Malacca harbour plan raises questions about China's strategic aims

A RM43 billion (S$14 billion) harbour being developed in Malacca aims to overtake Singapore as the largest port in the region, but questions are being raised about the need for the added capacity and whether China's eager participation has to do with good business or its crucial strategic interests in the Malacca Strait.

For China, not only does most of its trade pass through the Malacca Strait, but so does up to 80 per cent of its energy needs. This prompted then President Hu Jintao to make the "Malacca Dilemma" a key strategic issue as far back as 2003.

"There is the strategic element of the Malacca Strait. It always starts with an economic presence, which can develop into a naval one, because China will be obliged to ensure the safe passage of its commercial ships," said Dr Johan Saravanamuttu of the S. Rajaratnam School of International Studies, who studies the Malaysia-China relationship.

The Melaka Gateway joint venture is part of a wider port alliance between Kuala Lumpur and Beijing to increase bilateral trade and boost shipping and logistics along China's much-vaunted Maritime Silk Road.

Chinese firm Guangxi Beibu International Port Group already owns 40 per cent of Kuantan port, which faces the disputed waters of the South China Sea, and 49 per cent of the Kuantan Industrial Park in Pahang, the home state of Malaysian Prime Minister Najib Razak.

The Malaysian authorities are talking up the game-changing Melaka Gateway deal between little-known KAJ Developments and energy giant PowerChina International, which will form a joint venture and spend RM30 billion to reclaim three islands off Malacca's coast. The entire Gateway development will be completed in 2025 but the deep-sea port is expected to be ready by 2019. The Malaysian government hopes to attract the bulk of 100,000 vessels, most of them Chinese, that ply the Malacca Strait annually.

Some industry players have expressed concern about the cannibalising of existing ports along the strait, especially in the light of Singapore's own port expansion.

Though the Malaysian government has said a new port is needed because Klang, the country's most important port, will be full by 2020, studies appear to show otherwise.

A World Bank study commissioned by the government last year showed a new port on Malaysia's west coast is not necessary, as existing facilities have yet to reach capacity, according to sources. Both operators at Port Klang - Westports and MMC - have also made expansion proposals that would double the port's capacity, the sources added.

"Because there seems to be no logic to the Melaka deal, many are questioning if this has more to do with military rather than commercial interests," a logistics player told The Straits Times.

Sources also said the reclaimed islands would be given freehold status and the port granted a 99-year concession - both rare and generous terms. Melaka Gateway did not respond to a request for comment.

China's military presence around Malaysian waters has increased significantly since last year. In September last year, all three branches of the Chinese armed forces took part in a six-day joint exercise on "disaster relief" in the Malacca Strait.

China has also gained access to Kota Kinabalu, a crucial dock in Sabah close to the disputed Spratly Islands, where Beijing's construction activities have been a source of diplomatic strife in the region.

A former port authority chief noted that China has made moves to reduce its reliance on the Malacca Strait, such as via port-and-rail or pipeline projects in Pakistan, Myanmar and Eastern Europe, which means "we cannot take Beijing's commitment here for granted".

"If China pulls out her support, the port becomes useless because it has no hinterland, unlike Klang and Penang which serve a big local market. In fact, many businesses prefer to send their goods to Klang by road instead of the existing Malacca or Penang ports because it is more efficient."

Critics have questioned Malay- sia's over-reliance on China, in the light of the huge deals struck during Datuk Seri Najib's recent visit to Beijing, as well as a whopping RM55 billion loan to build a railway that will eventually link Port Klang on the west and Kuantan port in Pahang and also Terengganu and Kelantan.

"There is the question of over-dependence, and the diplomatic leverage involved if Beijing were to move in more aggressively. So far, Najib is still hedging, but when it comes to investments, you can't expect as much from America as you can from China. If you want to go up against Singapore, then this port makes sense, especially when it is in the form of foreign investment, given Malaysia's fiscal constraints," said Dr Saravanamuttu.

Transport Minister Liow Tiong Lai batted away these concerns on his return from Beijing, telling reporters that "with the economy growing, we need more ports". He said: "The port alliance... has seen results, bringing more competitiveness to our ports and logistic sectors."

This article was first published on Nov 14, 2016.
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