one of China’s primary foreign policy concerns.

Had China managed to control the multiple ports on Malaysia’s east and west coasts in tandem with the East Coast Rail Link, it would have allowed China to bypass Singapore and the Strait of Malacca completely if need be.

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