China's transition from export-led to domestic-led growth, combined with the rising costs of production, could provide opportunities for Cambodian growth and diversity, analysts say.

Faisal Ahmed, the IMF representative for Cambodia, said the Kingdom was already experiencing an increase in trade activity as a result of China’s economic shift.

“China’s rebalancing can boost demand of Cambodian exports of not only commodities but also labour-intensive manufacturing, in part supported by rising wages in China,” Ahmed said.

“We’re already witnessing  FDI inflows that would serve the Chinese domestic market, a trend that can serve additional sources of growth.”

Asian Development Bank deputy country director Peter Brimble agrees higher production costs in China will lead to greater investment in Cambodia that could be used to enrich its manufacturing base.

“Growing costs of production, as well as labour issues, are leading to increased investment inflows from China into Southeast Asia, including Cambodia,” Brimble said.

“In Cambodia, I expect the increased FDI inflows will build the capacity to support greater exports of higher value-added products, including garments, auto parts and electronics, in later years as the EU and US markets recover.”

Hiroshi Suzuki, chief economist and CEO of the Business Research Institute for Cambodia, believes Chinese investment at a time of European and US slowdown has the potential to expand Cambodia’s trade partners.

“It will give Cambodia a good chance to expand its exports to big markets including the US and EU. Some Japanese companies that have factories in China are already shifting production to factories in Cambodia,” Suzuki said.

In its World Economic Outlook Update published on Wednesday, the IMF revised its global growth projection to 3.5 per cent in 2013, down from the 3.6 per cent projected in October last year.

It forecasts 8.2 per cent growth in China, where it says reforms favouring private consumption will be needed.

To contact the reporter on this story: Daniel de Carteret at [email protected]

Anne Renzenbrink at [email protected]