Ditching Chinese-built high-speed rail project will carry high costs for Malaysia

Malaysia’s new Prime Minister Mahathir Mohamad has said he will ditch a planned high-speed rail link with Singapore, a move that would likely damage the interests of China or other economic partners. Companies from China, Japan, South Korea, Europe, Singapore and Malaysia were reportedly eyeing contracts to build and operate the project, but now all of their efforts may be in vain due to the inconsistency and capriciousness of Kuala Lumpur.

In 2013, Malaysia and Singapore officially agreed to build a high-speed rail link between Kuala Lumpur and Singapore by 2020. Only a few years after Najib Razak, Malaysia’s former prime minister, said that the deal was a long-term plan that required continuity and stability, Kuala Lumpur unilaterally announced it would cancel the planned project.

Is this the way Malaysia keeps its promises and adheres to the spirit of the contract?

Mahathir said his government was also in the process of renegotiating with China a rail deal aimed at connecting the South China Sea at the Thai border in the east with the strategic shipping routes of the Strait of Malacca in the west, according to Reuters. If 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. The Chinese government will also take concrete measures to safeguard the interests and rights of Chinese enterprises.

Chinese people and companies doing business in Malaysia reflect market-driven commercial behavior in line with international practices. Chinesefunded projects are not a gift that Kuala Lumpur can refuse without compensation. If Malaysia’s new government fails to adhere to the spirit of the contract, it has to pay price for its error. If you look at Malaysia’s infrastructure, it is actually not bad compared with that of other Southeast Asian countries, but there is still a big infrastructure gap in the country as it pursues economic development. Malaysia is not the only investment destination for foreign infrastructure businesses. It’s very easy for Chinese companies to shift their focus to other countries, but Malaysia’s economy is the one that will suffer big losses.

It is still too early to assess the new government’s economic policies but uncertainty is the first impression. Uncertain economic policies that are driven by political factors are a reason why some developing countries have failed to achieve an economic take-off. Hopefully Malaysia’s new government will not make this mistake.

We believe Malaysia will handle the problem properly. Sino-Malaysia friendship is time-tested. Malaysia is a key point along the routes of the Belt and Road initiative. Chinese investors will continue to look closely at Malaysia’s economic situation in search of opportunities for cooperation.