China Boosts Malaysia Economic-Defense Ties as Obama Scraps Trip

China President Xi Jinping signed agreements today to boost economic cooperation and defense ties with Malaysia as U.S. President Barack Obama scrapped his tour of the region.

Xi signed a new five-year pact aimed at increasing bilateral trade to $160 billion by 2017 and arranged to exchange army and navy personnel after meeting Malaysian Prime Minister Najib Razak today. China will also help Malaysia set up a space and science laboratory as part of series of new initiatives, the president said.

“China understands, Malaysia’s important role in Asean and we would like to participate and cooperate in prosperity and stability of this region,” Xi told reporters in Putrajaya, near Kuala Lumpur. “We would like to have closer cooperation in defense, law enforcement, security, naval and military exchange, combating terrorism and transnational crime.”

Obama scrapped plans today to attend economic summits in Indonesia and Brunei next week, after earlier calling off trips to Malaysia and the Philippines to concentrate on resolving a fiscal standoff which has led to a partial shutdown of the U.S. government. His absence may add to growing anxiety in Asia that the U.S. is too preoccupied with internal political challenges to focus on countering China’s rising influence in the region.

Obama has staked his second-term foreign policy on enhancing the U.S. presence in the Pacific. An increasingly assertive China has unsettled some U.S. allies in the region, including Japan and the Philippines.

Rival Claims

Malaysia Defense Minister Hishammuddin Hussein said in an interview Aug. 28 that Malaysia is not worried about how often Chinese ships patrol areas it claims in the South China Sea, differing from other Southeast Asian claimants on the threat posed by China.

Malaysia is one of six claimants to land features in the South China Sea, an area where competition for gas and fish has led to boats being rammed and survey cables cut. The Philippines and Vietnam reject China’s map of the sea, first published in the 1940s, as a basis for joint exploration.

China’s economic development will bring opportunities rather than threats as it seeks to boost trade with Southeast Asia, Xi said in a speech to Indonesia’s parliament yesterday. This is his first Malaysia visit since assuming the presidency in March.

“Economic cooperation remains the cornerstone of Malaysia-China bilateral relations,” Najib told reporters. “Malaysia recognizes China as an important partner in its national economic development.”

1MDB Agreement

Malaysia is China’s largest Southeast Asian trading partner, with total trade reaching $88 billion last year, according to data compiled by Bloomberg. About a fifth of Malaysia’s exports, including palm oil, went to China in 2012, making it the country’s biggest overseas market, the data show.

The trade pact comes amid slowing growth in both countries. The world’s second-largest economy is projected to expand 7.6 percent this year, easing from 7.7 percent in 2012, according to economists’ estimates compiled by Bloomberg News. Malaysia’s $304 billion economy will grow 4.5 percent this year, slowing from last year’s 5.6 percent expansion, according to forecasts compiled by Bloomberg.

The Export-Import Bank of China signed an agreement with state investment fund 1Malaysia Development Bhd. today to jointly explore investment opportunities in the Southeast Asian nation, including a financial district being developed in Kuala Lumpur, according to a separate statement.

Before it's here, it's on the Bloomberg Terminal.