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State–state ties, power elites, and state–business relations: Malaysia–China Belt and Road projects
Published online by Cambridge University Press: 25 October 2022
Abstract
This study focuses on state–state relations for business, a phenomenon shaped by how local power elites (LPEs), in this case, in Malaysia, collaborate with transnational corporate elites (TCEs), in this case, from China, to implement infrastructure projects linked to the latter's Belt and Road Initiative (BRI). These LPE-TCE links, which have led to the creation of novel forms of state–business relations (SBRs), offer interesting theoretical insights for SBR-related studies. This article builds on the conventional wisdom of homogenised SBRs as usually driven by bureaucrats by indicating that, in practice, state–business ties are extremely heterogeneous, with the capture of key institutions by influential LPEs. A conceptual framework explains theoretically how state–state relations, forged by two countries, both led by dominant parties that control their respective enterprises, have contributed to unique SBRs created to undertake BRI projects, driven by LPE-TCE links. Case studies of three BRI projects in Malaysia provide insights into how disparate forms of SBR-based institutional architecture function, not only at the federal level, but also in different states, involving enterprises from China. Diverse types of power relationships have emerged in these joint ventures, encompassing different LPEs, contributing to the creation of dissimilar SBRs. These LPEs have turned effective SBRs, fashioned to implement BRI projects, into economic endeavours that feature rent-seeking behaviour.
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- Copyright © The National University of Singapore, 2022
References
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14 These include 26 semi-structured interviews with Chinese SOEs, top Chinese private developers, local construction firms, industry experts, trade associations, analysts, and politicians carried out between Sept. 2017 and Mar. 2018. The interviewees are anonymous due to the sensitivity of this topic, as the BRI projects involved key politicians and royalty in Malaysia.
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29 De Graaff and Van Apeldoorn, ‘US–China relations’.
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39 Ibid.
40 De Graaff and Van Apeldoorn, ‘US elite power’.
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43 Lemma and Te Velde, ‘State–business relations’.
44 Abdullah Ahmad Badawi was Malaysia's 5th prime minister (2003–09).
45 See Chester Tay, ‘ECRL not world's costlier rail project’, The Edge, 9 Nov. 2016, https://www.theedgemarkets.com/article/ecrl-not-world%E2%80%99s-costliest-rail-project.
46 See Leslie Lopez, ‘Malaysia's East Coast Rail Line touted as a game changer’, Straits Times, 22 Dec. 2016, https://www.straitstimes.com/asia/se-asia/malaysias-east-coast-rail-line-touted-as-a-game-changer.
47 See ‘China to pour in billions for rail project’, Star, 1 Nov. 2016, https://www.thestar.com.my/news/nation/2016/11/01/china-to-pour-in-billions-for-rail-project-engineeringandconstruction-contract-will-also-be-signed.
48 Wright and Clark, ‘Investigators believe money flowed’.
49 See ‘WSJ: China offered to bail out 1MDB in return for projects’, Malaysiakini, 8 Jan. 2019, https://www.malaysiakini.com/news/459308.
50 See ‘70% of shortlisted subcontractors for ECRL work are Bumiputeras’, Free Malaysia Today, 2 Aug. 2019, https://www.freemalaysiatoday.com/category/nation/2019/08/02/70-of-shortlisted-subcontractors-for-ecrl-work-are-bumiputeras/.
51 Tay, ‘ECRL not world's costliest rail project’.
52 ‘WSJ: China offered to bail out 1MDB in return for projects’.
53 Interview with a very senior member of staff in CCCC Malaysia, Sept. 2017.
54 Chester Tay, ‘EPU in charge of ECRL, not Transport Ministry, Parliament told’, The Edge, 3 Nov. 2016, https://www.theedgemarkets.com/article/epu-charge-ecrl-not-transport-ministry-parliament-told?type=Latest%20News.
