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In Mahathir's Malaysia, Japan is back amid doubts over Chinese funding

Reuters  |  KUALA LUMPUR 

By and Anshuman Daga

KUALA LUMPUR (Reuters) - Malaysian is set to woo investors and offer business deals during a trip to that starts on Sunday, as he looks to cover a gaping debt hole and shift the country away from dependence on Chinese investments.

The visit marks his first foreign trip after returning to power in a shock election result last month, and indicates a shift back to the 92-year-old's 'Look East' policy to strengthen ties with east Asia, especially

It is also seen as a sign of the Southeast Asian country's move away from China, which contentiously pumped billions of dollars into the scandal-tainted previous administration. The new government has said some Chinese companies are now under suspicion of being used to cover up the graft scandal at state fund (1MDB).

"The previous government may have engaged Japan, but certainly not with the enthusiasm it had for China," said Shahriman Lockman, a with the and International Studies.

Malaysia's cash-strapped government could look to tap Japan's vast pool of low-cost capital, while potential stake sales in Malaysian state-linked companies could be investment targets of Japanese companies, said bankers involved in cross-border deals.

Mahathir had already agreed to attend the annual Nikkei conference on before winning the elections, but will now also meet and senior officials during his three-day visit.

"The fact that he chose to stick to his plans to attend the conference does say something: it will doubtless provide an opportunity to rejuvenate Malaysia-ties," said Shahriman.

Mahathir has pulled out of a high-speed rail project with and is reviewing a $14 billion local rail line to be built by Chinese companies.

Malaysia's foreign ministry said in a statement that Mahathir's visit would enable to highlight its current policies towards Japan and other countries in the region, especially related to foreign investments and trade.

"With the comeback of Tun Dr Mahathir, I'm sure our industries will be very delighted to think positively of their engagement with and its industries," Makio Miyagawa, Japanese to told state agency

Japan is Malaysia's largest foreign direct investment contributor at $13 billion last year, said.

ON THE HOOK

Mahathir has accused Chinese state-linked firms of inflating deal costs, engaging in corrupt practices, and even conspiring in the cover up of the 1MDB scandal.

He's sending the minister and anti-graft agents to this week to investigate discrepancies in a These billion-dollar deals, and a growing presence of Chinese construction workers and entrepreneurs, have spooked Malaysians.

"Mahathir probably wishes that he could run a scalpel through those incredibly costly projects that involve Chinese companies," said Shahriman.

But moving away won't be easy, given the decades of strong ties and about a hundred billion dollars in bilateral trade, Shahriman said.

Ties between Malaysia and peaked in the last few years after stepped in with a $2.3 billion deal to buy 1MDB assets. This was followed by several infrastructure projects which were won by Chinese state-linked firms.

Financial industry executives expect Japan to accelerate its pace of investment in Malaysia under the new government.

"Malaysia is a market the Japanese find easier to invest in. The way Malaysian firms operate their business, the legal set-up - all this is something the Japanese are comfortable with," said the of at a Japanese bank, who was not authorised to be named.

He expects interest in the financials sector, namely banks and insurers. Mahathir is scheduled to meet top officials from and Sumitomo Mitsui Banking Corporation, among others.

(Reporting by and Anshuman Daga; Additional reporting by in TOKYO)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Sun, June 10 2018. 23:32 IST
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