September 7, 2018

This is an unedited draft of today’s Asian Balance column in Business Standard.

This is an archived blog post from The Acorn on Medium.

I wish to report to you, dear reader, that Mahathir Mohammed, Malaysia’s remarkable nonagenarian prime minister, has proved me right. That’s one more reason for you to read the Asian Balance regularly. You will recall I’d argued that China’s massive Belt & Road infrastructure investments will be resisted by forces of nationalism extant in Asian countries. Recent developments in Malaysia offer the clearest example yet on this unfolds.

Over the past few years, China announced massive infrastructure and real-estate investments in Malaysia. These include a $2 billion port, $10 billion industrial park, $20 billion high speed rail project and a $100 billion high-rise water-front city, among others. These are all in various stages of completion. When so many billions easily roll off the tongue, some of them are bound to roll into the pockets of Malaysian officials and politicians. In fact, Chinese entities are alleged to be involved in the 1MDB scandal where Najib Razak, the then-prime minister of Malaysia, is accused of siphoning off billions of dollars into private accounts. Little wonder then, that his government had lukewarm interest in doing anything about Beijing’s actions in the South China Sea.

Then Mahathir Mohammed came back out of retirement and led the opposition to an unprecedented victory in this year’s general elections, after accusing Najib of corruption and, well, selling out the country to the Chinese. Once in power he confirmed that he would, as promised during the election campaign, indeed scrap many of the Chinese investment projects as they had plunged Malaysia into unaffordable foreign debt. Then, a few days ago, he went to Beijing and told China’s leaders just that.

You’ve got to hand it to the man — he even asked the Chinese premier for advice on how to get his country out of debt. Well played!

It’s unclear which of the many projects would be scrapped and which ones deferred’, but what is abundantly clear is that Mahathir has delivered a very public, unambiguous blow to Xi Jinping’s Belt and Road business model.

It’s amazing that Beijing’s supposedly astute leaders didn’t know or show consideration for the fraught racial politics that created Malaysia and still drives its politics. This, after all, is a country that took gerrymandering to such an extreme that it voluntarily expelled a bit of its territory (that became a reluctantly independent Republic of Singapore) in order to ensure that the ethnic Chinese could never electorally outweigh the ethnic Malay population.

Those concerns are very much alive half-a-century later. Claiming that the Malay bumiputeras will be overwhelmed by an influx of Chinese immigrants, he said we have to admit our weakness and protect ourselves until we can compete with them.”

Further, in a searing indictment of the now-familiar Chinese model of foreign investment, he warned that (The Chinese) will buy our land and we will move away from the cities and live at the edge of the forest — if not in the forest itself. What we want is a foreign investment — for them to set up factories and that the workers are Malaysians and not foreigners. It is not for them to own big lands and to develop luxurious cities that we cannot afford to live in.”

It’s not just racial politics at play. The region has learned lessons from Sri Lanka’s experience of being forced to lease Hambantota port to the Chinese after being unable to service its debt. Lim Guan Eng, Malaysia’s finance minister said his government wanted to avoid a situation like Sri Lanka where they couldn’t pay and the Chinese ended up taking over the project.”

To execute this policy change, Mahathir needs to reach out to other powers so as avoid or mitigate the effects of Beijing’s punitive response. So the man who spent his first prime ministerial innings in the 1980s and 90s ranting against the United States might find himself needing to be nicer to the West this time. He is trying to assemble Vietnam and Philippines into a intra-ASEAN bulwark against Beijing’s maritime expansionism in the South China Sea.

What applies to Malaysia applies to most countries in the regions, with the exception of Laos and possibly Cambodia. Their need to partner other strong powers will increase with the level of Chinese investments in their country. In fact, the nationalist-patriotic reaction has been in operation in Vietnam, Myanmar and Sri Lanka for some time now. Far from presuming that the countries of the region will inevitably be enthralled by China, New Delhi must be sensitive to the opportunities arising from this dynamic. They’ll need us a lot more in the coming years. Mahathir, despite or perhaps because of his Indian ancestry is not particularly pro-India, but the realist in him may well prevail over his sentiment.

Realists in Pakistan ought to study the path Malaysia is taking. Imran Khan is placed in circumstances that are in some ways similar to Mahathir’s. As he attempts to get out of the immediate balance-of-payments crisis, the Pakistani prime minister might end up needing to borrow more from China to pay China. The arrival of Chinese executives and workers has already raised hackles on the ground. The similarities don’t go beyond a point though. Unlike Malaysia’s case, what is a debt trap for Pakistan is also a credit trap for China. The coming years will see interesting times.

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