KUALA LUMPUR (BLOOMBERG) – Malaysia is making progress in talks with China to revive a high-speed rail project that Prime Minister Mahathir Mohamad’s government said it would cancel, according to Foreign Minister Saifuddin Abdullah.

China is willing to reduce the US$20 billion price tag for the East Coast Rail Link project and talks are “in the last mile”, Saifuddin said in an interview on Tuesday (Feb 19) at his office near Kuala Lumpur.

Discussions have been led by Daim Zainuddin, an adviser to Mahathir, with the aim of reaching a smaller project size and cost, he said.

“It is not cancelled until and unless we can’t settle on the numbers,” Saifuddin said.

“China understands our constraint and they’re willing to scale down the size of the project and the cost. The discussion is probably in the last mile.”

Since returning to power last May, Mahathir has tested Malaysia’s relations with China. Besides the railway, he has also cancelled a gas pipeline project backed by China, criticised foreign ownership in a housing development marketed to Chinese investors, and warned against “a new version of colonialism” on a trip to Beijing.

China’s state-run Global Times newspaper last year blasted Mahathir’s “piercing” remarks, saying they “will definitely make Chinese investors worry about Malaysian public opinion and whether such an atmosphere will affect investment in the country.”

There are recent signs that Malaysia wants to ease tensions with China.

Mahathir struck a conciliatory tone last month and said the government cancelled the rail project only due to cost, leading to renewed talks.

And members of his Cabinet have declined to confirm or deny a Wall Street Journal report that said senior Chinese leaders offered Mahathir’s predecessor help bailing out troubled state fund 1MDB in exchange for stakes in projects.

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