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Published online by Cambridge University Press: 25 October 2022
This study focuses on state–state relations for business, a phenomenon shaped by how local power elites (LPEs), in this case, in Malaysia, collaborate with transnational corporate elites (TCEs), in this case, from China, to implement infrastructure projects linked to the latter's Belt and Road Initiative (BRI). These LPE-TCE links, which have led to the creation of novel forms of state–business relations (SBRs), offer interesting theoretical insights for SBR-related studies. This article builds on the conventional wisdom of homogenised SBRs as usually driven by bureaucrats by indicating that, in practice, state–business ties are extremely heterogeneous, with the capture of key institutions by influential LPEs. A conceptual framework explains theoretically how state–state relations, forged by two countries, both led by dominant parties that control their respective enterprises, have contributed to unique SBRs created to undertake BRI projects, driven by LPE-TCE links. Case studies of three BRI projects in Malaysia provide insights into how disparate forms of SBR-based institutional architecture function, not only at the federal level, but also in different states, involving enterprises from China. Diverse types of power relationships have emerged in these joint ventures, encompassing different LPEs, contributing to the creation of dissimilar SBRs. These LPEs have turned effective SBRs, fashioned to implement BRI projects, into economic endeavours that feature rent-seeking behaviour.
1 See Tenth Malaysia Plan, 2011–2015 (Kuala Lumpur: Government Printers, 2010). On Malaysia's long-standing affirmative action policy, see Sundaram, Jomo Kwame, ‘Malaysia's New Economic Policy: A class perspective’, Pacific Viewpoint 25, 2 (1984): 153–72CrossRefGoogle Scholar.
2 Although Barisan won only 47.5 per cent of the popular vote, the coalition secured 59 per cent of parliamentary seats, a consequence of gerrymandering and malapportionment in Malaysia's electoral system. See Ostwald, Kai, ‘How to win a lost election: Malapportionment and Malaysia's 2013 General Election’, Round Table 102, 6 (2013): 521–32CrossRefGoogle Scholar.
3 Bumiputera, literally ‘sons of the soil’, is the term used in reference to Malays and Indigenous Peoples. In 2020, Malaysia's population breakdown was Bumiputeras (65%), Chinese (26%), Indians (8%), with other ethnic groups making up the remainder of a total of about 32 million. See Emmanuel, Mark, ‘Book Review. Politics in Malaysia: The Malay dimension, by Edmund Terence Gomez, London: Routledge, 2007’, Journal of Southeast Asian Studies 39, 3 (2008): 497–8CrossRefGoogle Scholar; and Sikorsi, Douglas, ‘Book Review. Malaysia's political economy: Politics, patronage and profits, by Edmund Terence Gomez and Jomo K.S., Cambridge: Cambridge University Press, 1997’, Journal of Southeast Asian Studies 29, 2 (1998): 443–4CrossRefGoogle Scholar.
4 The PRC's Belt & Road routes cover 65 countries in Asia, Europe, and Africa. In 2013, this represented a combined population of 4.4 billion and a GDP of US$21 trillion. China's stated aims through the BRI are: to utilise excess domestic production capacity and secure access to energy and resources; nurture a network of economic interdependence; and seek to maintain stability and prosperity. See ‘China unveils action plan on Belt and Road Initiative’, Xinhua, 28 Mar. 2015, http://english.www.gov.cn/news/top_news/2015/03/28/content_281475079055789.htm.
5 ‘Chinese president arrives in Kuala Lumpur for state visit’, Xinhua, 4 Oct. 2013, http://en.people.cn/90883/8416753.html.
6 Najib allegedly transferred RM2.6 billion (US$681 million), from 1MDB, a state-owned investment company, to his personal bank account in 2013. Tom Wright and Simon Clark, ‘Investigators believe money flowed to Malaysian leader Najib's accounts amid 1MDB probe’, Wall Street Journal, 2 July 2015.
