Malaysia Opportunities and challenges

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July 1, 2022

China’s BRI Vs US FOIP; Opportunities and Challenges for Malaysia

Introduction:

China’s Belt and Road Initiative (BRI) is China’s grand project to revive ancient trade routes across Indo Pacific (and other regions as well). Beijing pledged to invest billions of dollars in infrastructure development and various other projects under the umbrella of this extravagant project. Together with the growing power of China, this huge investment, indubitably, spurred severe geopolitical repercussions across the Indo-Pacific region where the US is trying to balance China through her grand Free and Open Indo-Pacific (FOIP) strategy.

The US, an established hegemonic power, is not willing to leave unchecked China’s growing power; ergo, she is opposing China’s development. This led to a generation of the global struggle between established and establishing power which is primarily carried out in Indo Pacific region. Opportunities and challenges for Malaysia BRI VS FOIP.

Southeast Asia, located at the strategic center of Indo Pacific region, has the potential of serving China’s interests including enhancement of China’s national security. Besides, the Southeast Asian region is home to immense natural resources which are sufficient for fulfilling China’s exponentially growing energy needs. Likewise, ASEAN centrality in regional multilateralism also motivates China to extend, and proliferate, her sphere of influence through this region. Due to the above-mentioned importance of Southeast Asian states, China is trying her level best to engage the regional states through economic statecraft under the umbrella of BRI. (Kurlantzick 2008) The US, along with its regional allies, believes that China’s BRI is a debt trap for regional states and, thusly, they should avoid becoming part of this project. US FOIP is primarily designed to counter China’s growing influence in Indo Pacific region in general and ASEAN member states in particular.

In response, Chinese officials continuously chatter that BRI is more for defensive (and economic) purposes. However, regional states are too much concerned about Beijing’s ambitions. They are reluctant to join one bloc at cost of another state’s rivalry. Hence, the majority of ASEAN member states, including Malaysia, lay hanging in between two great powers. These two contradictory strategies, China’s BRI and US FOIP, bring some opportunities vis-a-vis challenges for regional states of Indo Pacific region. In this regard, Malaysia seems one of the interesting cases to analyze.

Theoretical Understanding:

Neo-Realism (which is also known as structural realism), espoused by Kenneth Waltz, elucidates the effects of the Indo-Pacific contest on regional states inappropriate manner. Structural realists assume that the structure of the system is more important than the state and the state will always behave in accordance with structure dictation. They claim this by giving the concept of “structure agency debate.”

Likewise, structural realists are of the opinion that there is no room for independent foreign policy in the international system and that every state is a prisoner of the international system. By using the prism of neo-realism, one becomes familiar with Malaysia’s behavior. Incontestably, Malaysia is suffering from a prisoner’s dilemma. She is stuck between the adventurous ambitions of two great powers. The structure is completely dominant in Malaysia’s behavior.

Additionally, structural realists assume that states should align their foreign policy in accordance with the global power transition. It must be kneed towards the power where power transition is directed. It should not be towards the power from where the power is transitioning. This is also pertinent in Malaysia’s case.

Before the dawn of the 21^st century, when China did not emerge as an economic giant, Malaysia’s foreign policy was more bent toward the United States but after the dawn of the 21^st century, particularly in the second decade of 21^st century, Malaysia’s foreign policy witness sharp turn and start bending more towards China.

Great Power Competition and Opportunities for Malaysia:

Malaysia, an important ASEAN member state, cautiously pursues a hedging strategy between great powers’ competition in the Indo-Pacific region. Ostensibly, Malaysia’s tactics have acceded to China because China is the largest trading partner of Malaysia. But, at the same time, Malaysia’s tactical cooperation with the US regarding defense and security shows Malaysia’s hedging strategy in practice.

Malaysia cannot bear US rivalry at the cost of Beijing’s friendship because US companies account for about 25% of Malaysian foreign investment. (Abuza April 2020) .

Malaysia’s stance, between great powers rivalry, seems quite realistic and can be termed an “equidistance equilibrium.” This approach brings Malaysia a few opportunities along with certain serious challenges.

Opportunities for Malaysia under BRI:

Trade:

Due to the growing competition with the US and its allies, Beijing is keen to usher plenty of trade-related projects in ASEAN member states in general and Malaysia in particular in order to counter the US influence in this region. In this regard, last year (from 2019 to 2020) trade between Malaysia and China grew by a handsome value of 5.7% against all odds posed by Covid-19. (Ouyang 2020).

