Will Malaysia’s Upcoming Election Put Chinese Investments at Risk?

Recent Features


Will Malaysia’s Upcoming Election Put Chinese Investments at Risk?

How much do Chinese investors need to worry about Malaysia’s next election?

Will Malaysia’s Upcoming Election Put Chinese Investments at Risk?
Credit: Flickr/ Firdaus Latif

Malaysia is running at full speed toward its upcoming election. There is no fixed voting date, but scholars and Malaysian watchers believe the prime minister will announce the date soon and that the general election will be held no later than June.

For Malaysian citizens, what really matters is whether, after the return of Mahathir, the 92-year-old former prime minister, the opposition really has a chance to win. For China, what matters is whether a possible change in Malaysia’s central leadership will impact China’s interests in Malaysia.

It’s not an overstatement to claim this year’s election is a signpost for Malaysia’s democratic development. This year is worth watching for several reasons. First, Najib Razak, the current prime minister, took office in early 2009 and has since been embroiled in the ever-deepening 1MDB scandal. The prime minister is accused of channeling a total about $700 million into his accounts from 1MDB, the state-owned sovereignty fund. Though Najib denied all the alleged misdeeds, the Wall Street Journal provided a comprehensive picture showing how the money flowed into Najib’s account.

The severity of the case tests the degree of tolerance of Malaysian voters. If the majority of parliament seats still go to the prime minister’s party, the United Malays National Organization (UMNO), and the ruling coalition, Najib will stay in power for five more years, and the case of 1MDB will remain unclear. That would suggest a sobering reality that even though many voters do recognize that corruption is a problem and that the scandal is hurting Najib and the country, most of them ultimately still believe they should stick with the ruling party.

Given that UMNO has stayed in power since the country’s independence, the level of cronyism, the control over media and so on, Malaysia is categorized by some political scientists as “semi-democracy.” If this year’s election cannot sway the popularity of UMNO, it is likely that Malaysia will slide into outright authoritarianism in the future. With Malaysia’s so-called “3M politics” (money, media, government machinery), the ruling status of UMNO is quite safe.

Second, the return of Mahathir brings more uncertainty to the election results.  Few would imagine a 92-year-old would stand as a candidate. Indeed, the presence of Mahathir in the election per se is a miracle to all Malaysia watchers. After almost a decade-long standoff with the current Prime Minister Najib Razak, Mahathir officially quit the UMNO, set up his own political party in 2016 (Parti Pribumi Bersatu Malaysia, or PPBM), and became the candidate of the opposition to run for office earlier this year.  

There are a few cards to play in Mahathir’s hand. Nationalism is one of them, and this is where Chinese investment is most vulnerable. In past years, Najib has established a closer relationship with Chinese companies such as Alibaba and Huawei and has been proactively pursuing Chinese investment to increase his credit regarding economic performance. But Mahathir has criticized this move and said it is like selling the country’s sovereignty to China, even though it is not quite clear what he would have done in Najib’s place given Beijing’s growing influence in the region.

It is worth pointing out, however, that the possibility of Mahathir becoming prime minister again is slim. Apart from the analysis above, people in Malaysia do not forget what Mahathir did when he was in power. The rule of law was undermined, human rights were violated, and the freedom of speech was limited during his term. The track record makes his promise of bringing back the freedom to Malaysia less credible. With neither of the two campaigns ideal, people are considering casting spoilt ballots on election day.

The fatigue of street protest against corruption also suggests a lack of enthusiasm in investing more into toppling the regime. Recent demonstrations have attracted fewer participants than expected. What lies behind some of the fatigue is no doubt the lack of belief that the next general election will change the country’s political map in a significant way.

My prediction on the election is that the ruling coalition have a high margin in the election, and Malaysia’s political risk will remain at the same level for Chinese investors, controlling for other factors.

But even if the opposition toppled the current regime, the situation would not change much in the long run for Chinese investors. In the immediate future after the election, we should expect certain moves to curtail or restrain Chinese investment, which would be aimed at fulfilling the promises the opposition has made during the campaign, especially in certain states such as Johor and Penang, and certain industries relating to Najib.  In the long term, however, this won’t last long.

China has become Malaysia’s largest bilateral trade partner since 2008. And Malaysia maintains China’s largest bilateral trade partner among all ASEAN countries except for 2016. There is simply too much at stake for Malaysia to fail.

Plus, it is not unusual to see a successful candidate to break his promise after consolidating power. For Mahathir in particular, the situation is more complicated. Mahathir is not a fan of democracy, and he often criticized the United States when he was in power even though the country continued pursuing collaboration with Washington on some areas such as defense. He is one of the leading figures in Asia to promote “Asian Values,” which are seen to be closer to China than to the United States on the ideological spectrum.

He has praised China’s economic miracle on multiple occasions, so he would as well welcome Chinese investment if it can bring to Malaysia opportunities to further development, and just like Najib, to translate the effect of Chinese investment into his performance-based legitimacy whenever possible.

In the end, Chinese investors need not worry too much about Malaysia’s upcoming election. However, Chinese investors and companies should not ignore establishing and maintaining connection with the opposition in order to reduce their own risks in the future.

Qianye Zhang is studying MPA in International Development at Harvard Kennedy School. Prior to Harvard, she worked in Malaysia as a political consultant between 2014 and 2016, and was a political reporter in Hong Kong from 2011 to 2014. She holds a master degree in journalism from HKU, and a dual bachelor degree in international politics and economics from PKU. Her research interests include political economy, economic development, ASEAN and Malaysia studies.