7 In ‘developmental state’ theory, when private sector firms do not have the capital to invest in expensive and risky ventures, the state intervenes to reallocate resources to these potentially growth-enhancing projects. See Johnson, Chalmers, MITI and the Japanese Miracle: The growth of industrial policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982)CrossRefGoogle Scholar; and Evans, Peter, Embedded autonomy: States and industrial transformation (Princeton, NJ: Princeton University Press, 1995)CrossRefGoogle Scholar. State institutions, if well managed by bureaucrats, ensure these ventures become viable, leading to employment creation, revenue, and technological upgrading. Such interventions may also be abused by elites for their own benefit.
8 DiCaprio, Alisa, ‘Introduction: The role of elites in economic development’, in The role of elites in economic development, ed. Amsden, Alice H., DiCaprio, Alisa and Robinson, James A. (Oxford: Oxford University Press, 2012), pp. 1–15Google Scholar.
9 Zang Xiowei, ‘Why are the elite in China motivated and able to promote growth?’, in Amsden et al., The role of elites in economic development, pp. 231–47.
10 Adrian Leftwich, ‘Development states, effective states and poverty reduction: Primacy of politics’, United Nations Institute for Social Development (UNRISD), Apr. 2008, https://www.unrisd.org/en/library/publications/developmental-states-effective-states-and-135-the-primacy-of-politics.
11 Schneider, Ben Ross and Maxfield, Sylvia, ‘Business, the state, and economic performance in developing countries’, in Business and the state in developing countries, ed. Maxfield, S. and Schneider, B.R. (Ithaca, NY: Cornell University Press, 1997), pp. 3–35Google Scholar; te Velde, Dirk Willem, Effective state–business relations, industrial policy and economic growth (London: ODI, 2010)Google Scholar; Sen, Kunal, ed., State–business relations and economic development in Africa and India (London: Routledge, 2013)CrossRefGoogle Scholar; Sen, Kunal, State–business relations: Topic guide (Birmingham: GSDRC, University of Birmingham, 2015)Google Scholar.
12 See Schneider and Maxfield, ‘Business, the state, and economic performance’.
13 This period witnessed a proliferation of unique SBRs related to BRI projects. After Barisan's ouster by Pakatan Harapan (Pakatan; Alliance of Hope) following the 2018 General Election, some BRI projects such as the ECRL, deeply criticised by Pakatan, were cancelled. However, the Chinese had signed a watertight contract with the Barisan government, which included a supplementary RM10.5 billion agreement to convert the single-track rail to a double-track one. Terminating the contract would have incurred a huge compensation. Pakatan had no choice but to restart the project. After Mahathir, as 7th prime minister, met Xi in Beijing in April 2019, the contract was renegotiated to reduce the construction cost from RM65.5 billion to RM44 billion.
14 These include 26 semi-structured interviews with Chinese SOEs, top Chinese private developers, local construction firms, industry experts, trade associations, analysts, and politicians carried out between Sept. 2017 and Mar. 2018. The interviewees are anonymous due to the sensitivity of this topic, as the BRI projects involved key politicians and royalty in Malaysia.
15 Jomo, ‘Malaysia's New Economic Policy’.
16 For a general discussion on the evolution of SBRs in Malaysia, see Gomez, Edmund Terence, ‘Resisting the fall: The single dominant party, policies and elections in Malaysia’, Journal of Contemporary Asia 46, 4 (2016): 570–90CrossRefGoogle Scholar; and Case, William, ‘Stress testing leadership in Malaysia: The 1MDB scandal and Najib Tun Razak’, Pacific Review 30, 5 (2017): 633–54CrossRefGoogle Scholar.
17 See Slater, Dan, ‘Iron cage in an iron fist: Authoritarian institutions and the personalisation of power in Malaysia’, Comparative Politics 36, 1 (2003): 81–101CrossRefGoogle Scholar; Magaloni, Beatriz, Voting for autocracy: Hegemonic party survival and its demise in Mexico (Cambridge: Cambridge University Press [CUP], 2006)CrossRefGoogle Scholar; and Greene, Kenneth F., Why dominant parties lose: Mexico's democratisation in comparative perspective (Cambridge: CUP, 2007)CrossRefGoogle Scholar. Malaysia's political system, dominated by UMNO, differs from China's one-party state, ruled by the CCP. Opposition parties are allowed in Malaysia, but not in China.
