Surpassing:Malaysia's a big draw for China's Belt and Road plans. Finishing them is another story

KUALA LUMPUR,Surpassing Malaysia — Just north of Malaysia's capital, lush forest gives way to dirt roads, where workers from Bangladesh and Indonesia rumble past in trucks emblazoned with four Cs — for China Communications Construction Co. They're blasting a more than 8-mile-long tunnel out of solid bedrock.

The tunnel represents a feat of engineering at the heart of the East Coast Rail Link, a project to lay down more than 400 miles of train tracks connecting shipping ports on Malaysia's east and west coasts, which is the country's priciest infrastructure project to date.

But the rail link has blown past deadlines and budgets, and now also symbolizes something more: the travails of China's Belt and Road Initiative, a vast portfolio of overseas infrastructure investments that Chinese leader Xi Jinping launched a decade ago.

The BRI is underpinned by Chinese state financing and employs Chinese state contractors to build ports, roads and bridges largely in developing countries in Asia, Africa and Latin America, which cannot finance such projects on their own.

But like the Malaysia project itself, Belt and Road is mired in debt. The Rhodium Group, a research firm in New York, estimates more than $78 billion of loans Chinese companies have distributed worldwide through Belt and Road have no hope of being repaid.

It's successful by comparison

Malaysia is a multiethnic nation of more than 33 million people that borders Singapore, Indonesia and other countries in Southeast Asia. It's one of the top 10 Belt and Road destinations by investment amount, with some of the initiative's most grandiose and expensive projects in the region.

Previous major infrastructure plans in the country have gotten bogged down in local politics and corruption allegations.

Two Chinese-funded gas pipeline projects in Malaysia remain unbuilt since 2018, despite millions of dollars in outlays, after being caught up in a staggering embezzlement scandal perpetrated by Malaysia's former prime minister, Najib Razak, and his cronies. A China-linked $10.5 billion effort to develop a neglected coastline is now also enmeshed in legal trouble, while a massive Malaysian property complex built by China's largest land developer sits largely empty.

Researchers say the projects likely happened without enough due diligence from Chinese investors. "If there's strong push from the political government, from the leadership [in China], and they want to see things happening quickly in a certain country, they might have to really kind of cut corners," says Hong Zhang, a postdoctoral researcher at the Ash Center at the Harvard Kennedy School.

In comparison, the $18.5 billion Malaysian rail project is a relative success story. It was revived after being put on ice by the Malaysian government in 2018 amid corruption allegations but is now set to be completed in 2027. Yet the twists and turns in its ongoing saga show how Beijing's effort to build infrastructure across the globe, helping exert its influence, does not always go well on the ground.

Areas needed development

When it broke ground in 2017, Malaysia's leaders hailed the ECRL as a critical development project, linking up the country's underdeveloped east coast with the more industrial areas on its west coast.

"It actually hits a lot of areas in which actually are needed for development," says Sri Murniati Yusuf, the deputy research director at the Institute of Democracy and Economic Affairs, a policy think tank in Kuala Lumpur. "And of course, back then, there was Chinese investment money, and they were quite generous. There was an opportunity there."

For Chinese companies, Belt and Road was an opportunity to take on new work abroad, outside saturated domestic industry and construction sectors.

In 2015, China began tightening capital controls to prevent money from leaving its borders and keep its currency, the yuan, from losing value. But for a time, state lenders could still fund BRI projects abroad with minimal regulatory approval. China has not said exactly how much its state banks have lent out for BRI-related projects, though analysts estimate the amount at around $1 trillion.

Kian-Ming Ong, who served as Malaysia's deputy foreign trade minister from 2018 to 2020, says he was approached while in office by province-level Chinese investors eager to tap this flow of state credit.

"At the end of the day, usually what will happen is that there will not be an open tender for these projects, because they have to be awarded to not just to a Chinese company, but to a particular province in China for funding purposes," says Ong, who is now a professor at Taylor's University in Malaysia. "A lot of these infrastructure projects are given funding by perhaps the provincial government, by perhaps some of the financial institutions in China, without doing the proper due diligence with regards to the financial sustainability of these projects."

China showed it could be flexible

In 2018, the ECRL project, which broke ground before Ong came into office, ran aground after Malaysia discovered some $700 million from government funds had been funneled into personal accounts controlled by then-Prime Minister Najib.

Najib was ousted from power and is currently serving a 12-year prison term for corruption.

