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.