Modernizing Malaysia: Port City Sees Pitfalls of Chinese Investment

Modernizing Malaysia: Port City Sees Pitfalls of Chinese Investment
Credit: Keith Schneider
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Malaysia's Kuantan Port worries about lasting environmental impacts after a Chinese infrastructure project was canceled.

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By Keith Schneider

  • Pahang state on Malaysia’s east coast was selected as the site of several key projects in the Belt and Road Initiative, China’s colossal, international infrastructure development plan.
  • Newly elected prime minister Mahathir Mohamed has put brakes on several key projects, including a rail link that was intended to serve Kuantan Port and other sites on the east coast.
  • The rationale for the projects’ cancellation has been political and economic, but conservationists worry about environmental impacts.
  • This is the fifth in a six-part series of articles on infrastructure projects in Peninsular Malaysia. Part 1 | Part 2 | Part 3 | Part 4

Beijing is more than 4,200 kilometers (2,600 miles) north of the sandy beaches, oil palm plantations and tropical forests that distinguish peninsula Malaysia’s less prosperous South China Sea east coast from the rollicking economic growth on its western shore along the Strait of Malacca.

In November 2016, then-Prime Minister Najib Razak traveled to China’s capital to drum up investment in an audacious infrastructure development plan to balance the economic disparity between his country’s east and west coasts. He wanted China to finance and build a US$14 billion trans-peninsular rail line, construct mammoth manufacturing plants, expand the port in the city of Kuantan, and encourage real-estate investment.

Conservation groups eyed the plan warily. They worried that one of the densest concentrations of new mega infrastructure projects in the world would produce runaway deforestation, erosion and pollution.

Following several days of ceremonies and negotiations, Najib left Beijing with an astonishing haul: China had agreed to spend US$34.4 billion in Malaysia to finance and construct the big east coast infrastructure projects and 11 others across the country.

But what initially appeared to be a triumph of bilateral economic cooperation, albeit one with considerable environmental risk, was viewed by Najib’s opponents as a massive and threatening diplomatic overreach. Less than two years later, the consequences of Najib’s visit are visible in both countries.

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Credit: Keith Schneider
Kuantan’s port and the South China Sea seen from the summit of a nearby quarry.

A sweep of enormous construction projects is rising in this oceanfront district in Pahang state, and across Malaysia. And an outbreak of political disruption is occurring in Kuala Lumpur and Beijing. The two outcomes are a manifestation of the turmoil that so often occurs in planning and executing mega infrastructure in the 21st century. Project costs are exorbitant. Construction schedules are routinely violated. Civic opposition is often intense. Ambition can be overwhelmed by engineering lapses.

In Malaysia, corruption in 1Malaysia Development Berhad (1MDB), the national investment fund overseen by Najib, added another layer of uncertainty.

In May, Najib was ousted in a surprise election result by his former mentor turned opposition leader Mahathir Mohamed. Mahathir, returning for a second stint as prime minister, based his victory on withering criticism of the 1MDB corruption scandal and persistent nationalist concerns about China’s expanding sphere of influence in his country.

The change in administration altered China’s aggressive development plan for Malaysia, much of it connected to the five-year-old Belt and Road Initiative, the most colossal economic development idea of the 21st century.

Determined to keep its economic engine running at maximum torque, China plans to spend three decades and trillions of dollars to build ports, airports, train lines, roads, power plants, transmission networks and online communications capacity for new international trade routes across 70 countries on three continents.

China regards Malaysia as a strategic base for its new Southeast Asia trade route from Beijing to Hong Kong, Kuala Lumpur, Singapore and Jakarta.

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Credit: Keith Schneider
Outside Kuantan, a sign promoting the now-cancelled $20 billion East Coast Rail Link, one of the largest projects in China’s Belt and Road Initiative.

Weeks after the election, though, Mahathir suspended construction of the Chinese-financed trans-peninsular East Coast Rail Link project, saying its real cost was US$20 billion, or $6 billion more than the price projected by his predecessor. He also curtailed two big Chinese energy pipelines, a high-speed rail line between Kuala Lumpur and Singapore, and put other China-financed projects under review.

