Malaysia's ECRL: Can Beijing-backed megaproject deliver on local development?
In the second of a four-part series on the East Coast Rail Link (ECRL), 鶹ý looks at China’s involvement in the megaproject and its ability to spur investments as well as create jobs for locals.
A construction worker riding towards one of 41 tunnels being built for the ECRL. (Photo: 鶹ý/Fadza Ishak)
This audio is generated by an AI tool.
KUANTAN/KUALA LUMPUR: Sitting on his motorcycle at the edge of a sprawling East Coast Rail Link (ECRL) construction site in Gebeng, Pahang, a Malaysian excavator operator took a drag on his cigarette.
He looked on as heavy trucks rumbled into the construction site, the future location of the Kuantan Port ECRL station.
“I’m thankful that it has given me a job near to where I live, but I don’t know if the project benefits locals as a whole,” said the worker, who declined to be named as he was not authorised to speak to the media.
“It seems like the project is using more workers from China.”
The ECRL construction worker estimated that around half of the workers at his site were Malaysians when he first joined in 2019, the year the suspended project was resumed.
“When the project just started, there was a good mix of Chinese and local workers, but as it went on, and enforcement (on the number of locals employed) became more lax, more foreign workers started taking over the locals,” he told 鶹ý.
The RM50 billion (US$11.2 billion) ECRL, a flagship project under China’s Belt and Road Initiative (BRI) that connects Port Klang, Selangor on the west coast with Kota Bharu, Kelantan on the east coast, currently has about 23,000 people working in its construction phase.
The ECRL will be able to transport both goods and passengers at speeds of up to 80kmh and 160kmh respectively along 20 stations on a 665km railway line.
Project owner Malaysia Rail Link (MRL), a wholly-owned subsidiary of the Finance Ministry’s corporate body, had in 2019 designated 70 per cent of the 23,000 workers for Malaysians as an “optimum number” to help finish building the rail network.
But MRL told 鶹ý last September that of the 23,000 people, about 26 per cent are Malaysians, 20 per cent are from China, while the rest are from countries like Indonesia, Bangladesh, Pakistan and Nepal.
The 23,000 workers are also far short of the 80,000 “direct and indirect” job opportunities that MRL said in 2018 would be created during the ECRL construction period.
Critics had questioned if Beijing’s heavy backing of the megaproject could help boost local jobs and make it sufficiently profitable, or whether it was yet another magnet for even more foreign, low-skilled labour.
Despite the tens of thousands of local jobs the ECRL promised, the project has attracted a large influx of foreign workers.
“What is known is the presence of workers from China who are working on it (the ECRL),” political economic analyst Samirul Ariff Othman wrote in a commentary published by Sinar Daily in March 2023.
“Even worse, like many other sectors in Malaysia, the ECRL itself seems to be drawing yet more low-skill workers from Bangladesh and other similar source countries. It would seem that there are more foreign workers than Malaysians working on this project.”
Despite that, the excavator operator in Gebeng - who is employed by ECRL’s main contractor the China Communications Construction Company (CCCC) - said it would be unfair to place all the blame on his employer.
Foreign workers work seven days a week for lower salaries, while local workers might ask for multiple days off in a week and sometimes clash with their Chinese supervisors, he said.
“One of my colleagues, a local, had an argument with his Chinese boss and tried to hit him with a piece of wood,” he said, adding that the local was eventually fired because he had too many problems.
He surmised that CCCC would try to employ locals if they were hardworking and did not have disciplinary issues.
“Of course, they would prefer to hire more foreign workers because it’s cheaper. It’s normal; every construction project in Malaysia is like this,” he added.
MRL insists that it has met a requirement to allocate at least 40 per cent of civil engineering work contracts to Malaysian companies, with the total value of their contracts surpassing the RM10 billion target.
Between 2017 and June 2024, a total of 3,022 Malaysian companies, comprising contractors, consultants and suppliers, were awarded construction contracts worth RM16.11 billion, MRL told 鶹ý.
This comes amid concerns from local companies that the allocation might be subcontracted back to Chinese companies.
MRL also announced in December that 80 per cent of the ECRL’s operational and maintenance workforce will be sourced domestically.
