As China seems to have an ever-increasing interest in our economy, Lift looks at the potential of its investments.
DATES TO REMEMBER
- 13th century: Chinese diplomat Zhou Daguan visits Cambodia, marking the first official visit.
- 1620: Portuguese seafarers record the presence of a Chinese enclave in Phnom Penh.
- 1952: 75 percent of Cambodia’s peasants are in debt, and part of the reason is Chinese shopkeepers selling on credit at 10-20 percent monthly interest, according to studies.
- 1960s: the People’s Republic of China (PRC) lends its patronage to former King Norodom Sihanouk.
- 1963: William Willmott, an expert on overseas Chinese communities, estimates that 90 percent of the Chinese in Cambodia are involved in commerce.
- 1975: The Khmer Rouge takeover marks a catastrophic period for members of the Chinese community, who have their businesses taken and are often targetted for persecution or execution.
- 1975-1990: China gives tacit support, and often official patronage, to Khmer Rouge leader Pol Pot.
- 1991: Two years after the State of Cambodia’s foundation, the Chinese New Year is officially celebrated in Cambodia for the first time since 1975.
- 1997: Hun Sen begins to develop closer relations with China, which opposes efforts by Western countries to impose economic sanctions on Cambodia.
- 2004: The PRC emerges as the No 1 foreign investor, spending $600 million on investments, grants and aid in Cambodia between 1997 and 2005.
- 2006: China pledges another $600 million to Cambodia.
- 2009: Cambodia returns 20 asylum-seeking Uighurs.
- 2009 (two days later): Cambodia receives 14 development deals from China worth an estimated US$1.2 million.
- 2010: The China-ASEAN Free Trade Agreement (CAFTA), meant to gradually expanded cooperation, goes into effect.
Since the famed Chinese diplomat Zhou Daguan made his well-documented trips to Cambodia late in the 13th century, Cambodia and China have maintained bittersweet relations, with China often taking the upper hand.
Today, China tops the list of countries in terms of foreign direct investment, the term for long-term economic participation, despite a significant drop from US$4.48 billion invested in 2008 to $930 million in 2009, according to statistics from the Council for the Development of Cambodia.
“Since Cambodia can benefit [China], it has invested a lot here,” CDC’s deputy secretary general Duy Thov told Lift in an interview last week, adding that these investments have created jobs and advanced development in the Kingdom.
“Cambodia is wide open to all investors, regardless of the country, and China sees potential in Cambodia for further business growth.”
Chinese business interests in Cambodia range from major industrial projects by companies like the China Inner Mongolia Erdos Hongjun Investment Co, which has recently pumped $3 billion into several projects in electricity, real estate, metal processing and rice mills, to small- and medium- enterprises started and often overseen by Chinese entrepreneurs.
Chen Yilong, a Chinese businesswoman who has been part of Cambodian commerce for nearly seven years, began by importing bags from China to Cambodia. But she is now overseeing the export of 5,000 to 8,000 tonnes of Cambodian-produced cassava to China each month.
“Cambodia is geographically well-placed, and its agricultural products are good, so I can profit,” she said.
The Cambodian government has paid careful attention to the needs of Chinese businesspeople like Chen, most recently in July of this year when the National Assembly approved an agreement meant to attract more investments from China, which government officials said would facilitate much-needed improvements in the Kingdom’s private sector.
Recently, closer economic ties between Cambodia and China were on display again when a Chinese firm, the China Inner Mongolia Erdos Hongjun Investment Co, pumped $3 billion into several Cambodian projects in the electricity, real estate and metal processing sectors, while the other $5 million was spent on a rice mill.
“Cambodia wants more investment from China because … they can provide a strong foundation for lifting up Cambodia now and in the long run,” said Duy Thov.
The $530 million that China has invested so far this year puts it ahead of South Korea, the US, Malaysia and Russia in terms of FDI, according to the Cambodian Development Report published by the Cambodian Development Resource Institute.
But while Chinese money has made many commercial projects in the Kingdom possible, the resulting power this gives these firms in Cambodia’s economy has sceptics concerned over Beijing’s political and commercial influence.
Son Chhay, an opposition Sam Rainsy Party lawmaker, told Lift that China’s investors use economic promises to gain political clout in Cambodia, and never consider the adverse impacts of their investments on the developing country.
He said that, in reality, Chinese investments damage the Kingdom’s environment and fail to generate sustainable employment for the country’s labour force.
“Chinese investors are aggressive businesspeople who capitalise on Cambodia,” he said. “They are given special rights by the government”, which “invariably agrees with what [Chinese businesses] want”.
Rather than develop the Kingdom’s private sector, Son Chhay said that huge Chinese investments smother the efforts of local businesspeople, who are unable to compete with these bigger, better-funded competitors, which undercut them with lower prices.
“If the government doesn’t take action and improve their management of laws and principles, Cambodia will lose its current resources and there will be no reason for other people to invest in the country.”
But Mong Reththy, a Cambodian business tycoon who heads the Mong Reththy Group, said that he has never done business with Chinese investors, adding that they “don’t threaten my business”.
“Of course, the more investors there are, the better Cambodia will be since they can do what Cambodia’s investors can’t,” said Mong Reththy about the prospects of increased investment from China.
According to Cambodia’s law on investment, passed in 1994, foreign-owned companies can control 100 percent of a business or investment project, and hire oversees workers when suitable employees cannot be found in the domestic work force.
While this law also allows foreign investors to receive 100 percent of the profits from their investments, Kang Chandararot, an independent economist and president of the Cambodia Institute for Development Study, said that Chinese investment has significantly helped development of Cambodia’s agriculture, energy and minerals industries.
“It contributes positively to the increase in the country’s economic development,” he said in an interview with Lift, and also gives smaller Cambodian entrepreneurs “the opportunity to participate in the investment and help China’s investors”.
Cambodia’s government has adopted the right policies to attract foreign investors, said Kang Chandararot, by allowing them to rapidly increase the capacity of the country’s economy and not passing tighter tax laws.
But Cambodia’s dependence on Chinese money has raised concerns over the government’s ability to act independently of the interests of their super-rich ally.
At the end of 2009, a decision to deport 20 ethnic Uighur asylum seekers in Cambodia back to China, where they faced likely prosecution and imprisonment, brought criticism from human rights watchdogs that Cambodia was beholden to Chinese interests.
A New York Times editorial said that Cambodia failed to follow their signed commitment to the international convention on refugees, but added that “China shoulders even more blame for misusing its growing wealth and clout to force Cambodia to do its bidding”.
The piece pointed out that soon after the highly controversial decision was made, China “rewarded” Cambodia with 14 development deals worth an estimated $1.2 billion.
In May of this year, China promised Cambodia more than 250 new military trucks and 50,000 military uniforms.
While this gift won’t provide a financial return to China, it is an investment nonetheless, made to ensure continued cooperation from their Cambodian counterparts and the opportunity to invest freely in a country where capital can be hard to come by.