China, Malaysia to resume East Coast Rail Link project for RM21b less

Kuala Lumpur

CHINA has struck a deal with Malaysia to resume the East Coast Rail Link project at a smaller cost and scope.

The project will now cost RM44 billion (S$14.5 billion) instead of the original RM65.5 billion, according to a Friday statement from the prime minister's office.

Premier Mahathir Mohamad revived talks on the rail link after cancelling it earlier as Malaysia struggled to narrow its budget deficit.

The deal could be a boon for China's Belt and Road Initiative, which has seen Asian governments from Myanmar to Maldives reassessing Chinese investments amid concern over sovereignty and large borrowings.

China wants the project to resume quickly, Foreign Ministry spokesman Lu Kang said at a Friday briefing in Beijing.

The rail link is meant to connect much of Peninsular Malaysia's eastern coast, whose economy lags the wealthier western coast, to a major port near Kuala Lumpur. But the project's cost ballooned as construction went underway, with the finance ministry estimating that the price tag could reach as much as RM81 billion.

China Communications Construction Co and Malaysia Rail Link Sdn signed a supplementary agreement for the reduced cost after months of talks between the companies and the two governments, according to the statement. The deal covers the engineering, procurement, construction and commissioning aspects of the rail link.

"This reduction will surely benefit Malaysia and lighten the burden on the country's financial position," the prime minister's office said in the statement.

Dr Mahathir has shown more willingness to revive some infrastructure projects after embarking on spending cuts and a corruption crackdown last year. The government was almost done with its budget review and was ready to look toward state investments to boost growth, Finance Minister Lim Guan Eng said in February.

Malaysia discussed possible fundraising through a yuan-denominated bond sale with China's support, Mr Lim said at the time. Such an offer would mark the country's debut Panda bond issuance, after it returned to the Samurai bond market this year for the first time in three decades. BLOOMBERG