Why are Chinese and Japanese firms eager to throw US$10.5 billion in Bandar Malaysia?

Chinese and Japanese firms are competing to take on the Bandar Malaysia project. Malaysia must accept a proposal quickly, but not hastily.

By John Pennington, Edited by Tan Jie Ying

 Bandar Malaysia may soon be back on track. After a US$1.7 billion deal collapsed earlier this year, Chinese and Japanese companies have submitted proposals to become the 197-hectare urban development project’s new master developer. The Malaysian government will take a stand later this year.

Malaysia’s finance ministry cancelled the US$1.7 billion deal with China Railway Engineering Corp (CREC) and Iskandar Waterfront Holding (IWH) in May this year. The ministry claimed CREC and IWH failed to meet payment obligations.

The ministry is eager to prevent the next Bandar Malaysia deal from meeting with the same fate. Interested bidders for the urban development project must be affiliated with a Fortune 500 company. Companies must also have solid financial standing and show that their proposal prioritises the interests of the people and the country.

Chinese and Japanese firms lead the race

The bidding process opened on 5th July. Interest from Taiwanese and South Korean companies was expected but did not materialise. Seven Chinese and two Japanese companies submitted proposals despite government restrictions. The proposals reportedly valued between US$7 billion and US$10.5 billion.

Dalian Wanda’s absence stands out like a sore thumb. Malaysia’s Prime Minister Datuk Seri Najib Tun Razak made overtures to Dalian Wanda founder Wang Jianlin and fell short during the One Belt One Road (OBOR) summit in Beijing.

As Beijing curbs capital flight, China’s largest private property developer is forced to make cutbacks.

“Most of the companies will have problems raising cash due to the Chinese government’s ruling to limit the outflow of renminbi from the country unless the company is super rich,” Professor Hoo Ke Ping, an independent economist, predicted.

Dalian Wanda also lacked Beijing’s support, reports claimed.

During the OBOR summit, Najib flirted with the idea of making Dalian Wanda Bandar Malaysia’s master developer. This was before Malaysia’s finance ministry decided it would keep ownership of the land rather than hand it over to one entity. The ministry then opted to invite international proposals.

Bandar Malaysia is seen as a crucial stepping stone to the Kuala Lumpur-Singapore High-Speed Rail (HSR) link

Chinese and Japanese firms are vying for the master developer role not merely because the Bandar Malaysia project is the most expensive piece of property in the country.

Acquiring the master developer role in Bandar Malaysia means a greater prospect of getting a slice of the HSR project. This is because the Bandar Malaysia project will house the Kuala Lumpur terminus for the HSR link. Whoever develops Bandar Malaysia will, in theory, stand a good chance of winning the contract for the HSR project.

Building the terminus will cost an estimated RM50 billion (US$11.7 billion). The HSR project itself could cost anywhere from RM43 billion (US$10 billion) to RM65 billion (US$15.2 billion) to construct.

Beijing and Tokyo are continually lobbying Malaysia and Singapore for input in engineering and infrastructure developments. Beijing has already landed an RM55 billion (US$12.8 billion) contract with Kuala Lumpur to build the East Coast Rail Line. Beijing also clinched a similar deal, with a cost of US$5.2 billion, in Thailand as part of OBOR.

The involvement of two Japanese firms took some analysts aback. This involvement betrays the thinking in Tokyo that companies need to participate in the development of Bandar Malaysia to increase the odds of winning the HSR contract.

Others claim China is taking the same approach because it is desperate enough to land the HSR contract.

“Chinese projects, whether state owned enterprises or private, as long as they’re not strategic, they’re out. There must be a strategic meaning to China’s geopolitical interests,” Hoo explained.

As far as Beijing and Tokyo are concerned, doing everything they can to win the HSR contract is the primary reason they will make a big pitch for Bandar Malaysia. China lost out on Bandar Malaysia once and will not want to miss this second chance.

“They (bidders) must have also recognised the establishment and importance of the High-Speed Rail project and mass rapid transit, and how it can benefit the country,” Second Finance Minister Datuk Seri Johari Abdul Ghani said.

“This also strengthens the government’s vision that Bandar Malaysia will be the way forward and a ‘game changer’ for Kuala Lumpur to develop further,” he added.

Malaysia must be aware of the pitfalls before pressing ahead

The ministry must restart the Bandar Malaysia development and use the investment from abroad to repay debts incurred by 1Malaysia Development Berhad (1MDB).

Encouragingly, the reported value of the bids is higher than the CREC-IWH deal was worth. This is in line with Bandar Malaysia’s soaring value after it received infrastructure development and planning approvals.

But the finance ministry must take care not to saddle themselves with too much debt. More importantly, it must not become overly reliant on one country for foreign money; this is likely to be China.

Malaysia’s negotiators must tread carefully when engaging the preferred bidder. This is to avoid running into problems that other countries have faced when inviting foreign investment. Malaysian government may move too quickly to sign off contracts as a way of showcasing its ability to govern right before the general election in 2018.

“Deals concluded too soon increases the plausibility for exploitation, collusion and corruption,” Justice Party vice-president Nurul Izzah Anwar warned. “Be frantic for China’s good graces and greedy for its wealth, and we stand to lose leverage over Malaysia’s own needs and priorities.”

Sri Lanka is a prime example. One-eighth of Sri Lanka’s debt (US$8 billion) is owed to China thanks to China’s OBOR promises. The Sri Lankan government is already forced to divert most of its earnings to repay China.

Malaysia must not accept any investment proposal with open arms. The finance ministry is selectively engaging foreign companies in the bidding process. It must then ensure the final deal and development are properly managed.

If not, Bandar Malaysia might not get another chance. This time, the development has to work. Otherwise, Malaysia may struggle to repay its debts.


About the Author

John Pennington
John Pennington is an English freelance writer and a self-published author. He graduated from the University of Warwick with a bachelor’s degree in French and History in 2006. After spending time as a sports journalist, he now writes about politics, history and social affairs.