Analyst: Putrajaya wants to avoid scrapping ECRL

Fitch Solutions Macro Research (FSMR) believes that Malaysia is trying to lower the price tag and the scale of the East Coast Rail Link (ECRL) project rather than scrap it altogether.

The research firm said that scrapping the project could result in strained bilateral and trade ties, a prospect that Malaysia could not afford.

Exports to China in 2018 were worth RM138.88 billion, according to the Department of Statistics, making the country Malaysia's biggest export market.

FSMR also noted that there was a five-fold increase in foreign direct investment (FDI) from China between 2012 and 2017.

"These two factors reflect the importance of a strong bilateral relationship between the two countries, with Malaysia increasingly reliant on China for economic growth.

"The suspension of Chinese-backed projects has already resulted in a sharp fall of FDI from China in 2018 to RM3.2 billion, and contributed to a slowdown in economic growth in Malaysia," the firm said.

The ECRL project, which was launched during the Najib administration, aimed to connect the less developed East Coast of Peninsular Malaysia to the west.

However, it was dogged with controversy, with allegations that a portion of the loans from Chinese government-owned banks was used to bail out 1MDB, rather than fund the ECRL.

Since coming to power last May, the Mahathir administration has been renegotiating the ECRL deal with China, whose state-owned banks and construction firms have heavily invested in the project.

China willing to reduce ECRL cost

According to Bloomberg, China is willing to reduce the cost of the ECRL of the scaled-down project, which the Mahathir administration projected would eventually cost RM81 billion.

Foreign Minister Saifuddin Abdullah said the talks, led by the former finance minister and adviser to the prime minister Daim Zainuddin - were in the final stages.

"It is not cancelled until and unless we can’t settle on the numbers," Saifuddin said.

"China understands our constraint and they’re willing to scale down the size of the project and the cost. The discussion is probably in the last mile."

FSMR said that if there was indeed an offer to slash the ECRL price tag, it would suggest that the Chinese are determined to proceed with it.

"The delay of an official announcement by the Malaysian government, two weeks after China’s refreshed offer, suggests that the Malaysian government might be reviewing the project with renewed interest," the firm added.