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Economic Hedging by Small-State Firms in Great Power Strategic Competition: The Case of Malaysian Rail Link (MRL) (2013-2020)

Zhao Xinlei

Jinan University, China

Existing research on how small (weak) states respond to the geopolitical rivalry of great powers often centers around the hedging strategy, where small states tend to maintain their diplomatic independence by taking non-explicit sides and stances to better safeguard their security and interests in the face of increasing external uncertainty. This paper, however, provides another powerful way of explaining this from the perspective of non-state actors through the changing attitudes and strategies of the Malaysian Rail Link (MRL) in the Malaysia-China East Coast Rail Link (ECRL) project. This paper shows that due to the unique nature of firms, small state firms will choose to respond to external great power games with economic hedging, and performance legitimization and particularistic legitimization determine the strength of small states' economic hedging and when firms and the governments they represent choose performance as a way to enhance legitimacy, small state firms will choose to use economic soft hedging as their primary mode of response. Conversely, economic complex hedging is more pronounced when particularistic legitimization is used to enhance legitimacy. The findings of this paper also demonstrate that small state firms have a complex connection with the government. On the one hand, small state firms are the implement and influential representatives of the ruling government's foreign policy, inheriting the government's essential interest pursuits and expectations. On the other hand, the enterprise itself is also a vital interest organization. It will also formulate economic policy according to its own needs. However, the MRL shows that the Malaysian government firmly controls the tiny state firms and is an important tool and instrument for the foreign economic game of the small state government.



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