18 Gomez, Edmund Terence and de Micheaux, Elsa Lafaye, ‘Diversity of Southeast Asian capitalisms: Evolving state–business relations in Malaysia’, Journal of Contemporary Asia 47, 5 (2017): 792–814CrossRefGoogle Scholar.
19 By 2009, a new form of state-led SBR had emerged, with Malaysia's leading businesses mainly comprising GLCs run by professional or managerial elites. See Gomez, Edmund Terence, Padmanabhan, Thirshalar, Kamaruddin, Norfaryanti, Bhalla, Sunil and Fisal, Fikri, Ministry of Finance Incorporated: Ownership and control of corporate Malaysia (Basingstoke: Palgrave-Macmillan, 2017)Google Scholar.
20 Other than the IMDB, many other scandals emerged involving business-related state institutions, such as Majlis Amanah Rakyat (MARA, Council of Trust for Indigenous People), Lembaga Tabung Angkata Tentera (LTAT, Armed Forces Savings Fund), Lembaga Tabung Haji (LTH, Pilgrims Savings Fund), and the Federal Land Development Authority (FELDA). See Gomez et al., Ministry of Finance Incorporated. These scandals further undermined domestic investment, and increased the need for FDI.
21 de Graaff, Nana and van Apeldoorn, Bastiaan, ‘US elite power and the rise of “statist” Chinese elites in global markets’, International Politics 54, 3 (2017): 338–55CrossRefGoogle Scholar.
22 Buckley, Peter J., Clegg, L. Jeremy, Cross, Adam R., Xin, Liu, Voss, Hinrich, and Ping, Zheng, ‘The determinants of Chinese outward foreign direct investment’, Journal of International Business Studies 38, 4 (2007): 499–518CrossRefGoogle Scholar.
23 Mills, C. Wright, The power elite (New York: Oxford University Press, 1956)Google Scholar; Useem, Michael, Inner circle: Large corporations and the rise of business political activity in the US and UK (Oxford: Oxford University Press, 1984)Google Scholar.
24 On the constitutional rights of the sultans, see Milner, Anthony C., Kerajaan: Malay political culture on the eve of colonial rule (Tucson: University of Arizona Press; Association for Asian Studies, 1982)Google Scholar.
25 William Case, ‘Revisiting a consociational democracy: Elite relations and regime form in Malaysia’ (PhD diss., University of Texas at Austin, 1991); Gordon P. Means, Malaysian politics: The second generation (Singapore: Oxford University Press, 1992).
26 See Bruce Gale, Politics and public enterprise in Malaysia (Petaling Jaya: Eastern Universities Press, 1981); and Gomez, ‘Resisting the fall’.
27 See William K. Carroll, The making of a transnational capitalist class: Corporate power in the 21st century (London: Zed, 2010); Bastiaan van Apeldoorn and Nana de Graaff, ‘The limits of open door imperialism: The US state–capital nexus’, Globalizations 9, 4 (2012): 593–608; Bastiaan van Apeldoorn and Nana de Graaff, ‘Corporate elite networks and US post-Cold War grand strategy from Clinton to Obama’, European Journal of International Relations 20, 1 (2014): 29–55; Eelke M. Heemskerk and Frank W. Takes, ‘The corporate elite community structure of global capitalism’, New Political Economy 21, 1 (2015): 90–118; Christian Schneickert, Andreas Kroneder and Regine Schwab, ‘Globalising elites from the “Global South”: Elites in Brazil and India’, in Understanding the dynamics of global inequality: Social exclusion, power shift and structural changes, ed. Alexander Lenger and Florian Schumacher (Heidelberg: Springer, 2015), pp. 229–43.
28 Nana de Graaff, ‘Global networks and the two faces of Chinese national oil companies’, Perspective on Global Development and Technology 13 (2014): 539–63; De Graaff and Van Apeldoorn, ‘US elite power’; Nana de Graaff and Bastiaan van Apeldoorn, ‘US–China relations and the liberal world order: Contending elites, colliding visions?’, International Affairs 94, 1 (2018): 113–31.
