Strategic Analysis: Chinese Business Activity in Cambodia (Abstract)

For­eign aid makes up 30% to 40% of Cam­bo­dias annu­al bud­get, the major­i­ty of which comes from Chi­na in the form of low-cost financ­ing pro­vid­ed by state-owned banks with con­di­tions that typ­i­cal­ly lead to con­tracts for Chi­nese state-owned enter­pris­es. Whether clas­si­fied as aid, trade or invest­ment, Chi­na is con­sid­ered to be Cam­bo­dias largest trad­ing part­ner, its most sig­nif­i­cant source of FDI and its largest sup­pli­er of mil­i­tary sup­port. These ties are con­cen­trat­ed pri­mar­i­ly in the agri­cul­ture, infra­struc­ture, trans­porta­tion, hydro­elec­tric, textile/garment and min­ing sec­tors.

In a sequence of events that is famil­iar across a num­ber of coun­tries in the region and beyond, Chi­nas close rela­tion­ship with Cam­bo­dia polit­i­cal­ly and finan­cial­ly came out of Bei­jings deci­sive effort to embrace Prime Min­is­ter Hun Sen (and his Cam­bo­di­an Peo­ples Par­ty) fol­low­ing its unde­mo­c­ra­t­ic claim on pow­er in 1997. As the U.S. and oth­er allied part­ners cen­sured the new gov­ern­ment, Chi­na for­mu­lat­ed its now-famil­iar no strings attached approach to for­eign aid, offer­ing finan­cial sup­port with none of the tra­di­tion­al pre­con­di­tions to the coun­trys new strong­man and gain­ing an ally in the process.

In the years that fol­lowed, Chi­na has show­ered Cam­bo­dia with con­ces­sion­al loans and invest­ment and, in return, has secured an impor­tant ally with­in ASEAN that has sup­port­ed Chi­nese for­eign pol­i­cy objec­tives across issues rang­ing from Tai­wan to the South Chi­na Sea. Dur­ing this time, Hun Sen has made clear that his defense of Chi­nas posi­tion on these issues was direct­ly con­nect­ed to the non-inter­ven­tion­ist nature of Chi­nese sup­port an unusu­al­ly blunt admis­sion con­cern­ing the prag­mat­ic ties bind­ing these two coun­tries.

The 10-year U.S. ban on devel­op­ment assis­tance to Cam­bo­dia end­ed in Feb­ru­ary 2007 dur­ing which time, the U.S. still remained Cam­bo­dias largest trad­ing part­ner and rela­tions between the two showed some short-lived improve­ment. When ten­sions flared at the Cam­bo­di­an-Thai­land bor­der (linked to a long stand­ing ter­ri­to­r­i­al dis­pute over land sur­round­ing­Preah Vihear tem­ple), and the U.S. mil­i­tary again decreased its sup­port, Chi­nese aid increased pro­por­tion­ate­ly. In short, as before, Bei­jing was ready to seize an oppor­tu­ni­ty to dif­fer­en­ti­ate its sup­port from that of the West.

Beyond just pro­vid­ing inter­na­tion­al sup­port for Chi­nese for­eign pol­i­cy pri­or­i­ties (although clear­ly impor­tant), Cam­bo­dia has also demon­strat­ed a will­ing­ness to pro­vide Chi­nese com­pa­nies with unfet­tered access to the coun­trys most strate­gic eco­nom­ic assets as a result of Bei­jings sig­nif­i­cant (and uncon­di­tion­al) finan­cial sup­port.

  • Chi­nese invest­ments have brought it access to Cam­bo­dias nat­ur­al resource wealth (i.e., to the coun­trys under­de­vel­oped reserves of oil and gas, tim­ber, gem­stones, iron ore, man­ganese, phos­phates, hydropow­er, agri­cul­ture, etc.)
  • Cam­bo­dia has allowed Chi­na to cul­ti­vate a strong pres­ence at key land and mar­itime trans­porta­tion infra­struc­ture, such as Sihanoukville Port on the Gulf of Thai­land.
  • Chi­nese invest­ments, cumu­la­tive­ly, help estab­lish a long-term posi­tion of influ­ence over the coun­try derived in part from the exten­sive foot­print over the coun­trys crit­i­cal infra­struc­ture (such as trans­porta­tion nodes, ener­gy explo­ration, pow­er gen­er­a­tion, etc.)