55 Off-budget financing refers to government expenditure that is not funded through the budget. MRL, as an SPV set up by MoF Inc., could bypass Parliament and borrow money to build ECRL on the strength of a government sovereign guarantee letter, an issue not reflected in the budget. See Chester Tay, ‘Rafizi: ECRL deal signed with RM2 company formed without Parliament's approval’, The Edge, 7 Nov. 2016, https://www.theedgemarkets.com/article/rafizi-ecrl-deal-signed-rm2-company-formed-without-parliaments-approval.
56 ‘We didn't know China deals were to bail out 1MDB’, Malaysiakini, 8 Jan. 2019, https://www.malaysiakini.com/news/459357.
57 See Yimie Yong, ‘Tony Pua: Govt's previous feasibility study shows ECRL's RM55 billion project cost should be less than RM30 billion’, The Edge, 15 Nov. 2016, https://www.theedgemarkets.com/article/tony-pua-govts-previous-feasibility-study-shows-ecrls-rm55b-project-cost-should-be-less.
58 See Abdul Rahman Dahlan, ‘Minister explains why ECRL will cost RM55 billion’, Malaysiakini, 8 Nov. 2016, https://www.malaysiakini.com/news/362231.
59 Malaysian Investment Development Authority (MIDA), ‘Malaysia Investment Performance Report 2016: Strengthening the Growth Momentum (Kuala Lumpur: MIDA, 2017), https://mida.gov.my/wp-content/uploads/2020/12/20171101140914_MIDA-FINAL20MIPR2016.pdf (last accessed 11 Aug. 2022).
60 ‘RM40b Malacca Gateway to open doors in 2018’, Sun Daily, 7 Feb. 2014, https://www.thesundaily.my/archive/951031-ERARCH240288.
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63 Interview, Oct. 2017.
64 MCA was UMNO's leading partner in the then ruling Barisan coalition.
65 Interview, key UMNO politician at the state level, Oct. 2017.
66 Interview, one of the top three officials, Powerchina Malaysia, Nov. 2017.
67 R.S.N. Murali, ‘Port will cater to maritime industry’, The Star, 20 Oct. 2016, https://www.thestar.com.my/news/nation/2016/10/20/port-will-cater-to-maritime-industry-new-facilities-at-melaka-gateway-will-support-growing-demand-wi/.
68 For example, UEM Sunrise, S P Setia, Sime Darby, IOI, Sunway, Mah Sing, and Eco World were GLCs or leading Malaysian developers that had the relevant expertise and financial capacity to undertake such a project.
69 ‘Chinese premier visits Malacca to send message of peace amid U.S. meddling in South China Sea (3)’, Xinhua, 23 Nov. 2015, http://en.people.cn/n/2015/1123/c90000-8980206-3.html.
70 Ho Wah Foon and Tho Xin Yi, ‘A win-win relationship’, The Star, 3 July 2016, https://www.thestar.com.my/news/nation/2016/07/03/a-winwin-relationship-chinas-onebelt-oneroad-regional-economic-expansion-will-shower-abundant-trade/.
71 ‘Malacca harbour plan raises questions about China's strategic aims’, Straits Times, 14 Nov. 2016, https://www.straitstimes.com/asia/se-asia/malacca-harbour-plan-raises-questions-about-chinas-strategic-aims.
72 Ibid.
73 Ibid.
74 It is beyond the scope of this study to examine the background of mainland Chinese business actors. This is because the definition of Chinese TCEs, as suggested by De Graaff and Van Apeldoorn, ‘US elite power’, primarily focuses on Chinese SOEs and major private firms, rather than individual elites in these enterprises.
75 Ng Kheng Koon and Lim Guanie, ‘Beneath the veneer: The political economy of housing in Iskandar Malaysia, Johor’, Trends in Southeast Asia, TRS no. 12 (Singapore: ISEAS-Yusof Ishak Institute, 2017).
