Belt and Road Initiative: Opportunities for Cambodia’s Development?
Photo Credit: The Cambodia Herald
By Veasna Var

Belt and Road Initiative: Opportunities for Cambodia’s Development?

Aug. 02, 2017  |     |  0 comments

As China becomes richer and more powerful, the giant is taking further steps toward expanding its interests and influence, as well as a pursuing a greater global status.

The Belt and Road Initiative (BRI) — comprising the Silk Road Economic Belt and the 21st Century Maritime Silk Road — was proposed by China’s President Xi Jinping in late 2013. BRI has drawn much attention in Asia and beyond. The BRI is a core element of President Xi’s “China Dream” which has the overarching aim of building a trade, investment, and infrastructure network connecting Asia with Europe and Africa along ancient trade routes. At the Belt and Road Forum in Beijing in May 14-15, 2017, President Xi pledged USD 124 billion to expand transportation infrastructure links between Asia, Africa, and Europe, echoing his commitment to the large project.

As one of BRI’s aims is to create new markets for China, countries along the BRI routes stand to gain immense economic benefits as Beijing establishes new routes to neighboring states and beyond. The BRI is President Xi’s most ambitious foreign policy and development strategy, involving more than 60 countries. It promises more than USD 1 trillion in massive infrastructure development, accounting for around 65 percent of the world population and one-third of its gross domestic product (GDP). If it goes as planned, the initiative will generate around USD 2.5 trillion in trade, significantly boosting economic growth for China and for countries along the routes.

From the Chinese perspective, the BRI is aimed at achieving a community of shared destiny sharing mutual benefits and coexisting peacefully along the trade routes among countries involved. According to an official Chinese government statement, the vision of the BRI symbolizes a modern reinvention of the ancient Silk Road that stresses “mutual trust, equity, inclusiveness and mutual learning, and win-win cooperation.” The initiative is inherently underpinned by the Five Principles of Peaceful Coexistence, a key principle of China’s post- 1949 foreign policy.

While Cambodia does not share a border with China, the small kingdom holds significant strategic relevance for the giant. In recent years, relations between China and Cambodia have grown to a new peak. While China sees Cambodia in an important strategic location to advance its national interests, Cambodia sees China’s rise and influence as an opportunity for its badly needed economic development. Cambodia’s Prime Minister Hun Sen has urged his ASEAN counterparts to view China’s rapid economic growth as an opportunity rather than a threat. Hun Sen seems to have convinced the other Southeast Asian states, as can be seen at the Belt and Road Forum where delegations from nine out of ten Southeast Asia countries, including seven heads of state or government, were in attendance.

While some countries in Southeast Asia have concerns over China’s strategic motives in the region, Cambodia was one of the first countries to take a strong stance supporting the BRI and the Chinese-backed Asian Infrastructure Investment Bank (AIIB) after their establishment in 2013 and 2014 respectively. Prime Minister Hun Sen has been a vocal supporter of the BRI with the high expectation that access to Chinese investment through the BRI will be crucial for infrastructure development, especially since funding through international financial institutions remains limited and usually attached to complicated conditions and standards. This was evident during a press conference at the World Economic Forum on ASEAN in Phnom Penh on May 11, when Hun Sen stated that the “China-proposed Belt and Road Initiative gives hope to developing countries in their infrastructure development.”

Similarly, during the launch of the Khmer version of President Xi’s book The Governance of China on April 12 at the Peace Palace in Phnom Penh, Prime Minister Hun Sen praised the good relations between China and Cambodia. He told his audience that under the BRI, “Cambodia and China will continue expanding cooperation for the economic development of both countries, such as strengthening economic productivity, increasing bilateral trade, promoting tourism and investment as well as developing the agricultural sector.

A Cambodian government official was quoted by local media as saying: Cambodia highly values the bilateral cooperation between the two countries under the Belt and Road Initiative,” pointing out that the cooperation would provide great benefits to Cambodia in socio-economic development for medium and long.” The BRI is seen as aligning with Cambodia’s development strategy, including the Rectangular Strategy and the Industrial Development Strategy (2015-2025).

Similarly, some of Cambodia’s scholars and political analysts have welcomed the Chinese development approach. Chheang Vannarith, chairman of the Cambodian Institute for Strategic Studies and visiting fellow at Singapore’s Iseas-Yusof Ishak Institute, has stated that: “Cambodia stands to benefit from more Chinese investment in infrastructure such as roads, rail, ports and hydropower plants which will increase significantly in the coming years.” He also pointed out that “The Belt and Road Initiative will also contribute to the realisation of the vision of becoming a middle-income country by 2030 and a high-income country by 2050.”