During a visit to China this month to renegotiate some of the Chinese-financed projects Mahathir and Chinese leader Xi Jinping agreed to indefinitely postpone the East Coast Rail Link and the pipelines. “Our priority is reducing our debt. For the moment, they are deferred until we can afford,” said Mahathir. “They are cancelled at the moment.”

The cancellations were another blow to the Belt and Road Initiative, which has encountered similar political and financial turbulence in Bangladesh, Indonesia, Nepal, Myanmar and Thailand.

In announcing the project suspensions in Malaysia, the new government has focused on finances and politics. But any slowdowns or cancellations could also benefit the environment. The suspensions are a break in activity and represent an opening for more public debate and review to reduce forest clearing and damage to streams and wildlife habitats.

“We’ve been worried about the rail project here,” said Noor Jehan Bt. Abu Bakar, a lawyer and chairwoman of the Kuantan branch of the Malaysian Nature Society. “It runs through protected forest. We don’t have a clear picture of how wide the corridor will be and how much forest will be cut.”

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Credit: Keith Schneider
Kuantan’s central city mosque dominates its nighttime skyline.
The start of Najib’s troubles

It was a journalist who broke up the infrastructure party between Najib and Xi Jinping, China’s president. On July 2, 2015, British journalist Clare Rewcastle Brown published an investigative article in her Sarawak Report blog that said Najib had diverted into his own bank account over US$700 million from 1MDB, a figure later confirmed by the U.S. Federal Bureau of Investigation. The fund was also billions of dollars in arrears to its investors.

Rather than running from Najib, Xi marched straight to him. Chinese banks and developers, ripe with a vast investment treasury and ambition, sensed an opportunity to help Najib meet some of 1MDB’s financial obligations and gain easy entry to build projects in Malaysia. Some were viewed as good Chinese investments.

Most were needed for the new trade route.

One is the US$2 billion Melaka Gateway Port, a feature of a larger US$10 billion mixed-use residential, retail, office, and entertainment project being built on reclaimed seabed on the west coast. Another is the planned $3.5 billion Robotic Future City, which is being constructed on 400 hectares (1,000 acres) of land reclaimed from the Strait of Johor.

China also wanted to invest in the US$40 billion Bandar Malaysia mixed-use project planned for an unused military air base in Kuala Lumpur. The project faltered after Chinese investors dropped out last year and Prime Minister Mahathir cancelled the Kuala Lumpur-Singapore high speed rail line, with its terminal in Bandar Malaysia.

Few regions, though, attracted China’s interest as intensely as the coast and scrub forest just outside Kuantan, a metropolitan district of 461,000 people, the capital of Pahang, peninsular Malaysia’s largest state. Outside the city lie ample state and private lands, available at competitive prices for new manufacturing bases to host the steel, chemical, palm oil, solar, electronics and gas-processing plants that China plans in Malaysia.

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Credit: Keith Schneider
China and Malaysia are ambitious about their plans for the Kuantan port. A scale model of the port expansion and the industrial bases is displayed in port headquarters.

Kuantan’s port, undergoing a US$1 billion deepening and expansion, is a straight nautical shot from Shanghai, Shenzhen and Hong Kong, perfect for the new southern trade route.

Tying all of it together was the East Coast Rail Link, one of the largest and most expensive projects proposed so far for the Belt and Road Initiative. It promised to cut travel time from Kuala Lumpur in half, and to be capable of transporting 53 million metric tons of supplies and finished products annually from one side of the peninsula to the other. That’s almost nine times the freight that Malaysia’s existing rail network carried in 2016, according to the Ministry of Transport. One of the planned stations is a stop near Kuantan, close to a new government center for Pahang and a mixed-use real-estate development that includes housing for thousands of Chinese workers.

Chinese authorities promote their global development initiative as a fresh, environmentally sensitive path to 21st century development. China has issued voluntary sustainable development guidelines for countries and contractors involved in the initiative.

China’s leaders assert that environmental safeguards are a top Belt and Road development priority. “A green, low-carbon, sustainable road is always our principle of development,” Li Ganjie, China’s minister of ecology and environment, told a green development conference in Beijing in March. “To strengthen cooperation with countries involved in the Belt and Road Initiative through ecological protection is our joint effort to achieve sustainable development goals by 2030.”

