A brand new factory is emerging on a 20ha plot in Phnom Penh as part of a plan to shift production of millions of bicycles from China to Cambodia.
How fast it is completed, however, will depend on the meeting between Chinese President Xi Jinping and US President Donald Trump at the Group of 20 (G20) summit in Japan later this month, if it ever happens.
“If the meeting goes very well, they will go ahead at one pace,” said Arnold Kamler, chairman of US bicycle company Kent International Inc, as he explained the calculations made by his Chinese bicycle supplier Shanghai General Sports Co Ltd.
“If it really looks like that thing is completely falling apart, they will go into warp speed.”
Trump, who raised duties on $200 billion worth of Chinese imports last month, has threatened tariffs on another $300 billion worth of goods if Xi does not meet him at the G20 summit.
While Vietnam, Taiwan and Chile have been identified by analysts as the biggest beneficiaries of diverted Sino-US trade, manufacturing hubs like Cambodia are seeing greater interest from Chinese firms trying to relocate their operations to get around punitive US tariffs.
The kingdom has a bicycle industry that enjoys tariff-free access to both the US and the EU.
Last year, factories in Cambodia’s special economic zones produced 1.4 million bicycles worth $287 million, with 64 per cent headed for the EU. Another 7.3 per cent of Cambodia’s bicycle exports are bound for the US.
A Straits Times check with Cambodia’s Ministry of Commerce found at least two new Chinese-controlled bicycle firms that had set up shop recently.
Evergrand Bicycle (Cambodia) Co Ltd was registered in November last year, while XDS Bicycle (Cambodia) Co Ltd was registered three months ago.
Most of the bicycles made by Shanghai General Sports is produced for Kent, which sells some three million sets to US retailers such as Walmart and Target every year.
If its factory in Cambodia is built at full speed, the Chinese manufacturer could be producing 50,000 bicycles per month by the middle of next year, Kamler told the Straits Times.
“The plan is over the next three to four years. They will reduce the size of their factory in China by about 50 per cent to 60 per cent,” Kamler said.
Any remaining US-bound bicycles still produced in China will be subject to an eye-watering 36 per cent duty.
But Cambodia is facing its own headwinds.
The EU in February launched a process to suspend Cambodia’s trade privileges after Prime Minister Hun Sen was perceived to have cracked down on his political opponents.
Amid sustained Western pressure over its human rights record, Phnom Penh has leaned increasingly on Beijing, whose investment in Cambodia accounted for 41.3 per cent of all foreign direct investment and 77 per cent of bilateral debt last year.
Between 2017 and last year, Chinese investment in Cambodia doubled in value to $3.3 billion.
“China’s investments come with no conditions,” said Chap Sotharith, a board member of the Cambodian Institute for Cooperation and Peace, a research institute. “It’s not like investments from the US”.
But this means that economic tremors from a slowdown in China are amplified in Cambodia, the third smallest economy in Asean. Growth in Cambodia’s real estate sector, for example, slowed after Beijing tried to control Chinese debt and halt a slide in the yuan’s value.
“Approved investments into construction projects declined last year, partly due to weaker external demand particularly from China, following the Sino-US trade tension and China’s restrictions on outbound investments in the real estate sector,” a report from the National Bank of Cambodia stated in April.
The government, mindful of the potential damage from a protracted trade war on the Cambodian economy, is striving to improve its trade competitiveness, Cambodia’s Minister for Economy and Finance Aun Pornmoniroth was quoted by The Post as saying in April. THE STRAITS TIMES (SINGAPORE)