China’s ‘One Belt, One Road’ initiatives in Malaysia

By Ryan Khoo

/ Alpha Marketing, The Edge Property |

February 1, 2016 10:00 AM SGT

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On Jan 14, I attended a conference in Johor Baru organised by the Johor Bahru Chinese Chamber of Commerce and Industry and had the opportunity to interact with several mainland Chinese managers and leaders from the private sector who are active in Malaysia. High on the discussion list was China’s “One Belt, One Road” policy and its implications for Malaysia and Iskandar Malaysia.

The final weeks of 2015 were quite momentous in terms of the Chinese presence in Malaysia. During a state visit in November, Chinese Premier Li Keqiang pledged to buy Malaysian government bonds, which have been hit by foreign selling as crude oil prices have been falling since late 2014 and by the1MDB crisis in 2015. This caused a knee-jerk uplift in the value of the ringgit, as the perception was China would step in to stabilise Malaysia’s financial markets.

It was also the biggest step forward for the financial sector between China and Malaysia since April 2015, when Malaysia became the second country in Asean (after Singapore) to have a renminbi clearing centre.

At the same event, China Construction Bank announced the listing of the world’s first 21st Century Maritime Silk Road bond worthRMB1 billion (RM667.1 million) on Bursa Malaysia. Again, this has been widely interpreted as a signal of confidence in Malaysia by the Chinese government.

Chinese taking positions in various industries

In Singapore, we remember China’s investments in Malaysia most clearly through Iskandar Malaysia. In 2012 to 2014, major Chinese property developers such as Country Garden, R&F Properties and Greenland Group bought up large strategic landbanks in the region. But real estate is not the only sector in which the Chinese presence is being felt. Key developments include:

Xiamen University Malaysia opened its doors recently in Sepang, just outside of the Klang Valley, on a planned site measuring150 acres. It is the first overseas expansion of the renowned Chinese university, with a full range of offerings and a targeted student intake of 10,000.

The RM7 billion Gemas-Johor Baru electrified double-tracking rail project was awarded to the state-owned China Railway Construction Corp. The track provides capacity for existing trains to move up to 160kph, improving the transport of goods across the country, including to Singapore.

The Malaysia-China Kuantan Industrial Park in Pahang has seen a RM5.6 billion investment to build a steel mill and upgrade port infrastructure. The initiative is jointly owned by Chinese and Malaysian private and public sector entities.

Guangdong Province is teaming up with the Melaka government to promote tourism and manufacturing opportunities in the state. Private Chinese firms have also taken an interest in participating in the Melaka Gateway project.

The RM18 billion sale (including liabilities) of 1MDB subsidiary Edra Global’s power assets to China General Nuclear Power Corp. Edra’s power assets are spread across Malaysia, Egypt, Bangladesh, Pakistan and the United Arab of Emirates.

Chinese construction companies have won about RM15 billion worth of contracts in the past three years. Many can be seen in Iskandar Malaysia today and increasingly in the rest of Malaysia.

Bandar Malaysia and HSR

The biggest item that has just been concluded is the RM7.41 billion, 60%equity sale of the 1MDB-owned Bandar Malaysia project in Kuala Lumpur to a consortium led by Iskandar Waterfront Holdings (the master developer of Danga Bay) and China Railway Engineering Corp (CREC).

The 500-acre site is 10 minutes away from the city centre and is one of the biggest land parcels for development in prime Kuala Lumpur. Itis also the site of the Kuala Lumpur station for the upcoming high-speed rail (HSR) to Singapore and two proposed MRT stations.

Iskandar Waterfront and CREC’s ambitions likely include taking advantage of their status as the majority owner of Bandar Malaysia in competing for the mega HSR project this year.

Singapore’s Land Transport Authority and Malaysia’s Land Public Transport Commission have received strong response on the development options for the HSR, as evidenced by their recent request for information, which saw worldwide interest. Construction should start after November, as both the Bandar Malaysia and Jurong Country Club sites (the start and end points of the HSR) will behanded back to their respective governments then.

China has already won the contract for Indonesia’s HSR project across the Java island, beating rival Japan. China Railway has also entered into an agreement to build a higher-speed rail between Bangkok and the northern parts of Thailand. In decades to come, a HSR network linking Thailand, Malaysia and Singapore to China will become a reality, providing a huge boost to economic activity along its links. This can be seen by the various Chinese economic projects peppered along these countries, from industrial parks to real estate projects, and a realisation of China’s One Belt, One Road economic plan.

What does this mean for Iskandar Malaysia?

Iskandar Malaysia, being the earliest beneficiary of Chinese investments, is a step ahead in terms of development progress. By late 2017, we should see the completion of the first Chinese development projects and also the start of construction for the HSR as well as the rapid transit system linking Singapore and Johor Baru. These will bring in the next wave of Chinese investors, which will primarily be in the manufacturing and services sectors. This is on top of the real estate and construction companies that we tend to focus on today.

There have already been several trade missions between Chinese private and public sector groups, and Johor chambers of commerce and government parties to facilitate new trade cooperation activities in Iskandar Malaysia. Greenland’s joint venture with the Johor government to develop a 3,000-acre site in eastern Johor, including major industrial components, is one example.

China’s One Belt, One Road initiative has one key feature, which is to develop industrial capacity and demand outside China. Rather than the traditional method of importing raw materials and producing in China, the initiative seeks to shift certain industries to outside of China and play a bigger role in the production chain by providing infrastructure and services to enable this. The initiative also seeks to increase the purchasing power of locals in various countries and diversify China’s export markets.

Property investors in Iskandar Malaysia should be comforted by the fact that it has been a big recipient of the outbound flow of investments from China. This should translate into various economic opportunities, which will unfold over the next decade, and ultimately, bring a favourable outcome for property assets in the region.

Ryan Khoo is co-founder of Singapore-based Alpha Marketing, a real estate investment consultancy that focuses on the Malaysian market, especially Iskandar Malaysia. The views expressed here are his own. He can be contacted at ryan.khoo@alphamarketingsg.com.

This article appeared in The Edge Property Pullout, Issue 713 (February 1, 2016) of The Edge Singapore.

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