But the immensity of the Belt and Road projects in and beyond Kuantan has generated considerable concern from conservationists. Skeptical of China’s commitment to green growth, some analysts say it is pursuing minerals, fossil fuels, farm commodities and timber from its new trade routes. The country is ready to spend US$100 billion in Africa to buy existing mines, open new ones, and build transportation and energy infrastructure.

In one report, WWF estimates that the habitats of 265 threatened species, including endangered tigers, giant pandas, gorillas, orangutans and saiga antelopes, will be affected by the initiative.

A report published last year by the Global Environment Institute, a U.S.-based research group, found that China is involved in building or planning over 100 coal-fired power plants across nations involved in the Belt and Road Initiative.

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Credit: Keith Schneider
The new jetty enclosing the expanded port is formed from massive interlocking concrete pieces.

In May, conservation ecologist William Laurance posted a blistering critique of the potential environmental damage from the Belt and Road Initiative in Nature Sustainability, a London-based research journal: “China has enormous ambitions,” he wrote. “But with that comes enormous responsibilities.”

“China claims its Belt and Road will be a blueprint for responsible development, but that’s going to require it to fundamentally change the way it does business internationally,” he added. “In the last two decades I’ve seen countless examples of aggressive and even predatory exploitation by Chinese firms, especially in developing nations with weak environmental controls. China is doing a much better job of improving environmental safeguards inside China than internationally. It’s produced a mountain of green documents and promises about the Belt and Road, but a leopard doesn’t just change its spots overnight.”

He concluded: “China has a unique opportunity, but if it’s ‘business as usual’ then I think the costs for the environment and economic risks for investors could be flat-out scary.”

Under the Najib administration, Malaysia came to the conclusion that the economic benefits of China’s infrastructure development outside Kuantan easily exceeded the potential environmental damage or social disruption. Kuantan port authorities noted that unlike many other mega infrastructure projects under construction or proposed for Malaysia’s coast, neither the port expansion nor building the manufacturing bases involved relocating communities.

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Credit: Keith Schneider
Yap Teck Sing, the 34-year-old general manager of Spring Energy. His company’s licensed bauxite mine was shut down by the government two years ago, after illegal mines opened in the region.

During a tour of the various installations, guided by Yap Teck Sing, a young construction industry executive, it became evident, though, that there is cause for concern.

The city’s existing port is expanding to serve larger 200,000-ton ships and double the cargo capacity to 52 million metric tons annually on the route between Southeast Asia and China. A new stone breakwater protects the deepening of the harbor area, where dredgers work day and night. The dredged sand is recycled to reclaim land for much larger berths. The cost of the project is split 60:40 between IJM, Malaysia’s second-largest construction company and the project’s prime contractor, and Guangxi Beibu Gulf International Port Group, a Chinese state-owned company.

The project’s environmental assessment found that constructing the project by mining sand from an offshore site will have “some significant impacts” on nearby marine life and fisheries, though controlling sand stirred in turbid waters would reduce them.

The industries attracted by the new port also will have consequences for air and water quality. Recently, Hong Kong’s NewOcean Energy reached an agreement with the port to spend US$1.25 billion to develop an oil refinery.

Not far away is the Malaysia-China Kuantan Industrial Park. The 12.3-square-kilometer (4.8-square-mile), US$2 billion manufacturing base is also a joint project of IJM and Guangxi Beibu Gulf International Port Group. It is the first of three planned industrial parks that will house a new steel plant, aluminum plant, solar manufacturers, battery makers and other manufacturing facilities served by the expanded port.

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Credit: Keith Schneider
The MCKIP industrial park is a joint venture between Malaysia and China. Behind the high walls the Alliance Steel plant is under construction.

Behind the park’s high walls, thousands of construction workers produce a dusty commotion to assemble enormous storage sheds, industrial facilities, overhead ducts and underground pipes. On 287 hectares (710 acres), amid the clamor, Alliance Steel is building a modern US$1.4 billion integrated steel plant, which is nearing completion.

A joint venture between Guangxi Beibu Gulf International Port Group and Guangxi Shenglong Metallurgical, the plant is capable of producing more than 3 million metric tons of finished steel annually.