For this report, 鶹ý scoured dozens of official statements, studies and news reports to detail the ECRL’s meandering journey from inception to its current state, highlighting the project’s varied history and its ties with politics and foreign funding.
鶹ý also visited several ECRL construction sites across the country, and saw a heavy presence of foreign workers, including those from China.
In the years since the ECRL was first announced in 2016, questions have been raised over China’s involvement in the project.
Beyond the issue of local employment, analysts told 鶹ý Malaysia faces an uncertain task ahead in ensuring the ECRL generates enough revenue to pay back a Chinese bank that has largely funded the megaproject.
It remains to be seen whether the ECRL will create an economic multiplier effect by spurring investment in the less-developed regions it runs through, they said.
The observers also raised concerns about the lack of transparency in the loan agreement with China’s state-owned Export-Import (China EXIM) Bank, noting that if MRL defaults on the loan, the Malaysian government will have to take over and service it using taxpayer money.
With that said, Malaysia does not seem at risk of falling into a Chinese debt trap with the ECRL, analysts told 鶹ý, citing how the country is in a position of some strength given its own laws and the nature of its agreements with the Chinese bank and contractor involved in the project.
“If we use (Malaysia’s) current fiscal situation as a baseline, I think the likelihood of Malaysia falling into a debt trap solely because of ECRL loan default is quite unlikely,” Sri Murniati Yusuf, chief operating officer and senior research director at Malaysia’s Institute for Democracy and Economic Affairs told 鶹ý.
The ECRL was announced in 2016 as a main infrastructure connectivity project that will help propel the Malaysian economy into the top 20 nations by 2050.
Under the terms of the original ECRL agreement signed then, China's EXIM Bank will fund 85 per cent of the estimated construction cost, with the remaining 15 per cent covered by a sukuk programme managed by local investment banks.
A sukuk is an Islamic financial certificate, similar to a bond. But to comply with Sharia law, a sukuk differs from a bond in that it involves ownership interests of the asset.
The original China EXIM Bank loan term was for 20 years at a 3.25 per cent interest rate with a seven-year repayment moratorium. The interest rate also raised eyebrows as it was higher than other BRI projects.
But as Malaysia changed administrations over the years, the ECRL’s cost and alignment have also changed several times, and the latest loan terms have not been publicly disclosed.
MRL did not respond to questions on the updated loan agreements, accusations of a lack of transparency, and the ECRL’s feasibility and profitability.
Changing politics and costs of the ECRL
When then-prime minister Najib Razak announced the East Coast Rail Link (ECRL) project in 2016, he estimated it would cost RM55 billion. The next year, it was revealed that constructing both phases of the ECRL would cost a total of RM65.5 billion.
The project was subsequently embroiled in allegations its costs were inflated in return for Chinese state-owned companies undertaking to pay the massive debts of troubled sovereign wealth fund 1Malaysia Development Berhad (1MDB).
When the Pakatan Harapan (PH) coalition assumed power in 2018 under the next premier Mahathir Mohamad, his new administration planned to cancel the ECRL to save the government money.
But in 2019, the PH government, eager to avoid paying a hefty termination fee of RM21.78 billion, eventually renegotiated the ECRL agreement and rail alignment, bringing the cost down to RM44 billion.
Mahathir said that the total amount of the loan will likewise be reduced, with lower interest rates and fees to be paid on the loan, although exact figures were not given.
The ECRL’s realignment was also politicised as the PH government proposed a southern route through the state of Negeri Sembilan, home to Transport Minister Anthony Loke’s constituency of Seremban.
In 2020, the new Perikatan Nasional government - which included Najib's Barisan Nasional (BN) - reverted the route largely to its original plan and revised the cost estimate to RM50 billion.
The political bickering did not stop, with the new alignment said to run through at least five parliamentary constituencies that were all heavily contested and lost by BN component parties during the 2008 and 2013 general elections.
After current Prime Minister Anwar Ibrahim took power in 2022, he said in December that year his administration would proceed with the ECRL at a “reduced” cost of almost RM75 billion, revealing that the original cost approved in 2016 was close to RM86 billion.
The RM75 billion price tag comprises construction costs of RM50.27 billion and other costs - including interest fees during construction and land acquisition costs - amounting to RM24.69 billion.
