First published in The Edge by Wan Saiful Wan Jan on 28 March 2017
Two years ago Columbia University’s Professor of Political Science Andrew Nathan published a paper in which he noted that analysts from all over are now asking “the extent to which China, as its power grows, will seek to remake the world in its authoritarian image.” This is in response to President Xi Jinping’s active flexing of China’s muscles as a major world power.
Many have tried to answer this question. Being an undemocratic country ruled by authoritarian communists, it is understandable that China’s global expansion attracts great interest. We have grown accustomed to world powers being democracies and market advocates. China is a new phenomenon.
In Malaysia and many other countries across ASEAN, China’s increasing reach has become more visible to the extent that only fools would pretend that it is still business as usual.
It is certainly not business as usual. For decades economic relationships and investments have been bundled up with the promotion of liberal democracy and the liberalisation of trade. But China being an undemocratic country may be less concerned with good governance, let alone democratisation. As countries become less dependent on Western sources of funds, will they also feel less pressure to pursue integrity and rule of law?
We are already seeing semblance of this new normal in Malaysia. Let me give just one example.
The East Coast Rail Line (ECRL) is being sold to us as a game changer. We have been told that RM 55 billion is being “invested” into this project and that it will greatly benefit everyone in the country.
But this picture is a great simplification of the story. The ECRL is actually being funded by a loan from China’s state-owned enterprise EXIM Bank to a special purpose vehicle (SPV) called Malaysia Rail Link Sdn Bhd, guaranteed by the Malaysian government. We do not have to pay back the loan in the first seven years, but after that we will have to settle it within 20 years.
It does not matter whether the ECRL is profitable or not. We still have to pay back the loan. The risk and the liability is completely on the shoulders of Malaysian taxpayers and zero on China.
The deal is very good for China. It came with the understanding that the Malaysian government will contract out the job to another Chinese state-owned enterprise, the China Communication Construction Company (CCCC). There are conditions that they must subcontract to local firms but they remain as the tier one contractor.
That means we borrowed money from China in order to pay a Chinese company to do the job, and, after seven years we still need to pay back the loan plus interest, again, to China. Not only does China get back their money now in the form of payment for work done by CCCC, they will get more money from us when we repay the loan.
The contract was given to CCCC through direct negotiation, without any open tender. This is despite the fact that we have local companies who have delivered rail projects before. That is a clear sign that good governance is already on the wane. But, even if we really want to forego open tender, wouldn’t it be better to give the project to a local company?
The profitability of the project has also been questioned. The forecast is that the ECRL will carry 58 million tonnes in 2035 and that would make it financially feasible. This is amazing because even the KTM now carries only 6 million tonnes of cargo per year. If we do not reach this astonishing increase in cargo tonnage, will the project still be financially feasible or will taxpayers have to pay a huge subsidy for ECRL? For transparency purposes, will all the details be released to the public?
Having said the above, it is not my intention to focus on ECRL. Unfortunately my limited column space restricts me to giving just one example. I am fully aware this creates the false impression that I am focused on just ECRL. I am not.
My focus is on the neglect of good governance and transparency that has arrived with China’s money. This is what worries me because the authoritarian Chinese regime is unlikely to tie their money with a rules-based competitive economic system, and the above is just one example that we already see today. They clearly did not say “take this loan, and call for an open international tender including from China so that Malaysian taxpayers are guaranteed best value for money.”
Back in 2011, Evelyn Goh wrote a working paper for Singapore’s Rajaratnam School of International Studies. Contrary to the usual coupling of economic growth with political freedom, she wrote that there is an “alternative path of maintaining a capitalist economy without concomitant political liberalisation”. She added that now “others look to China as an important model for authoritarian capitalism.”
Authoritarian capitalism is a scary prospect. The creation of economic wealth, and the distribution of that wealth to the population as a tool to pacify the electorates and to strengthen one party rule, of course at the expense of political competition. I don’t think we want that even if it is deployed in neighbouring countries.
As we welcome China’s money into the country, we should also carefully study the possible implications.