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Low risk, so all systems go

CHINA’S announcement on Aug 18 that it will tighten rules to defuse risks for outbound “irrational investments” is unlikely to affect Beijing’s Belt and Road projects in Malaysia.
This is mainly because Malaysia has been rated as a “low risk” country along the Belt and Road route, not only by China’s officials but also by researchers in the private sector.
On Aug 18, China’s State Council headed by Premier Li Keqiang posted guidelines “to promote healthy growth of overseas investment and prevent risks” on its website.
According to the State Council, China will support domestic enterprises to venture overseas and join in the construction of projects in the Belt and Road initiative, which may see investments totalling US$1 trillion (RM4.2 trillion).
But the State Council warns that overseas investments should not “go against the (concept of) peaceful development, win-win cooperation and China’s macro control policies.”
Restricted sectors include real estate, hotels, sport clubs, outdated industries, gambling or projects that may undermine China.
The State Council also warns against investing in “chaotic regions” and nations with no diplomatic ties with China.
To guard against financing risks, the State Council issued another circular last Monday to tighten supervision over financing guarantee companies.
These measures are deemed necessary after China’s Commerce Ministry recently revealed the shocking extent of losses incurred by its companies overseas.
The ministry stated that 65% of Chinese investments abroad – including Belt and Road projects – had suffered losses.
And state-funded insurance company Sinosure that has supported export, domestic trade and investment with a total value of US$2.8tril (RM11.97tril) since 2001, reported that claims it had paid out by 2015 amounted to US$9.5bil (RM40.6bil).
In addition, the near indiscriminate involvement by state corporations and large private firms in overseas mergers and acquisitions in recent years had caused capital outflow of US$1 trillion and forced down China’s foreign reserves and yuan.
According to China’s ambassador to Malaysia, Dr Huang Huikang, Malaysia is seen as among the safest countries in South-East Asia for Chinese investments.
“There may be some rumblings now and then, but on the whole Malaysia is politically stable with people of all races and cultures living in harmony together. We also see very low risk in security,” he says.
Last month, a delegation of senior academics, researchers and foreign affairs officials came to Kuala Lumpur to conduct an assessment of the political situation, legal and financial systems.
Prof Zhai Kun of Peking University – a senior member of the delegation – feels that Malaysia is more politically stable than two years ago.
According to Beijing-based Minsheng Securities, Malaysia’s political stability and Thailand’s economic stability are given high rating in its risk assessment.
Both countries score high in investment policies and business environment, according to Minsheng.
“The top five countries with most Chinese investments in recent years are Russia, Kazakhstan, Malaysia, Singapore and Indonesia. In terms of investment risks, the lowest are Malaysia and Thailand,” said Minsheng in its research report.
Malaysia’s sovereign risk has also stayed unchanged and its economy has remained resilient, despite being hit by low crude oil prices and volatility in currency.
On Aug 18, Fitch Ratings affirmed Malaysia’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at “A-” with a Stable Outlook.
Fitch said Malaysia’s rating was supported by GDP growth, which had exhibited unexpected strength in the second quarter with a growth of 5.8% – the highest in two years.
The international rating agency also raised its growth forecast on Malaysia to 5.1% in 2017, from 4.5% previously. It expects the Federal Government debt to stabilise at 52% of GDP – below Malaysia’s self-imposed level of 55%. Most other research houses also raised their forecast on Malaysia’s economic performance for this year.
In luring projects from Beijing, Kuala Lumpur has been wise to focus on infrastructure structures that are deemed as “strategic” for Malaysia and China, and in line with the Belt and Road objective.
Most of the projects with involvement of China’s state-owned companies are linked to energy, ports, railways and construction, while its private sector has entered into manufacturing, property development, e-commerce and logistics.
One example of strategic importance to both countries is the long-term RM55bil East Coast Rail Link project, launched earlier this month with full financing from China. For Peninsular Malaysia, this double-track railway system will upgrade east-west connectivity, help boost economic development along the east coast and improve the well-being of residents in Pahang, Terengganu and Kelantan.
For China, this project will shorten the trade route for its cargo heading west to Middle East, India and Indonesia, and vice versa. As this route will bypass Singapore, it will mean more trade opportunities for Malaysians.
Indeed, the deepening of Kuantan Port is helping to bring in billions of direct investments from China into the Malaysia-China Industrial Park in Kuantan.
And Xiamen University Malaysia, set up by China, is seeing an influx of Chinese students after opening its door last year.
The other major projects in Malaysia seen as strategic by the Chinese government include the RM200bil Bandar Malaysia, the RM70bil KL-Singapore High Speed Rail, the RM40bil Melaka Gateway, and the RM30bil oil pipeline linking Bagan Datuk to Bachok.
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