Anwar said his government will not make many changes to the project to avoid delaying its implementation and complicating existing works and negotiations.
In March, Transport Minister Anthony Loke told parliament that the cost of building the ECRL remains at RM50.27 billion.
The line from Kota Bharu, Kelantan to the Gombak Integrated Terminal, Selangor will be completed in December 2026 and be operational from January 2027.
Its full completion, involving a rail extension from Gombak to Port Klang, is expected in December 2027.
The large loan given for this BRI project has raised concerns from some observers about a Chinese debt trap, while a lack of transparency on the latest loan agreement means it remains unclear how the updated project cost has impacted repayment terms, observers have said.
Critics of the BRI accuse China of pursuing a policy of “debt-trap diplomacy”, referring to a practice of luring poor, developing countries into agreeing unsustainable loans to pursue infrastructure projects.
This is so that when these countries experience financial difficulty, Beijing can seize the asset, thereby extending its strategic or military reach, a 2020 research paper published by the independent policy institute Chatham House explained.
However, the paper said the evidence for such views is “limited”, noting that China’s development financing system is too fragmented and poorly coordinated to pursue detailed strategic objectives.
“In Sri Lanka and Malaysia, the two most widely cited ‘victims’ of China’s ‘debt-trap diplomacy’, the most controversial BRI projects were initiated by the recipient governments, which pursued their own domestic agendas,” the paper noted.
Still, Ong Kian Ming, a former deputy minister of international trade and industry, said the Najib Razak government had never made clear an economic rationale for the ECRL through any cost-benefit or economic analysis.
“The best that this government can hope for is that the ECRL can spur catalytic development along strategic areas near the train line, some of which can be monetised by the government to pay back some of the loan servicing and to make the running of the line financially sustainable,” he told 鶹ý.
HOW MUCH REVENUE CAN THE ECRL GENERATE?
In 2017, the Finance Ministry said the ECRL is expected to cover its operating cost through passenger fares, freight charges and non-fare revenues, with related transit-oriented development helping to bear some of the costs.
Transit-oriented development refers to urban development that maximises the amount of residential, business and leisure space within walking distance of public transport.
Then-transport minister Wee Ka Siong reportedly said in 2021 that the ECRL's northern alignment is expected to attract 26 million tonnes of cargo and five million passengers in the first year of operations.
He also reportedly said that 70 per cent of the ECRL’s revenue will come from cargo transportation, while the remaining 30 per cent will come from passenger ridership.
Tham Siew Yean, a visiting senior fellow at the ISEAS - Yusof Ishak Institute, said passenger and freight forecasts for the ECRL appeared “optimistic”, considering what Malaysia’s main rail operator Keretapi Tanah Melayu (KTM) had previously achieved.
In 2018, KTM only managed to attract 3.5 million passengers and six million tonnes of freight cargo despite having a much longer railway line than the ECRL, she wrote in a Fulcrum blog post published in January 2023.
“KTM traverses the entire length of the west coast of Peninsular Malaysia, which is far more populated, urbanised, and industrialised than the four states of the ECRL,” she said.
Sri Murniati from Malaysia’s Institute for Democracy and Economic Affairs said the ECRL’s profitability will very much rely on development in the east coast region.
“An effective development plan and implementation would require collaboration between the federal government and the state governments in the east coast region, especially Kelantan and Terengganu,” she told 鶹ý.
MRL said in 2017 that the ECRL project is expected to generate around RM50.1 billion worth of socioeconomic benefits.
The east coast states of Terengganu, Kelantan and Pahang are expected to see 1.5 per cent GDP growth over the next 50 years.
In 2019, the Malaysian Investment Development Authority (MIDA) worked with CCCC to launch what are known as economic accelerator projects linked to the ECRL.
These projects focus on the development of industrial parks, logistic centres and transit-oriented development to drive up demand for cargo and passenger traffic on the ECRL.
MIDA has started engaging key stakeholders like local governments, industry associations, park managers and developers, government-linked investment companies, and real estate investment trusts to raise awareness of the economic accelerator projects among a larger audience of potential investors.
The former deputy minister Ong noted that MIDA and CCCC had previously agreed to build industrial projects along key stations and two logistics hubs at the east and west terminals of the ECRL to spur demand for cargo and to a smaller extent, passengers.
