China's Liaoning aircraft carrier with accompanying fleet. Photo: Reuters
China's Liaoning aircraft carrier with accompanying fleet. Photo: Reuters

Malaysian foreign minister Anifah Aman said in a spirited speech this week to parliament that Kuala Lumpur does not acknowledge Beijing’s “nine-dash line” expansive claim over territories in the South China Sea, including features claimed by his country. This, he said, is because it is not in accordance with international law.

“Malaysia is also of the stand that there does not exist any overlapping claims or territorial disputes between Malaysia and China on the South China Sea,” Anifah said. “All geographical aspects or maritime features which are within Malaysia’s maritime jurisdiction belong to Malaysia.”

Anifah added that Malaysia “cannot remain neutral” on the disputes, of which Malaysia claims possession to a dozen Spratly islands in the South China Sea, as well as other outcrops in the disputed territory.

Anifah’s statement was at odds with a government that has maintained mainly a reticent line about China’s ambitions in the economically important maritime area.

But with an upcoming general election which must take place before August 2018, Anifah’s statement sparked speculation that it was intended to placate domestic critics who believe Prime Minister Najib Razak’s government has grown too close and yielded too much to China, rather than a radical shift in policy.

Domestic politics also explained, according to some analysts, why Malaysia decided last month to ask the International Court of Justice (ICJ) to review a 2008 ruling on Singapore’s ownership of the small island of Pedra Branca.

Known as Pulau Batu Puteh by Malaysia, Pedra Branca lies southeast of Malaysia’s southern Johor state, which will be a key battleground in the general election.

It is an effort by the Najib government to “display strong leadership in the country’s foreign policy so as to safeguard Malaysia’s sovereignty,” Mustafa Izzuddin, a Southeast Asian politics researcher at Singapore’s ISEAS-Yusof Ishak Institute, said last month.

The reality, however, is that the Najib government knows it cannot be too forceful with its South China Sea dispute with China because of its increasing economic reliance on Chinese trade and investment.

South China Sea disputed islands

Indeed, while the Singaporean government has contested the ICJ review, it has made clear that relations with Malaysia are not going to be affected because of it. The same cannot be said for China, however.

China has been Malaysia’s largest trading partner since 2009 and is today its biggest foreign investor. Last year bilateral trade was worth more than USD$50 billion, up 4.4% from 2015.

The Najib government is keenly aware that Chinese investment has played a key role in shielding Malaysia’s struggling economy, which was severely impacted by a global drop in oil prices two years ago and has since suffered from slowing economic growth.

The majority of Association of Southeast Asian Nations (ASEAN) members have tried to press ahead with the implementation of a “code of conduct” for claimants to the South China Sea, which was first raised in 2002. China, however, has often scuttled these plans via regional allies, such as Cambodia, according to defense experts.

Philippine President, Rodrigo Duterte, who is currently serving as chairman of Asean, held talks this week with regional partners Myanmar and Thailand on moving ahead with the “code of conduct.”

The talks are of utmost importance after Chinese state media recently reported that Beijing is preparing to install an “environmental monitoring station” at Scarborough Shoal, which lies inside the Philippines’ 200 nautical mile exclusive economic zone (EEZ).

PLA soldiers march near a sign on the Spratly Islands. Reuters

Once China builds on the reclaimed land of the Scarborough Shoal, “it means they will have de-facto control of the South China Sea,” James Chin, director of the Asia Institute at the University of Tasmania, recently said.

The South China Sea, however, is not the only security risk Malaysia faces. The fast evolving security situation in the Middle East, including in Iraq and Syria, is arguably of greater strategic importance to the country.

As Iraqi forces are reportedly taking over the Islamic State (ISIS) stronghold of Mosul, there are concerns that Malaysian nationals fighting for the militant group will begin returning home in droves. “If the offensive in Mosul is successful, we will see a lot of hardened returnees and sympathizers to the region,” Hishammuddin said last week.

Malaysia’s Prime Minister Najib Razak speaks about terrorism. Reuters/Olivia Harris 

The Australian government has recently agreed to provide technological support and equipment to Malaysia to deal with a potential rise in extremism in the region. But with its defense budget cut by 12.7% this year, worth almost US$3.5 billion, it will need more foreign help. The Malaysian navy hopes to replace all 50 vessels in its aging fleet and has recently procured four littoral mission ships built in collaboration with China.

The South China Sea, however, is not the only security risk Malaysia faces. The fast evolving security situation in the Middle East, including in Iraq and Syria, is arguably of greater strategic importance to the country.

For a complete revamp of its military, Malaysia will most likely need Chinese assistance, forcing it to choose between adequate preparation for a possible rise in terrorism at home or a future conflict with China in the South China Sea, security analysts note. There is another possibility for Malaysia’s lackluster claims over South China Sea territory: the islands do not hold immediate strategic or economic value to Kuala Lumpur.

Other claimants might be keen to lay claim to the oil-rich waters surrounding the contested islands but, as Southeast Asia’s second-biggest oil and natural gas producer and one of the world’s largest liquefied natural gas (LNG) exporters, Malaysia now finds itself in a global economy with an overabundance of fuel.

The current glut saw oil prices fall from the record high of US$145 per barrel in July 2008 to an all-time low of US$26 per barrel in February 2016.  Today, it lurches around the US$50 per barrel mark. As a result, Malaysia’s state-owned oil firm, Petronas, plans to cut crude oil output by up to 20,000 barrels per day in 2017, a 3% decrease from last year.

Malaysia’s approach to the South China Sea might be best described as “wait-and-see.” Not wanting to dash financial investment from China, nor anger a country that is providing it with the means to tackle the very real threat of increased terrorist activity in the region, Malaysia has more to gain by making peace than stirring the waters.

“It is time to look beyond tired and childish notions of winners and losers for the simple fact that peace is a universal good and not a zero-sum game,” said Hishammuddin.

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