Chinese Growth Reverberates Across Cambodia

Chinese-owned enterprises in 2009 topped the list of foreign own­ed businesses in Cam­bodia, vastly overshadowing other countries with locally-registered businesses, such as South Korea, Singapore and Malaysia, according to the Ministry of Commerce.

At the end of October, the latest month for which figures are available, the number of Chinese businesses in Cambodia numbered 3,366, compared to 1,601 for South Korea, 1,102 for Singapore, 1,047 for Malaysia, 986 for Thailand and only 520 for Vietnam, while France and the US each recorded 643 go­ing concerns.

But the Chinese have always dominated in the number of foreign-owned firms operating in Cambodia, according to Van The­ary, deputy director of commercial registration at the Com­merce Ministry.

Ever since the government started its database on business registration in 1988, China has held the largest foreign business presence in the country. Analysts say the Chinese presence, both economic and political, is expanding, and fast.

During the 1990s, Chinese companies were mainly focused on the garment sector. Today, Chinese companies are widening their horizons and looking to a greater range of business opportunities as their own economy diversifies.

Records at the Ministry of Industry, Mines and Energy show plans for 11 Chinese-made hydropower dams, one of which is under construction while four more are already slated to be built in the next four years.

China is also helping Cambodia to construct major roads in some of its more remote provinces.

Though potential offshore oil reserves could eventually be lucrative, overall, Cambodia is currently a market where Chinese companies and small businesspeople can gain some leverage while competing less with major Western firms, analysts say.

“It’s a place where Chinese firms can invest and repatriate profits easily, and where they know the Chinese government can support them diplomatically,” said Joshua Kurlantzick, a fellow for Southeast Asia at the Washington-based Council on Foreign Relations and author of “Charm Offensive: How China’s Soft Power is Transforming the World.”

Cambodia, Mr Kurlantzick said, is not the top of China’s list of priorities but it “has increased its influence in Cambodia; and, more broadly in Southeast Asia over the past decade.”

“I’d say it is more that Cambodia has few other options, which forces it to rely more on China than other countries in the region,” he added.

In many ways, the Chinese presence in Cambodia today is merely part of an evolutionary trend toward increasing its leverage in the region as a whole, especially as its economy continues to expand.

In the 1950s and 1960s, the role of the Chinese in Cambodia was one of commerce, trade and diplomatic warmth, most famously seen through former King Norodom Sihanouk’s warm relationship with Beijing prior to the Khmer Rouge regime.

Until the coup which lead to the Lon Nol regime in 1970, Chinese businessmen played a significant role in commercial activities in Phnom Penh and elsewhere.

But the fiercely anticommunist Khmer Republic soon put a swift end to such progress when it placed heavy taxes on Chinese businesses, closing Chinese-language schools, putting pressure on local markets and fundamentally axing the growth of Chinese business and influence.

China’s support for the Khmer Rouge regime between 1975 and 1979 was so emphatic it left little room for denial after the fact.

“China can help scare our enemies,” Pol Pot told cadres in the Communist Party of Kampuchea in 1977, according to historian David Chandler. “Having friends like the Chinese is a good thing.”

But under the Vietnamese-sponsored People’s Republic of Kampuchea regime of 1979 to 1989, the hostile environment for the Chinese continued as Vietnam opposed China’s support for the Khmer Rouge still active in the countryside and viewed the Chinese on PRK territory as a potential threat.

With the departure of the Vietnamese in 1989 and the demise of the Khmer Rouge in the late 1990s, relations with China improved. And they have grown ever since.

The result has been a huge influx in Chinese investment.

“Cambodia can provide a kind of back door for the expansion of Chinese commercial activity,” said Cheang Vannarith, executive director of the Cambodian Institute of Cooperation and Peace, highlighting Cambodia’s natural resource potential and abundance of cheap labor.

In April the Chinese government announced it was planning to split $39.7 million in aid between Cambodia, Burma and Laos for development purposes.

Excluding an enormous, $3.8 billion tourism development project in Koh Kong province, the total approved Chinese investment for the first three quarters of 2008 comes to $140.5 million, less than half the amount of Chinese investment over the same period in 2009, which registered at $339 million, according to the Council for the Development of Cambodia.

The Cambodian Investment Board approved 23 Chinese projects in the first nine months of 2009, compared to 21 projects for the same period in 2008.

According to CDC figures, China became Cambodia’s largest single foreign investor in 2008.

CDC data for 2009 shows that approved Chinese investment accounts for over 20 percent of total investment in the country, most of which has occurred in the garment and agricultural sectors. Last year also saw some interest from Chinese companies in both tourism and mining ventures.

“The type of shift in Chinese foreign aid policy is to work the region with the clear objective of having stronger influence in Southeast Asia,” Mr Vannarith said.

China’s desire to bolster diplomatic and economic relations with Cambodia is part of its overarching attempt to increase its “political leverage in the region,” he added.

On the eve of inking $1.2 billion in interest-free loans from Beijing last month, Cambodia deported 20 ethnic minority Uighurs seeking refugee status back to China where some might face the death penalty. The quid pro quo nature of this deal was not lost on anyone.

The deportation inspired swift international condemnation, as observers said the repatriation casts serious doubt on Cambodia’s ability and desire to implement international law.

In October, the National Assembly voted to approve a comprehensive trade agreement with China that was strongly questioned by members of the opposition, who said Chinese companies often operate with no consideration for the environment or ethnic minority populations in Cambodia.

But Koy Kuong, spokesman for the Foreign Ministry, said free market principals, rather than politics determines investor interest from China.

“Right now we have got a free market economy so we are open for all foreigners,” said Mr Kuong, adding that there is no preferential treatment given to China when it comes to their economic interests in the country.

“No one is superior to another, so you know…they are an economic partner, we can say a cooperation and development partner. We treat each other equally,” he said.

Mr Kuong went on to explain that any Chinese investment or business operation here had to abide by the country’s labor and investment laws, just like everybody else. It is also true that the Chinese business community is expressing high levels of confidence in Cambodia’s economic future, he said.

“Right now we have political stability, great dimension of natural resource potential. We have legal documents for investment and we have an investment law to facilitate foreign investors. To some extent, they see the facilitation of the investment process,” he said. “They feel very confident.”

Qian Hai, spokesman for the Chinese Embassy in Phnom Penh, agreed.

“I think there is many areas for businessmen to have good opportunities,” Mr Hai said.

An area with particular potential for future Chinese investment is in agriculture, he said. China is also active in the import-export industry with many household appliances coming to the country from China.

Moreover, the garment sector has been a primary target for Chinese investors. And Mr Hai said that once the economy bounces back from the economic crisis, it was likely that more Chinese businessmen would enter the sector.

“We want to help Cambodia to have the ability to develop their own economy.”

Chan Sophal, president of the Cambodian Economic Association, said there has been a lot of Chinese interest in Cambodia recently, ranging from trade to agriculture investment, government-granted land concessions and real estate.

Although the government has openly endorsed Chinese investment, Mr Sophal says its effects are not necessarily all that beneficial.

“In the short term I think yes, you can say it is good as it brings…more capital,” he said. “But in the long run it depends how we strike the deals.”

As Chinese firms accumulate more land concessions here, for example, it will be interesting to see how locals react to their presence once they themselves want to try and get involved, he said.

“In the long run, more locals will want to get the land. But it could be too late then,” said Mr Sophal.

Even though he says Chinese investment will encourage economic growth “the question is [over] the share of the benefits” and the dividend for Cambodia.

And Mr Sophal said, the crucial question is: “Who will get more and who will get less?”

 

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