This article first appeared in The Edge Malaysia Weekly on May 15, 2017 - May 21, 2017

PRIME Minister Datuk Seri Najib Razak arrived in China last Friday to attend the inaugural two-day One Belt One Road (OBOR) Forum that starts on May 14. The forum is probably the most high-profile international event to be held in Beijing after the 2008 Olympics.

OBOR is considered the brainchild of China’s president Xi JinPing but others see it as a task assigned to him by the Communist Party of China, given that the country has emerged as an economic superpower with strong financial resources to pull off the intiative. His predecessors’ responsibilities were to lay the strong economic foundations to turn China into an economic giant.

Since 2013, China has invested US$50 billion in OBOR, according to the official Xinhua News Agency.

Approved funding for OBOR projects from the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund (SRF) totalled RMB11.8 billion (US$ 1.71 billion) and RMB 23.5 billion (USD$ 3.4b), respectively, since 2015, according to Affin Hwang Capital.  As at February, China had built 56 Economic Co-operation Zones (ECZ) in 20 OBOR nations with a cumulative investment of US$ 18.5 billion. Each ECZ is expected to generate an average of 4,500 jobs.

Credit Suisse writes in a research note that China could pour more than US$500 billion into 62 countries over five years. The money could be in the form of financing or investments to help emerging economies build infrastructure developments, mainly railways and ports that lead to mainland China.

That is big money, particularly for developing countries that need funds to kick start infrastructure construction.  Few doubt China’s ability to do so, considering it has more than US$3 trillion in international reserves.

Najib is among 29 government leaders from around the world attending the forum and their attendance signifies their support for the OBOR initiative.

This is Najib’s second official visit to Beijing in less than a year to meet Xi and premier Li Keqiang. During his six-day visit last November, 61 memorandums of understanding were signed.

The East Coast Rail Link (ECRL) was among the highlights. China is offering a RM55 billion soft loan to Malaysia to build the rail track that will link Port Klang and Kuantan Port, and end at Kota Baru. The expensive rail project sparked off fierce debate, considering Malaysia’s gaping budget deficit and swelling national debts.

Back to the forum, many Malaysians would be wondering what the agenda of the meetings between Najib and Xi will be. This could range from the KL-Singapore High Speed Rail, exports of durian to China and waiver of tourist visas for Chinese visitors to the setting up of a naval base along the Straits of Malacca.

The developments that have taken place since the November visit would probably make more Malaysians ponder what will transpire in Beijing.

The most recent event was the abrupt termination of the 60% stake sale in the Bandar Malaysia project to IWH CREC Sdn Bhd, a joint-venture company in which state-owned China Railway Engineering Corp holds 40% equity interest. The deal would have given CREC an effective 16% stake in the massive development of the old air force base in the Kuala Lumpur city centre.

The stake sale was viewed as a government-to-government initiative.

The signing of the share sale agreement was witnessed by Najib and China ambassador to Malaysia Dr Huang Huikang on Dec 31, 2015.

The scuttling of the RM7.4 billion deal early this month sent shockwaves through the investing fraternity.

TRX City Sdn Bhd, the former unit of 1Malaysia Development Bhd (1MDB), said this was due to IWH CREC’s failure to meet payment obligations. However, IWH CREC has disputed the claim.

The joint venture was due to pay RM6.4 billion — a milestone payment that would have made the acquisition unconditional under the share sale agreement. But the deal was called off shortly before it would have turned unconditional.

It is worth noting that Malaysia has decided to put the terminal for the Kuala Lumpur-Singapore High Speed Rail in Bandar Malaysia — an infrastructure project the Chinese government is keen on.

Surprisingly, there has not been much media coverage in China on this matter.

How Xi will react to the aborted deal will set the atmosphere for the meeting between him and Najib. This will definitely have implications on diplomatic ties between the two nations.

The Wall Street Journal Asia had reported that China’s move to tighten capital controls had made it difficult for the joint venture to raise sufficient funds to meet the payment. However, some quarters beg to differ.

Prior to that, there had been news reports that China-based Country Garden Holdings Co Ltd had been asked to shut down its sale galleries across China that were aggressively promoting its Forest City project in southern Johor, barely 2km away from Singapore.

The project is a joint venture between Country Garden (66% equity interest) and Esplanade 88 Sdn Bhd (34%) — a unit of Kumpulan Prasarana Rakyat Johor Sdn Bhd. So far, about 16,000 residential units have been sold in the mammoth development (see Cover Story on Page 68).

China’s imposition of capital controls has raised concerns about possible ripple effects on the Chinese construction firms that have offered Malaysian property developers — which are facing difficulties in getting bank loans — deferred payment schemes for construction work.

Real estate development aside, the growing number of Chinese tourists — 1.755 million in the first 10 months of 2016 — has helped to boost consumer spending in Malaysia. They made up the third largest group of tourists for that period.

The Economic Report 2016/17 states that Chinese tourists contributed 6.5% to Malaysia’s tourist arrival in 2015, spending a total of RM5.7 billion.

Tourist arrivals and expenditure are expected to grow further so long as the Chinese government allows them to visit Malaysia.

Mukhtar Hussain, CEO of HSBC Bank Malaysia Bhd, said in a statement that  by investing in rail, ports and power plants along the centuries-old silk route, China is seeking to stimulate cross-border trade, not just with China’s neighbours, but regions as far afield as Europe, Africa and the Middle East.

The commercial benefits of this initiative are already becoming apparent. In the first nine months of 2016 alone, Chinese companies signed 4,000 engineering contracts under the Belt Road Initiative umbrella with a combined value of nearly US$70 billion, Mukhtar revealed.

How much will Malaysia benefit from the OBOR initiative? That will depend very much on the outcome of the meeting in Beijing.

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