China offered to bail out 1MDB, scuttle probe in return for mega projects, says report

Beijing had offered to help bail out troubled state firm 1MDB in 2016 in exchange for lucrative stakes in railway and pipeline projects, the Wall Street Journal (WSJ) reports, citing minutes from meetings between Chinese and Malaysian officials.

(FMT) – The paper, which broke the 1MDB story in July 2015, said Chinese officials had proposed that Beijing use its influence to try to persuade the US and other countries to drop their investigations into the state investment fund, following revelations of billions of dollars being siphoned off from the company.

It said the purposes of the projects eyed by China – the US$16 billion East Coast Rail Link (ECRL) and the US$2.5 billion Trans Sabah Gas Pipeline – were meant to appear market-driven in nature despite their true aim to “shore up Najib Razak’s government, settle the 1MDB debts and deepen Chinese influence in Malaysia”.

1MDB is under investigation in at least six countries including Singapore and Switzerland.

According to the minutes, WSJ said, the Chinese also launched surveillance of the homes and offices of journalists in Hong Kong who were investigating 1MDB.

This, according to a Malaysian summary of the meeting, included “full scale residence/office/device tapping, computer/phone/web data retrieval, and full operational surveillance”.

It cited the head of China’s domestic security force at the time, Sun Lijun, as confirming in a meeting on June 29, 2016 that the Chinese government was surveilling these individuals.

“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 summary was said to read.

“It is then up to Malaysia to do the necessary.”

It is unknown whether China did in fact provide any information on the journalists.

WSJ also quoted people familiar with the meetings who claimed the former prime minister had been aware of them.

It said a review of documents related to the meetings showed that Malaysian officials had suggested that some of the projects be financed at above-market values, which would generate extra cash for other needs.

When asked about the meetings, it said, Najib issued a statement saying the rail project would have brought many jobs to Malaysia and that under his leadership, the country had experienced nine years of continuous economic growth.

Citing people familiar with the discussions, it claimed Najib had also embarked on secret talks with Chinese authorities to let Chinese navy ships dock at Malaysian ports, although this did not materialise.

The report said the meetings took place just months before Najib secured US$34.2 billion in deals from China.

Discussions on the ECRL were said to include Malaysia’s request that China Communications Construction Co assume US$4.78 billion of 1MDB’s debt.

However, China expressed reservations about the proposal, following which the Malaysian side suggested that Chinese state companies make payments that would “indirectly be used to repay 1MDB debt”.

According to WSJ, minutes from Sept 22, 2016 showed that both sides agreed to move ahead with the deals despite their potential lack of “strong project financials”.

The documents added that participants need not “waste time studying the actual project financials to see if they can sustain the debt, etc” as the Malaysian government would back the deal for strategic reasons.

Prime Minister Dr Mahathir Mohamad, who led the Pakatan Harapan coalition to victory in the May 9 general election last year, put the Chinese projects on hold after taking federal power.

In a recent interview with Sin Chew Daily, he said the projects might be downsized with China’s agreement.

He added that Putrajaya was still negotiating the issue with Beijing, with no deadline set by either party.

Najib currently faces multiple charges of money laundering, criminal breach of trust, and abuse of power in relation to 1MDB.