Chinese Capital is Taking Over ASEAN

09.04.2018 Author: Dmitry Bokarev

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Malaysia is one of the most developed members of the Association of Southeast Asian Nations (ASEAN). Its relationship with China was, until recently, fairly tense. Malaysia’s geographic location allowed it to control the Malacca Strait, one of the world’s most important seaways, connecting Europe and the Middle East with East Asia. Its lack of a good relationship with that country was thus a fairly serious problem for Beijing. However, in the last few years the relationship between China and Malaysia appears to have improved.

It is no secret that part of the island of Borneo, and part of the Malacca Peninsula both belong to Malaysia. The Malacca Strait runs between Malacca and the island of Sumatra and links the Andaman Sea and the South China Sea, or, on a larger scale, the Indian and Pacific Oceans.

The Malacca Strait is part of a global shipping route that connects the western and eastern parts of Eurasia. Approximately a quarter of all the world’s commercial shipping passes through the Strait, including 80% of China’s oil imports. China’s manufacturing sector has a huge demand for hydrocarbon fuel. Since it is unable to meet all its energy demands itself, China is forced to buy a lot of its hydrocarbons from other countries. Most of the fuel supplied to China and other major East Asian importers (South Korea, Japan) comes from the Middle East, and it is transported by sea through the Malacca Strait. The above Asian countries’ energy security thus depends on the free passage of shipping through the Malacca Strait.

Most of all, this dependence poses a risk to China’s energy sector. In the event of a blockade of the Strait, Japan and South Korea might be able to count on the support of their ally, the USA, which also has large hydrocarbon reserves, conveniently located for shipping to East Asia. However, China is USA’s main rival in the Asia-Pacific region, and USA might thus conceivably benefit from a blockade of the Malacca Strait, which would have a serious impact on the Chinese economy.

Malaysia, which is on the eastern side of the Strait, was, until recently, also one of the USA’s main regional partners and would have been able to blockade the busiest section of the Strait. It is worth noting that Malaysia has, by the standards of the region, a fairly powerful navy. Increasing its influence in Malaysia is thus a fairly important concern for China. Another obstacle to the improvement of China’s relationship with Malaysia is the situation in relation to the Spratly Islands in the South China Sea, claimed by China. There are territorial issues between China, Vietnam and the Philippines in relation to that group of islands, which Malaysia also considers to be part of its territory.

Just a few years ago it seemed clear that the tensions between the South East Asian countries and China was a guarantee that the latter countries would continue to side with Washington in its rivalry with China. Malaysia was also seen as part of the pro-American ‘belt’ that the USA was trying to create in order to encircle China and rein in its influence. That ‘belt’ also included Australia, Indonesia, the Philippines and various other countries. In recent years, however, the group of America’s allies in South East Asia has started getting significantly smaller.

For example, in October 2016, Rodrigo Duterte, the president of the Philippines, said that it was time to ‘say goodbye’ to the USA, and talked about friendship with China. The Philippines used to be considered one of the USA’s oldest and most reliable partners in the region, and so this announcement by the Philippine leader came as a surprise to many. It also became unclear how the territorial dispute between China and the Philippines would develop.

It was not long before Malaysia, too, unexpectedly made a move closer towards China. In November 2016, Najib Razak, the Malaysian prime minister, visited Beijing. There he announced that he hoped to take the friendship between China and Malaysia to a new level. One of the first steps in this new direction was Malaysia’s decision to buy a number of warships from China, rather than from the USA, up to then its sole supplier. Nine more agreements between China and Malaysia were signed during that trip.

Many experts believe that the main reasons why the Philippines and Malaysia have made such a sudden move towards China are the latter’s unprecedented generosity, and America’s tendency to interfere in its partners’ internal affairs.

For example, Rodrigo Duterte, the Philippine president, has come under pressure from America because of his anti-drug campaign. There are claims that several thousand people have been killed without trial. The USA accused Mr. Duterte of human rights violations, and shortly afterwards the Philippine leader made his announcement about friendship with China, which is known to have a similarly harsh policy towards drug trafficking.

As for Malaysia, the USA criticized the activities of 1MDB, its state investment fund. That fund was established in 2009 by the Malaysian prime minister, Najib Razak, to provide support for the country’s large-scale and long-term development projects. In 2015 reports appeared in the Western press alleging that 1MDB was being used to launder money, which was then transferred to bank accounts belonging to members of the Malaysian government. In June 2016 the USA and a number of other countries started an investigation into these claims. The Malaysian prime minister was accused of personally embezzling large sums of money. Despite his protestations of innocence, shortly afterwards Western investment in the Malaysian economy began to fall sharply. China came to the rescue, providing Malaysia with a significant amount of financial support. For example, the Chinese nuclear energy corporation CGNPC has bought $2 billion of assets from 1MDB.

China recognized that this was a good time to act and started making increasingly large investments in the Malaysian economy. By 2016 discussions were under way on the construction of a high-speed rail link between the Malaysian capital of Kuala Lumpur and Singapore, which will cost approximately $15 billion.

In 2017 the major Chinese steel producer Hebei Xinwuan Steel Group announced that it would invest up to $3 billion in the construction of a steel plant in the region of Bintulu, in the Malaysian part of Borneo. The Malaysian government hopes to create an industrial park with the factory at its core, and attract investors from around the world.

In January 2017 the European Union decided to prohibit the use of palm oil in the manufacture of biofuels. Malaysia, one of the world’s biggest producers of palm oil, strongly objected to that decision. In 2017 palm oil accounted for more than 55% of Malaysia’s total exports. According to the Malaysian deputy prime Minister, Ahmad Zahid Hamidi, the EU countries’ decision to stop importing palm oil has affected at least half a million Malaysians working in the palm oil industry. Once again, it was China who came to Malaysia’s rescue. It is already the second-largest importer of Malaysian palm oil. In February 2018 representatives of the Chinese embassy in Malaysia stated that China intends to significantly increase its imports, and aims to become the world’s leading importer by 2020. The Chinese government also wishes to encourage Chinese companies to invest in Malaysian agriculture and in the production of biological raw materials.

In the same month the Malaysian head of state, Muhammad V of Kelantan, announced that he welcomed his country’s productive partnership with China. He referred to the successful trade partnership between the two countries and was enthusiastic about the Chinese ‘One Belt, One Road’ initiative. The Malaysian monarch said that the relationship between China and Malaysia is growing in stability and bringing more and more benefit to the people of both countries.

In conclusion, it is clear that Malaysia and other South-East-Asian countries are leaving the USA’s sphere of influence, and moving towards China’s. It is also clear that America is, to a great extent, losing its ability to control the Malacca strait. If Washington once assumed that the territorial issues in the South China Sea would stop that from happening, that has now turned out to be a miscalculation. China’s huge economic influence on its neighbors’ economies has forced them to drop their territorial claims for the time being, and focus on the benefits that cooperating with China can bring them.

Dmitry Bokarev, political observer, exclusively for the online magazine “New Eastern Outlook.