July 5, 2018 / 12:21 PM / 3 months ago

Malaysia's Mahathir to visit China after putting $20 bln of projects on ice - sources

KUALA LUMPUR, July 5 (Reuters) - Malaysian and Chinese officials are in talks for Prime Minister Mahathir Mohamad to visit Beijing soon, two sources with knowledge of the discussions told Reuters, after Kuala Lumpur suspended China-backed projects worth more than $20 billion.

Mahathir, who came to power in May following a stunning election defeat for then prime minister Najib Razak, is reviewing major projects signed by the former government, saying many of them do not make financial sense for Malaysia.

His trip to Beijing has been provisionally agreed for mid-August, according to one source involved in planning it.

A Malaysian foreign ministry source said both sides had yet to finalise dates, but Mahathir was “looking forward to visiting China”.

The sources spoke on condition of anonymity as they were not authorised to talk to the media on the subject.

A spokesman for Mahathir did not comment.

China’s Foreign Ministry did not immediately respond to a faxed request for comment.

Najib courted billions of dollars of Chinese investment and was one of Southeast Asia’s most enthusiastic supporters of President Xi Jinping’s signature Belt and Road Initiative.

Arrested this week on charges of corruption, Najib pleaded not guilty and was freed on bail on Wednesday.

Reuters on Thursday reported authorities were investigating whether his administration made use of Chinese funds for two pipeline projects to pay the dues of scandal-ridden state fund 1Malaysia Development Berhad (1MDB).

Mahathir has been highly critical of the benefits of certain Chinese projects in Malaysia. Since taking office, he has vowed to renegotiate terms even as construction work continued.

But in a surprise move this week, the finance ministry, under Mahathir’s orders, called a halt to work on three projects: the $20-billion East Coast Railway Link (ECRL) and two pipeline projects worth $2.3 billion.

The 688-km (428-mile) ECRL will connect the South China Sea off the east coast of peninsular Malaysia with the strategic shipping routes of the Straits of Malacca to the west.

The other two projects are a petroleum pipeline stretching 600 km (373 miles) along the west coast of peninsular Malaysia and a 662-km (411-mile) gas pipeline in Sabah, the Malaysian state on the island of Borneo.

Chinese state-owned firms are involved in all three projects.

“The decisions are solely directed towards the related contractors, relating to the provisions mentioned in the agreements, and not at any particular country,” the finance ministry said in a statement on Thursday.

“DO NOT WANT TO BE INDEBTED TO CHINA”

Calling the halt was part of a negotiation strategy ahead of high-level government talks, said two other sources familiar with the government’s thinking, since the Belt and Road status of the ECRL makes a successful outcome critical for the Chinese.

“It’s sending a message to the Chinese,” said one of the sources, a senior finance ministry official. “They don’t want a failure to taint their name.”

Malaysia’s Finance Minister Lim Guan Eng has said Najib’s government understated the true cost of the ECRL, which was 50 percent higher, at $20 billion, than the earlier estimate.

Organised before his election victory, Mahathir’s first overseas visit as prime minister, to Japan last month, was nonetheless seen as a signal he would look beyond China for key foreign investment.

“We will be friendly with China, but we do not want to be indebted to China,” he said in Tokyo. (Reporting by Philip Wen and Rozanna Latiff; Additional reporting by Ben Blanchard in Beijing and Joseph Sipalan in Kuala Lumpur Editing by A. Ananthalakshmi and Clarence Fernandez)

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