PETALING JAYA: Malaysia is unlikely to risk a strain in its relationship with China by cancelling the East Coast Rail Link (ECRL), and is believed to trying to strike a deal to implement the project.

Fitch Solutions said the high project costs, however, remained a significant drawback for Malaysia.

“Malaysia’s motivation to maintain healthy bilateral ties with China presents an upside risk to project progress.

“This motivation is driven by its deepening economic cooperation with China, and the government will unlikely want to risk a strain in relations by cancelling the ECRL,” it said in a report.

It added that the government would want to avoid reputational damage which could arise from the cancellation of the ECRL.

Malaysia’s exports to China, as a proportion of total exports, climbed from 12.5% in 2016 to 13.9% in 2018.

Foreign direct investment (FDI) from China, meanwhile, has steadily increased from RM2.35bil in 2012 to RM9.88bil in 2017.

The 688km ECRL, a flagship project under China’s Belt and Road Initiative (BRI), was launched on Aug 9, 2017 and slated for completion in 2024.

However, the RM81bil project was put under review after the Pakatan Harapan government came into power.

Fitch Solutions noted that the suspension of Chinese-backed projects has already resulted in a sharp fall of FDI from China in 2018 to RM3.2bil, contributing to a slowdown in economic growth.

“Furthermore, as the ECRL is an important project under the BRI, we believe the cancellation of the project, against the backdrop of a growing negative sentiment against BRI, would not be welcomed by officials in Beijing,” it said.

The research house added that the delay in decision making over the fate of the project showed that both Malaysia and China were eager to reach a win-win solution.

It noted that an official announcement regarding the status of the project was originally scheduled to be released by the end of January 2019, but it has been delayed.

“We believe the high costs attached to the project remain the government’s primary concern, and the Mahathir administration would be more receptive to revive the project if relevant stakeholders can agree to a lower price tag,” it said.

In view of this, the research house added, China’s recent offer to slash the cost of the US$20bil project by almost half presented an upside risk for project progression.

“Such a move suggests that the Chinese are determined to proceed with the project and the delay of an official announcement by the Malaysian government, two weeks after China’s refreshed offer, suggests that the Malaysian government might be reviewing the project with renewed interest,” it added.

Fitch Solution maintained its forecasts for annual average real growth in Malaysia’s railway.