A bit over a year ago, 1MDB was all the media talked about. From its huge debt, and where all the money went, but then came China. China seems to have bought many things from 1MDB (sometimes at a much higher value than it actually was). One of these things was 60% ownership of Bandar Malaysia, through the China Railway Engineering Corp, in a partnership with the local Iskandar Waterfront Holdings (and collectively both are known as IWH-CREC)
For those who don’t know, Bandar Malaysia is a really big, high-tech development project located in Sungai Besi. It used to be owned by 1MDB before it was fully transferred to TRX City Sdn Bhd, a company owned by our Finance Ministry.
Earlier reports mention 1MDB saying that Bandar Malaysia is “a world-class city to have green infrastructure, sustainable housing and a range of commercial and lifestyle facilities to become the yardstick for sustainable urban housing within Malaysia”, and to top it all off, one of the stations of the new KL-Singapore High Speed Rail was supposed to be located here as well.
Bandar Malaysia’s sale to IWH-CREC would have given them RM7.41 billion which would have covered 17% of 1MDB’s RM42 billion debt. But recently many people who had been following this city’s development were shocked when the Ministry of Finance announced that the deal between 1MDB and IWH-CREC had collapsed.
“This is because, despite repeated extensions being granted, IWH-CREC failed to meet the payment obligations outlined in the Conditions Precedent under the SSA (share sale agreement). As a result, the share sale agreement between the parties stands null and void with immediate effect.” – Statement by the Ministry of Finance, on The Star
In other words, they didn’t pay what they needed to pay on time, and the Finance Ministry was now looking for a new party to take over the development of the deal (while keeping full ownership of Bandar Malaysia). And the question on everyone’s mind after hearing this was more or less…
Right after the news of the collapse of this deal broke out, a few people were quick to question whether this signaled the beginning of the end of the relationship between China and Malaysia.
Of course there were other speculations as to why the deal broke down, but it turns out that before we could even ask the question of about China-Malaysia relations, we found out there was a lot to the story we were not aware of yet. First off, not long after the Finance Ministry said that IWH-CREC didn’t pay what they needed to pay, IWH-CREC said they did!
“To date, ICSB (which is basically IWH-CREC Sdn Bhd) has fulfilled all the required payment obligations under the SSA on its part towards TRX.
ICSB has sufficient financial resources and capabilities to ensure the smooth and successful execution and implementation of the development of Bandar Malaysia.” – IWH-CREC in a statement, as quoted by The Malaysian Insight
But it seems like the story involves more people than just our gomen and IWH-CREC, because it looks like a third party emerged in the romance between Malaysia and China.
Dalian Wanda isn’t a person, but another company from China. And they’re not just any random company but one of the biggest in the world! They have a very diverse portfolio but probably the most impressive thing about the company is that they’re the world’s largest commercial property enterprise! But what do they want with Bandar Malaysia? Well, since IWC-CREC is out, they have been reported to be bidding to be the master developer of Bandar Malaysia. (This is in a way different from IWH-CREC‘s role because they would have owned 60% of Bandar Malaysia, but in their bid, Dalian Wanda would only be developing it.)
And the Malaysian gomen themselves seem quite keen to make this deal happen because they’ve already returned the RM785.9 million deposit that IWH-CREC paid them when they first agreed to the deal in 2015, which kinda like severs all ties between the two, and allows the gomen to move on and find someone new already *ouch*.
This still doesn’t really answer why was the initial deal was taken apart so abruptly. In fact, it was reported that the boss of IWH, Lim Kang Hoo, flew to Beijing to ask the Chinese gomen to help restore the deal but to no avail. But then we find that this may not be a story of Malaysia dumping China, but a mutual breakup…of sorts.
China may be spending less on other countries in general
According to the WSJ, the reason why the deal between IWH-CREC and the gomen collapsed was because the Chinese gomen themselves did not give the greenlight for CREC to complete the deal.
But while it may be difficult to say that China is running away from Malaysia, you can say that they’re asking for some space, not just from Malaysia, but the whole world. Quite a number of people did speculate that a possible reason for the deal falling apart was because China was tightening their capital controls.
Capital controls are measures taken by a gomen to control the amount of money flowing out of a country. In a nutshell, it’s basically because China’s currency has been dropping in the past few months, and people have been trying to take their money out of China.
So what the Chinese gomen is currently doing is implementing measures to make it difficult for people to do so. And it would make sense if the Chinese gomen was the one who cancelled the deal because if the IWH-CREC deal had gone through, that would mean a lot of money going out of China and into Malaysia.
And it’s not like they’re being shy about it. Earlier this year, China was already talking about limiting the foreign investment of Chinese companies, and even expressing their displeasure over the actions of some of these companies.
“Some enterprises have already paid the price. Some even have had a negative impact on our national image.” – Zhong Shan, China’s Commerce Minister, as quoted by New York Times
In fact, despite all the news surrounding the Dalian Wanda now getting involved in Bandar Malaysia, some say that they still would only be able to do so IF the Chinese gomen approves of it. And so even if China does break up with Malaysia, it’s because they have their own issues to deal with.
So what’s going to happen to Bandar Malaysia now?
To be honest, it wasn’t easy writing this article because the story kept being updated. First it was the breakup, then news that Malaysia and China weren’t together anymore, then news of this 3rd party, until the latest news on the subject where our PM said this.
“We believe Wanda group is in a position to deliver something extraordinary, something so imaginative, that we can create Bandar Malaysia as something that all Malaysians and the region can be proud of.” _-PM Najib, as quoted by MalaysiaKini
And what’s even more interesting is that he said this in China, in a press conference with the boss of Dalian Wanda himself!
But what about our relations with the Chinese gomen themselves? Well, PM Najib was actually in China not just to meet up with the Dalian Wanda people, but to also attend the two-day Belt and Road Forum for International Cooperation, where he was personally invited by China President, Xi Jinping. And it seems that over there, Malaysia and China came to an agreement to allow China to build the 2nd phase of the East Coast Rail Link.
“I agree with you (President Xi) that Malaysia and China are not only neighbours but are trusted friends.” – PM Najib at the Belt and Road Forum for International Cooperation, as quoted by The Malay Mail Online
And while it’s still unclear what exactly went down between IWH-CREC and 1MDB (which is definitely still a mystery), at the very least we can say that based on the recent developments, China is NOT running away from Malaysia.
So in the end it wasn’t that Malaysia and China broke up, but China is just using another representative in the relationship….