Speech by Dr. Ong Kian Ming, Deputy Minister for International Trade and Industry (MITI) on the 16th of April, 2019
- When President Xi Jinping first espoused the One Belt One Road (OBOR – 一带一路) policy in 2013 (later renamed as the Belt and Road Initiative or BRI in English), it generated a great deal of public interest and excitement outside of China. There were three reasons behind this public interest, especially among countries in Asia.
2. Firstly, it tapped into a desire among Asian countries to develop economically in a manner similar to China, on the back of significant infrastructure development in highways, railways, airports, ports and other public infrastructure. China’s potential involvement in partly funding some of these infrastructure projects stirred excitement among many Asian countries which required heavy infrastructure development. These infrastructure developments are estimated to be in the trillions over the next decade.
3. Secondly, many Asian countries were excited at the prospect of enjoying the ancillary benefits from this policy. The will not only benefit from the infrastructure development. They would also enjoy positive spillover effects such as industrial development, the attraction of Foreign Direct Investments (FDIs), and tourist traffic from China.
4. Thirdly, this was the most recent and significant policy announcement from China, in terms of its engagement strategy with the rest of Asia. While China has long been the largest trading partner for many countries along the Silk Road as well as the Maritime Silk Road, the BRI was a comprehensive engagement policy covering not just trade and investment, but also people to people, education and cultural exchanges. Given the scope and potential of this policy, it was no surprise that many Asian countries projected their own aspirations onto the BRI.
5. At the same time, many Chinese companies also looked to the BRI as a strategic opportunity. For the state owned enterprises (SOEs), especially those involved in the infrastructure business, this was a great opportunity to export excess capacity and to expand their global footprint via BRI projects. For the private companies, this was a good opportunity to seek out investment opportunities abroad, besides using the BRI as a way to work around the strict capital control regime in China. The BRI also presented opportunities for Chinese companies, both public and private, to form joint ventures with local companies in BRI countries to carry out BRI projects.
6. Many of the ideas and initiatives under the BRI were spelled out in the inaugural Belt and Road Forum in May 2017 in President Xi’s speech as well as in the official communique signed by the leaders of the participating countries. In President Xi’s speech, the five pillars of the BRI – policy coordination, infrastructure connectivity, facilitating trade & investment, enhancing financial integration and increasing cultural exchanges – were announced. In the official communique, cooperation objectives, principles and measures were also announced.
7. Now, in April 2019, what can we expect from the 2nd Belt and Road Forum which will take place on the 25th and 26th of April in Beijing? What are some of the policy adjustments and refinements which will be announced? What are the expectations and opportunities for Malaysia in terms of our strategic benefits from BRI projects and initiatives? These are important questions for us to think and strategize on as part of our larger engagement strategy with China.
8. I want to highlight three areas of importance to Malaysia in terms of our strategic participation in the 2nd Belt and Road Forum and more importantly, in BRI related projects and initiatives which are ongoing and which will take place in the future. These three areas are: (i) Expectations of policy adjustments and refinements vis-à-vis the BRI (ii) Specific areas of strategic cooperation and interest for Malaysia (iii) Challenges in the execution and implementation of BRI related projects and initiatives.
9. Firstly, the expected policy adjustment and refinements. It cannot be denied that the massive deployment of capital and resources to fund and build the infrastructure, mostly in the power and transportation sectors, in BRI countries has been unparalleled. This is especially in terms of the speed of execution. When all is said and done, BRI projects would easily surpass the Marshall Project in terms of the value of completed infrastructure. At the same time, it also cannot be denied that some projects in some countries have received local backlash and global scrutiny. Port, airport and railway projects have been built at what some say to be inflated prices which ended up affecting its financial sustainability. The financial burden laden on these governments as a result of certain BRI projects has also been highlighted. These projects, including some in Malaysia, have been put in the spotlight by the international media to paint a broad-brush impression on the viability and sustainability of the BRI.
