Malaysia's Najib risks backlash at home after deals with China

November 7, 2016 12:21 AM EST

Malaysia's Prime Minister Najib Razak meets China's President Xi Jinping at Diaoyutai State Guesthouse, in Beijing, China, November 3, 2016. REUTERS/Jason Lee


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By Joseph Sipalan

KUALA LUMPUR (Reuters) - Malaysian Prime Minister Najib Razak is facing grumblings back home that he is "selling off" his country after returning from China with about $34 billion worth of deals, which could help lift the economy ahead of elections.

The concerns emerge from a deep-seated distrust of the Chinese among Malaysia's Malay-Muslim majority, who form the support base for the ruling United Malay National Organisation (UMNO).

Najib was quick to dismiss the concerns after concluding his six-day visit to China.

"Some have scaremongered that Malaysia is being sold off. This is absurd and absolutely false," Najib said in a statement on Friday, insisting the projects will be owned and run by Malaysians.

The deals include Malaysia's first significant defense deal with China, an agreement to buy four Chinese naval vessels.

Najib's visit followed that of Philippines President Rodrigo Duterte, who announced his country's "separation" from the United States and signed agreements and loan pledges worth an estimated $24 billion with Beijing.

UMNO leaders expect Najib to brief them soon so the party can start allaying any fears about China's rising influence in Malaysia, said Shahidan Kassim, a senior member of the party's supreme council and a federal minister.

"All of this has its pros and cons, but in UMNO we must have a policy statement on this," he told Reuters.

ETHNICITY AND RELIGION

Ethnicity and religion are sensitive issues in Malaysia, where Muslim Malays form a little over 50 percent of the population of 31 million. Ethnic Chinese make up about 25 percent and ethnic Indians about 7 percent.

Malaysia's ethnic Chinese have long been a scapegoat for the Malay community, with UMNO leaders pointing to ethnic Chinese economic dominance to unite Malays and keep a firm grip on political power.

Last year, ethnic ties became strained under the weight of two opposing demonstrations largely split along racial lines. A 'Malay pride' rally blocked off Chinatown in Kuala Lumpur in a show of strength following an anti-government rally dominated by Malaysian-Chinese. Najib's government summoned China's ambassador over his remarks ahead of the "Malay pride' rally.

Clashes are expected again this year as thousands of anti-government demonstrators plan to protest in Kuala Lumpur on Nov. 19, calling for Najib to resign over the money-laundering scandal linked to Malaysian state investment fund, One Malaysia Development Berhad (1MDB).

A member of UMNO's policy-making Supreme Council, Irmohizam Ibrahim, said Najib's deals with China have stoked concerns among party leaders.

"We're expecting the prime minister to address these issues at our next Supreme Council meeting," Irmohizam told Reuters.

"We will then need to go down and explain to the grassroots that ... the deals are purely for the economy and trade," said Irmohizam, who also serves as Najib's strategic director in the party.

Malaysia's opposition is questioning the China agreements but for different reasons, saying it is tilting the country toward Beijing.

"Malaysia's economic dependence on any single nation is unreasonable and will affect the country's freedom and geo-political strategy and foreign policy," jailed opposition leader Anwar Ibrahim said in a statement issued from prison.

"GOLDEN JEWELRY"

Najib is planning elections in the second half of 2017, a government source has told Reuters.

The investments from China could help the prime minister pump-prime Malaysia's economy before then. A 2017 national budget Najib announced last month calls for only a modest spending rise, amid a continuing slump in commodity prices.

Senior UMNO leaders and urban Malays, however, are uncomfortable that Chinese money will drive the development of strategic assets, according to James Chin, director at the University of Tasmania's Asia Institute.

Chin says the Malay elite welcomes Chinese investment in purely commercial deals such as property purchases, but are more wary about agreements such as a 55 billion ringgit ($13.11 billion) deal for the Chinese to develop a rail network.

"The problem with these deals is that they are seen as selling the country's golden jewelry," Chin said.

Ties between Malaysia and China reached a high point last December when Beijing came to Najib's rescue with a $2.3 billion deal to buy 1MDB assets, helping ease concerns over its mounting debt.

Relations with Washington became strained after the U.S. Department of Justice filed lawsuits in July implicating the prime minister in the money-laundering probe at 1MDB, the advisory board of which Najib chaired until recently.

SHIFTING POSITIONS

China and Malaysia agreed to enhance naval cooperation, after sealing the deal to buy four Littoral Mission ships, fast patrol vessels that can be equipped with a helicopter flight deck and carry missiles.

Malaysia, along with three other members of the Association of Southeast Asian Nations (ASEAN) - the Philippines, Vietnam and Brunei - are among the countries contesting territorial claims with China over the South China Sea. China claims nearly the entire body of water as its territory.

Najib said last month the disputes should be resolved through dialogue with Beijing.

Duterte during his visit persuaded the Chinese to let Philippine fishermen operate around a disputed shoal, before declaring his unhappiness with Washington over its criticism of his lethal antidrug campaign.

ASEAN, meanwhile, has struggled to come up with a unified position on the South China Sea disputes at its meetings.

"ASEAN will not go away... but increasingly the idea of the multilateral track will be downgraded as now we see a swing from two key claimants to a more bilateral approach," said Euan Graham, director of the international security program at the Lowy Institute, a Sydney-based think-tank.

(Editing by Praveen Menon and Bill Tarrant)



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