“If this memorandum of understanding is still in effect, then these commitments should be followed up on after the completion of the ECRL,” he said.
Tham said in her post that some domestic property developers have committed investments in upcoming developments at Kota SAS - the main ECRL station in Kuantan - and Kapar, another ECRL station near the western terminal of Port Klang in Selangor.
“The current pattern of investments, which is primarily from China and local sources, indicates that the existing favourable infrastructure along the west coast and around Kuantan on the east coast continues to draw in more investments than other parts of the ECRL corridor,” she wrote.
“Whether new investments will spread to other less developed parts of the ECRL corridor in the next four years - at the required speed to meet the forecasted cargo and passenger traffic - remains to be seen.”
Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs echoed such sentiments, noting that the ECRL is not considered a high-speed rail (HSR), whose trains reach a speed of more than 250kmh.
“In many of these HSR projects in China … before you know it, the Chinese will develop a lot of properties and various other economic activities there,” Oh told 鶹ý.
“Our ECRL is considered a medium-speed train. I'm not sure going through Pahang and the east coast of Malaya would have the same sort of so-called economic multiplier effect, or if the passenger as well as the cargo traffic would eventually be enough to sort of make it profitable.”
Ragu Sampasivam, the chief operating officer of the East Coast Economic Region Development Council who was involved in the initial feasibility studies for the ECRL, told 鶹ý that he remains confident about the freight projections.
“We actually went and saw the industries in the region when we were doing the study, and asked them, ‘If I have this rail, would you use it? What would you use it for? What should I do to make it convenient for you to use it?’” he said.
“When we did the projection of the cargo throughput and financial results from that, we actually met the eventual users, and some of them are eager, still waiting for the completion so that they can start transporting. So, the numbers have been quite real.”
Sampasivam said it is not realistic to expect the ECRL project to “recoup all the capex”, referring to capital expenditure on acquiring, improving or maintaining long-term assets.
“As long as we can keep it operationally viable - break even, or even make a little bit of profit - I think that will be a great success for me personally. So I strongly feel that it will take off, and the cargo will go through with the rail,” he added.
SKIN IN THE GAME
With that in mind, MRL - which will own all ECRL assets - has set up a joint venture company with CCCC to operate the rail line. This was agreed in 2019 under a renegotiated deal to resume the project.
The joint venture means the two entities will jointly share the costs of operating the ECRL and exchange technical know-how and expertise.
Under the arrangement, if the ECRL operates at a deficit, MRL and CCCC will each bear 50 per cent of the risk. If the ECRL operates at a surplus, MRL will get 80 per cent of the earnings, while CCCC will get the remaining 20 per cent.
Malaysia’s Institute for Democracy and Economic Affairs' Sri Murniati believes this arrangement came about as the government realised the “risk” of the ECRL operating at a deficit, and how it would be “very difficult” for Malaysia to repay the Chinese loan in that case.
“The joint venture arrangement would require the Chinese-owned entity, the CCCC, to be equally responsible for ensuring the profitability and sustainability of the ECRL,” she said.
“So, they would not build and then go, but build and work together with the MRL to operate the rail.”
Oh from Singapore's Institute Of International Affairs welcomed the joint venture, saying that CCCC’s continued involvement is necessary to ensure the smooth running of the rail line.
“I don't think we have yet mastered the abilities to operate such a medium-speed rail line,” he said.
Ong, the former deputy minister, said the joint venture is a “good idea” to ensure the CCCC still has “skin in the game” after the ECRL is completed.
“It also means that CCCC should follow through on the memorandums of understanding with MIDA (on the economic accelerator projects) so that more business can be generated for the ECRL,” he said.
At an event last December to unveil the ECRL’s joint operating company between MRL and CCCC, the transport minister Loke acknowledged that it was “difficult” to turn a profit in the rail sector.
“After renegotiations (to restart this project), the Chinese company agreed to not only build this system, but to also share the burden of risk in its operation,” he said.
“The most important thing is we want this operation to be sustainable, competitive and not loss-making.”
LACK OF LOAN TRANSPARENCY
Still, the observers called on the authorities to be more transparent about the loan agreement with EXIM Bank, saying that this is in the public interest.
