Comment - Look East lessons

IT is amusing to watch Tun Mahathir Mohamad continuing criticisms of China investments in Forest City in Johor and other multi-billion foreign direct investments (FDI). You would think that this is a new policy.

It was Mahathir's policy in 1982 to "Look East" that started the trend of encouraging FDIs from a singular source. When he looked east then, he could only see Japan. Beyond the fluffy talk of equating "Eastern values" with Japanese values, the Look East policy was actually a camouflage for an influx of Japanese foreign direct investments into Malaysia.

Before long, Malaysia's iconic building at the time, the RM400 million Dayabumi Complex was built by a Japanese company and in a short time, Japanese and South Korean construction companies bagged about RM5 billion in major contracts, frustrating local builders.

Malaysia's national car was a partnership between Hicom and Mitsubishi; Japanese companies were favourites to win energy contracts during the Eighties and Nineties, and there were many more contracts won by Japanese investors. Before long, more and more Japanese were making Malaysia their "second home". Did Mahathir raise any alarm bells about any suspicious "Project IC" that might be used by these Japanese second homers?

And like a good student of his former mentor, Prime Minister Datuk Seri Najib Razak seems to be keen to carry out the second phase of the Look East Policy especially after Japanese Prime Minister Shinzo Abe's recent visit to Malaysia. Japanese investors are certainly eyeing the multi-billion KL-Singapore High Speed Rail project.

Ironically, in recent years it has been "Red China" that has rescued world capitalism, especially the US and the eurozone from their sovereign debt crisis. China's financial resources helped to contribute to solving the eurozone's debt problem and to continue to sustain the US deficit. In the process, China has increased its investments in European industrial and infrastructure projects.

Closer to home, China's latest mission is the timely purchase of our national assets that needed rescue. Thus we can say that former "Red China" has rescued Malaysian capitalism and especially the political fortunes of the prime minister.

Thus, while Singapore, the US, and Japan have traditionally been Malaysia's main trading partners, the People's Republic of China has now become the country's most important trading partner and source of FDIs. China has invested in manufacturing projects as well as in real estate such as the Malaysia-Kuantan Industrial Park as well as Bandar Malaysia, the main terminus of the planned High Speed Rail, Forest City in Johor Baru, port development in Klang, Malacca, Kuantan and Tumpat. In infrastructure development, the China government-linked corporations have secured contracts for the RM55 billion East Coast Rail Link, the RM9 billion Gemas-Johor Baru dual tracking project, as well as provisions of rolling stock.

Certainly, without transparency, such increased FDI will see more rent-seeking activities and strengthen Najib's grip on power just as it did for Mahathir during the Eighties.

Mahathir's Look East Policy should be a lesson for Malaysia to be wary of these multi-billion inflows of FDIs from singular sources. Despite the hype, Mahathir's Look East Policy with massive Japanese FDI inflows failed to lift Malaysia out of the middle-income trap chiefly because the strategy was founded on using unskilled and semiskilled local labour. Japanese companies were slow to invest in skill-intensive industries in Malaysia and even slower to transfer new technology to their Malaysian units. They tended to employ more expatriate managers than other foreign investors.

Will the latest purveyors of FDI largesse – China and Saudi Arabia – be any different from the Japanese investors of the 1980s? Will they also be using mainly expatriate managers and relying on their own supply chains and raw materials? We should ensure that the failures of the past are not repeated and these foreign investors adhere to our local requirements.

First, for a very different outcome, we need transparency over the award of all these multi-billion contracts to ensure that the successful tenders are made in the people's interest, for the good of all. Next, we must ensure that the terms and conditions agreed in the contracts with foreign investors fully commit to: engaging and developing local human capital, enhancing enterprise development and applying clean technologies to Malaysian projects.

Most important, we have to ensure that these development projects do not violate or degrade our environment or encroach on the customary lands of our indigenous peoples such as the Mah Meri on Carey Island or in Sabah and Sarawak. If China still claims to be Socialist, we could depend on it being more discriminating in its choice of investments to ensure that indigenous peoples' rights are not violated.

For a firm people-centred strategy with foreign investors, the government must do much more to build trust at home by consolidating the rule of law and good governance, including stepping up efforts against corruption and enhancing policy and regulatory frameworks. Otherwise, there will be opportunities for rent-seeking activities and corruption, which will continue to suck the nation dry.

If foreign investors are to be rid of the excuse that we cannot provide the high skills they need, then we have to thoroughly reform our education system to provide specialised skills beyond basic education and to curb the brain drain. To ensure a healthy workforce, we need a good public health infrastructure, including a secure supply of clean water. Workers' rights to unionise and collective bargaining are essential to eliminate child labour, workplace discrimination and will help to upgrade their skills and raise the motivation of Malaysian workers.

Kua Kia Soong is Suaram's adviser. Comments: letters@thesundaily.com