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Malaysia's China reset imagines Byte and Road

Singapore

MAHATHIR Mohamad may have a compromise for China: the Byte and Road. His first visit to the People's Republic since being elected prime minister in May began not in Beijing or Shanghai, but rather Alibaba's hometown of Hangzhou, and has included a new-energy deal with carmaker Geely. That suggests a clever effort to extract technology in exchange for infrastructure.

Geography and personal ties between Dr Mahathir's predecessor, Najib Razak, and Beijing made Malaysia an important piece of President Xi Jinping's modern-day trading corridors, also known as the Belt and Road. Dr Mahathir, though, has thrown much of that into question, threatening to scrap plans such as a US$20 billion rail link connecting the South China Sea and the Strait of Malacca.

Much of the rhetoric was posturing. So, too, was Dr Mahathir's decision to visit Japan instead of China on his maiden overseas trip in June. The Chinese journey that started on Friday outlines the shape that a rapprochement will take: not just cost cuts to big projects to avoid "a new version of colonialism", as Dr Mahathir said on Monday, but a tech boost for the flagging US$300 billion economy.

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What Malaysia gets in the bargain is clear: it has lagged neighbours such as Thailand or fast-expanding Vietnam, with too many of its exports sitting in the middle of the supply chain. It also badly needs to raise wages and productivity to address inequality problems. Economic growth clocked in at 4.5 per cent in the second quarter, the slowest rate since the last three months of 2016.

The likes of Alibaba and Geely, which part-owns Malaysia's homegrown carmaker Proton, can help rev things up, especially if some portion of spending on rail and roads is salvaged, and tourism keeps increasing.

China would benefit from such an arrangement, too. Malaysia is a good place to launch e-commerce initiatives and other expansions into South-east Asia. Geely's move to push Proton overseas also should help it service the low end of the market.

Political risks remain. There is, for example, tension over fugitive financier Jho Low, at the centre of Malaysia's 1MDB corruption scandal. Malaysia believes that Low is living in China, according to the Wall Street Journal. For now, though, Dr Mahathir is on the right road. REUTERS