Here it is also worthy to mention that China remains the greatest trading partner of Malaysia for the past 12 years and the trade between these two states is increasing with every passing tide. This steady growth in trade between Beijing and Malaysia can be credited to the rising competition between Beijing and US.

E-Commerce:

In the era of extensively growing competition, China is trying to transform its cheap goods-based economy into an economy based on high technology and innovative material. China’s ambitions are pertinent to the Made in China 2025 strategy which reads: “We will strive to transform China into the global manufacturing leader before the centennial of the founding of the new China, which will lay the foundation for the realization of the Chinese dream to rejuvenate the Chinese nation.”

This brings another leading opportunity, for Malaysia, in form of growing E-commerce. Malaysia SMEs (Small and Medium Size Enterprises), which account for about 98.5% of all registered businesses in Malaysia, have the opportunity of exploiting the E-commerce domain under the extravagant project of BRI.

Borderless E-commerce will be potentially elevated with proposed projects of BRI which can heighten Malaysia’s businesses, related to digital sites, to new peaks.

Likewise, BRI projects will grant Malaysia access to Central Asia markets which have the potential of buying Malaysian products. BRI infrastructural projects will make Malaysian farms capable of exporting their products to Central Asian states, by using Gwadar port and benefitting herself from other infrastructural projects of BRI, which will, eventually, boost Malaysia’s national economy.

Additionally, Southeast Asia is one of the regions with the fastest-growing economies and, thus, provides a growing economic market. Growing economies and economic markets need immense connective links in order to facilitate trade between these markets. In this regard, BRI is an ideal project which primarily focuses on the interconnectivity via infrastructural building in this region.

This can benefit the whole region in general and Malaysia in particular. Consequently, this integration of markets can help Malaysia in sustaining growth momentum in terms of alleviating the life standards of Malaysia’s citizens.

Opportunities for Malaysia under FOIP:

Security:

Malaysia’s equidistance approach to great powers grants her the opportunity of benefitting from the US FOIP strategy as well. Malaysia is a littoral state of the South China Sea where she, can face the aggression of the Chinese Navy like the rest of the littoral states. Malaysia is a middle power that cannot bear China’s aggression all alone. Due to this reason, Malaysia signed several defense pacts with the US.

Malaysia, for the very first time, took part as a participant in US-led Cobra exercises. Earlier, Malaysia was reluctant to become a part of these exercises but growing China’s assertiveness compels Malaysia to become a part of these exercises. Likewise, Malaysia and US alliance also enhances Malaysia’s surveillance capability across the Indo-Pacific region for which the US provides a coastal radar system.

This radar system was installed along the coast of Sabah. In addition, Malaysia and US alliance also led to the renewal of the “Acquisition and Cross Servicing Agreement (ACSA)”, which was first signed in 1994, according to which both states agreed upon mutual exchange of equipment, logistics, weapons, and transportation during exercises and training.

Further, in the recent past, Malaysia and US held joint exercises in the South China Sea under the banner of “Cooperation Afloat Readiness and Training (CARAT).”

Trade:

US-China competition put Malaysia in a position to be benefitted from deals coming from US grand FOIP strategy. Despite enjoying better trade relations with China, Malaysia is also engaged in billions of dollars of trade with the US. The US is one of the largest investors in Malaysia and is particularly keen to invest in fields of the electronics sector.

In 2020, US and Malaysia goods and trade services hit the record-breaking figure of US$60.1 billion. This is something extremely satisfactory on Malaysian’s behalf. Likewise, US and Malaysia also express their will to enhance cooperation in generating business leaders among the Malaysian masses. This is another preeminent opportunity for Malaysia.

Challenges for Malaysia:

Indubitably, great power rivalry brings some great opportunities for Malaysia but this, great power competition, also destabilizes Malaysia due to certain unavoidable challenges. Nevertheless, great power competition destabilizes Malaysian position in the global world order. Malaysia officials are highly equivocal toward China and US animosity.

US officials took some harsh measures by imposing sanctions on China. These measures, somehow, affect the economy of the whole South Asian region, particularly Malaysia’s economy, in a retrogressive manner; ergo, Malaysia restricts her policies from aligning to one bloc. In this regard, the Malaysian ambassador to China, Raja Nushirwan Zainal Abidin, stated that “Malaysia is not a ‘pawn’ between China and US struggle for global domination.”