China has made efforts to demonstrate sensitivity to two concerns of local residents: jobs and environmental protection. The Pahang government confirmed in the spring that 6,000 people were employed at the MCKIP manufacturing base as construction workers: 3,600 foreign and 2,400 local. The state did not say how many of the foreign workers were from China.

Alliance Steel executives say their plant will employ 4,000 people. Hu Jiulin, the deputy project commander, told reporters earlier this year that 70 percent of the jobs are reserved for Malaysians.

Mindful of China’s assurance to be more environmentally sensitive, the new plant will reportedly recycle much of its water and will have no offsite wastewater discharges.

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Credit: Keith Schneider
MCKIP, the mammoth industrial park under construction near Kuantan, is connected to the Kuantan port expansion and is an installation in China’s Belt and Road Initiative.

Kuantan residents have reason to be wary of the environmental damage caused by industry. Over 100 unpermitted bauxite mines opened in the state earlier this decade, according to Muhamad Nor Muhamad, executive director of the Malaysian Chamber of Mines. They strip-mined the red clay-like ore and heaped it into uncovered trucks to transport to the Kuantan port for export to China, where it was transformed into finished aluminum.

Streams ran red near the strip mines. Loose ore blew off the backs of the fast-moving trucks onto highways made slick during storms. Cars, homes, clothes and businesses were smeared red or covered in red dust.

“It was terrible. Really terrible,” said Noor Jehan, of the Malaysian Nature Society. “It had to stop.” She and her colleagues organized protests and a march to Kuala Lumpur, arguing that air, water and land protection laws were under assault.

The government agreed and halted the mining in 2016.

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Credit: Keith Schneider
Noor Jehan is a lawyer in Kuantan and a leader of the local chapter of the Malaysian Nature Society. She helped organize local resistance to bauxite mining, which prompted a government shutdown two years ago.

Malaysian environmental authorities oversee a thick registry of contemporary environmental statutes and public health safeguards. Their record of enforcement, say prominent environmental advocates, is spotty. But the shutdown of the bauxite industry gives activists hope that with enough public pressure, officials will take action.

Yap Teck Sing’s company, Kuala Lumpur-based Spring Energy, owned several permitted bauxite mines in Pahang that were ordered shut. Yap who describes himself as an industrialist and an environmentalist, said the mining shutdown was necessary, though he also urged the government to lift the ban on permitted mines like his. “We operated our mines and ran our trucks with the highest safeguards,” he said. To prove his point, Yap showed a reporter a truck-washing station built and operated by Spring Energy at its ore storage area. Trucks slowly roll through a battery of high-pressure sprinklers to scrub dust and clumps of ore from tires and undercarriages. The station recycles 100 percent of the water used.

“Malaysia has environmental laws,” Yap said. “They are good laws when they are enforced well. If we do that we’ll be fine here.”

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Credit: Keith Schneider
Spring Energy’s truck washing station, designed to cleanse mud from trucks, filters and recycles its wash water.

Likewise, as if to display its bona fides for regulating Belt and Road infrastructure in Kuantan, Malaysia stepped on Alliance Steel’s toes in the spring. In May, the National Water Services Commission (SPAN) began investigating accusations that Alliance Steel had built a water supply system without authorization and stole US$125,000 worth of state-owned water during construction. The agency’s Eastern Region chief, Arni Shahrina Shaharum, told reporters that a raid occurred on May 16 and the plant’s water supply was cut off.

Anticipating serious trouble from more publicity during what was turning out to be a tumultuous political climate following Najib’s shock ouster, the plant’s owners did not resist. They reimbursed the state for the water.

If only it were so easy. It’s not likely to be. Noor Jehan, the lawyer environmentalist, is reminded that it took over a year of active civic protest to convince the government to end bauxite mining in Pahang. She’s fully anticipating that the major industrial development occurring outside her city will produce clear hazards. Pahang’s environmental community, she said, will respond. “We’re ready,” she said. “We’ve done it before.”

This is the fifth in a six-article series on infrastructure in Peninsular Malaysia. Read Article 1, Article 2, Article 3 and Article 4.

The News Lens has been authorized to publish this article from Mongabay, an environmental science and conservation news and information site. The original article can be found here.

TNL Editor: Nick Aspinwall (@Nick1Aspinwall)

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