10. In some ways, the ‘growing pains’ associated with BRI were NOT unexpected. Many of the large Chinese state-owned enterprises (SOEs) involved in the construction and infrastructure sector were venturing out of China and into countries in Asia, Europe and Africa for the very first time. Many of the recipient BRI countries were also dealing with the SOEs and the Chinese funding institutions such as the Construction Bank of China and the EXIM Bank of China, for the very first time. Given the cultural differences as well as the lack of experience and exposure on all sides, it is not surprising that the terms and conditions of some of the projects were not fully understood and appreciated by the Chinese companies, as well as the governments which signed these agreements.
11. This is why policy adjustments and refinements from a transparency and financing standpoint should be on the important areas of focus in the upcoming BRF. This will be important for all the parties involved in BRI projects. For China, having more transparent standards will minimize the risk of a local backlash if any of the projects run into financial challenges. For the Chinese companies, better standards will allow them greater certainty in terms of project financing. For the participating governments, it will put in place better mechanisms to ascertain the financial sustainability and the cost-benefit of such infrastructure projects.
12. Recognizing the importance of transparency is not something new to the BRI. Indeed, one of the cooperation principles outlined in the 2017 BRF communique stated the following with regard to market based operations:
“Recognizing the role of the market and that of business as key players, while ensuring that the government performs its proper role and highlighting the importance of open, transparent, and non-discriminatory procurement procedures.”
13. It would be a step in the right direction if some of the initiatives which were announced and discussed at the 2017 BRF and at subsequent events could be more fully fleshed out and given due attention in the 2019 BRF. Some examples include the “Guiding Principles of Financing the Development of the Belt and Road”, which Malaysia was a co-sponsor country, and expanding the “Initiative of a Silk Road to Integrity / Clean Silk Road” to involve more countries.
14. Using and enhancing existing funding guidelines that are already being followed by multilateral funding institutions, such as the Asia Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB), would also increase confidence in the funding of BRI projects.
15. Co-funding models for infrastructure projects should also be explored. One such model is the funding of highway projects within the China Pakistan Economic Corridor (CPEC), whereby the Pakistani portion of the Gojra-Shorkot motorway was funded by ADB and DFID, the UK development agency, and the Chinese portion of the highway was funded by China.
16. A joint venture model of operations such as the renegotiated contract between Malaysia and the China Communications Construction Company (CCCC), which is the main contractor for the East Coast Rail Link (ECRL) project should also be an option for certain projects so that the Chinese contractor is not merely a turnkey contractor. Rather, the long term financial sustainability of these projects should be part of the economic calculations.
17. Early signals indicate that China is in the process of drafting guidelines for BRI projects. Whether or not this would include the naming of all BRI related projects, for those in the public and / or the private sector remains to be seen.
18. The second area of importance which I want to touch on is the strategic areas of focus for Malaysia within the context of the BRI. Since the specific details of these areas are still being finalized, I will only describe them in more general terms.
19. An example of a strategic area of focus is food safety. The safety of food products is very important to Chinese consumers. Given the popularity of Malaysia’s Food and Beverage products among Chinese consumers, it is only natural that we would want to capitalize on this advantage so that more Malaysian made F&B products can find their way into the Chinese market. This would include attracting F&B players from China to set up their operations in Malaysia to export their products back to China and also to other countries.
20. Another example of strategic areas of possible cooperation is in the R&D and high tech sectors. There already exists clusters of innovation and manufacturing excellence in places such as Shenzhen and also the Greater Bay Area (GBA), which encompasses Hong Kong. Strategic partnerships can be formed between regions in Malaysia and China in order to grow start-ups and innovation exchanges as well as encourage the continued development of high technology hubs in both countries.
