Malaysia Finally Agrees on China Financing for the East Coast Rail

China, Malaysia, rail, infrastructure

(Photo: Strait Times)

Malaysia finally ceded to China by reviving the project of the East Coast Rail after the Chinese government agreed to reduce the price tag of the project…

It was one of the first dramatic decisions of the new government of Prime Minister Mahathir Mohamad following the election almost a year ago: huge infrastructure projects were cancelled, among them a gas pipeline and the East Coast Rail, both supported by China.

The East Coast Rail was a major infrastructure project planned to shorten travel between the impoverished Eastern Coast and the wealthy Western Coast of Peninsular Malaysia, including Kuala Lumpur. The Project was originally tagged at US$15 billion. But months of rough negotiations finally paid off with China deciding to revise the price tag of the project to  US$10.7 billion, according to a recent statement from the prime minister’s office. At some point, costs ballooned even toi US$20 billion according to the Malaysian Ministry of Finance.

Image result for East Coast Rail linkThe deal could be a boon for China’s Belt and Road Initiative, which has seen Asian governments from Myanmar to Maldives reassessing Chinese investments amid concern over sovereignty and large borrowings. China wants the project to resume quickly, Foreign Ministry spokesman Lu Kang announced during a briefing in Beijing.

China Communications Construction Co. and Malaysia Rail Link Sdn. signed a supplementary agreement for the reduced cost after months of talks between the companies and the two governments, according to the statement. The deal covers the engineering, procurement, construction and commissioning aspects of the rail link.

“This reduction will surely benefit Malaysia and lighten the burden on the country’s financial position,” the prime minister’s office said in the statement.

Mahathir has shown more willingness to revive some infrastructure projects after embarking on spending cuts and a corruption crackdown last year. The government was almost done with its budget review and was ready to look toward state investments to boost economic growth, Finance Minister Lim Guan Eng said in February.

Malaysia discussed possible fundraising through a yuan-denominated bond sale with China’s support, Lim said at the time. Such an offer would mark the country’s debut Panda bond issuance, after it returned to the Samurai bond market this year for the first time in three decades.

(Source: Bloomberg)