Cambodia and China have traditionally enjoyed and maintained close relations and recently the relationship has reached the highest point. China and Cambodia reached an agreement on a Comprehensive Partnership for Cooperation in April 2006, and they raised this to a Comprehensive Strategic Partnership of Cooperation in 2010, both of which are milestones of their deep and comprehensive cooperation.

The state visit of President Xi to the kingdom in mid-2016 was a turning point of bilateral cooperation between the two countries under the BRI framework. During his visit, President Xi told Prime Minister Hun Sen that: “China attaches great importance to ties with Cambodia and stands ready to enhance the comprehensive strategic cooperation and contribute to regional peace and prosperity.”

The bilateral cooperation between China and Cambodia under the BRI focuses on seven key sectors: (1) infrastructure; (2) agriculture; (3) capacity building; (4) special economic zone development; (5) culture and tourism; (6) finance; and (7) eco-environmental protection. If these crucial development areas stay on track and achieve the goals set by President Xi and Prime Minister Hun Sen, they will no doubt contribute immensely to the economic growth of Cambodia.

President Xi’s visit shows the considerable economic interests for Cambodia under the BRI. President Xi pledged increasing Chinese investment in various physical infrastructure projects including a high-speed railway, a new airport in the tourist destination city of Siem Reap, as well as 500 additional scholarships. President Xi also pledged to attract more Chinese tourists to visit Cambodia, increasing the current annual number of 700,000 to 2 million by 2020. Both sides also expect their bilateral trade to increase from USD 5 billion to USD 6 billion by 2020.

Last year, the Chinese government pledged around USD 600 million to Cambodia for a three-year project aiming at improving infrastructure, education, the health sector, and elections. 31 agreements, including soft loan deals of around USD 237 million, were signed. President Xi also cancelled USD 90 million of Cambodia’s debt. (Cambodia’s bilateral public debt with China is around USD 2.7 billion.) In addition to these economic benefits, military ties have also been strengthened, and China will provide USD 15 million to improve Cambodia’s defense sector.

In recent years, China has maintained its position as the most reliable development partner for Cambodia. It is exemplified by Prime Minister Hun Sen’s recent speech by describing China as a “most trustworthy friend.” The giant is not only providing massive development assistance but also promoting foreign direct investment in critical development fields such as energy, transportation, textiles, agriculture as well as tourism. China is the biggest foreign investor in Cambodia and is also the leading aid donor. Since 1992, China has provided Cambodia with a considerable amount of development aid. As of February 2017, China has disbursed to Cambodia around USD 4.2 billion of aid in both grants and soft loans to fund physical infrastructure, agriculture, education, and social development. This echoed the Prime Minister remarks in 2006: “China talks less but does a lot.”

The key problem facing China’s soft power in Cambodia is that Beijing has not paid much attention to the interests of ordinary Cambodians.

Bilateral trade between the two countries has increased dramatically from year to year. While bilateral trade in 2014 was about USD 3.75 billion, in 2016 trade increased to around USD 4.8 billion, with exports from Cambodia accounting for USD 830 million and imports from China USD 3.9 billion. According to the Ministry of Commerce, bilateral trade between the two countries is expected to reach at USD 5.01 billion this year.

In terms of investment, China has become the largest investor in Cambodia with more than USD 14 billion in cumulative investments in Cambodia from 1994 to March 2016. The main fields of China’s investment in Cambodia include agriculture, oceanic, energy, telecommunication, infrastructure, garments, and mining.

Chinese aid and investment have provided important benefits for Cambodia’s economic development. The legacy of more than three decades of civil war, especially during the Pol Pot era, has created significant challenges for Cambodias development, and in particular its physical infrastructure. According to a recent report from the Henan Provincial Communications Planning and Design Institute of China (HPCPSDI), Cambodia needs to develop some 2,230 km of national highways by 2040. The report estimates that USD 26 billion in investment will be needed to attain this major infrastructure development. The study also finds that by 2020, Cambodia will need to build 850 km in roads and will need USD 9 billion in investment. Li Qiang, a Chinese chief engineer, and a member of the report team, pointed out that the construction of highways in the near- and long-term will be crucial for Cambodia’s rapid economic growth.

It is clear that Chinese development aid in infrastructure has played an important role in Cambodia’s national rehabilitation. To date, China has assisted Cambodia with the construction of 7 major bridges (some of them named “Cambodia-China friendship bridges”), and 2,600 km of roads, including the ASEAN highway and the trans-ASEAN rail line. These projects have significantly improved access to markets, especially for farmers. Both the Cambodian and Chinese governments recognize the importance of Chinese aid for infrastructure development, with the Chinese government claiming that “its aid to Cambodia is an effort to boost progress in a nation that ranks among the world’s least developed, where gross domestic product per capita stands at about 830 USD — one of Asia’s lowest — and some 30% of its 15 million people live below the poverty line.”

