EAP DAS CHRISTENSEN'S OCTOBER 17 MEETING WITH

C O N F I D E N T I A L SECTION 01 OF 02 KUALA LUMPUR 001580 SIPDIS SIPDIS E.O. 12958: DECL: 11/01/2017 TAGS: PGOV PREL ECON CH MY SUBJECT: EAP DAS CHRISTENSEN'S OCTOBER 17 MEETING WITH PRIME MINISTERIAL POLITICAL SECRETARY VINCENT LIM REF: KUALA LUMPUR 1534 Classified By: Deputy Chief of Mission David B. Shear for reasons 1.4 (b, d). ¶1. (C) Summary: Prime Ministerial Political Secretary Vincent Lim told visiting EAP DAS Christensen on October 17 that there is a perception in Malaysia and ASEAN that the United States is not heavily engaged in the region. He further commented that U.S. actions in Iraq and Afghanistan have negatively influenced public opinion of the United States, but he expected opinions to improve in the coming years as problems are resolved in Iraq and Afghanistan. Lim affirmed the revitalization of Chinese diplomatic efforts in Malaysia and the decline of Japanese influence in the region. Christensen and Lim discussed security issues in Korea, the Taiwan Straits, and Chinese interests in the security of the Straits of Malacca. Lim labeled the growth of China's navy a natural result of the PRC military's "somewhat paranoid" self-perception as the only protector of China's territorial sovereignty and historical influence, and a result of a fear of America's presence in the region. Malaysian and ASEAN perceptions that the U.S. is insufficiently engaged in the region could be changed through greater U.S.-Malaysian senior-level exchanges. EAP DAS Christensen has read and cleared this cable. End Summary. NEGATIVE IMPRESSIONS OF THE U.S. -------------- ¶2. (C) Lim commented that there is a perception in Malaysia and ASEAN that the United States is not heavily engaged in the region. He added that U.S. actions in Iraq and Afghanistan have negatively influenced public opinion of the United States. Notwithstanding that perception, as is often reinforced by the local media, "we work very closely with the United States on counterterrorism and security, especially with our Special Branch (of the Royal Malaysian Police)," opined Lim. While U.S. efforts in these areas are important and reinforce the balance Malaysia sought for the region, Lim opined, ASEAN countries were more inclined to showcase publicly their economic and trade successes with China-- as CT was not something most governments liked to talk about. Still, Lim concluded with obvious reference to Afghanistan and Iraq, "(negative) impressions will change (for the better) in a couple of years as things sort themselves out in certain regions." CHINA HAS A NATURAL INTEREST IN THE REGION -------------- ¶3. (C) Lim explained that "China is our big neighbor whether we like it or not," and Malaysia is pleased that it has a prosperous relationship with China. As long as the region can avoid issues concerning China's competing claims for the oil and gas resources in the South China Sea, Lim saw no serious problems between the two countries. According to Lim, it is natural that China has interests in the region as those economic/trade related ties far pre-date European interests in Malaysia. Nevertheless, Malaysia is pleased with the balance the United States creates-- "people would be worried if there were no American presence here," opined Lim. Lim sees the rise of Chinese and Indian influence in the region as a resurgence of historical spheres of influence, and the U.S. role in this is a natural counter-balance to competing Indian and Chinese interests. CHINESE INFLUENCE REPLACES JAPANESE -------------- ¶4. (C) "There has been a transformation of Chinese diplomacy in recent years," Lim noted. In the past, Chinese diplomats in Malaysia were reserved, incapable of extensive dialogue in English and generally unengaged. Now, commented Lim, "Chinese diplomats are engaging regularly in political circles and much more proficient in English. This is a real change." According to Lim, Chinese diplomacy has replaced Japanese diplomacy in the region, and "Japan has lost out." Lim explained that Japan's recent leadership crisis has severely affected Japanese diplomatic efforts in the region. "Japanese diplomats don't call or go out to dinner anymore. Indeed they are very insular and not engaged here now," he said, despite large Japanese investments in Malaysia. ¶5. (C) Lim further compared Chinese economic investment in the region to Japanese and Korean investments of the 1980s and 90s. He