Diplomatic relations between PRC and Malaysia were formed on May 31, 1974 where Malaysian Prime Minister Tun Abdul Razak visited PRC signed an agreement, the Malaysia- People’s Republic of PRC-Diplomatic Relations with Prime Minister Zhou Enlai. After the establishment of the diplomatic relations, bilateral relations between the two countries have developed smoothly and rapidly. In 1985, the Agreement to Avoid Double Taxation was signed. In 1988, the Shipping Agreement, Trade Agreement, Protection Agreement, Trade and Aviation Services Agreement were signed. The PRC-Malaysia Economic and Trade Committee is also set up.
In May 1999, Malaysian Foreign Minister Datuk Seri Syed Hamid Albar visited PRC and signed a joint statement on PRC-Malaysia bilateral cooperation with PRC’s Foreign Minister Tang Jiaxuan. In 2000, Bank PRC and the Malaysian Bank established branches in each other. In April 2002, the PRC-Malaysia Business Council was established. In October. 2002, the People’s Bank of PRC and Bank Negara Malaysia signed a Bilateral Currency Exchange Agreement (BSA). Malaysia is PRC’s second largest trading partner in ASEAN.
In recent years, Malaysia has been increasingly trying to attract investment from PRC. The Malaysian government has also introduced many preferential policies to encourage large Chinese companies capable of investing and seeking profits in Malaysia. In recent years, the issue of Foreign Direct Investment (FDI) has become increasingly popular among critics especially when it comes to China by assuming that FDI from China is a form of new forms of colonization so that the Great Wall can become world powers. On the one hand, the assumptions about China wanting to be the new power is indeed acceptable. China publicly discloses the One Belt, One Road initiative to form a massive trade and investment regime not only in Malaysia but also around the world including Europe. According to the Department of Statistics Malaysia (DOSM), FDI is an investment in the form of financial instruments such as equity (reins), reinvested earning and other capital commitments issued by foreign national investors to local direct investment companies. The foreign company must have at least 10 percent of the local holdings of local companies to be classified as foreign direct investors. Malaysia is a country dependent on FDI for development, so the government makes various policies to ensure that foreign investors are keen to invest here. The benefits of FDI are to strengthen the national currency. This is because foreign invested companies use Malaysia currency to invest here. So, when the currencies are stable and stable, the inflation rate can be controlled and reduced. For the people, the FDI can offer job opportunities in the industrial sector that requires skilled and semi-skilled workers, so the unemployment rate is low. In order to ensure that the project is invested to meet the expected duration and quality, technology transfer and foreign expertise will surely occur. It has opened up opportunities for local children to improve their knowledge and experience with foreign companies. So it ensures that FDI flows rapidly so the government has to spend big money to build international infrastructure such as KLIA, KLIA2, ECRL, MRT and so on. Malaysia also has a system that facilitates loan approval. So this makes it easier for foreign investors to manage investments. All government efforts to ensure the attractiveness of the FDI is recognized by the World Economic Forum (WEF) when in the Global Competitiveness Report 2017-2018 ranked Malaysia as the 23rd most competitive nation. We are just behind Singapore alone among ASEAN countries. The investment value of China is based on 2016 alone, Malaysia recorded a history when it signed 14 agreements worth RM144 billion. But according to The Edge Market, from 2008 to 2015, the investment count from China in the average is only around 0.34% FDI. From 2005 to 2016, Malaysia is the 11th largest recipient of China’s total investment of US $ 17.23 billion and the largest in Southeast Asia. Malaysia cannot cancel the investment agreement that has been entered into with PRC but Malaysia can review agreements to mitigate the negative impacts and violations of national sovereignty. Malaysia cannot cancel the investment agreement that has been signed with PRC but Malaysia can review agreements to mitigate negative impacts and violation of state sovereignty. PRC’s Foreign Direct Investment (FDI) to Malaysia includes some of the sealed agreements, involving ownership agreements in real estate, settlements and cities encompassing the signing of the Forest City development agreement at a cost of RM175billion, RM55 billion of the East Coast Railway (ECRL) construction and the Kuala Lumpur Speedway -Singapura (HSR) amounted to RM60billion as well as risking the sovereignty of the SCS (SCS) and the Straits of Malacca with the construction of the RM43 billion Melaka Port Complex.However, Tun Dr Mahathir Mohamad has questioned about the type of FDI from PRC to Malaysia as a major threat to Malaysia in terms of bilateral trade and national sovereignty. If Malaysia gives priority to local investors in economic activity then there is no claim that PRC’s investment will compete with local investors. Malaysia in trade agreements with any country in the world, is very sensitive and careful to choose the foreign investment and the type of business to be approved by the government beforehand. At that time many foreign investors are racing to invest in Malaysia as the economy is growing rapidly and the nation is aware of its long-term interests. Adding confidence to the Malaysian government which began to decline when major crises such as 1MDB and SRC International were factor-factor making many investors less interested in investing in Malaysia. The Malaysian government is desperate to seek investment and loans from PRC for economic recovery and debts that have to be borne by the country, so PRC has the privilege and flexibility that has never been given to any previous world trade country by Malaysia. PRC’s economic development over the last two decades has prompted PRC to broaden its political, economic and military influence in particular Malaysia and ASEAN in general. PRC’s indebtedness or investing