A country that once courted Chinese investment now fears becoming overly indebted for projects that are neither viable nor necessary — except to China.
KUANTAN, Malaysia — In the world’s most vital maritime chokepoint, through which much of Asian trade passes, a Chinese power company is investing in a deepwater port large enough to host an aircraft carrier. Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea.
Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people and are being heavily marketed to Chinese citizens.
Each of these projects — along with many more — is being built in Malaysia, a Southeast Asian democracy at the heart of China’s effort to gain global influence.
But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a pushback against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary — except in their strategic value to China or use in propping up friendly strongmen.
Malaysia’s new leader, Mahathir Mohamad, wraps up a five-day trip to Beijing on Tuesday in which his aim has been to free his country from some of its $250 billion of debt, some of it owed to Chinese companies. His message in meetings with officials, and in public comments, has been unambiguous.
“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mr. Mahathir said on Monday at the Great Hall of the People in Beijing after meeting with Premier Li Keqiang.
For a time it appeared that China’s standard playbook for gaining favor was working in Malaysia. It had successfully courted Mr. Mahathir’s predecessor, Najib Razak, with easy loans and showcase projects, and secured deals that were of strategic value for its ambitions.
But in May, disaster struck for Beijing when Mr. Najib was voted out of office by an electorate tired of the corruption scandals swirling around him, some of which involved China’s highest-profile investment deals in Malaysia.
Mr. Mahathir, 93, was voted into office with a mandate that included getting the country out from under its suffocating debt.
From Sri Lanka and Djibouti to Myanmar and Montenegro, many recipients of cash from Chinese’s huge infrastructure financing campaign, the Belt and Road Initiative, have discovered that Chinese investment brings with it less-savory accompaniments, including closed bidding processes that result in inflated contracts and influxes of Chinese labor at the expense of local workers.
Fears are growing that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and perhaps even deliberately luring vulnerable nations into debt traps to increase China’s dominion as the United States’ influence fades in the developing world.
Mr. Mahathir’s government has suspended two major Chinese-linked projects amid accusations that Mr. Najib’s government knowingly signed bad deals with China to bail out a graft-plagued state investment fund and bankroll his continuing grip on power.
On the chopping block were a $13.4 billion contract for the China Communications Construction Company to build the East Coast Rail Link and a $2.5 billion agreement for an arm of a Chinese energy giant to construct gas pipelines.
“The Chinese must have been thinking, ‘We can pick things up for cheap here,’” said Khor Yu Leng, a Malaysian political economist who has been researching China’s investments in Southeast Asia. “They’ve got enough patient capital to play the long game, wait for the local boys to overextend and then come in and take all that equity for China.”
“The ‘Belt and Road Initiative’ (BRI) is intended to develop strong economic ties with other countries, shape their interests to align with China’s and deter confrontation or criticism of China’s approach to sensitive issues,” said a Pentagon report released last week . “Countries participating in BRI could develop economic dependence on Chinese capital, which China could leverage to achieve its interests.”
Malaysia’s new finance minister, Lim Guan Eng, raised the example of Sri Lanka, where a deepwater port built by a Chinese state-owned company failed to attract much business. The indebted South Asian island nation was compelled to hand over to China a 99-year lease on the port and more land near it, giving Beijing an outpost near one of its busiest shipping lanes.
“We don’t want a situation like Sri Lanka where they couldn’t pay and the Chinese ended up taking over the project,” Mr. Lim said.
In a recent interview with The New York Times, Mr. Mahathir made clear what he thought of China’s strategy.
“They know that when they lend big sums of money to a poor country, in the end they may have to take the project for themselves,” he said.
“China knows very well that it had to deal with unequal treaties in the past imposed upon China by Western powers,” Mr. Mahathir added, referring to the concessions China had to give after its defeat in the opium wars. “So China should be sympathetic toward us. They know we cannot afford this.”
Malaysia has long served as a prize of empire, with a geopolitical importance that belies its relatively small size. The Portuguese, Dutch and British flocked here, eager to control a fulcrum linking the Pacific and Indian Oceans. China is the latest power to try to share in the riches.
Kuantan, a Malaysian city nestled on the South China Sea coast, had never been a hot spot. But then China began adding military heft to its territorial aspirations in the sea, where five other governments, Malaysia’s included, have competing claims.
Chinese financing began washing over Kuantan five years ago. Guangxi Beibu Gulf International Port Group, a state-owned firm from an obscure Chinese autonomous region, won a contract supported by the Malaysian government to build a deepwater terminal and industrial park.