76 In January 2015, Forest City was included in the Comprehensive Development Plan of Iskandar Malaysia.
77 Pooja Thakur Mahrotri and En Han Choong, ‘$100 billion Chinese-made city near Singapore scares the hell out of everybody’, Bloomberg, 21 Nov. 2016, https://www.bloomberg.com/news/features/2016-11-21/-100-billion-chinese-made-city-near-singapore-scares-the-hell-out-of-everybody.
78 ‘Sultan of Johor's business empire’, KiniBiz, 10 June 2014, http://www.kinibiz.com/story/issues/91213/sultan-of-johors-business-empire.html.
79 Interview, key UMNO politician in Johor, Dec. 2017. The Khalid–Daing dispute was not as intense as that between Idris and Ali, as the latter involved control of a state government, which was in turn less severe than the Najib–Muhyiddin feud on issues related to the 1MDB-ECRL project, and also control of the federal government.
80 Nigel Aw, ‘The case of Forest City and the Johor sultan’, Malaysiakini, 14 July 2014, https://www.malaysiakini.com/news/268649.
81 Based on company searches done in February 2018, IWH's major shareholder, Lim, also controlled public-listed Ekovest Berhad, Iskandar Waterfront City Berhad and Knusford Berhad, in partnership with KPRJ or the Johor royal family.
82 ‘Sultan of Johor's business empire’.
83 ‘IWH inks deal with China's Country Garden’, The Edge, 25 Dec. 2012, https://www.theedgemarkets.com/article/iwh-inks-deal-chinas-country-garden.
84 De Graaff and Van Apeldoorn, ‘US–China relations’.
85 Summer Zhen, ‘Country Garden pledges refund for Forest City buyers caught in Beijing's crackdown on capital outflows’, South China Morning Post, 5 Apr. 2017, https://www.scmp.com/business/companies/article/2084744/country-garden-pledges-refund-forest-city-buyers-caught-beijings.
86 Mahathir Mohamad, Letter, ‘Dr. M replies on Forest City issue’, The Star, 17 Jan. 2017, https://www.thestar.com.my/opinion/letters/2017/01/17/make-forest-city-deal-public/.
87 Interview, senior executive staff, Country Garden Malaysia, Dec. 2017.
88 Zhen, ‘Country Garden pledges refund’.
89 Forest City will consist of four man-made islands. Phase 1 entails development of the first reclaimed island, while the other phases include a huge industrial park. In 2019, more than 20,000 residential units were handed over to their buyers; https://www.scmp.com/business/article/3026354/malaysias-forest-city-handover-more-20000-residential-units-year-it). In 2020, Country Garden said sales remained resilient and they had successfully issued three tranches of Islamic Sukuk bonds of RM495 million, with AA3/Stable rating; https://www.freemalaysiatoday.com/category/business/2020/04/21/sales-of-malaysian-projects-remain-resilient-says-chinas-country-garden/.
90 ‘China unveils action plan on Belt and Road Initiative’.
91 ‘Exclusive integrated transport system for Forest City’, New Straits Times, 28 Nov. 2017, https://www.nst.com.my/news/exclusive/2017/11/308593/exclusive-integrated-transport-system-forest-city.
92 Figure obtained from a company search done in February 2018.
93 In 2013, it was reported that the Sultan had sold six plots of land in the state capital Johor Baru to R&F Properties Co. Ltd, another leading private developer from China, for RM4.5 billion. Ng Bei Shan, The Star, ‘China based company buys RM4.5 bill worth of land in Johor Baru’; https://www.thestar.com.my/business/business-news/2013/12/03/rm45bil-land-deal-in-johor-chinabased-guangzhou-rf-buys-47ha-from-royalty/ .
94 Milner, Kerajaan.
95 A transit-oriented development (TOD) is a special type of mixed development that maximises the amount of residential, business, and leisure space within walking distance of public transport. A TOD typically includes a central transit stop, such as a train station, light rail, or bus stop, surrounded by a high-density mixed-use area, with low-density areas spreading out from this centre.
96 Higley and Burton, ‘The elite variable’.
97 Gomez and De Micheaux, ‘Diversity of Southeast Asian capitalisms’.