China – friend or foe?

26 August 2017
Originally published in The Star Online

THE 19th-century British statesman Lord Palmerston is reputed to have said: “There are no permanent friends, and no permanent enemies, only permanent interests.”

This has become a truism in international relations. China is and will be the same in its conduct of global politics, even if its style and idiom are different from the last over two centuries of Anglo-Saxon diplomatic action and language.

Malaysia, too, should look to secure its interests in its international relations, including of course those with China, with whom the country has become close.

If Malaysia does not do so, any country getting the opportunity – not just China – will take the shirt off our back. This has happened in the past, particularly in the long colonial period under the British.

In the Asean region, the case of Vietnam is a good example of the ebb and flow of relations and interests. After its victory over the Americans in 1975, an ascendant Vietnam was viewed as a threat by the original five Asean member countries, a fear that was magnified by the Vietnamese invasion of what was then called the Democratic Kampuchea on Christmas Day, 1978.

Despite the genocidal Khmer Rouge regime of the invaded country, Asean members held a higher common interest in territorial integrity and could not countenance the Vietnamese invasion. (Asean’s stand had the full support of China and the United States). Vietnam therefore was the enemy.

It was not until the Vietnamese withdrawal 10 years later that Asean began to explore a possible common future with Hanoi, even as Vietnam itself had to face up to a post-Cold War world and the economic development it had to bring to its people after the ravages of two generations of war.

In 1995, Vietnam applied and was accepted as a member of Asean. It is no longer the enemy of old. It is a friend in an Asean which has been able to hold together with sufficient common interests.

Now with the rise of China, the common interests holding Asean together are challenged by separate responses to particular situations.

What is the Asean common interest in respect of China’s claims and activities in the South China Sea?

There is not any longer the kind of common position that held them together against the Vietnamese invasion of the then Kampuchea. While Asean member states have not become foes because of divergent interests in their relationship with China, their friendship has taken on various shades of grey, as the common interest becomes less clear and gets more murky.

The economic attraction and huge prospect of China obviously cannot be ignored. This promise for the future from China is real. In purchasing power parity terms – the preferred International Monetary Fund measure of economic size – China’s economy would be three times that of the United States in a generation.

Add to that an America that precisely has a president it does not need at this point in history. It is a no-brainer where the future lies.

America spoke of a geo-strategic pivot in 2010 and of the instrumental Trans-Pacific Partnership. Look where it all is. China, of one-belt-one-road (changed to belt and road because of the suspicion raised that the “one” is China), announced at the end of 2013. Look at the roll-out that is taking place.

It would be an extremely stupid country that does not recognise all this. It would not serve its interest to wait on a dysfunctional America.

Those which put too much store by the United States, like Singapore, have to negotiate an adjustment. Those like Cambodia, long in the Chinese orbit, made adjustments long ago.

Malaysia is relatively new in the adjustment process. It is a plus that it is in it. But, as with anything new, it is understandable that there are different points of view on this, spiced by Malaysia’s own domestic politics.

There is the contention that because of the need to address 1MDB liabilities, Chinese investment is being accorded preferential treatment. It is also pointed out that China’s investment record in Africa and Sri Lanka has been exploitative and Malaysia is exposed to the same sort of practices.

Leaving aside a certain contradiction between the two assertions – there is no particular 1MDB-type problem in Africa or Sri Lanka – the main point that Malaysia must protect and promote its interests should be well taken.

However, there should not be a fixation with 1MDB, which causes Malaysia to be in a paralysis. The future of the country is bigger than 1MDB. Malaysia does not belong to any Prime Minister past, present or future.

So let us treat with China on its merits. Malaysian Ministers assure us the country’s interests will not be neglected. They must be held to it.

There is no doubt Malaysia needs the investments, particularly in infrastructure and connectivity. Malaysian government finances do not allow the kind of development expenditures needed without causing stress to the fiscal deficit, where there is a standing commitment to bring it down.

Nevertheless there is a need also to look at the country’s balance sheet to ensure liabilities and contingent liabilities do not stretch it too far. We do not want to be hocked to China, or to any country or institution, such that we lose our economic sovereignty. There has to be care and good calculation.

The East Coast Rail Link project provides a good example of how all the arguments of dependence and protection of interests should be assessed.

At RM55bil, it is a huge financial commitment. But the railway of 688km from Port Klang to Pengkalan Kubor (beyond Kota Baru) is also hugely transformative economically. Will the investment reap the return to justify the risk? How much will local businesses benefit from project construction?

Let’s face it. The financial terms are pretty good and nobody has come forward with project proposal or financing. It would be stupid of Malaysia to bury its head in the sand and not embrace this highly significant project.

With 85% of project cost being covered by a soft loan at 3.25% by China’s Exim Bank and an interest-payment moratorium of seven years, the terms are very attractive. (The remaining 15% is to be raised through Sukuk issuance by domestic institutions).

The test is execution. We are not aware of the massive projects China has executed in its own country and therefore underestimate its abilities.

We are afraid China will swipe the whole project construction for itself, bring the steel and the cement, and so the money comes in just to go out again – even if the country might gain economically from all the multipliers when the project is fully completed in 2024.

There is some expectation 53 million tonnes of cargo will bypass Singapore, moving from Port Klang to Kuantan and onwards, adding to Malaysian economic benefit, although with Belt and Road, the pattern of movement of cargo is set to change significantly, affecting Malaysia as well.

The Prime Minister has promised that at least 30% of the project would go to local contractors. We must make sure this happens.

Local contractors are cynical. It is critical that local contractors are not played out. China’s good faith is on the line.

But, as China rises, and becomes more powerful, will it be bothered by good faith with small countries? On the other hand, should uncertainty about China’s behaviour in the future deter us from moving forward now?

This is the dilemma of small countries like Malaysia. This is why countries like Singapore in our region have been clear about wanting balance and choice, with the continued effective presence of America and with active involvement of companies, not just American but also European, Japanese and so on.

There are two scenarios before us. First, China’s near total dominance of the South-East Asian region, when Asean states will relate with Beijing within a certain paradigm of the Middle Kingdom’s economic, political and security interests – like getting a Code of Conduct in the South China Sea only when South-East Asian states recognise no other extra-regional state should be involved in dealing with outstanding matters.

Depending on predilection, South-East Asia is left to the tender mercies of a Great Power, or to the good faith of a resurrected Giant of the new Asian Century.

The other scenario is one of balance, of continued presence and significance of the United States particularly, which would give Asean states – and Malaysia – wiggle room and the opportunity to hedge. Even then there are the risks of playing both ends against the middle.

The second scenario is fading fast. The first is probably upon us. It is best right now to have China as a friend and do whatever we can to secure our interests.

Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.

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