Updated at 4:45 ET on 2018-08-21
Prime Minister Mahathir Mohamad confirmed to Chinese leaders that he is canceling China-backed multi-billion dollar rail link and gas pipeline projects because Malaysia cannot afford and does not need them now, he told reporters on the final day of a five-day visit to Beijing.
Since taking office after his Pakatan Harapan alliance defeated former Prime Minister Najib Razak’s Barisan Nasional coalition in the May general election, Mahathir said his government had inherited a 1 trillion ringgit (U.S. $244 billion) debt.
Mahathir, who returned to Malaysia on Tuesday, said Chinese officials understood his predicament, but he added that shutting down the East Coast Railway Link (ECRL) and the pipelines would not free his country from incurred costs.
“With that debt, if we are not careful we can become bankrupt,” he said in a video interview posted on the Malaysiakini news site. “This is the work of Najib.”
“China is the contractor and they lent the money and we have explained to them that we cannot afford it and we must find a way to exit this project at the lowest cost possible,” Mahathir said.
He added that Malaysia would “have to pay compensation and all that, but this is our own people’s stupidity, we cannot blame the Chinese for that.”
“I don’t think China wants us to be bankrupt,” the Malaysian state news service Bernama quoted the prime minister as saying.
“The projects [will] not go on. Our priority is reducing our debt. For the moment, they are deferred until we can afford," Mahathir said. When asked by journalists, he clarified stating, "Yes, they are cancelled at the moment."
Last month, Malaysian Finance Minister Lim Guan Eng announced that the government had halted the pipeline projects.
He partly justified the move by saying that the China Petroleum Pipeline Bureau, the Chinese state firm awarded with contracts in November 2016, had been paid 85 percent of the project’s value despite completing only 13 percent of the work.
Meanwhile, The Star newspaper reported last week that the government had paid 19.68 billion ringgit ($4.8 billion) for the ECRL project and about 15 percent of the work had been completed.
In August 2017, Najib hailed ECRL as a game changer for Malaysia, stating that the 688-km (430-mile) project spanning the states of Selangor, Pahang, Terengganu and Kelantan, was to be completed in 2024 at a cost of $13 billion and backed mostly by loans from China.
In July, Eng noted that the cost of the project had increased by 26 billion ringgit (U.S. $6.4 billion) to 81 billion ringgit ($20 billion).
Malaysia’s new government backs Belt, Road Initiative
Before Mahathir left China, the two nations issued a joint statement that included Malaysia’s support for and participation in the Chinese Belt and Road Initiative and plans for a program focusing on economic and trade cooperation through 2022.
The initiative is a grand strategy by Beijing to build a vast network of roads, railway lines and ports in South and South Asia that will allow China to trade more easily with European countries via the Indian Ocean and Central Asia.
Chinese Prime Minister Li Keqiang, who met with Mahathir, said both countries believed in the need to advocate free trade and promote globalization.
Answering a question regarding the prospect of a trade war with the United States, Li stressed that “in trade wars there will be no winners.”
“The whole world is an industrial chain that is interconnected. If there are trade frictions in some areas, people will look for other alternatives,” Li said.
Smiling at Li’s remarks, Mahathir said “free trade is the way to go, but free trade must also be fair trade.
“We must always remember that development levels of countries are not always the same,” he said.
Meanwhile, Oh Ei Sun, a senior adviser for international affairs at the Asian Strategy and Leadership Institute, said Malaysia remained important to China.
“Malaysia is strategically located at the crossroads of east and west and is thus crucial for the viability of Belt and Road Initiative,” said Oh, adding that the country was one of the more important open economies in the world.
“In this increasingly protectionist world, it is important for China to ally itself with more such economies.”