Meanwhile, the ECRL was suspended pending an investigation under suspicion that its cost was artificially inflated to cover shortfalls left by embezzlement, a degree of corruption that surprised even Chinese investors, according to two former Malaysian government officials.

Anxious to preserve good ties with Malaysia, CCCC and China's Export Import Bank, which had lent 85% of the cost of the ECRL, offered to renegotiate the terms of the project.

"It was widely read as something that on the part of the Chinese as showing some flexibility and a willingness to accommodate, even though they may have absorbed some economic loss," says Peter Chang, a China studies professor at the Universiti Malaya in Kuala Lumpur.

In 2019, CCCC agreed to reduce the overall budget by about $4.3 billion. CCCC and Malaysia's state railroad operator set up a joint venture with equal stakes to manage the East Coast Rail Link. Malaysia's state investment agency was tasked with helping CCCC build industrial zones and freight storage facilities along the rail line, to increase revenues.

"CCCC will provide technical support and share the operational risk after the project's completion," Mahathir Mohamad, who followed Najib as prime minister, told reporters in April 2019.

Most critically, the new plan — officials dubbed it ECRL 2.0 — would avoid drilling through solid bedrock in the ecologically protected Gombak Forest. That created a complicated and expensive engineering feat which Ong, the former foreign trade official, estimates made up as much as one-sixth of the original construction cost. The new route for the rail line would skirt around the forested hills, looping south.

Tunneling into forest after all

However, when NPR visited a rail link station on the northern outskirts of Kuala Lumpur, the tunnel had been built after all, through a hill that lies beneath a protected forest.

Migrant workers from Bangladesh, Indonesia and other parts of Malaysia said they had already finished blasting and drilling two parallel tunnels and were now working to join the two to create a wider passageway.

The tunnel's construction has been surprising communities living nearby who know "next to nothing, essentially," says Benjamin Y.H. Loh, a senior lecturer at Taylor's University.

"The findings from many of these impact assessments [for these projects] are never made public. They're never made in a transparent manner, and often they're not done by an independent third party as well. It's very, very difficult [to see] how these projects are operated, what's the rationale behind them, how they're essentially run," says Loh, who recently co-authored a report on the lack of transparency behind major Malaysian infrastructure projects.

Indeed, it is not entirely clear why CCCC has gone back to building the original, costlier route. Malaysia's Transport Ministry, which oversees the rail operator Malaysia Rail Link, declined to be interviewed.

Meanwhile, the ECRL's budget has swelled once more, though it is still $2.4 billion lower than the original cost. The transport minister told New Straits Times he estimates the rail link will open in 2027 and is currently about 40% completed.

Because the Chinese loan has a seven-year repayment moratorium, Malaysia has yet to pay back the costs of the rail line. But Ong worries about its future financial burden: "It may be some time before the Malaysian taxpayer realizes the full costs of this financial commitment."

Analysts say the ECRL construction continues to operate without sufficient transparency, and in the absence of regular updates, some researchers have resorted to flying drones over construction sites.

Malaysia's public opinion on investments from China, an important trade partner for the country, appears to differ across Malaysia's different ethnic groups, according to surveys. About 60% of the population are ethnic Malay people who are largely Muslim. There are also minorities with ethnic Chinese (about 20%) or Indian (over 6%) background.

"Ethnic Chinese Malaysians are very much in support of investments coming in from China, perhaps to the tune of 80%. But then, the Muslim population is much more cautious, much more wary about it, perhaps maybe about 40, 45% supportive of it," Ibrahim Suffian, director at Malaysian polling firm the Merdeka Center.

Near the ECRL tunnel, migrant workers are constructing a transport hub combining a new bus station with the upcoming rail link and an existing metro station. But the hub has been delayed too — over budget and understaffed after some of the hub's contractors allegedly embezzled funds, two workers and a Malaysian contractor told NPR.

"If Malaysia wanted to get the project done, they should have called in a Chinese company to do the job," the contractor said. He asked to remain anonymous because he feared losing his job for speaking publicly.

But by investing all over the world, in complex environments like Malaysia, China may also have bitten off more than it can chew.

"It has always been portrayed that it is China that is imposing its will on smaller countries, but small countries like us have our own agency," says Chang, the Universiti Malaya professor. "We can make things go really bad as well for China."

Liani MK contributed reporting from Kuala Lumpur.