29 De Graaff and Van Apeldoorn, ‘US–China relations’.
30 Liu Hong and Lim Guanie, ‘The political economy of a rising China in Southeast Asia: Malaysia's response to the Belt and Road Initiative’, Journal of Contemporary China 28, 116 (2018): 216–31.
31 Sen, State–business relations: Topic guide.
32 Bardhan, Pranab, Scarcity, conflicts and cooperation: Essays in the political and institutional economics of development (Cambridge, MA: MIT Press, 2005)Google Scholar.
33 Te Velde, Effective state–business relations; see also Stiglitz, Joseph E., Whither socialism? (Cambridge, MA: MIT Press, 1996)Google Scholar.
34 Leftwich, ‘Development states’.
35 In particular, see Krueger, Anne O., ‘The political economy of rent-seeking society’, American Economic Review 64 (1974): 291–303Google Scholar.
36 Ricardo Hausmann and Dani Rodrik, Economic development as self-discovery, NBER Working Paper 8952 (Cambridge MA, NBER, 2002).
37 Fuchs, Doris and Lederer, Markus, ‘The power of business, business power and global governance’, Business and Politics 9, 3 (2007): 1 –17Google Scholar.
38 Alberto Lemma and Dirk Willem te Velde, ‘State–business relations as drivers of economic performance’, WIDER Working Paper 2015/098 (Helsinki: KOICA/UNU-WIDER, 2015).
40 De Graaff and Van Apeldoorn, ‘US elite power’.
41 Higley, John and Burton, Michael J., ‘The elite variable in democratic transitions and breakdowns’, American Sociological Review 54 (1989): 17–32CrossRefGoogle Scholar.
42 Fuchs and Lederer, ‘The power of business’.
43 Lemma and Te Velde, ‘State–business relations’.
44 Abdullah Ahmad Badawi was Malaysia's 5th prime minister (2003–09).
45 See Chester Tay, ‘ECRL not world's costlier rail project’, The Edge, 9 Nov. 2016, https://www.theedgemarkets.com/article/ecrl-not-world%E2%80%99s-costliest-rail-project.
46 See Leslie Lopez, ‘Malaysia's East Coast Rail Line touted as a game changer’, Straits Times, 22 Dec. 2016, https://www.straitstimes.com/asia/se-asia/malaysias-east-coast-rail-line-touted-as-a-game-changer.
47 See ‘China to pour in billions for rail project’, Star, 1 Nov. 2016, https://www.thestar.com.my/news/nation/2016/11/01/china-to-pour-in-billions-for-rail-project-engineeringandconstruction-contract-will-also-be-signed.
48 Wright and Clark, ‘Investigators believe money flowed’.
49 See ‘WSJ: China offered to bail out 1MDB in return for projects’, Malaysiakini, 8 Jan. 2019, https://www.malaysiakini.com/news/459308.
50 See ‘70% of shortlisted subcontractors for ECRL work are Bumiputeras’, Free Malaysia Today, 2 Aug. 2019, https://www.freemalaysiatoday.com/category/nation/2019/08/02/70-of-shortlisted-subcontractors-for-ecrl-work-are-bumiputeras/.
51 Tay, ‘ECRL not world's costliest rail project’.
52 ‘WSJ: China offered to bail out 1MDB in return for projects’.
53 Interview with a very senior member of staff in CCCC Malaysia, Sept. 2017.
54 Chester Tay, ‘EPU in charge of ECRL, not Transport Ministry, Parliament told’, The Edge, 3 Nov. 2016, https://www.theedgemarkets.com/article/epu-charge-ecrl-not-transport-ministry-parliament-told?type=Latest%20News.
55 Off-budget financing refers to government expenditure that is not funded through the budget. MRL, as an SPV set up by MoF Inc., could bypass Parliament and borrow money to build ECRL on the strength of a government sovereign guarantee letter, an issue not reflected in the budget. See Chester Tay, ‘Rafizi: ECRL deal signed with RM2 company formed without Parliament's approval’, The Edge, 7 Nov. 2016, https://www.theedgemarkets.com/article/rafizi-ecrl-deal-signed-rm2-company-formed-without-parliaments-approval.
