Malaysia to buy navy vessels from China in blow to U.S.

October 28, 2016 5:02 AM EDT

Malaysia's Prime Minister Najib Razak talks to the media beside Indonesia's President Joko Widodo after a bilateral meeting at the Presidential Palace in Jakarta, Indonesia, August 1, 2016. REUTERS/Beawiharta


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By Tom Allard and Joseph Sipalan

MANILA/KUALA LUMPUR (Reuters) - Malaysia will sign a contract to purchase Littoral Mission Ships from China when Prime Minister Najib Razak visits Beijing next week, according to a Facebook posting by the country's Ministry of Defence.

The text of a speech to be delivered by Malaysian defense minister Hishammuddin Hussein was posted on Facebook on Tuesday, but was later removed after Reuters asked a defense ministry spokesman for comment.

The purchase of the patrol vessels, if it proceeds, would be Malaysia's first significant defense deal with China and comes amid rising tensions in the South China Sea and as the United States and China compete for influence in the region.

China's foreign ministry spokesman Lu Kang said on Friday he was "unclear on the specifics of the situation". But responding to a Reuters question at the daily ministry briefing he noted China and Malaysia "continue to cooperate and communicate regularly across all spheres".

Malaysia's ties with the United States became strained after the Department of Justice filed lawsuits linked to a money-laundering investigation at state fund 1Malaysia Development Berhad (1MDB), which Najib founded and had overseen as chairman of its advisory council.

Najib is traveling to China on Sunday for a week-long visit.

"On November 5, 2016, the Defence Ministry will sign a contract for the procurement of Littoral Mission Ships (LMS) with SASTIND (the State Administration for Science, Technology and Industry for National Defense), which is an important part of the schedule during the Prime Minister's official visit to China," the Facebook post quotes Hishammuddin saying.

However, a video recording of the speech at the Malaysian defense ministry by Hishammuddin does not mention this contract.

A defense ministry spokesman declined to comment and the prime minister's office did not immediately respond to requests for comment.

Littoral Mission Ships are fast patrol vessels that can be equipped with a helicopter flight deck and carry missiles. They are primarily used for coastal security, maritime patrol and surveillance, but can also be deployed for disaster relief and search and rescue operations.

China claims most of the South China Sea as its territory. But Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have rival claims to parts of the waterway, which commands strategic sea lanes which carry some $5 trillion worth of trade a year.

PEAK IN TIES

Ties between Malaysia and China reached a new peak in December when China came to Najib's rescue with a $2.3 billion deal to buy assets of scandal-hit state fund 1MDB, helping ease Najib's concern over the firm's mounting debt.

Najib is traveling with dozens of government leaders and business people to China. In a statement on Wednesday, he said Malaysia was committed to strengthening friendship with China and pushing ties to "new highs".

The push to strengthen China ties come after July lawsuits filed by the U.S. Justice Department implicating Najib in a money-laundering scandal.

The lawsuits allege over $3.5 billion was misappropriated from 1MDB, some of which ended up with a 'Malaysian Official 1,' identified later by U.S. and Malaysian authorities as Najib.

Najib has denied any wrongdoing and said Malaysia will cooperate in the international investigations.

Malaysia could buy up to 10 of the littoral mission ships at a cost of approximately 300 million ringgit ($71.43 million) each, said Lam Choong Wah, senior fellow at REFSA, a Malaysia research institute. He is also the author of a book on Malaysian military capability.

"The truth is we could have bought these from a number of countries. But China is the only country that has provided political support for Malaysia during the 1MDB scandal. This is payback for that political support."

Najib's visit follows that of the Philippines president Rodrigo Duterte, who announced the country's "separation" from the United States and signed a raft of memoranda of understanding for Chinese investment in the country.

Last week, Malaysia announced a 2 billion ringgit ($476.19 million) cut to its 2017 defense budget from last year's levels.

A project to develop an amphibious corps was among those jettisoned, said Euan Graham, director of the international security program at the Lowy Institute, a Sydney-based think-tank.

"It was the U.S. marines who were liaising with the Malaysians on that," Graham said.

"So a U.S.-backed initiative has effectively died now," Graham said. "At the same time, a new bridge has been opened to China. If you put those together, whether it's been by Malaysia's design or not, it does send a combined signal of pulling back from the U.S. and outreach to China."

$1 = 4.2000 ringgit)

(Additional reporting by A. Ananthalakshmi and Rozanna Latiff in KUAL LUMPUR and Sue-Lin Wong in BEIJING. Editing by Bill Tarrant.)



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