The collapse of Bandar Malaysia deal has sent a powerful shockwave across the market.
The deal is of paramount importance for several reasons:
1. It is one of the government’s biggest projects to date, a legacy PM Najib has wanted to leave for himself, just as Mahathir’s Petronas Twin Towers.
2. It is the key to resolving 1MDB’s colossal debts, the “last mile” in the sovereign fund’s restructuring.
3. It is a key project in the country’s economic cooperation with China, a model to be exact.
On top of that, it is indirectly linked to the KL-Singapore HSR project. Once China Railway Engineering Corp (CREC), the Chinese partner in the deal, gains access into Bandar Malaysia, it will most likely be rewarded the prize HSR contract as well.
This multi-billion ringgit deal spells superior strategic values for both governments to an extent that calling it off is a no-no.
But the impossible is now becoming reality, all out of the blue. No forewarning. Even the PM’s visit to Bandar Malaysia had to be canceled last minute.
The reason for the deal’s collapse, according to a statement issued by TRX City Sdn Bhd, a unit of the finance ministry, has been the failure of IWH-CREC Sdn Bhd (ICSB) to meet the payment obligations.
In the meantime, The Wall Street Journal reported that the Chinese authorities had not approved CREC’s investment.
Nonetheless, ICSB’s response has been thought-provoking, arguing that TRX City’s statement had not fully and accurately reflected the actual situation.
TRX City’s reason, to a certain extent, is not totally unfounded. For the past few months the Chinese government has been adopting strong-handed measures to control capital outflows, and this has indeed affected the oversea investments of some companies.
CREC’s investment could have been among the affected projects.
Decent as it sounds, the reason provided is nevertheless unconvincing.
Beijing’s priority is oversea infrastructural projects in line with its One Belt One Road principle.
Bandar Malaysia is an enormous strategic infrastructural project in Malaysia, while the country’s geographical location is well placed to meet Beijing’s OBOR aspirations. And it also goes perfectly well with China’s strategy to have a government-linked company holding a substantial stake in Bandar Malaysia.
Dropping the deal will also mean China’s plan to tender the HSR project could be in trouble now, besides affecting the mutual trust basis built with Malaysia.
Another speculation is evolved not around the Chinese government but our own, meaning the cancellation of the deal is not economic but political in nature.
Those buying this supposition feel that the opposition, in particular Tun Mahathir, has been constantly lashing out at the government for “selling” Malaysia to China, in the Malay society, Bandar Malaysia being a strong evidence repeatedly brought up.
Najib is worried that this will jeopardize Umno’s support among the Malays, and has therefore taken the initiative to axe the deal.
To be honest, I have reservations about this school of thought.
The allegation that the government is selling Malaysia to China is more an outcome of political manipulations than anything else. It is unlikely that Najib would want to sacrifice this pet project — one that he intends to leave behind as a legacy of his administration — yet to pose any actual threat to him, unless he has in mind a better buyer to whom he can entrust the Bandar Malaysia and HSR projects.
His fears now are the resurrection of 1MDB debt scandal and the unpredictability surrounding Bandar Malaysia and HSR projects.