Logo of Phnom Penh Post newspaper Phnom Penh Post - China: Not a foe, but a friend

China: Not a foe, but a friend

Content image - Phnom Penh Post
Prime Minister Hun Sen shakes hands with Chinese President Xi Jinping in Beijing while on a state visit to China in January. HUN SEN’S FACEBOOK PAGE

China: Not a foe, but a friend

Last Friday, the US Embassy in Cambodia posted on its Facebook page an opinion on Cambodia’s trade with both China and the US.

In the post, the US claimed: “China is Cambodia’s largest trade partner, but this relationship is heavily skewed in China’s favour.

“About 87 per cent of trade are Chinese imports, which do not support jobs or industry in the same way Cambodia’s trade relationship with the US or EU does.

“This is just one more way Cambodia has shifted from a more balanced and diverse economic approach to one more dependent on China”.

The post shortly drew a response from the Chinese embassy in Cambodia that “the US is trying to stir things up again with the so-called trade deficit issue.

“It is common sense that in a globalised world, trade goes far beyond the bilateral.

“In the case of Cambodia, it imports large amounts of textile raw materials and machinery from China for the garment industry, while it exports the final products all over the world, the US and EU included”.

The issue made Monday’s news articles, including in The Phnom Penh Post.

For Cambodians – what do the majority think?

Not all can fully comprehend how world trade is conducted and how trade liberalisation has helped the world economy.

Not all can understand the long and complex supply chain of the production of various products, starting from raw materials, design, sourcing of parts and components, production and assembly, up to export, marketing, distribution and retailing.

Meanwhile, trade in services is even more difficult to understand due to its quite abstract form and limited data capture.

Reaction or judgement, therefore, may just be based on perceptions formed by their limited knowledge and available presented data, if not by prejudice.

Capital investment

Cambodia does have a huge trade deficit with China. Is this by design and purpose?

The answer lies in the reality of Cambodia’s economic structure.

At the first stage of its economic development, Cambodia can only perform light and low-value manufacturing or manufacturing services, such as producing garments, footwear, bags, hats and caps, umbrellas, lightbulbs, plastic products, etc.

While Cambodia has an abundant workforce with relatively low labour costs, materials for production in these sectors are not available locally, nor abundantly available in the US and EU, but mainly from China.

Cambodia would love to buy materials from anywhere in the world provided they are competitive in terms of price, quality, delivery and labour, as well as environmental compliance.

China’s trade surplus with Cambodia also comes with significant amounts of capital investment of which Cambodia is in dire need.

However, foreign direct investment (FDI) in the above sectors is not all Chinese-owned.

About half is from other countries [and area and special administrative region], namely South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Japan, Thailand and others, including a few from the US and the EU.

Investment from these countries – combined with preferential market access granted by the US and EU (Canada and Japan counted) – has indeed helped the Cambodian economy, in terms of job creation and export earnings.

Spillover effects from the growth of these sectors have been significant.

China, the US and the EU have all positively contributed to Cambodian economic development as a result of their investment and trade.

While China is Cambodia’s biggest FDI, the US remains Cambodia’s largest trading partner and export market.

Cambodia is currently the US’s 66th largest goods trading partner with $4.3 billion in total (two way) goods trade during 2018.

The US goods trade deficit with Cambodia was $3.4 billion in 2018, according to the USTR.

When we look at trade from a rule-based WTO perspective, all parties benefit from free trade considering the concept of absolute and comparative advantages.

For the issue we are looking at, China benefits from the sale of the raw materials it specialises in, while Cambodia benefits from job creation, export earnings and economic growth.

US consumers also benefit from cheaper products it can no longer produce competitively or stopped producing for the reason of opportunity cost.

The US makes more money from manufacturing Boeing aeroplanes and other high tech-machinery and equipment than manufacturing garments and shoes.

Also, the US is a service economy (over 80 per cent of GDP).

And if we look at trade from a complex production supply chain and value added point of view, trade deficit data doesn’t reflect an accurate picture of the trade in terms of gain and loss.

When Cambodians buy the made-in-China iPhone and either the phone comes directly from China or via Singapore or Thailand, the trade data is recorded as imported from China or Singapore or Thailand.

Of the estimated $1,000 price of the phone, just about five per cent goes to China, while half goes to parts and components suppliers like Japan, South Korea and Taiwan – and about half goes to Apple, a US Company.