Strategic Hedging: A hard-fought task for Malaysia

Malaysia adopted a policy of equilibrium equidistance, amidst US-China competition, which can be termed a form of strategic hedging. Malaysia is trying its level best to sustain this approach but its sustainability is an arduous task.

Undisputedly, struggling against two rival giants is an extremely difficult endeavor. Whenever Malaysia turns towards Beijing for economic leverage, the US starts blaming Malaysia for bandwagoning with their potential enemy. Likewise, Malaysia’s security pact with the US is highly criticized by China.

Malaysia cannot afford pure bandwagoning with either side but limited bandwagoning is also inevitable for Malaysia because of its immense trade relations of Malaysia with both the US and China. In this intense situation, neutralizing the effects of relations with one power over another power is a permanent source of headache for Malaysian officials.

Economic Pragmatism:

Economic pragmatism refers to the maximization of economic gains from direct relations with great power irrespective of all political differences existing between them. Economic pragmatism in the case of Malaysia is becoming challenging for Malaysian officials with every passing tide.

Growing US-China rivalry is turning all friendly stones through a wave of animosity and this ferocious wave has shaken the roots of Malaysia’s economic pragmatism. Economic pragmatism, adopted by Malaysian officials since the dawn of the cold war, represents Malaysian neutrality.

Despite the neutral approach, the Malaysian economy is declining with every passing tide for the last 5 years. The leading reason, identified by political analysts, for this rapid negative shift in Malaysia’s economy is the great power competition. This policy, strategic hedging, seems under constant pressure and its future is becoming fade.

Impacts of US-China Trade War on Malaysia:

This is quite an interesting point of our research. In the recent past, the US-imposed US$250 billion worth of additional tariffs on multiple numbers of Chinese products. In response, China retaliated by imposing US$110 billion on various US products. (Cheng 2019) This is a trade war between two great powers.

I shall leave the details of the US-China trade war for parsimony. This trade war affects all ASEAN member states in general and Malaysia in particular. Ostensibly, it may seem that great powers’ economic war might affect Malaysia’s economy in a retrogressive manner but the case is not that simple.

Undoubtedly, the imposition of tariffs on one another, by the US and China, hinders Malaysia’s economic growth like all the other economies of Indo Pacific, and even all global states, and regions.

Malaysia’s economy is small and open in nature with a relatively high dependence on trade. Any fluctuation in global trade will drastically affect Malaysia’s economy and that’s what exactly happened in the US-China trade war. But, at the same time, there is a ray of hope for Malaysia amidst the great powers’ trade war.

An opportunity can be observed in form of trade diversion. Once Chinese products come under additional tariffs, Malaysian products can offer the best alternative. So, what is the overall effect of the US-China trade war on Malaysia? Does Malaysia really benefit from trade diversion? So far, the answer is negative. Malaysia does not get benefited from the US-China trade war yet.

But, Malaysia has the potential of getting benefitted from the US-China trade war like the other East Asian states of Japan and South Korea.

Conclusion:

From the preceding discussion, it can be concluded that great power politics in the Indo-Pacific region will put Malaysia in an advantageous position. Both the great competing powers aspire at increasing their regional sphere of influence and are trying to offer more fascinating deals to Malaysian officials.

From trade to security, from infrastructural building to regional connectivity, from increasing exports to trade diversion, Malaysia is getting benefitted immensely from the ongoing rivalry of great powers. This all become possible due to the equidistance approach adopted by Malaysia.

Indubitably, great power politics brings some serious challenges, like maintaining hedging and economic pragmatism, for Malaysia but overall FOIP and BRI fall in favor of Malaysia.

How far can Malaysia benefit herself from great power politics? This is an interesting question. It is quite pertinent that Malaysia’s equidistance approach and hedging strategy bring Malaysia interesting opportunities. Malaysia’s success lies in adopting a Machiavellian approach in this case.

If Malaysia’s leaders will show foresightedness, Malaysia will be able to cash all the opportunities and gets benefitted simultaneously, or else the case will be otherwise where Malaysia can become a pawn in great power politics. And, this will be the greatest tragedy for Malaysia in terms of both trade and security.

This Article is written by Kaneez Maria Sadia, who is currently studying International Relations at the National University of Modern Languages, Islamabad.