Government should review China-led investments in Obor initiative, says Nazir

KUALA LUMPUR: CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak reportedly called on the government to review Chinaled investments in Malaysia under the One Belt, One Road (Obor) initiative.

In an article by The Edge Financial Daily yesterday, Nazir who is also a prominent banker said projects under Obor should not only be measured in terms of the scale of the investment, but also on value proposition.

Nazir has made several statements on the matter at the CIMB Asean roundtable meeting on ‘China's Belt and Road Initiative in Asean: economic opportunities and Asean centrality' held in KL on Wednesday.

In particular, he said the RM55 billion East Coast Rail Line (ECRL) project which will begin construction this year and slated to be completed by 2022, was brought up to be one of the projects that needed to be thoroughly reviewed.

“(The) ECRL is very beneficial, no doubt about it. But are the benefits, say (is it) worth RM10 billion or RM60 billion? That's a fundamental question. Just because it is an Obor initiative and it (the construction contract has been awarded) to China; is Malaysia getting it at the right price?” Nazir was quoted as saying.

To determine this, Nazir suggested that the government, through the Ministry of International Trade and Industry (Miti) could come up with a measure focusing on the crowding-out effect and social and environmental implications of the Chinese-led investment and other projects under the Obor initiative.

While no official government reports have been made regarding the value of the ECRL outside its monetary figures, previous reports indicate that our construction sector, buildings and materials sector and property sector are all expected to see some significant expansions due to the project.

Besides the value proposition of the projects, Nazir also urged the government to review their negotiations with China on its soft loans to us, and questioned whether the burden of Obor project's loan repayment would be too much for Malaysia to handle.

“Are we generating enough tax revenue to pay for it (ECRL project)? I've not seen the cash flow. Otherwise it is going to flush in the government fund and suddenly, we are going to get a huge debt pile,” he said.

To recap, the ECRL deal was signed in November last year and would be constructed by the China-owned – China Communication Construction Company Ltd (CCCC), and financed with a soft loan provided by the ExportImport Bank of China.

And according to previous reports, the loan is said to be a 20 year loan with a grace period of seven years – where the Malaysian government will not need to repay the principal. The loan will also have a low interest rate and a fixed exchange rate to reduce exchanged rate exposure risks.

However, with no official statement on the conditions of the loan, Nazir went on to forewarn of a potential repeat of the 1997 Asian Financial Crisis fiasco if not enough precautions are taken into account.

“This year is the 20th anniversary of the Asian financial crisis. What caused it? It is the infrastructure debt. Isn't there a risk? This (Obor) is going to create huge infrastructure debts in the 60 countries.

“Nobody dares not to repay China. Therefore, the risk will eventually end up in sovereign balance sheet and then we have a problem.

“If this happens in many countries, then we have an Asian problem. That is one caution that we need to bring to the table.”