Malaysia and China build $9 billion port, will Singapore pay the price?

Photo: William Cho/CC-BY-SA-2.0

A joint partnership between Chinese and Malaysian interests will see a new port built just hundreds of kilometres from Singapore. Will this nudge the country down the rankings in the lucrative business of being China’s key port of entry for energy supplies?

By Holly Reeves

Big boats, big business and, potentially, big trouble is brewing for Singapore off the Straits of Malacca.

A new partnership between Malaysian and Chinese interests has agreed a MYR43 billion (US$9.73 billion) deal to develop a harbour just hundreds of kilometres from deep-water Singapore. This could simply be a response to the increasingly congested shipyards of ASEAN’s economic giant; but perhaps there is a deeper undercurrent to taking a slice of the region’s $600 billion oil trade?

“If you want to go up against Singapore, then this port makes sense, especially when it is in the form of foreign investment, given Malaysia’s fiscal constraints,” says Dr Johan Saravanamuttu of the S. Rajaratnam School of International Studies at Nanyang Technological University.

He also explains, “There is the strategic element of the Malacca Strait. It always starts with an economic presence, which can develop into a naval one, because China will be obliged to ensure the safe passage of its commercial ships.” The concern from some is that Singapore’s position at the top of ASEAN’s economic performers is being targeted because of its closeness to Western interests. The darker reading of the situation is that China may want to use the port for military matters.

Claiming new territory

The development itself will see three islands along the Straits reclaimed to build a port capable of receiving the largest tankers on the sea. The project, known as the Malacca Gateway, is being delivered by a partnership between PowerChina International and KAJ Developments and should be fully completed within the next decade. The port, which will be able to handle 100,000 ships, will be finished earlier and should be in use in 2019.

In the face of Singaporean concerns, China’s controversial Global Post spat back in an editorial that the country had just never understood Beijing’s rise and, “The naysayers’ scepticism is entirely based on speculation. China has no intention to turn its overseas economic investments into military bases.”

“The only political purpose for China’s massive investments is for other countries to find a gateway to understand China is a contributor to the world economy and global governance rather than a dominator in international affairs,” the outlet adds.

The interesting thing is the same recent developments easily evidence both of these viewpoints. From the Chinese side, the deal is part of the “Belt and Road” (B&R) initiative to improve connections between countries in the region, and sits alongside other efforts such as high-speed railways. It is also worth noting that, outposts in the South China Sea and one in Djibouti aside, Beijing does not have overseas military bases so this concern is almost unfounded.

Building networks

Meanwhile, China and Malaysia are also working on a larger port alliance of ten facilities which will move goods between the two countries quicker. According to Beijing’s envoy to Kuala Lumpur, this, “will serve not only as a maritime network between the two countries but also the bond of trade and business and tourism.”

The real interest for China is ensuring access to trade routes for the oil its energy-hungry population and industry need to stave off stagnating economic growth. Having closer relations with Malaysia, and port capacity, secures additional entry points when Singapore is often over-subscribed.

Meanwhile, the deal brings Malaysia new opportunities that will prop up employment and imports, “We believe China’s participation in Malaysia’s economy will be a win-win situation,” explained Minister of International Trade and Industry Mustapa Mohamed at the deal’s signing ceremony.

How close is too close?

But looking again at the same increasingly intricate relationships between Malaysia and China, Dr Saravanamuttu warns, “There is the question of over-dependence, and the diplomatic leverage involved if Beijing were to move in more aggressively.” Najib is currently hedging his bets, says the expert, but will loyalty to Chinese interests be expected in return for the investment?

It is also worth noting that the Gateway may not even be a success in a market which some believe is already undersubscribed. Malaysia’s nearby Asia Petroleum Hub project was taken out of service in 2012 after costs swelled. And other facilities, such as the port at Klang have not even reached full steam, so why move to build another?

One answer to the question is that Singapore, unlike Malaysia, is paying the price for not moving closer to China in trade and diplomacy. Although it is perhaps arrogant to consider that entire strategic transport networks could be built in the world’s busiest waterways just to spite Singapore, it is Singapore that loses out if a nearby rival is sucking up Chinese throughput.