commented that Malaysia felt exploited by the Koreans when Hyundai built the first Penang Bridge in 1985, but that China had now loaned the GOM $800 million US dollars at three percent interest for the second Penang bridge, and KUALA LUMP 00001580 002 OF 002 that Malaysians felt like more of the money for this bridge would actually go to Malaysians rather to than foreign lenders and contractors. Moreover, unlike the controlling stakes that Japanese and Korean firms sought to take in Malaysian companies during the 80s and 90s, Chinese investors now sought strategic stakes. Chinese investments are preferred, said Lim, because they generally allow Malaysians to continue to run their own companies. According to Lim, "Japan lacks a strategic overview for how they should invest in the region," including the use of soft loans, foreign direct investment (FDI) and investment of foreign reserves. "The Chinese are excelling at this," Lim stated. CLOSE COOPERATION WITH CHINA'S CENTRAL BANK -------------- ¶6. (SBU) Malaysia is content with its growing economic relationship with China, and, Lim commented, Malaysia's National Bank (Bank Negara) "works closely with the Central Bank of China" to ensure the ringgit moves in tandem with the RMB (Yuan). Therefore, Malaysia is not fearful about the implications of future revaluation of the RMB for its debt to China. Malaysia can avoid a repeat of the sharp increases in debt to Japan that it suffered when the yen revalued in the mid-1980s following the Plaza Accord. Malaysians have also begun investing in China's southern region, which Lim described as a natural area for investment given many Chinese Malaysian's origins in Guangdong and Fujian provinces. Malaysians, Lim explained, are primarily investing in the region's stock markets and real estate markets. SECURITY ISSUES CONCERNING KOREA AND TAIWAN -------------- ¶7. (C) Lim opined that the U.S. "axis of evil" approach some years ago actually set back the opportunities for a speedy resolution of North Korea's nuclear weapons program, but that things were "looking up now" as the Bush administration took a softer approach. Lim admitted, however, that "nobody wants North Korea to have that weapon." He further opined that, if handled correctly, the U.S. could become an ally of North Korea as a balance to China's dominant influence, reiterating his position that the U.S. was a natural and necessary balance to China in East and Southeast Asia. ¶8. (C) "We don't want a Korean war-type conflict between China and Taiwan," Lim commented, noting that Taiwan "has been aggressively pushing the issue of independence and international recognition to a dangerous point." "Between now and the Olympic Games is a dangerous time," he said, and Taiwan knows the world is watching and is taking advantage of the world's attention to "push the envelope." CHINA FEARS U.S. "OVER-INFLUENCE" -------------- ¶9. (C) China fears America's military presence in the Malacca Straits, said Lim, commenting on the fact that eighty percent of oil bound for China passes through the Straits. He continued that China has asked quietly if Malaysia would allow the U.S. to patrol the Straits of Malacca. Dr. Christensen assured Lim that the U.S. would has no intention of shutting off the flow of oil through the Straits. Lim explained that the PRC military is "somewhat paranoid" as they see themselves as the only protector of China's territorial sovereignty and historical influence, and surely that mindset influences the growth of China's navy, and the military leaders' interest in developing the capability to safeguard the flow of oil through the Straits. COMMENT -------------- ¶10. (C) Lim is billed publicly as the political secretary responsible for liaising between the PM's Office and Malaysia's ethnic Chinese community. He is also reported to be close to Prime Ministerial son-in-law Khairi Jamaluddin and to have introduced Khairi to his wife, the PM's daughter, when both she and Lim worked at the Institute for Strategic and International Studies (ISIS). Despite Lim's stated role in domestic politics, we were impressed by his grasp of Sino-Malaysian relations and great power activities in the region. Lim remarked in the course of the meeting that he periodically dined with the Chinese Ambassador, which suggested to us that he may have a role in the PM's communications with the Chinese, a hunch which we intend to test with Lim in future meetings. KEITH