China must change its investment strategies in Malaysia

Wan Saiful Wan Jan wrote a piece titled ‘Malaysia’s priority is to manage not stop, China’s investments’ in the Today paper on 11 Jul 17. While many doubters are raising red flags when the Chinese govt is pouring money into Malaysia, Wan Saiful took a slightly different stand, understand the pros and cons and manage it to the best advantage of Malaysia. The money coming in is good if not why ask for the money, but more important is how to capitalize it to the best for Malaysia and its people. Who else is going to give you money?
 
In his article he addressed some issues with the Chinese investments and quoted the experience in Latin America and Africa to offer some hindsight on the pitfalls to avoid. One of the key issues is the repayment of the soft loans for the infrastructure that China is building for Malaysia. Wan Saiful lamented that after the projects are completed, Malaysia would have to pay and pay, ie to repay the loans over 20 years or more, and plus interest some more. This is bad. Ok, pointed noted. China must reconsider this, maybe let Malaysia determine how long to repay the loan. But this is also bad. The best thing that China could do is to offer the loan to build the infrastructure without having to pay back, build them for free, give the loan for free. Now that would be nice. China must seriously consider this strategy then Wan Saiful and his friends would not have to raise this concern again.
 
The second serious concern and I quote, ‘Not only does China get back a substantial portion of its money immediately in the form of payment for work done by their state owned enterprise CCCC, they will also get more money when repayments start, with interest. Ultimately, over the long term, there is still an outflow of funds from Malaysia to China.’ How can China do this? This is no good. China must rethink how not to get back a substantial portion of its money immediately for payment for work done and to ensure that there is no outflow of funds from Malaysia to China. Again, the solution is simple. Build for free, give the loan for free. No need to pay back and Malaysia will be very happy.
 
Another concern, the infrastructure built may not be profitable and ‘the risks and liabilities are borne by Malaysian taxpayers through a government guarantee of the loan.’ Now how to overcome this? Maybe China should guarantee that the project should be profitable and take the risk and bear the liabilities if the project is not profitable. How about that? This is something that China must seriously think over before embarking on the project. It is not the responsibility of the Malaysian govt to ensure that the project is profitable or useful to Malaysia.
 
Another important point raised by Wan Saiful is how Venezuela ended up with huge debts despite China’s soft loans. Venezuela’s mistake was to agree to repay the loans with oil. But then oil price collapsed. With this lesson, China must let Malaysia choose whatever way it wants to repay the soft loan, maybe by paying in ringgit, RMB or US dollars or coconuts. Oops, not a good idea either. The value of the currencies can fluctuate and Malaysia could end up paying more. Maybe China can work out a flexible option to let Malaysia pay in whatever currency or commodities it so chooses without having to make exceptional and unexpected losses. The best way is to leave the option for repayment blank, to be determined by Malaysia as and when it likes. That should do the trick, I think.
 
And another point, not the last, is the transfer of technology. From Malaysia’s past experience with investments from western countries, including Japan, there was always a transfer of technology to Malaysia. Look at how much technology the Proton car has transferred to Malaysia today. Or remember Dunlop, Shell and all the famous western companies that have invested in Malaysia and all the technologies they have transferred to Malaysia and made Malaysia a modern and industrial power house? China must transfer its technologies to Malaysia just like what these western and Japanese companies did before, the Sony, Panasonic, Sharp etc. This should be easy for China, by following what the western and Japanese companies have done before.
 
Oh, one more concern, Chinese companies should not use Chinese workers in their projects. They must employ the Malaysians to do the job. Actually it would be easier and less troublesome if China just offer the money to Malaysia and let Malaysia hire all the locals to work on the projects and all the local SMEs would also have subcontracts to work on. Just give the money to Malaysia and everything will be fine. It would also be easy for China too, no need to do anything. A little catch, would China still be responsible for the completion of the projects and profitability of the projects when Malaysians are doing all the work?
 
Oh, one more very big concern. China is an authoritarian state promoting authoritarian capitalism. If more Chinese investments poured into Malaysia, Malaysia is likely to be influenced and become an authoritarian regime as well. This is so dangerous. How to overcome this? Ok, Wan Saiful concluded with this remark, ‘The responsibility to ensure good governance in Malaysia lies with the Malaysian government and the Malaysian people, not China.’ So China no need to do anything, just invest and don’t try to influence the Malaysians to become an authoritarian state. Don’t try regime change also. Don’t ask questions about 1MDB. I am not sure how easy it is to influence the Malaysian leaders and people to become an authoritarian state just by investing and building infrastructure in Malaysia. I am still scratching my head.
 
China should read my above points carefully and seriously rethink how they could invest in Malaysia without getting back their investment capital. If they continue to do it this way, always thinking of repayment, Malaysia is likely to invite western countries to invest in Malaysia with free loans, no need for repayment. Then China would lose out in investing in Malaysia.