“The government of Malaysia should be transparent about the interest and debt servicing obligations of MRL to China's EXIM Bank, including making this information public,” Ong said.
A 2021 BRI Monitor report on the ECRL, prepared by Malaysia’s Institute for Democracy and Economic Affairs, pointed out that several key details such as the interest rate and the total amount of the loan after the 2019 renegotiation have not been publicly disclosed.
Based on the 2016 agreement, the 3.25 per cent interest rate with a 20-year repayment period on the loan is also higher than in nine other BRI railway projects, the report noted.
Sri Murniati said transparency in loan agreements is important because loans for key infrastructure projects are sometimes guaranteed by the government.
“In the case of default, the government will take over the loan and pay it using taxpayers’ money,” she said.
“The public or taxpayers deserve to know the basic information about the loan such as interest rate, payment terms and the period of the loan as well as the government’s plan to mitigate any fiscal risks arising from potential default.”
Ong said the Finance Ministry, whose corporate body owns MRL, should explore ways to minimise the yearly payments.
These include issuing renminbi panda bonds to finance the repayments without having to use US dollar swaps and to take advantage of the currently attractive Chinese interest rates, he said.
According to financial market data hub Cbonds, panda bonds refer to yuan-denominated bonds issued by foreign companies in the onshore Chinese market.
These bonds are a way for international entities, including corporations with operations in mainland China, governments and financial institutions, to raise funds within the country with reduced foreign exchange risks, as the bonds are denominated in the Chinese yuan.
LOW RISK OF DEBT TRAP
Nevertheless, the analysts played down fears of the ECRL pushing Malaysia into a Chinese debt trap.
Malaysia’s current fiscal situation shows it is “quite unlikely” the country will fall into a debt trap solely due to a potential ECRL loan default, Sri Murniati said.
Even as the ECRL loan represents one of the largest loans guaranteed by the government, Malaysia has recently introduced a law to ensure fiscal sustainability, she said, citing the Public Finance and Fiscal Responsibility Act that took effect in December 2023.
The law limits Malaysia’s total debt level to 60 per cent of its gross domestic product (GDP).
The Finance Ministry said in its fiscal outlook for 2025 that federal government debt is projected to be around 64 per cent of GDP by the end of 2025, with debt service charges in 2024 estimated at 15.8 per cent of revenue.
“Overall, the government will continue to enhance its debt management and benchmark with global practices, towards attaining debt sustainability in the medium and long term,” the ministry said.
Sri Murniati pointed out that some countries like Japan have a much higher debt-to-GDP ratio but are “nowhere near” a debt trap, saying that this would depend on a range of factors like growth rate, ability to service the loan, and period of the loan.
Malaysia’s situation is also “much better” than Sri Lanka’s during the latter's financial crisis, she added.
The South Asian nation had a debt-to-GDP ratio of 100 per cent while spending 71.7 per cent of its revenue to service debt interests. A prominent think-tank in the country, however, said Chinese debt was not the main source of its debt trap.
“Of course, the challenge now is to ensure we abide by this institutional rule,” Sri Murniati said, referring to the Public Finance and Fiscal Responsibility Act.
Oh described the notion of a Chinese debt trap as a “double-edged sword”, noting that Malaysia can resist Chinese pressure to repay the loan given its less-than-transparent nature.
The opacity of the EXIM Bank loan likely means it is not properly rated by major international rating agencies, Oh said, adding that this is characteristic of some Chinese loans given to developing countries.
“If I want to be cynical about it, if a country like Malaysia says it cannot pay or simply refuses to pay, then what can China do to it?” he said, adding that Malaysia’s international credit rating will not be affected and as a result can still borrow from major financial institutions around the world.
Peter Chang from Universiti Malaya’s Institute of China Studies said both Malaysia and China must navigate and be accountable for the complexities and challenges of large-scale infrastructure initiatives like the ECRL to ensure their success.
“The East Coast Rail Link is a collaborative project between two sovereign states, and inherent risks of failure are a part of mega-projects like this,” he told 鶹ý.
“However, attributing any potential setbacks of the ECRL solely to China's 'debt trap diplomacy' is disingenuous. As a willing party to the contract, Malaysia shares responsibility for its outcomes.”
