Najib must realise that a bird in hand is worth two in the bush. Abandoning Beijing for China’s largest enterprise is an unwise move.
By Tan Jie Ying
The US$10 billion Bandar Malaysia project could have reoriented itself amid the ongoing 1Malaysia Development Berhad (1MDB) fiasco. There were high hopes of China’s Dalian Wanda Group taking up the offer as the leading investor of the Bandar Malaysia project in the days leading up to the first One Belt One Road (OBOR) summit.
“Wanda has confidence in Malaysia and its future prospects. We are willing to share our experience with Malaysia to build a one-of-its-kind mega integrated cultural and tourism project,” said Dalian Wanda chairman Wang Jianlin.
But the summit concluded with a slap in the face for Malaysian Prime Minister Najib Razak. Wang did not offer any formal declaration of commitment to the Bandar Malaysia project. Najib then had a change of heart; he spelt out his intention to involve more than one Chinese entity in the project following his meeting with Chinese President Xi Jinping.
Najib’s people think he is selling the country out
Najib’s effort to court the Chinese is not new. Malaysians are harbouring suspicions that their country’s sovereignty is undermined as Najib inches closer towards Beijing.
“These relations do not compromise sovereignty one bit, contrary to what Opposition politicians here have said. I will never sell Malaysia’s sovereignty. Never,” Najib assured.
The reality of Malaysia’s investment scene comes face to face with Najib’s reassurance. In 2016, China was Malaysia’s chief source of foreign investment, amounting to RM4.8 billion (US$1.1 billion) in 33 approved projects. Chinese presence peppers Malaysia’s infrastructure and property landscape copiously.
|Key Chinese projects and investments in Malaysia|
|Penang Undersea Tunnel (Penang)||· China Railway Construction Corporation (CREC) entered into a joint venture agreement with Consortium Zenith BUCG Sdn Bhd
· Project cost: RM3.7 billion (US$865 million)
|Penang Second Bridge (Penang)||· China Harbour Engineering Co Ltd. won the main contract for the first package, which included bridge and foundation works
· Project cost: RM4.5 billion (US$1 billion)
|TRX Signature Tower (Kuala Lumpur)||· China State Construction Engineering Corporation is the lead contractor
· Gross development value: RM3.5 billion (US$818 million)
|Four Seasons Hotel (Kuala Lumpur)||· China Railway Construction Corporation is the project contractor
· Gross development value: RM2.5 billion (US$584 million)
|Forest City (Johor)||· Country Garden Holdings as property developer
· Gross development value: RM105 billion (US$25 billion)
|Melaka Gateway (Malacca)||· PowerChina International signed a memorandum of agreement with master developer KAJ Development Sdn Bhd for a RM30 billion joint investment
· Investment: RM15 billion (US$3.5 billion)
|East Coast Railway Link (Klang to Kota Bahru)||· China Communications Construction Company won the construction contract
· Project cost: RM55 billion (US$12.9 billion)
|Xiamen University Malaysia (Selangor)||· Sinohydro Corporation (Malaysia) Sdn Bhd in charge of the construction of the entire campus
· Investment: RM1.3 billion (US$304 million)
|Edra Power Holdings (Selangor)||· China General Nuclear Power Group bought all of Edra’s power assets
· Investment: RM10 billion (US$2.3 billion)
The Chinese leadership is shrewd enough to reciprocate Najib’s insistent courtship of Chinese investments. These investments are pumped in to save 1MDB from insolvency. China General Nuclear Corporation saved Najib’s neck when it agreed to buy 1MDB’s power assets for US$2.3 billion in November 2015. The following month, CREC bought a 60% stake in the Bandar Malaysia project for US$1.7 billion in a joint venture with Malaysia’s Iskandar Waterfront Holdings (IWH). This allows China to use its leverage on the 1MDB issue to keep Najib closely by its side.
Will Najib undermine Malaysia’s ties with Beijing by dealing with Dalian Wanda?
Beijing’s help may come at a price as Najib gives Beijing the cold shoulder.
Najib’s first step is the unilateral termination of the December 2015 IWH-CREC deal in May this year. Revoking a Chinese state-owned enterprise’s leading position in Kuala Lumpur’s multibillion dollar property project easily dealt a blow to Beijing’s pride.
Najib’s next step is to enter into talks with China’s largest private property developer to acquire a major stake in the Bandar Malaysia project. Talks began merely a week after Kuala Lumpur called off the US$1.7 billion deal between CREC and IWH.
Najib’s choice of China’s property giant over Beijing’s construction arm sticks out like a sore thumb. He unilaterally threw over CREC, which came in at a time when 1MDB racked up over US$11 billion in debt. Despite Najib’s act of defiance, he still needs Beijing. After all, Beijing saved Najib’s skin when the US and the rest of the world came down on him.