56 ‘We didn't know China deals were to bail out 1MDB’, Malaysiakini, 8 Jan. 2019, https://www.malaysiakini.com/news/459357.
57 See Yimie Yong, ‘Tony Pua: Govt's previous feasibility study shows ECRL's RM55 billion project cost should be less than RM30 billion’, The Edge, 15 Nov. 2016, https://www.theedgemarkets.com/article/tony-pua-govts-previous-feasibility-study-shows-ecrls-rm55b-project-cost-should-be-less.
58 See Abdul Rahman Dahlan, ‘Minister explains why ECRL will cost RM55 billion’, Malaysiakini, 8 Nov. 2016, https://www.malaysiakini.com/news/362231.
59 Malaysian Investment Development Authority (MIDA), ‘Malaysia Investment Performance Report 2016: Strengthening the Growth Momentum (Kuala Lumpur: MIDA, 2017), https://mida.gov.my/wp-content/uploads/2020/12/20171101140914_MIDA-FINAL20MIPR2016.pdf (last accessed 11 Aug. 2022).
60 ‘RM40b Malacca Gateway to open doors in 2018’, Sun Daily, 7 Feb. 2014, https://www.thesundaily.my/archive/951031-ERARCH240288.
61 ‘Malacca, “China's gateway to S-E Asia”’, Straits Times, 16 Apr. 2017, https://www.straitstimes.com/asia/se-asia/malacca-chinas-gateway-to-s-e-asia.
62 ‘KAJD and Powerchina sign RM30 bil agreement for Melaka Gateway project’, The Star, 1 Sept. 2016, https://www.thestar.com.my/business/business-news/2016/09/01/kajd-and-powerchina-sign-rm30bil-agreement-for-melaka-gateway-project/; Arnaz M. Khairul, ‘Why politicise them?’, New Straits Times, 2 Sept. 2017, https://www.nst.com.my/news/2017/02/209199/why-politicise-them.
63 Interview, Oct. 2017.
64 MCA was UMNO's leading partner in the then ruling Barisan coalition.
65 Interview, key UMNO politician at the state level, Oct. 2017.
66 Interview, one of the top three officials, Powerchina Malaysia, Nov. 2017.
67 R.S.N. Murali, ‘Port will cater to maritime industry’, The Star, 20 Oct. 2016, https://www.thestar.com.my/news/nation/2016/10/20/port-will-cater-to-maritime-industry-new-facilities-at-melaka-gateway-will-support-growing-demand-wi/.
68 For example, UEM Sunrise, S P Setia, Sime Darby, IOI, Sunway, Mah Sing, and Eco World were GLCs or leading Malaysian developers that had the relevant expertise and financial capacity to undertake such a project.
69 ‘Chinese premier visits Malacca to send message of peace amid U.S. meddling in South China Sea (3)’, Xinhua, 23 Nov. 2015, http://en.people.cn/n/2015/1123/c90000-8980206-3.html.
70 Ho Wah Foon and Tho Xin Yi, ‘A win-win relationship’, The Star, 3 July 2016, https://www.thestar.com.my/news/nation/2016/07/03/a-winwin-relationship-chinas-onebelt-oneroad-regional-economic-expansion-will-shower-abundant-trade/.
71 ‘Malacca harbour plan raises questions about China's strategic aims’, Straits Times, 14 Nov. 2016, https://www.straitstimes.com/asia/se-asia/malacca-harbour-plan-raises-questions-about-chinas-strategic-aims.
74 It is beyond the scope of this study to examine the background of mainland Chinese business actors. This is because the definition of Chinese TCEs, as suggested by De Graaff and Van Apeldoorn, ‘US elite power’, primarily focuses on Chinese SOEs and major private firms, rather than individual elites in these enterprises.
75 Ng Kheng Koon and Lim Guanie, ‘Beneath the veneer: The political economy of housing in Iskandar Malaysia, Johor’, Trends in Southeast Asia, TRS no. 12 (Singapore: ISEAS-Yusof Ishak Institute, 2017).
