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China Agrees to Slash Malaysia Rail Price Under Belt and Road

Critics said it benefited China more than Malaysia. China is building  a deep-sea port on Malaysia’s east coast and the railway is a key link in its BRI. 

DESPARDES News Monitor: China on Friday agreed to cut by a third the cost of a rail project being built under its Belt and Road Initiative (BRI) in Malaysia.

The ECRL project was stopped by the new administration led by Dr. Mahathir Mohamed shortly after getting elected. Prime Minister Mahathir Mohamad said he was worried that the cost of construction would leave the country indebted for a generation. 

The 688km project, meant to connect ports on Malaysia’s east and west coasts, is now expected to cost $11 billion, roughly two-thirds of the most  recent projected price tag of $16 billion. The earlier estimates had caused consternation within Mr. Mahathir’s  administration. 

The new agreement with China Communications Construction Company, a state-owned conglomerate, would allow the rail  project to go forward–Mahathir’s government had suspended it a year ago because it was too expensive.

“This reduction will surely benefit Malaysia and lighten the burden on  the country’s financial position,” Mr. Mahathir’s office said on Friday  in a statement.

The electrified railway designed to connect Malaysia’s  capital with the towns on the peninsula’s east and northeast and, backed  by loans from China, was touted as an economic “game changer” by former Prime Minister Najib Razak.

But critics said it benefited China more than Malaysia. China is building  a deep-sea port on Malaysia’s east coast and the railway is a key link in its BRI. 

The  project, known as the East Coast Rail Link, also became a political lightning rod after Mr. Mahathir used its cost as an issue on his way to winning election last year against  then-Prime Minister Najib Razak, riding a groundswell of opposition to Mr. Najib amid allegations of large-scale corruption. 

Soon after becoming prime minister, Mr. Mahathir, 93, announced that the government would halt the $16 billion East Coast Rail Link project and the $2.5 billion gas pipeline deal. 

In an interview with The New York Times in January,  Malaysia’s finance minister, Lim Guan Eng, said the government was  “looking for some cost rationalization” in regard to various projects  the previous government had undertaken with China. “We want to reduce  costs,” he said.

Amid close scrutiny of corruption allegations and after taking over from Mr. Najib last spring, Mr. Mahathir’s administration began to pare back the government’s debt–it discovered that the country was in  worse financial shape than Mr. Najib’s administration had reported. What  Mr. Najib had said was a $170 billion debt pile turned out to be closer to $250 billion, amounting to 80 percent of Malaysia’s gross domestic  product at the time.

For months, the Malaysian Finance  Ministry closely examined a document published by an online news outlet,  The Sarawak Report, that appeared to be a term sheet for the East Coast  Rail Link project. The document, whose authenticity The New York Times  has been unable to confirm, indicated that the price quoted by China  Communications Construction Company had been intentionally inflated to help Mr. Najib cover personal debts.

Under Mr. Lim, the Finance Ministry tried to authenticate the document but  could not find the original. “For us to be able to initiate any  investigation, we need the documents, and until then there is not much  we can do,” he said in January. 

As more and more  corruption allegations emerged regarding Mr. Najib’s government,  pressure mounted on Chinese companies with big projects in Malaysia, according to NYT.

Some of the early Belt and Road projects have come under scrutiny, says the report. Chinese state-owned companies brought in its own workers, provided  engineering expertise, sold and imported its own equipment and its financial support often took the form of huge loans to local governments.

China’s global competitors accused Beijing of “debt diplomacy” dubbing President Xi Jinping’s ambitious BRI as a debt-trap –saddling countries with billions of dollars of debt by building rail lines, highways, power projects and other expensive projects overseas. 

Splashy, expensive Chinese infrastructure projects came to be seen as  opportunities for corrupt senior politicians to plunder the state  coffers. 

In  recent months, Chinese officials have to some extent put the brakes on  the initiative, amid allegations of overspending and corruption in  countries like Malaysia, Sri Lanka and Pakistan.

“Since the summer, China has been rethinking Belt and Road, both the size and the speed at which capital is being deployed and the overall aggressiveness with which they were  pursuing these projects,” said Andrew Polk, a founder of Trivium, a  consulting firm in Beijing.

“They’ve  come in throwing around their weight in these places and not taking  stock of local politics, and it’s blown up in their face,” Mr. Polk  said.

China’s BRI is an ambitious plan spearheaded by the Chinese president, Xi  Jinping, to connect economies across Asia, Africa and Europe. But it has  also become a symbol of the sometimes high cost of projects that China uses to bolster its influence abroad

At a news conference on Friday at the  Malaysian Embassy in Beijing, Daim Zainuddin, a special envoy for Mr. Mahathir, confirmed the new East Coast Rail Link agreement and said the  savings from the new deal would be enough to build two more Petronas Twin Towers, a landmark in Kuala Lumpur, the Malaysian capital. He said  Mr. Mahathir would disclose more details on Monday.

Mr.  Najib, who was been charged with numerous counts of money laundering,  abuse of power and other offenses, went on trial in Kuala Lumpur last  week, in what is expected to be the first of multiple corruption trials.

Based on reports in Aljazeera and The New York Times.

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