T HE $2.8 million worth of Chinese manufactured military trucks and jeeps received

by the Royal Government on Dec 9 are part of a larger Chinese loan of about $10 million

signed without the approval of the Minister of Finance Keat Chhon, according to minstry

sources.

The $10 million loan, with a 5% interest rate, was allegedly negotiated and signed

by Cabinet Ministers Sok An. Although Keat Chhon had personally written in October

to Second Prime Minister Hun Sen saying he disapproved of the loan, the deal went

ahead nonetheless, according to senior sources.

The loan does not pass directly through the national budget but will be used to buy

Chinese goods, the sources say. One Finance official suggested that most of it would

go towards purchasing military equipment.

The deal was also castigated by opposition leader Sam Rainsy.

"This [deal] is illegal because any loan contracted by the government should

be authorised by the National Assembly. The National Assembly is not aware of this

loan contracted with China for military purposes," Rainsy said at a Dec 17 press

conference.

News of the loan follows ousted First Prime Minister Prince Norodom Ranariddh's claim

last month that 30 containers of ammunition from China had arrived in Sihanoukville

and were bound for CPP-aligned military units.

Western and Asian diplomats confirmed the ammunition shipment, with one source speculating

that it included weapons as well, but were unclear on any details of a larger deal

between China and Hun Sen.

"There were 30 containers, maybe more," said one source. "The deal

was not government to government but done through arms dealers with most going directly

to Hun Sen... only a trickle is going to the Ministry of Defense."

Both the delivery of Chinese trucks and the arms shipment have raised concerns in

ASEAN over a secret military build up by Hun Sen in advance of next year's expected

elections. Thailand is reportedly particulary concerned over the military transfers

and was said to have raised the issue privately with Chinese officials at the ASEAN

summit in Kuala Lumpur this week.

More broadly, ASEAN is concerned over what it refers to as "the China factor"

in Cambodia.

"ASEAN is quite wary," said one diplomat, noting that China was "fishing

in troubled waters".

"ASEAN is concerned that China may want to use Cambodia as a launch pad to subvert

ASEAN," said the source. "They want a toe-hold."

When Hun Sen presided over the donation ceremony at Olympic Stadium for the 186 trucks

and jeeps, he praised China's attitude toward Cambodia since July. "Related

to the past events, though some international circles did not rightly understand

the real situation, some friendly countries have taken their right and fair stance

towards the Cambodia problem," said Hun Sen.

China accorded rapid recognition to the new-look government after July. Prime Ministers

Hun Sen and Ung Huot went to visit King Sihanouk in mid-August at his Beijing residence,

and were then received by Premier Li Peng at a Communist Party seaside resort. The

Chinese premier was quoted as saying that China would "never interfere",

adding that Cambodia's problems "must be resolved by the Cambodian people".

At the end of September, another delegation led by Sok An went to China and met with

the Chinese Trade Minister and other officials. They agreed to draft several memoranda

of understanding on agriculture, power, fisheries and maritime transport. Sok An

is believed to have discussed the loan during that visit.

The Ministry of Finance official said Sok An has neither the constitutional power

nor the technical know-how to negotiate and sign loans from foreign governments.

According to Royal Government regulations, only the Minister of Finance can sign

loans and commit resources from the national budget. "In that story, they have

stepped over [the minister's] head directly," said another source from the ministry.

Keat Chhon declined to comment on the loan.

The loan's 5% interest rate, a commercial level, surprised ministry officials. Usually,

Cambodia is granted loans with very low interest rates.

"Through the financial organizations, the interest rate never surpasses half

a percent," said a financial expert. "This rate is very high and illegal."

Sources at the Finance Ministry said that signing a loan is a very important matter

and if the Minister does not agree, it can jeopardize loan repayments and the country's

lending credibility.

The loan signed between Sok An and China will not appear in the budget nor in the

annual World Bank report on Cambodian debt. "The minister requested that the

loan not appear," said a ministry official.

The commercial loan granted by the Chinese is the latest sign of China's policy to

support Hun Sen and develop closer ties with the CPP. Minister of Defense Tea Banh

reportedly said that the trucks will be used during any dry-season offensive against

Ranariddh loyalists and Khmer Rouge forces in the northwest.

China was previously an ardent supporter of the Khmer Rouge, during Pol Pot's years

in power and afterwards when they backed the resistance forces fighting the Vietnamese-backed

regime in Phnom Penh in the 1980s. But military analysts generally agree that Chinese

support for the KR ceased upon the signing of the Paris Peace Accords in 1991, even

if the rebels were still able to draw on old caches of arms and ammunition along

the Thai border.

A discernable shift in Chinese policy became evident last year, highlighted by Hun

Sen's five-day visit to Beijing in July when he met with President Jiang Zemin and

Premier Li Peng. At the time the Second Prime Minister said the visit would help

end "the suspicion of the past". As well, official party-to-party relations

(between the Cambodian People's Party and the Chinese Communist Party) were discussed.

Moreover, the Chinese were believed to have been outraged by Ranariddh-led contacts

with Taiwan, including discussions on a possible direct air link with Taipei and

the opening of a Republic of China consular office in Phnom Penh, viewing the development

of closer relations with Taiwan as a slap in the face for Beijing given long-standing

Chinese support for Funcinpec during its years on the Thai border.

A few weeks after Hun Sen's visit, former Khmer Rouge foreign minister Ieng Sary

announced that he would negotiate a ceasefire with the government. Sary was the Khmer

Rouge's key point man in its relations with China, responsible for overseeing the

provision of Chinese financial and military support for the KR.

At the time, in Aug 1996, one China specialist noted: "The Chinese have made

a cool calculation. They like the King, but they have to think of their own interests.

They waited to see what the coalition would do for three years and now they have

decided to back Hun Sen."