Mutual trade relationship

While we are not buying directly from the US, we are actually buying quite a lot from American companies located outside the US.

When we buy Ford cars assembled in Thailand, when we buy Procter & Gamble (P&G) products also produced in Thailand, such as babycare, haircare, personal healthcare, skincare and oral care products, etc, and those from other companies like 3M or GE with production bases in Vietnam, to name just a few, we actually benefit US companies.

Unfortunately, this is not shown in US trade data.

And even though we never buy Boeing, we indeed fly on Boeing aeroplanes, which indirectly supports the US.

The US is a high value service economy. Data on trade in services between the US and Cambodia is not available.

However, we can see that we are paying directly or indirectly into the US for different types of services such as the internet (Facebook, Google and email providers . . .) and financial services (intermediary bank charges, Visa card, insurance and re-insurance . . .).

Other services include logistics, healthcare, engineering, education, consulting, management and professional, franchises, etc.

Local Cambodians, whose incomes are on the rise, also eat burgers, KFC and pizza, and drink Coke and Starbucks coffee.

They also fill their vehicles with Chevron diesel and petrol.

Some even buy life insurance from AIA and Prudential.

Finally, whatever people perceive, Cambodia and US are indeed having a truly mutual trade relationship. This has to be maintained and valued.

And investment and trade in general under the WTO frame-work need to be preserved and promoted.

Kaing Monika is the Deputy Secretary-General of the Garment Manufacturers Association in Cambodia (GMAC).

MOST VIEWED

  • Over $3M in traffic fines collected in two months

    Traffic police officers collected over $3 million in fines throughout the Kingdom during the past two months when officers strictly enforced the law in accordance with a May sub-decree, officials said. As incentives, law enforcement officers received between 200,000 and two million riel ($50 to $500) each. The figures

  • Accused not treated equally, says CCHR

    The Cambodia Centre for Human Rights (CCHR) has urged the Court of Appeal to do more to ensure that an accused’s right to a fair trial is fully respected. In a bulletin released on Monday, the CCHR said it had monitored 273 cases at the

  • Investors’ $14.4M projects approved

    New investments from local and foreign sources continue to pour into Cambodia despite the Covid-19 pandemic remaining a lingering threat to regional and global economies. This comes as the Kingdom’s gross domestic product (GDP) is expected to contract between one and 2.9 per cent this

  • NagaWorld casinos set to reopen, schools to follow

    NAGACORP Ltd has requested that it be allowed to reopen its NagaWorld integrated resorts in Phnom Penh after the government recently approved casinos to operate again, provided they follow Covid-19 prevention measures set by the Ministry of Health. Mey Vann, the director-general of the Ministry

  • Rubber exports stretch 17%

    Cambodia exported 97,175 tonnes of natural rubber in the first five months of this year, surging 17 per cent compared to the same period last year as the Covid-19 pandemic stretches on, Ministry of Agriculture, Forestry and Fisheries official Khuong Phalla told The Post on Thursday. Phalla,

  • ASEM supports Kingdom’s proposal to postpone meeting amid Covid

    The 13th Asia-Europe Meeting (ASEM13) scheduled to be held in Cambodia in November has been postponed until mid-2021 due to the Covid-19 pandemic, a Ministry of Foreign Affairs and International Cooperation press statement released on Saturday said. The decision was made during a two-day meeting

  • Coffee maker roasted for producing fake product

    The Ministry of Interior’s Counter Counterfeit Committee will send a suspect to court on Monday after she allegedly roasted coffee mixed with soybeans and other ingredients, creating a product which could pose a high risk to consumers’ health. On the afternoon of July 2, the

  • Cash handout programme 80% complete

    Minister of Social Affairs, Veterans and Youth Rehabilitation Vong Soth confirmed on Thursday that the implementation of the Cash Transfer Programme For Poor and Vulnerable Households During Covid-19 had been implemented for more than 80% of the over 560,000 families. The programme was introduced one week ago.

  • Cambodia armed with money laundering laws

    Money laundering will now carry a penalty of up to five years in prison while those convicted of financing terrorists will be jailed for up to 20 years, according to new laws promulgated by King Norodom Sihamoni and seen by The Post on Thursday. Comprising nine

  • Where is Cambodia’s exit strategy that can save the economy?

    With the prospect of being slammed by a double whammy, the government is working on an economic recovery plan to deliver it from Covid-19 and the EU’s partial withdrawal of the Everything But Arms scheme in the next two to three years Cambodia is