BEIJING — When a cross-country rail line was unveiled in 2017, the Malaysian prime minister hailed it as a “game changer,” a major transportation upgrade that would be built and financed by Chinese money and Chinese companies. It was a showcase project for China’s effort to expand its geopolitical influence around the world through a vast infrastructure program.
A year later, the country’s new leader slammed the deal as a corrupt, costly venture that would burden the country with too much debt. Calling the project “unfair,” he postponed the rail line and vowed to renegotiate with China.
Now, China has agreed to cut the price tag on the project by one-third to $11 billion, in a tacit acknowledgment that the economics of the original deal did not make financial sense.
The concession to Malaysia is part of a broad reassessment of China’s ambitious infrastructure program, known as the Belt and Road Initiative, as concerns mount that countries are being saddled with billions of dollars of debt for spates of unnecessary projects.
“Since the summer, China has been rethinking Belt and Road, both the size and the speed at which capital is being deployed and the overall aggressiveness with which they were pursuing these projects,” said Andrew Polk, a founder of Trivium, a consulting firm in Beijing. “They’ve come in throwing around their weight in these places and not taking stock of local politics, and it’s blown up in their face.”
To China’s president, Xi Jinping, the program provided a way to use the country’s economic clout to build trade ties and win friends across Asia, Africa and Europe. Since it was announced six years ago, China has spent tens billions of dollars on projects as far as Djibouti, Sri Lanka and the Solomon Islands, creating overseas opportunities for its domestic companies.
But China has increasingly faced criticism of debt trap diplomacy, for lending huge sums of money to vulnerable countries and then taking over valuable assets when they cannot pay. Last year, Sri Lanka had to hand over a port after it fell behind on Chinese loans.
With pressures mounting at home and abroad, Beijing has started to adjust its approach, trimming spending on projects and toning down what it says. China needs allies more than ever, as its economy slows and trade tensions with the United States and Europe simmer.
“We’re in a period of China making tactical adjustments based on a deeply unpopular reputation,” said Jude Blanchette, an expert on Chinese policy at Crumpton Group. “This accommodation was made in context of China recognizing that the Belt and Road Initiative is less popular than China wished it was.”
Malaysia has been an important ally for China. Its prime minister, Mahathir Mohamad, was among the first foreign leaders to sign up to its coming Belt and Road Summit, a lavish two-day affair. The United States said this month that it would not send high-level officials to the conference, on concerns about the financing behind the plan.
But even for Malaysia, the original price tag for the rail deal with China Communications Construction Company was too much to stomach. The new administration saw the splashy Chinese infrastructure projects like the East Coast Rail Link and a $2.5 billion gas pipeline deal as opportunities for corrupt senior politicians to plunder government coffers.
When Malaysia signed the agreement for the rail line, the Chinese state-backed company was under a World Bank ban for doing certain kinds of work because of a corruption scandal in the Philippines. Mr. Mahathir cited Sri Lanka’s experience to justify his decision to suspend the East Coast Rail Line project.
Mr. Mahathir, 93, came out of political retirement last year, riding a groundswell of opposition to the prime minister at the time, Najib Razak, amid allegations of large-scale corruption.
At the heart of the scandal was a state investment fund called 1Malaysia Development Berhad, or 1MDB. Officials and prosecutors have called 1MDB a slush fund, alleging that Mr. Najib siphoned hundreds of millions of dollars at the expense of the Malaysian people. (He went to trial last week in what is expected to be the first of multiple corruption trials.)
After taking over from Mr. Najib last spring, Mr. Mahathir’s administration discovered the country was in worse financial shape than previously understood. A $170 billion debt pile turned out to be closer to $250 billion, amounting to 80 percent of Malaysia’s gross domestic product at the time.
As the new government began to pare back the debt, Mr. Mahathir announced that the administration would halt the East Coast Rail Link project and the gas pipeline deal, citing the high costs.
In an interview with The New York Times in January, Malaysia’s finance minister, Lim Guan Eng, said the government was “looking for some cost rationalization” in regard to various projects the previous government had undertaken with China.
Under the original terms of the deal, Malaysian officials estimated that the country would have to make annual interest payments of $488 million. Once built and running, the rail was also expected to lose about $122 million a year.
“We want to reduce costs,” Mr. Lim said.
For months, the Malaysian Finance Ministry closely examined a document published by an online news outlet, The Sarawak Report, that appeared to be a term sheet for the East Coast Rail Link project. The document, whose authenticity was not confirmed by The Times, indicated that the price quoted by China Communications Construction Company had been intentionally inflated to allow for kickbacks.
Under Mr. Lim, the ministry tried to authenticate the document but could not find the original. “For us to be able to initiate any investigation, we need the documents, and until then there is not much we can do,” he said in the January interview.
The rail project, meant to connect ports on Malaysia’s east and west coasts, is now expected to cost $11 billion, roughly two-thirds of the most recent projected price tag of $16 billion.
“This reduction will surely benefit Malaysia and lighten the burden on the country’s financial position,” Mr. Mahathir’s office said in a statement on Friday.
At a news conference on Friday at the Malaysian Embassy in Beijing, Daim Zainuddin, a special envoy for the prime minister, said the savings from the new deal would be enough to build two more Petronas Twin Towers, a landmark in Kuala Lumpur.