Malaysia halts $22 billion China-backed deals

Malaysia suspends construction of major Belt and Road rail project

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The Finance Ministry said yesterday it has ordered Chinese contractors building the Dollars 20 billion East Coast Rail Link, a key venture under China's Belt and Road initiative, as well as two gas pipeline projects to stop work pending negotiations.

Song Seng Wun, a regional economist with CIMB Private Banking, said the latest suspensions could prompt some investors to hold back.

It is created to be part of China's Belt and Road initiative to form a huge economic zone that spans Asia and Europe.

"The decisions are exclusively directed towards the related contractors relating to the provisions mentioned in the agreements, and not at any particular country", Lim said, in an apparent attempt to allay concerns that China was being singled out.

It is largely financed by China and the main contract was awarded in 2016 to China Communication by former Prime Minister Najib Razak, who was defeated in May 9 elections.

Malaysia's new government said Thursday it was suspending a trio of Chinese-backed rail and pipeline projects in the country, citing concerns over combined costs estimated to run as high as US $23 billion.

The ministry official, who declined to be identified, said Malaysia was seeking Chinese government cooperation with the investigation into the loan and exploring whether funds invested in the pipeline projects could be recouped. The rail line was to stretch 688 km (430 miles) and join the two coasts of Peninsular Malaysia at a cost of 55 billion ringgit ($13.5 billion).

Najib, a top supporter of China's Belt and Road initiative of investments in the region, called the rail project a "game changer" during its August 2017 groundbreaking.

Officials from Malaysia and China are in talks for Prime Minister Mahathir Mohamad to visit Beijing soon, two sources told Reuters, after Kuala Lumpur suspended China-backed projects worth more than US$20 billion (S$27 billion).

The loan was given to Suria Strategic Energy Resources (SSER), a subsidiary of the Malaysian finance ministry which oversees the two pipelines. (CCCC) responded to the notice with its own news release stating that the ECRL contract had been signed with Malaysia Rail Link Sdn Berhad (MRL), which represented the Malaysian government.

"We will be friendly with China, but we do not want to be indebted to China", he said in Tokyo.

CCCC said in a statement it regretted the suspension and was "upset and concerned" over the livelihood of its more than 2,250 local staff and other indirect hires.

He said the Najib government had paid about $2 billion, or 88 percent of the total value of the projects, despite being less than 15 percent complete.

In May, he postponed plans to build a high-speed rail link between Singapore and Malaysia, which had been agreed on several years ago, saying it was expensive.

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