Chinese crony tycoons facing more hostilities to do business in Malaysia

For several of Malaysia’s Chinese crony industrialists, it is no longer business as usual.

Long favoured in the awarding of lucrative government-infrastructure undertakings, juicy long-term concessions and business licences, the country’s well-connected business groups are facing opposition in securing deals in an increasingly hostile commercial environment with the return of race-tinged policies.

Prominent examples are tycoons Tan Sri Francis Yeoh of the YTL Group and Tan Sri Vincent Tan Chee Yioun of diversified conglomerate Berjaya Group.

Yeoh’s international engineering powerhouse YTL, which owns power and water projects in Singapore and the United Kingdom, was recently dropped from a multibillion dollar power-generation project for upsetting the country’s dominant ethnic Malay political and business establishment with his alleged criticism of Malaysia’s brand of crony capitalism at a public forum.

Now, his group’s move to play an active role in a multibillion dollar high-speed train project connecting Kuala Lumpur and Singapore also hangs in the balance, government officials say.

Tan of Berjaya Group, who is struggling to revive a potentially lucrative sports-betting operation that he was awarded during the leadership of strongman Tun Dr Mahathir Mohamad, is facing a different kind of pressure.

A government plan to spend over RM1 billion to build a massive incinerator plant with an estimated capacity of close to 1,000 tonnes is threatening to undercut his huge sanitary landfill project located outside Kuala Lumpur.

"Since we already have an adequate sanitary landfill to take care of Kuala Lumpur's and Selangor's waste for the long-term, in my view the government should not spend the estimated RM1 billion to implement the Kuala Lumpur incinerator project," Tan said in a recent statement.

But government officials say that Kuala Lumpur will go ahead with the incinerator project that is being pushed by a business group linked to Prime Minister Datuk Seri Najib Razak’s ruling Umno.

The travails faced by Yeoh and Tan, who are both regarded as Malaysia’s most well-connected tycoons, highlight the changes sweeping the country’s corporate landscape.

As the lynchpin of the Barisan Nasional (BN) coalition government, Umno has long dictated economic policy, and the country’s brand of command capitalism is predicated on discriminating in favour of ethnic Malays, who make up just over 60% of the population.

They are prioritised in the awarding of government contracts and employment in government agencies. Malays also benefit handsomely from strict rules that require local and foreign businesses operating in Malaysia to bring ethnic Malay partners into their ventures.

In an expanding economic pie, the policies worked and non-Malay business groups with strong political ties, such as YTL and Berjaya, thrived, despite favouring the Malays. So too did small- and medium-sized enterprises that emerged as the country’s export backbone.

But Umno’s political clout has diminished significantly in recent years. In last year’s general election, the Umno-led Barisan Nasional lost the popular vote, securing only 47% compared with the opposition’s 51%. This was largely because of the near rejection by non-Malay voters, particularly the Chinese.

While Malaysia’s gerrymandered electoral system has allowed Umno and its allies to control roughly 60% of the 222 seats in parliament, the election results have emboldened right-wing elements within the ruling party and other ethnic Malay groupings to demand greater political and economic concessions from the government at the expense of the country’s other communities.

To survive the onslaught from the conservative wing, Prime Minister Najib has turned his back on reform and put in place various initiatives, including a US$10 billion (RM32 billion) fund that will dish out loans to Malay entrepreneurs.

And on Thursday, Najib instructed state-owned corporations to allocate US$2.2 billion to Malay businesses.

For the near term, Kuala Lumpur’s return to more race-based policies is unlikely to have an impact on the economy, which the World Bank estimates will expand by as much as 5.4% this year, on the back of infrastructure spending by the state and a revival in exports.

But it will hurt the economy in the long run, economists warn.

That is why the challenges facing YTL and Berjaya are being watched closely.
Analysts say they could set the tone for future private investment, both foreign and local, in the economy.

Yeoh and Tan, together with dozens of other Malaysian businessmen, were creations of Dr Mahathir’s ambitious plan to industrialise Malaysia during his tenure as prime minister that began in 1981.

A central plank of that industrialisation agenda was the government’s privatisation programme, which involved the awarding of infrastructure-development projects with long-term concessions to build and operate ventures ranging from power-generation plants, highways, mobile telecommunications networks, sewerage and lottery operations.

YTL, a home-grown engineering and construction outfit, got its first break in the mid-1990s, when it won a contract to build a power plant and supply electricity to the country’s national power company on very lucrative terms.

That deal, and a host of government projects, helped YTL expand overseas.

YTL’s wholly owned Power Seraya, an electricity producer in Singapore, supplies about 25% of the city-state’s power needs, while UK-based Wessex Water, which it bought from defunct US electricity trader Enron, has a 25-year contract to supply water and water treatment services in southwest England.

Sometime last year, the group teamed up with business interests linked to the royal household of Johor to bid for infrastructure projects, which included power plants and a slice of the planned high-speed train linking Singapore and Kuala Lumpur.

With its strong political pedigree, the YTL-led joint venture secured rights to a project to build a US$1 billion power plant in Johor early last month. The award raised eyebrows because it was granted without any competitive bidding.

But nothing could prepare Yeoh for the violent political storm he kicked off with his off-the-cuff comments at a public forum last month, where he sought to dispel the perception that he was a beneficiary of Dr Mahathir’s economic policies.

Yeoh was widely quoted in the domestic media as saying that Malaysia needed to do away with crony capitalism and take advantage of its ethnic diversity to compete globally.

With more than 85% of his business overseas, the businessman added that he did not need to know prime ministers before doing deals. “I turned to the West because of its transparent, coherent regulatory framework,” he was quoted as saying.

The blowback from Malaysia’s political elite and the country’s predominantly ethnic Malay civil service was swift, and YTL was forced to pull out of the power plant project. – The Edge Review, July 18, 2014.