01.04.2020

Analysis: The Belt and Road Initiative in Malaysia

China’s geopolitics and geoeconomics are challenged by democratic transformation. Looking closely at the example of Malaysia, Sergio Grassi, analyses the Belt and Road Initiative.

Before Malaysia’s historic change of power in May 2018, the Chinese primarily invested in major infrastructure projects such as deep-sea ports and railway lines that were regarded as part of the Belt and Road Initiative (BRI). These projects reflect China’s wish to abandon decades of foreign policy reticence and play a greater role in global and regional developments. Critical observers point out that no matter what they cost, huge infrastructure projects like the East Coast Rail Link, Bandar Malaysia, Malacca Gateway and the deep-sea port in Kuantan will especially benefit China geopolitically and geo-economically since they are key elements in Beijing’s strategy for opening new spheres of influence, mitigating difficulties posed by the Strait of Malacca dilemma and gaining a foothold in Southeast Asian markets. 

 

However, in past years also industrial parks have been built in various parts of Malaysia, demonstrating another BRI aim; reducing China’s own excess industrial capacity by exporting Chinese factories. In China, this was euphemistically called “international industrial capacity cooperation”. Hu Huaibang, former Chair of the China Development Bank, stated that the most important goal of the BRI was supporting Chinese economic reforms and elevating Chinese industry to a higher level. China must stop being the “world’s factory” for cheap manufacturing and should move low-tech production to other countries and reduce excess industrial capacity at home. According to Hu, China should promote domestic industries like mechanical engineering, high-speed trains, power generation and telecommunications.

 

The Digital Silk Road

Following on statements about “international industrial capacity cooperation” Portugal’s former Minister for European Affairs Bruno Maçães argues that the BRI’s main aim is to bring global value chains along cross-border infrastructure connectivity projects and the industrial enterprises that migrate with them under Chinese control. This is certainly true for Malaysia.

China is attempting – gradually and region by region – to transform itself from the world’s cheap-goods factory into an economy based on high tech and innovation that produces high-quality items. The Made in China 2025 strategy reads: “We will strive to transform China into the global manufacturing leader before the centennial of the founding of the new China, which will lay the foundation for the realisation of the Chinese dream to rejuvenate the Chinese nation.”

 

Linking »Made in China 2025«  and »Internet Plus«

To this end, Beijing’s design is to control complete value chains: from the acquisition of raw materials and data to industrial and digital production processes and distribution (supported by e-commerce platforms and digital payment services) and transport by rail and/or ship. The BRI is intended to help Beijing achieve its centennial aim of becoming the world’s leader of value chains by establishing companies that have their own technological norms and standards and by reorganising global supply chains. Ensuring a good return on investment in BRI projects means encouraging participating countries to adopt Chinese standards for infrastructure development, transportation, finance, industry, digital economy, urbanisation and data management – under the direction of leading Chinese companies.

A practical, real-life example is the fairly successful sale of high-speed Chinese trains in Asia. Particularly in Southeast Asia, Alibaba’s growing influence through the spread of e-commerce markets is significant. Also key for Beijing is the continued expansion of the 5G protocol of the Huawei “backbone enterprise”, as well as its urbanisation standards for smart cities. New systems solutions from leading Chinese tech companies are intended to bind customers to Chinese standards for the long term, guarantee follow-up orders and generate licence fees.

In the South-Chinese city of Nanning the China-ASEAN Information Harbor (CAIH) has been established as the main hub for China’s digital networking with the ASEAN region. Eventually, CAIH will link the information and communication sectors of all ASEAN countries with China. A video on the CAIH website explains: “The China ASEAN Information Harbor is the provider of an internet+ ecosystem with Chinese standards.

Chen Zhaoxiong, China’s Vice Minister of Industry and Information Technology says the Digital Silk Road will “construct a community of common destiny in cyberspace.”

 

A historic change of power in Malaysia

Chinese state-owned enterprises and privately owned businesses planned their Malaysian investments assuming that Prime Minister Najib Razak and his increasingly authoritarian ethno-nationalistic United Malay National Organisation (UMNO) that had ruled since independence in 1957, would long remain in power. However, in May 2018, Malaysia surprised the Chinese government and the rest of the world with its first change of power for 60 years. The switch from a corrupt and authoritarian regime to a democratically legitimised government meant that BRI investments had to be adjusted.

The then newly elected Pakatan Harapan government insisted since May 2018 on receiving more technology and knowledge transfers from Beijing and an end to huge infrastructure projects and the exportation of Chinese excess industrial capacities. After a democratically legitimised government replaced Malaysia’s authoritarian system, BRI investments had to readjust from a powerholder to a stakeholder approach in the last 22 months. In this spirit, Chinese foreign policymakers have made big efforts to revise their use of soft power in Malaysia.

After the government in Malaysia changed again by the end of February 2020 – with UMNO back in power - it will be interesting to observe, how China´s approach in Malaysia will be adjusted. In times of the corona-crisis, Chinese foreign policy has announced, that the joint fight against the outbreak would catalyse a “Silk Road of health care”.

 

Read the full analysis here.  

 

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The analysis was originally published in German in February 2020.

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