China has become Malaysia’s largest foreign investor following its recent acquisition of the assets of the country’s debt-ridden state-owned investment firm 1Malaysia Development Berhad (1MDB), South China Morning Post reported Tuesday.
While China has been Malaysia’s largest trading partner since 2009, as in several other Southeast Asian states Beijing has been lagging behind when it comes to foreign investment relative to major players like the United States, Japan, and the European Union. In Malaysia’s case, according to data from the Malaysian Investment Development Authority (MIDA), China still ranked below Japan, Singapore, and the United States in terms of newly approved foreign investment in the first nine months of 2015.
But new investments made toward the end of the year may have propelled Beijing to become Malaysia’s largest foreign investor. Specifically, China made two investments tied to 1MDB, which had initially accumulated debts of as much as 42 billion ringgit ($9.5 billion) and had become the focal point of a corruption scandal involving Najib himself (See: “After the Scandal: What’s Next for Malaysia”). China General Nuclear Power Corp, a Chinese state-owned enterprise, paid 9.83 billion ringgit ($2.2 billion) to acquire 1MDB’s Edra Global Energy Berhad last November, while China Railway Construction Corp together with Malaysian Iskandar Waterfront Holdings Berhad (IWH) bought a 60 percent stake in 1MDB’s property project known as Bandar Malaysia for 7.41 billion ringgit ($1.68 billion) in a 40:60 venture. As a result, while official foreign investment figures for 2015 have yet to be released, The Post cited economists as saying that China would “certainly emerge in first place.”
Quite apart from the ranking itself, which is yet to be confirmed, the implications of China’s latest investments are not insignificant. Most directly, the investments have helped significantly ease 1MDB’s debt burden, which had dogged Najib through much of 2015. In his annual New Year’s address to the nation, Najib said that with 1MDB’s debts reduced by approximately 40.4 billion ringgit through such agreements, “1MDB’s major challenges are now behind it.” Yet with China playing such an outsized role in effectively bailing out Malaysia’s premier, some have worried whether this might undermine the independence of the Southeast Asian state’s foreign policy and limit Najib’s ability to get tough on Beijing on other issues, including the South China Sea disputes where Malaysia is a claimant (See: “Malaysia’s South China Sea Policy: Playing It Safe”).
That said, even if official data eventually does show China as being Malaysia’s largest foreign investor, that could just be a 2015 aberration instead of a sustained trend, given the uniqueness of these year-end investments. As The Post notes, it will be difficult for Beijing to sustain the top position since Malaysia’s plan to become a high-income nation by 2020 prioritizes high-value industries, with such investments typically coming from traditional sources like Europe, Japan, Singapore, and the United States.