On Eve of Belt and Road Forum, China Improves Terms on Malaysian Rail Project
Despite setbacks in several countries, China courts Italy with $2.5 billion in infrastructure loans
Malaysia on April 12 restarted a stalled Chinese-sponsored rail construction project ahead of China’s Belt and Road Forum session scheduled to convene in Beijing on April 25-27. This is a big boost for China’s Belt and Road Initiative, which was dealt a severe setback when Malaysia cancelled the rail link project in July last year.
But Kuala Lumpur also managed to extract its pound of flesh as Malaysian negotiators forced China to reduce the price by nearly 30% while agreeing to a reduction of only 6% in the route length.
Under the new deal, the East Coast Rail Link cost estimated drops to $10.69 billion and the route length is set at 648 kilometers after a 40-km reduction from the original plan. The ECRL is planned as a standard gauge rail link serving both freight and passenger traffic.
The cost reduction shows that China is willing to change its rigid approach to the program to avoid project cancellation. The host country is now apparently willing to reorient projects to meet the needs of customers.
“I do think modifications will be undertaken. The restructuring of the ECRL in Malaysia is a great example,” Andrew Polk, Partner at Trivium China, a consulting firm, told ENR. Chinese regulators realize they need to be pragmatic in situations where there is local pushback on political and societal levels, he said.
At the same time, the decision to slash price could trigger a chain reaction, with countries implementing Belt and Road projects, such as Pakistan, demanding price cuts. It remains to be seen how China deals with the situation.
There were clear signs that Malaysian soft pressure was effective because China is desperate to present a strong face of its global infrastructure program at the forum. The program, which aims to build global connectivity infrastructure worth $900 billion, has faced some rough weather in recent months with Sierra Lone, Bangladesh and Myanmar cancelling or reducing previously negotiated deals with Chinese companies.
“We are pleased to announce that the construction cost of Phases 1 and 2 of the ECRL have now been reduced to RM44 billion (USD $10.69)," the office of the Malaysian prime minister said in a statement. “This reduction will surely benefit Malaysia and lighten the burden of the country’s financial position,” it said.
The statement comes nine months after Malaysian President Mahathir Mohamad shocked China by shelving the project soon after returning to power. He said the project, which was contracted by the previous government was “unfair” on Malaysia and imposed a major financial burden on the country.
Speaking at the foreign ministry in Beijing, official spokesman Lu Kang said, "We also hope that both sides can resume project construction at an early date, manage well this good situation, and expand areas of mutual benefit."
Even after the reworked deal, the project will be owned by the state-run Malaysia Rail Link while China Communication Construction Co. (CCCC) will be the main contractor.
Deal in Rome
Despite Washington’s criticism of the Belt and Road Initiative as China’s “vanity project,” Italy recently became the first Group of Seven country to sign on as a client. During a visit by Chinese President Xi Jinping to Rome in March, Italian leaders inked a memorandum of understanding.
Xi signed 29 deals with the Italians, promising Chinese investments worth $2.5 billion. Rome is seeking assistance from Chinese companies to develop its seaports. Chinese companies want to further develop and gain access to the busy port of Trieste, and in turn, the Mediterranean.
“Italy is eager to attract investments to improve its competitive position compared to northern European routes and ports,” said Alessia Amighini, co-head of Asia Center at ISPI, a Rome-based research group.
China also announced in April it has successfully constructed the first phase of a railway project connecting the 26.75-km-long railway line between Matara and Beliatta in Sri Lanka's Hambantota District.
The project has been built at a cost of $278 million.The railway extension project was financed by the Export-Import Bank of China and the contract was awarded to the China National Machinery Import and Export Corp. Project construction includes: viaducts across the Nilwala River and Wehella floodplains; a number of level crossings, overpasses, underpasses and two cut-and-cover tunnels. The Nakuttiya Tunnel is 606 m long, the Bambarenda Tunnel 238 m.
“The railway line is the first railway project contracted by Chinese company in Sri Lanka under the BRI and it is indeed the first railway built after country’s independence,” Chinese Foreign Ministry spokesman, Lu Kang said at a media briefing.