It is hard to tell now whether Najib’s recent move will undermine his ties with Beijing. Najib already has his hands full worrying about how to manage the “third wave” of Chinese migration. His overtures to Dalian Wanda becomes a petty problem in comparison.
The strong presence of Chinese business and investment in Malaysia is creating an environment that appeals to Chinese citizens seeking an alternative place of residence. Between 2002 and 2016, 7,967 successful applications of the Malaysia My Second Home (MM2H) programme came from Chinese nationals; that makes up slightly over a quarter of the total 31,732 successful applications.
Najib will eventually need to take a more discriminatory approach when accepting MM2H applications. This risks upsetting Najib’s existing cordial ties with Beijing if he is seen as encroaching upon “China’s national interests or violations of legal rights and interests of Chinese citizens and businesses,” said Ambassador Huang Huikang. But neither is Najib willing to take a hands-off approach that would upset the already fragile racial demographics of his country.
The failed 2015 deal is setting precedence for future deals emerging from the Bandar Malaysia project
The cancellation of the CREC-IWH deal remains shrouded in mystery.
The property deal fell through on official grounds that CREC and IWH “failed to meet the payment obligations outlined in the conditions precedent under the [share sale agreement],” said TRX City. The share sale agreement, signed in December 2015, assigned IWH and CREC a 60% stake in the Bandar Malaysia project for RM7.4 billion (US$1.7 billion). The Malaysian government held the remaining 40% through TRX City under the agreement.
But both CREC and IWH have refuted the statement, asserting that TRX’s claim did “not fully and accurately reflect the circumstances and conduct of the parties in this matter.”
Malaysian political and economic analyst Hoo Ke Ping held Beijing’s recent capital controls accountable for the failed deal. Beijing began tightening its grip on its capital controls following the central bank’s statement that the country’s foreign exchange reserves dipped to approximately US$3 trillion in January this year.
The uncertainty surrounding the failed CREC-IWH deal is creating anxieties about the fate of the Bandar Malaysia project. This is making companies in Malaysia apprehensive about forming partnerships with Dalian Wanda. Malton Bhd is the best case in point.
“The company, after due enquiry with its directors and major shareholders, wishes to inform that it is not in any discussion with the parties mentioned in the bidding for the Bandar Malaysia project as reported,” said Malton in response to media speculations.
The sudden termination of CREC-IWH deal is setting precedence for future Bandar Malaysia agreements. Najib’s arbitrary decision inevitably leaves prospective companies wondering their fate if they agree to have a stake in the project.
Najib’s grand plan to bring in Dalian Wanda may go up in smoke
Dalian Wanda may be the wrong horse to bet on. China’s largest private property developer is letting slip the cracks in its development strategies.
In late June, Dalian Wanda units’ shares and bonds plummeted. Wanda Film Holding Co. fell nearly 10% in Shenzhen before its shares were suspended from trading. Wanda Properties International Co.’s 2024 notes tumbled nearly 10.7 cents on the dollar in Hong Kong.
Wang Jianlin is also working to dispute the recent spate of rumours surrounding his company’s financial situation.
“Some people have said Wanda has a debt of 400 billion yuan (US$59 billion) or loans of 400 billion yuan from the bank, but this is completely wrong,” said Wang. He also shot down “malicious speculation” that Dalian Wanda was forced to sell its bonds by local banks.
These are worrying signs that Najib cannot ignore. Najib is trying his luck if he intends to place a US$10 billion project in the hands of a speculation-ridden company.
Chinese regulators’ recent move dealt the greatest blow. Big state-owned banks were prohibited from offering loans to Dalian Wanda. This was because six of Dalian Wanda’s recent foreign transactions flew in the face of Beijing’s existing capital restrictions.
Whether Beijing is truly antagonised by Dalian Wanda’s activities abroad remains up in the air. But Najib is betting on Beijing’s good faith if he continues to side excessively with Dalian Wanda.
The benefits of another Bandar Malaysia deal should not be exaggerated
Najib must learn from the Iskandar Malaysia project if he genuinely wishes to prop up the Bandar Malaysia project. Iskandar Malaysia’s Nusajaya – once a booming area – is experiencing an impasse thanks to paltry domestic demand. This leads to an issue of oversupply as investors and speculators refuse to mark down property prices. Johor had the greatest number of unsold residential units in Q1 2016, amounting to approximately US$397 million.
But domestic demand is drying up in Malaysia as a result of increasingly feeble economic growth. Securing a deal with China’s largest property developer will not guarantee Bandar Malaysia’s success if no one is buying it. Najib needs to look beyond procuring short-term financial perks in order to ensure the long-term viability of Bandar Malaysia. Or he may soon find himself increasingly facing the risk of scratching his head to bow out of the political scene graciously.