21. Another attractive area of focus is the capitalisation of Malaysia’s strategic location to expand and enhance our logistics connectivity with China via our ports and airports . Malaysia already has cultural capital and connections with provinces such as Fujian and Guangxi, which aim to enhance connectivity with ASEAN countries. Guangxi has been designated as China’s gateway to ASEAN as part of a national strategy to grow and develop this province. Besides this, Guangxi is also part of China’s Southern Transport Corridor. Malaysia needs to leverage on this in order to increase our logistics connectivity with Southern China and other cities which are part of this corridor.
22. On the research front, Malaysia can also capitalize on the local interest in BRI-related activities and the possible linkages between Malaysian and Chinese universities to delve into BRI-related research activities. Some universities such as UTAR have already set up their own Belt and Road Research Center, while Universiti Malaya (UM) has the Institute of China Studies (ICS) which also looks into BRI related research. Other universities including the University of Nottingham Malaysia, Monash University Malaysia and Xiamen University Malaysia have started Belt and Road-related research activities with partners from China and around the region. These research efforts can be coordinated in order to give Malaysian-based universities greater prominence in the BRI research landscape.
23. On the dispute resolution front, Malaysia can also propose the Asian International Arbitration Center (AIAC) as one of the dispute resolution centers for BRI-related projects. Even though the expectation is that a larger proportion of BRI projects will be implemented without the need for legal arbitration, it is inevitable that disagreements between stakeholders in these projects will arise from time to time. The AIAC can be positioned as a possible arbitration option, especially for projects which take place outside Malaysia.
24. These are but a few examples of strategic areas of focus for Malaysia under the BRI. This is NOT an exclusive list. Some of them can be proposed and raised as intervention points by Prime Minister Tun Mahathir during the Leaders’ Roundtable which will be chaired by President Xi Jinping. Others can be brought up by our Ministers and the Special Envoy to China during the thematic forums on Policy, Trade and Infrastructure Connectivity, the Green Silk Road and on People-to-People bonds.
25. These strategic areas of focus can also be carried forward to other BRI-related meetings that will take place at other forums involving senior officials and ministers from BRI countries.
26. The third and final strategic area of focus is with regard to the implementation and execution strategy. While the BRF 2019 is an important platform to set the larger strategic objectives of the BRI, the reality is that each country has to work strategically with China and the relevant multilateral institutions in order to get ‘the best’ out of the BRI.
27. This involves the establishment of joint councils between the two countries working at various levels of government – at the national, provincial / state as well as at the city level. These joint councils build trust and ties over the long run and increases the likelihood that the strategic areas of focus can be seen as win-win strategies for both countries. This will also increase the likelihood of implementation of such policies.
28. Malaysia can and should pay more attention to the strategic initiatives and joint councils established by Singapore with their Chinese counterparts. In certain instances, such as the Southern Transport Corridor, Malaysia can leverage and benefit from the doors which have been opened by the Singapore government and Singaporean companies.
29. Strategic execution and implementation will be a long term engagement strategy on the part of Malaysia in order to achieve our national objectives moving forward. For a large and complex country such as China, it is imperative for Malaysian government to play a major coordination role so that GLCs and other Local Large Companies (LLCs) can find strategic business opportunities. For example, how do we position Malaysian construction and infrastructure companies to partner with Chinese companies to undertake BRI projects in countries outside Malaysia? How do we involve Malaysian service providers in these projects? With the entry of the larger companies, Malaysian SMEs including service providers can follow suit and be part of the larger value chain.
30. There is much to be excited about with regard to the economic opportunities presented by BRI for all the parties and stakeholders involved. We can all play a pro-active and productive role in building the ‘Community of Common Destiny” as envisioned by President Xi Jinping. This vision of a shared prosperity in the context of multilateral cooperation is more important now than ever, given the uncertainties surrounding the global economy and existing pushback against multilateralism.
Thank you and have a productive deliberation today.
 For this initiative, Laos and China declared the China-Lao railway construction will apply standards on anti-corruption and contribute to the Clean Silk Road.