76 In January 2015, Forest City was included in the Comprehensive Development Plan of Iskandar Malaysia.
77 Pooja Thakur Mahrotri and En Han Choong, ‘$100 billion Chinese-made city near Singapore scares the hell out of everybody’, Bloomberg, 21 Nov. 2016, https://www.bloomberg.com/news/features/2016-11-21/-100-billion-chinese-made-city-near-singapore-scares-the-hell-out-of-everybody.
78 ‘Sultan of Johor's business empire’, KiniBiz, 10 June 2014, http://www.kinibiz.com/story/issues/91213/sultan-of-johors-business-empire.html.
79 Interview, key UMNO politician in Johor, Dec. 2017. The Khalid–Daing dispute was not as intense as that between Idris and Ali, as the latter involved control of a state government, which was in turn less severe than the Najib–Muhyiddin feud on issues related to the 1MDB-ECRL project, and also control of the federal government.
80 Nigel Aw, ‘The case of Forest City and the Johor sultan’, Malaysiakini, 14 July 2014, https://www.malaysiakini.com/news/268649.
81 Based on company searches done in February 2018, IWH's major shareholder, Lim, also controlled public-listed Ekovest Berhad, Iskandar Waterfront City Berhad and Knusford Berhad, in partnership with KPRJ or the Johor royal family.
82 ‘Sultan of Johor's business empire’.
83 ‘IWH inks deal with China's Country Garden’, The Edge, 25 Dec. 2012, https://www.theedgemarkets.com/article/iwh-inks-deal-chinas-country-garden.
84 De Graaff and Van Apeldoorn, ‘US–China relations’.
85 Summer Zhen, ‘Country Garden pledges refund for Forest City buyers caught in Beijing's crackdown on capital outflows’, South China Morning Post, 5 Apr. 2017, https://www.scmp.com/business/companies/article/2084744/country-garden-pledges-refund-forest-city-buyers-caught-beijings.
86 Mahathir Mohamad, Letter, ‘Dr. M replies on Forest City issue’, The Star, 17 Jan. 2017, https://www.thestar.com.my/opinion/letters/2017/01/17/make-forest-city-deal-public/.
87 Interview, senior executive staff, Country Garden Malaysia, Dec. 2017.
88 Zhen, ‘Country Garden pledges refund’.
89 Forest City will consist of four man-made islands. Phase 1 entails development of the first reclaimed island, while the other phases include a huge industrial park. In 2019, more than 20,000 residential units were handed over to their buyers; https://www.scmp.com/business/article/3026354/malaysias-forest-city-handover-more-20000-residential-units-year-it). In 2020, Country Garden said sales remained resilient and they had successfully issued three tranches of Islamic Sukuk bonds of RM495 million, with AA3/Stable rating; https://www.freemalaysiatoday.com/category/business/2020/04/21/sales-of-malaysian-projects-remain-resilient-says-chinas-country-garden/.
90 ‘China unveils action plan on Belt and Road Initiative’.
91 ‘Exclusive integrated transport system for Forest City’, New Straits Times, 28 Nov. 2017, https://www.nst.com.my/news/exclusive/2017/11/308593/exclusive-integrated-transport-system-forest-city.
92 Figure obtained from a company search done in February 2018.
93 In 2013, it was reported that the Sultan had sold six plots of land in the state capital Johor Baru to R&F Properties Co. Ltd, another leading private developer from China, for RM4.5 billion. Ng Bei Shan, The Star, ‘China based company buys RM4.5 bill worth of land in Johor Baru’; https://www.thestar.com.my/business/business-news/2013/12/03/rm45bil-land-deal-in-johor-chinabased-guangzhou-rf-buys-47ha-from-royalty/ .
94 Milner, Kerajaan.
95 A transit-oriented development (TOD) is a special type of mixed development that maximises the amount of residential, business, and leisure space within walking distance of public transport. A TOD typically includes a central transit stop, such as a train station, light rail, or bus stop, surrounded by a high-density mixed-use area, with low-density areas spreading out from this centre.
96 Higley and Burton, ‘The elite variable’.
97 Gomez and De Micheaux, ‘Diversity of Southeast Asian capitalisms’.
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