Despite the high pro­file invest­ments of Chi­na in places like Sihanoukville, Cam­bo­dias econ­o­my is still dom­i­nat­ed by tourism and the gar­ment indus­try (the lat­ter gen­er­at­ing rough­ly 70% of the coun­trys total exports). Indeed, the gar­ment indus­try has ben­e­fit­ed as much as any oth­er indus­try from Chi­nese invest­ment (with Chi­na own­ing a high per­cent­age of gar­ment fac­to­ries in the coun­try), serv­ing as a pri­ma­ry engine behind the coun­trys 7% annu­al growth rate over the past 10 years.


Excerpted Deals and Transactions:

  • The Cam­bo­di­an Nation­al Petro­le­um Author­i­ty (CNPA) sat direct­ly under the Prime Min­is­ters con­trol, lead­ing to pri­vate, opaque, bilat­er­al nego­ti­a­tions in lieu of what should have been open bid­ding rounds for the allo­ca­tion of petro­le­um con­ces­sions. A num­ber of Chi­nese com­pa­nies were involved in these oil and gas bids.
  • In Novem­ber 2011, Cam­bo­di­an Petro­chem­i­cal Com­pa­ny (CPC) and Chi­na Nation­al Machin­ery Indus­try Corp. signed an agree­ment for the con­struc­tion of the coun­trys first refin­ery, a $2.3 bil­lion project to be locat­ed near Preah Sihanouk and Kam­pot provinces, near the Gulf of Thai­land. In Octo­ber 2013, Chi­na Exim Bank signed a $1.67 bil­lion loan agree­ment with Cam­bo­di­an Petro­chem­i­cal Com­pa­ny to fund this con­struc­tion work. Prime Min­is­ter Hun Sen report­ed­ly wants it com­plet­ed by the end of 2018.
  • Sino­hy­dro took over the 108 MW Stung Cheay Are­ny (Areng Val­ley) hydropow­er dam con­ces­sion from two Cana­di­an com­pa­nies. The deal was facil­i­tat­ed by Cam­bo­di­an Peo­ples Par­ty Sen­a­tor Lao Meng Khin and does not meet the World Banks envi­ron­men­tal stan­dards
  • Chi­nas Jiang­su Tai­hu Cam­bo­dia Inter­na­tion­al Eco­nom­ic Coop­er­a­tion Invest­ment Co. Ltd., is devel­op­ing a Spe­cial Eco­nom­ic Zone (SEZ) around Sihanoukville that is dom­i­nat­ed by Chi­nese com­pa­nies. The port is the main and only deep-water port in Cam­bo­dia; it is an impor­tant part of Chi­nese mar­itime strat­e­gy. Chi­na Devel­op­ment Bank, Chi­na Exim Bank, and Chi­na Ocean Ship­ping Com­pa­ny (COSCO) all have invest­ments in this area.
  • In Jan­u­ary 2013, a group of Chi­nese com­pa­nies solid­i­fied plans to build a 405 kilo­me­ter rail­way link­ing the com­pa­nys planned steel plant with a new port at Koh Kong that is sus­pect in its strate­gic pur­pose and com­mer­cial ratio­nale; com­pa­nies involved includ­ed: Cam­bo­dia Iron and Steel Min­ing Indus­try Group of Chi­na (CISMIG), Chi­na Rail­way Engi­neer­ing Cor­po­ra­tion (CREC), Chi­na Major Bridge Engi­neer­ing Co., Chi­na Ocean Engi­neer­ing Con­struc­tion Gen­er­al Bureau, Chi­na Rail­way Inter­na­tion­al Group.
  • In 2010, Huawei signed a $500 mil­lion deal with Cam­bo­dias largest mobile phone oper­a­tor, CamGSM/MobiTel, to pro­vide equip­ment and ser­vices, anoth­er in 2012 for $200 mil­lion, and, in 2015, the com­pa­ny won the con­tract to con­struct the MCT (Malaysia-Cam­bo­dia-Thai­land) under­sea cable sys­tem.