China’s involvement in Cambodia has also contributed to the development of the garment and textile sectors. This industry accounts for 80 percent of all exports, and is constituted of over 3,000 companies and employs close to a million workers. It has made up 2 percent of Cambodia’s GDP since 1995. About one-fourth of the population relies on the garment and textile sectors for their economic prosperity.

As labor wages remain low (the average monthly wage in Cambodia is USD 121, compared to USD 613 in China), Cambodia has a particular appeal for Chinese manufacturers as they search for cheaper labor. It aligns with China’s strategy to export industrial capacity through the BRI.

China’s investment in hydropower plants has also helped the Cambodian government achieve its economic development goals by providing cheap and reliable electricity for industrial zones and rural areas. For example, the Chinese backed Kamchay Dam at Elephant Mountain, which has been in operation since early 2016, has generated 1.68 billion kilowatt-hours. This power has been transmitted to Kompot and Takeo provinces as well as to Phnom Penh. According to Sok Siphana, a lawyer and long-time advisor to the government, “Without achieving development in energy efficiencies, international business flows into Cambodia will remain limited.” Under the BRI, China is financing all hydropower projects, with the exception of the Lower Sesan 2 project in Northern Cambodia. Currently there are six operational plants in Cambodia with total estimated cost of approximately USD 2.4 billion.

Among the projects under the BRI, China plans to develop a rail network that links it to Southeast Asia, extending through Cambodia, Laos, Vietnam, Myanmar, Thailand, Malaysia, and Singapore. In Cambodia, China is constructing a 400-km high speed railway line costing some USD 7 billion. This railway line will run from Cambodia to Laos, and will connect the Sihanoukville seaport and the Preah Vihear where a large Chinese steel mill is located. This project will offer a considerable boost to the Cambodian economy and provide extensive job opportunities for the Cambodian people.

In short, it is undeniable that China is Cambodia’s most important strategic and development partner. Chinese overall engagement in general and through the framework of the BRI has generated significant benefits for Cambodia now and in the future.

However, China’s involvement in Cambodia is not without controversy. Besides concerns about standards and transparency, some critics see China’s growing influence in Cambodia as solely for its own wider strategic interests. Chinese development aid and investment have considerable social, political, and environmental impacts on Cambodia. For example, some critics predict a road that is being constructed between Cambodia and Vietnam that will pass Virakchey National Park will have significant negative impact on wildlife and the environment. Chinese aid and investment, the critics also argue, have made corruption worse, have led to a failure to achieve good governance and human rights, and have resulted in the over-exploitation of Cambodia’s natural resources. In addition, although China is one of the key development players in Cambodia, its involvement has not been appreciated by Cambodia’s general public because China’s strategic interests focus on the government, political parties, and political elites, and neglect to focus on benefits for the average Cambodian.

With that said, these challenges are not insurmountable and can be resolved in due course. It is in Cambodia’s interest to sort out its domestic priorities such as eliminating corruption, evictions, human rights, land concessions, and good governance. Strengthening these important issues will ensure Cambodia genuinely achieve its national development goals as well as stay competitive regionally and globally. As Chheang Vannarith suggests in his recent piece “Cambodia and the diplomacy of small states:” “Cambodia’s destiny is defined and determined by the Cambodian people themselves, who must work together to strengthen national unity, social harmony, collective leadership and its institutional capacity to realise its independent and forward-looking foreign policy.”

In order to achieve mutual development from the BRI, as persuasively claimed by President Xi, any development project should realistically aim at poverty reduction, sustainable development, and inclusive growth, as spelt out in Cambodia’s Rectangular Strategy. Concerned stakeholders including grassroots, civil society, scholars, social and political analysts, local and international non-governmental organizations and the media should get involved in the projects.

There is no doubt that China has been doing a lot for Cambodia, but the giant has earned little credit in return, and Beijing’s soft power in Cambodia remains limited. The key problem facing China’s soft power in Cambodia is that Beijing has not paid much attention to the interests of ordinary Cambodians. It sees the government elites, military as well as influential politicians/political parties as the key successes for its businesses. Until transparency and the effectiveness of its development assistance improves, and attention is paid to the wellbeing of people affected by Chinese investment, ordinary people in general, and the environment, it will be difficult if not impossible for China to win the Cambodian people’s hearts and minds.

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