Malaysia, China Embark on $13 Billion Railway Project

Malaysia has broken ground on its most ambitious railway project to date, a multi-billion dollar endeavor backed mostly by loans from China and that will also be a piece of Beijing’s One Belt, One Road grand strategy for economic expansion.

Malaysian Prime Minister Najib Razak hailed the East Coast Rail Link (ECRL) as a “game changer” for his country, as he broke ground Wednesday on the U.S. $13 billion project in Kuantan, Pahang state, as Chinese State Councilor Wang Yong stood by his side.

But some Malaysian commentators and critics are questioning whether the project – which will also be built by a state-run Chinese firm – will indeed be good for their country. Some among them have raised concerns about whether it’s healthy to rely so heavily on the Chinese to construct and finance the railway link, which will stretch 688 km (430 miles) and join the two coasts of Peninsular Malaysia.

“The ECRL is another ‘game changer’ and a ‘mindset changer’ because it would shorten travel time from and to the east coast of peninsular Malaysia,” Najib said at the groundbreaking ceremony in Kuantan, the capital of his home state, Pahang.

The rail project, spanning the states of Selangor, Pahang, Terengganu and Kelantan, is slated for completion in 2024.

An estimated 5.4 million passengers and 54 million tons of cargo will be using the line annually by 2030, making it the primary mode of transport between the east and west coasts, Najib said.

‘A fine example of economic cooperation’

The ECRL is one of the flagship projects being planned as part of Beijing’s One Belt, One Road (OBOR) initiative. This trillion-dollar infrastructure strategy strives to build a vast network of roads, railway lines and ports in South and South Asia that will allow China to trade more easily with European countries via the Indian Ocean and Central Asia, Chinese officials said.

The rail project will slash travel time from Port Klang – the nation’s busiest port which is located on the west coast – to Kelantan, a state on the northeast coast that borders Thailand, to four hours instead of the current seven-hour average, Malaysian officials said.

The line will consist of 12 passenger-only stations, three freight stations and seven combined passenger-freight stations, according to Najib.

The China Communications Construction Company (CCCC) will build the project, and the Malaysian government will finance 85 percent of the cost via soft loans from the Export-Import (Exim) Bank of China. The remaining 15 percent will be financed through a “sukuk,” or Islamic bond program, managed by three local banks, Najib said.

“The project is a fine example of economic cooperation between the two countries and would drive the prosperity of Malaysia,” said China’s State Councilor, Wang Yong, who headed a Chinese delegation that was on hand at the groundbreaking.

However, some observers have warned that Malaysia’s growing relationship with China is not necessarily healthy. Beijing is exerting its influence in Southeast Asia and using smaller countries as part of its ambitions of global expansion, they say.

Among the critics of the policy of closer ties with China is former Malaysian Prime Minister Mahathir Mohamad, an opposition politician and virulent critic of Najib. Mahathir has lately questioned the wisdom of Malaysia agreeing to borrow large sums of money from China.

“Without actually conquering the countries they have managed to increase their influence over many countries in Southeast Asia, even in South Asia,” Mahathir told the news website Free Malaysia Today in late May.

“With the changes in (its) leadership, we see more ambitious leaders coming in and maybe they like to flex their muscles a bit and that is very worrisome,” he said.

Wednesday’s ceremony in Kuantan also created some controversy on the side when the Straits Times newspaper quoted a senior Malaysian government official as saying that Wang Yong had “lightly touched” on the matter of China offering to sell Malaysia a package of rocket launchers and a radar system that would be deployed in Johor state – right on the border with Singapore.

On Thursday, officials with Malaysia’s armed forces said they had received no such offer from China, according to a report by Reuters.

Questions raised

Some of those expressing doubts about the country’s largest rail project have raised concerns about the government’s accountability over it, by pointing out that no feasibility study or detailed cost-versus-benefit analysis have been discussed in the nation’s parliament.

Hours after the groundbreaking ceremony, opposition coalition Pakatan Harapan (Alliance of Hope), vowed to scrutinize the rail project and other rail-related agreements, if it won the next general election, according to The Malaysian Insight news website.

Speaking to BenarNews, Nazari Ismail, a professor of business strategy and policy at Universiti Malaya, argued that railway projects worldwide often rely on rail subsidies from the government.

“Even the Shinkansen in Japan needed government subsidies, so this project is likely to require government subsidies too,” he said Thursday, referring to the Japanese bullet train.

“We don't know how much it will cost because the figures are not presented to the Malaysian public for discussion.”

Nazari agreed that the project would lead to easier movement of goods, but said the cost would be too high to justify the benefits.

“At the moment the Exim Bank is going to make money based on the loan given and the CCCC, who will build the tracks, are going to make money from the contracts,” he said. “If it is really profitable, let the Chinese companies invest in the project and undertake the risk.”

But Izzuddin Yussof, an economist at the Affin Hwang Investment Bank, said the Malaysian government could sustain the loan burden from the Chinese bank.

“Exim Bank is only financing 85 percent of the project at 3.25-percent interest rate, which is all right,” he told BenarNews.

He agreed, however, that without all the data from the government made public, the effect and feasibility of the project remains unclear.

Environmentalist groups have also expressed concerns about the project, warning that it could damage the Central Forest Spine, a pristine and untouched area that lies between the two coasts. Three groups have demanded a moratorium on the project.

“These environmentally sensitive areas provide vital services to the nation, including protecting 90 percent of the nation’s water supply, aiding in local climate control, flood mitigation, as well as protecting vast areas of irreplaceable biodiversity,” The Malaysian Nature Society, PEKA and Treat Environment Special (TrEES) said in a statement issued Wednesday.

Fadzil Aziz contributed to this report.