is not a major problem for a country that practices capitalist policy. Malaysia’s strategic position on the SCS and the Straits of Melaka further pushed PRC to expand its military and economic power in the Asian region. PRC is in the midst of transforming the littoral navy into the blue ocean navy to bring PRC’s interest in the SCS and the Straits of Malacca. From its observations with the country’s control over the two major maritime routes in Malaysia, it is in an attempt to control the SCS and the Straits of Malacca to the Pacific Ocean to protect the supply pipelines on the SCS and the Indian Ocean PRC is building deep-sea ports in Kuantan with the establishment of ECRL where submarines and Chinese warships will come from Hainan directly to Kuantan Port. Kuantan will be used for ‘staging point’ and for patrols in the SCS.If there is a port in Malacca, there is the narrowest Malacca Strait between Malacca and Rupat Island near Dumai Central Sumatra. In the wake of the global crisis, PRC easily restricted the route in the Straits of Malacca. Under the administration of President Xi Jinping, One Belt One Road (OBOR) is a China agenda to re-broaden its influence as a new economic power and trade. A total of US $ 150 billion was invested and involved 68 countries. OBOR has two routes ie; Silk Road Economic Belt and sea route (Maritime Silk Road 21st Century). This route will involve Europe, Africa, the Arab countries and Southeast Asia. Of course, Malaysia is involved. Most of China’s investment type is developed in Malaysia is a mega-level infrastructure project. Among the notable are the East Coast Railways (ECRL). This project will link the west coast of the peninsula and east along the 688km. ECRL is expected to shorten the journey to about 4 hours compared to normal travel time of 8 to 12 hours. In addition to ECRL, some of China’s strategic investment and projects in Malaysia:1. Malaysia-China Kuantan Industrial Park (MCKIP).2. Development at Tun Razak Exchange.3. City of Forest City in Johor.4. The existence of the Digital Free Trade Zone (DFTZ).5. Singapore High Speed Rail.6. Construction of the Malacca Gateway harbor.7. Construction of port on Carey Island, Selangor.8. Construction of energy port in Bagan Datoh, Perak.9. Opening of Malaysia’s Xiamen University campus in Sepang.10. Proton’s purchase of Proton by Zhejiang Geely Holding Group Co Ltd from China as much as 49.9% holdings. PRC’s investment is seen as something that needs to be monitored based on Malaysia’s own internal situation today. What has been said is about Malaysia’s growing debt position.Based on Malaysia’s involvement in taking soft loan funds from PRC has added more debt burden to the country as the country should pay interest to them. This situation will increase the flow of money abroad. In addition, the number of projects from PRC and its cost is large and high. In fact most projects involve misleading agreements on the status of the project whether in the form of investments or loans as in the ECRL issue.This is because, if the government has to repay the said fund which is funded by the PRC Export-Import Bank (EXIM), then it is a loan contract. It will also involve issues of national sovereignty if it is unable to repay the loan in the future. Concerns are still ongoing for the Forest City project when land and houses in the area are reported to be sold to interested foreign buyers. More critical is that the purchase of real estate by foreigners will be easy with tax exemption. At this point, the world knows about the 1MDB scandals that occur on Malaysia. What is to be considered is the action of a Chinese step that might take advantage of the problems facing the country now.In 2015, China’s General Nuclear Power was reported to have bought Edra Global Energy a nickel1MDB’s power. Soon, Iskandar Waterfront Holdings and the China Railway Engineering Corp. Pula has agreed to buy 60% stake in the Bandar Malaysia project which is a subsidiary under 1MDB. Based on PRC’s “good-heartedness” this has been able to ease the burden of Malaysia’s financial burden by 1MDB but it is to be feared as a form of ‘debt trap’ diplomacy.This has happened in some countries like Sri Lanka which had to hand over Hambantota Harbor to China after failing to pay off debt. African countries such as Kenya will also face the threat of losing Mombasa Port which is China’s gateway to East Africa in the near future. While in Djibouti as a poor country which has been granted billions of loans from China, it is certainly a difficult opportunity to be released to ease the economic burden of the country. Unfortunately, Djibouti is not a wise country to manage the country’s administration and economy and fears that China’s geopolitical interests will be dominated by China and the latest when China opens its first army base in Djibouti. Other countries that have received similar fate are like Argentina, Namibia and Laos. Unlike the International Monetary Fund (IMF) and the World Bank, debt from PRC is in the form of long-term collateral and involves a strategic natural asset. This is because OBOR is also a way in which PRC ensures the continued supply of energy for the country to continue to grow rapidly enabling the country as world power and the world’s largest producer. The evolution of PRC’s economic strategy and how it has garnered massive income and project the nation as an economic giant with the capacity to wire their financial resources to other nations as a means of investment, especially countries in South East Asia. Based on the discussions as mentioned above, it is clearly seen as to why Malaysia had not taken a strong stand against the Nine-Dash Line agenda and has been constantly making soft and almost negligible comments against PRC. The debt that this nation has with the economic giant is supressing the voice of the concerned citizen and this is fuelling the ego of PRC to continue to implement their proclamation and thus expanding their strategic ground over SCS. Despite the rising security and economic threat that this proclamation will bring over Malaysia, this nation has little choice but to continue to play the safe card until some other bigger power step in to help mitigate Malaysia’s debt towards PRC and return the voice to oppose the economic giant.