Malaysia’s new prime minister, Mahathir Mohamad, continues to shake up national politics and policy. Earlier this month, his government arrested his predecessor, former Prime Minister Najib Razak, on charges of embezzlement. In addition, and related to that investigation, the Kuala Lumpur government has suspended four joint infrastructure projects with China. While it is too simplistic to say that Japan benefits from recent developments, there is no missing ways in which Mahathir’s policies create opportunities for Tokyo in this vital Southeast Asian country.
Mahathir returned to power — he retired nearly 15 years ago after serving as prime minister for 22 years — in a stunning May election victory that capitalized on popular disgust over allegations of corruption in Najib’s government. The primary focus of anger was the looting of a national development fund, 1MDB, from which some $4.5 billion disappeared, nearly $700 million of which is alleged to have found its way into Najib’s personal bank accounts. Najib has been formally charged with three counts of criminal breach of trust and one of abuse of power. He denies all wrongdoing, pleaded not guilty and insisted that all charges are politically motivated.
In connection with the investigation, the government has called for scrutiny of all 1MDB projects. As a result, Kuala Lumpur has suspended four infrastructure projects that are linked to China: three oil and gas pipelines and the East Coast Rail Link. Together, they have a total value of $23 billion. Officially, the projects are suspended while lawyers review the terms of the contracts, and a final decision on whether to proceed is pending.
Mahathir has two grounds for skepticism: He campaigned on a promise to cut excessive government spending and he is worried about the terms of any deal struck with the Chinese. Officials in the new government also speculate that funds from the Chinese projects were part of the 1MDB scandal.
Mahathir cannot afford to alienate China. It is Malaysia’s second-largest trade partner (Singapore is No. 1; Japan is No. 4) and bilateral trade in 2017 reached $96.3 billion. As former Finance Minister Daim Zainuddin acknowledged, “China is very important to us,” and “we enjoy very close relations.” Moreover, Malaysia needs to woo foreign investors, and it cannot single out “bad” countries as opposed to bad practices: it sets a bad precedent for businesses who want a level and transparent playing field.
China’s loss appears to be Japan’s gain. Mahathir is a long-time friend and supporter of this country. When he was first in power, he instituted the Look East Policy (LEP) which strengthened ties with Asia, and used Japan as an economic model. That relationship has flourished, culminating in the Malaysia-Japan Economic Partnership Agreement. Today, Japan is the leading source of foreign investment in Malaysia, with a stock of $13 billion. Trade between the two countries in 2016 came to ¥3.1 trillion.
Mahathir has called for a New Look East Policy — sometimes called LEP 2.0 or LEP 3.0, depending on how seriously one evaluates Najib’s effort to engage Japan a few years ago — and his first trip overseas this year as prime minister was to Tokyo. Here, he wooed investors to help balance the country’s books and to compensate for revenue shortfalls that would follow upon reassessment of the China projects. Mahathir said that Prime Minister Shinzo Abe had promised to study his request for yen credit, which would help Malaysia with its budget shortfall. Officially, Abe would only go so far as to say that Japan would establish a $50 billion infrastructure investment fund for the Indo-Pacific region.
Japanese officials and business professionals expect to move with alacrity: Malaysia is a known quantity and the government’s efforts to ensure transparency in the wake of the 1MDB scandal should improve the business environment. Priority areas for collaboration include high-tech industries such as biotechnology, nanotechnology, robotics, artificial intelligence, electric vehicles and e-commerce. More traditional sectors include agriculture and the halal sector, renewable energy, waste management, traffic control, security systems, medical equipment and health care.
Mahathir’s security policies are also likely to align with those of Japan. Mahathir has said that the South China Sea should be accessible to all nations and “not controlled by any one nation, neither by America or China.” He has backed China’s “Maritime Silk Road” initiative while adding that “we have to make sure is that it is not exclusive to China and that other people can use (it) in the same manner.” He looks to India to engage in the region’s economy as a way of ensuring that no country is dominant, but he has also called for a review of the Comprehensive and Progressive Trans-Pacific Partnership trade deal because he believes it is too hard on smaller countries, a reminder that Mahathir will continue to defy easy categorization as he flexes his muscle and seeks the best possible advantage for his country.