A China Bailout in Malaysia’s 1MDB Scandal?


Earlier this month, new evidence surfaced regarding China’s efforts to strike a deal with the former Malaysian government back in 2016 to bail out the struggling 1 Malaysia Development Berhad (1MDB) state fund at the center of a billion-dollar scandal allegedly implicating former premier Najib Razak in exchange for deals tied to the Belt and Road Initiative (BRI). The details have once again put the spotlight on the management of Malaysia-China relations under the previous government as well as how such dynamics are dealt with by Beijing and smaller states in the wider Indo-Pacific region.

As I have noted before in these pages and elsewhere (see, for instance, here and here) one of the allegations that had dogged the previous Malaysian government under Prime Minister Najib Razak was that it had leaned closer to China, including agreeing to billions of dollars’ worth of infrastructure projects of questionable value to Malaysia amid assistance Beijing had allegedly offered to provide with respect to the 1MDB scandal. While those suspicions have persisted amid ongoing investigations on the 1MDB scandal in Malaysia as well as in other countries and some evidence has surfaced regarding irregularities and shadowy developments under the new Malaysian government led by former prime minister Mahathir Mohamad, to date the level of publicly available information has been insufficient to suggest a clear and direct linkage.

But over the past year, a series of new publications, combined with ongoing investigations from the new government about Najib and the 1MDB scandal, have resulted in additional scrutiny on this linkage as well as more revealing evidence. These include new books released by journalists at The Sarawak Report and The Wall Street Journal – both of which have played leading roles in disclosing information on the 1MDB scandal – and claims by Malaysian government officials with various levels of substantiation amid seizures and revelations as 1MDB scandal investigations continue to be conducted on Najib himself and others.

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Earlier this month, another round of new evidence about this aspect of China-Malaysia relations surfaced which could strengthen the case for a potential linkage. The details, which emerged from minutes in a series of previously undisclosed meetings in documents seized by the new Malaysian government reviewed by the The Wall Street Journal and published in a report dated January 7, suggested both specific ways by which China had actually been assisting the Najib government defuse the continuing fallout from the 1MDB scandal, as well as evidence that the Najib government had knowingly provided preferential treatment to China on infrastructure projects in spite of questions that remained about the viability of those projects.

The first aspect of this is China’s offer of assistance to the former Malaysian government regarding managing the fallout from the 1MDB scandal. There had already been ongoing suspicions on this aspect of the potential 1MDB link, with suggestions of secret meetings between officials on both sides that delved into this issue as well as the indirect role of individuals such as Low Taek Jho, better known as Jho Low, a Malaysian businessman who has been a central character in accounts of the 1MDB scandal, is currently wanted by Malaysian authorities, and had believed to be in hiding in China.

But the report contains some new revelations as well. Particularly striking is the confirmation in a series of 2016 meetings by Sun Lijun, vice minister of the Public Security Ministry, that the Chinese government was surveilling the WSJ in Hong Kong at Malaysia’s request, including device tapping, computer, phone and web data retrieval, and full operational surveillance. “Mr. Sun says that they will establish all links that WSJ HK has with Malaysia-related individuals and will hand over the wealth of data to Malaysia through ‘back-channels’ once everything is ready,” the Malaysian summary of that meeting reportedly reads. “It is then up to Malaysia to do the necessary.” The summary also notes that Sun promised to use China’s “leverage on other nations” to get the United States and other countries to drop their 1MDB investigations.

Though allegations of Chinese government-related surveillance of this sort is hardly new, this represents the most direct evidence to date of such efforts within the context of the 1MDB scandal. And while there is no evidence that any of these efforts were actually met with success – either in terms of information delivered to the Malaysian government or the slowing or suspension of investigations ongoing in several countries – the very fact that such discussions occurred is nonetheless quite significant in and of itself.