Money talks: China’s belt and road initiative in Cambodia

Money talks: China’s belt and road initiative in Cambodia

In a recent visit to Beijing, Cambodian Prime Minister Hun Sen petitioned for more Chinese aid and investment, stating “We need more bridges on the Mekong River, we also need many more roads, trains, skytrain.” Cambodia has been an enthusiastic supporter of China’s Belt and Road Initiative (BRI) and has made significant in-roads linking its own development to Chinese expansion; however, with the influx of Chinese capital, Cambodia will find itself drawn further into the sphere of China’s economic and strategic influence.

China’s Investments and BRI

Amidst the expansion of China’s Belt and Road Initiative (BRI), Cambodia has become an attractive destination for Chinese foreign direct investment. A period of political stability, low labor costs, easy market access, and Cambodia’s strategic location in Southeast Asia have all been a powerful draw for a massive influx of Chinese money.

During Xi Jinping’s 2016 visit, China signed 31 economic agreements, including $237 million in soft loan deals with Cambodia. Xi also pledged to push for Chinese investment in Cambodian infrastructure and cancelled roughly $89 million in Cambodian debt.

Although one of the fastest growing economies in Southeast Asia, Cambodia still struggles to overcome key hurdles to its development, namely infrastructure issues such as electricity, rural road transport, and water sanitation. With few other financial alternatives sizeable enough to cover Cambodia’s infrastructure needs, the promise of a large, no-strings-attached loan makes China’s BRI proposal difficult to resist.

Participation in the BRI, brings with it access to the enormous infrastructure funding of Chinese-led financial institutions, such as the Asian Infrastructure Investment Bank, the Export-Import Bank of China, the China Development Bank, and the Silk Road Fund.

China’s BRI Projects in Cambodia

China is the largest foreign investor in Cambodia’s energy sector, with more than $7.5 billion in accumulated capital in hydropower plants. Cambodia and China have agreed on several hydropower dam projects. Kemchay Dam was constructed with Chinese assistance and possesses an electrical capacity of 194 megawatts—enough to cover a vast area of the country, including the Kampot and Takeo provinces.

The biggest hydropower dam, Lower Sesan II Hydropower Plant, will generate up to 400 megawatts per hour once operational, providing enough power to radically transform Cambodia’s energy infrastructure.

China also offers developmental assistance on Cambodia’s transportation infrastructure, including bridges, highways, railways, and ports. Several projects linking major Cambodian routes are under construction, including the “Cambodia-China Friendship Bridge” crossing the Mekong River; a bridge linking Steng Trang district to Krouch Chmar; and the first 190-kilometre expressway connecting the capital Phnom Penh to the coastal Sihanoukville in the southwest.

In addition, China has proposed development of 2,230 kilometers of national expressways by 2040, as well as railway infrastructure developments and renovation projects, connecting its provinces with each other and with neighboring countries. Finally, China has also helped Cambodia to upgrade its deep water Sihanouk Autonomous Port, which could contribute to expand China’s growing influence and expansion in the Indian Ocean.

Challenges Posed by the BRI

Despite these new opportunities for Cambodia, participation in the BRI does come with a significant commitment and a measure of economic and strategic risk. With an increasing number of plants to generate electricity, Cambodia would have a more stable supply of power, facilitating a growth in job opportunities; however, some of these energy investment projects do not meet international standards, which has resulted in adverse impacts on local livelihoods and the ecosystem.

Nearly 5,000 families are likely to be evicted from their villages when the dam’s reservoir fills, and the dam may block key fish migration routes, which would threaten loss of most of the fisheries resource that many people depend on. Deals between China and Cambodia have met with additional criticism over major land concessions, the disregard of human rights, and the extent of control over Cambodian development given to Chinese contractors.

Given the lack of local industry in Cambodia and soaring Chinese investment, Cambodia remains highly dependent on imports from China, which is currently the economy’s main source of imports. Rising national debt only exacerbates this growing dependency on China:  the country’s national debt is already roughly one third of its total GDP. Based on the Cambodia Public Debt Statistical Bulletin, Cambodian bilateral loans total USD 5.3 billion, of which USD 3.9 billion is from China, making China Cambodia’s largest creditor. As their debt grows beyond their ability to manage it, Cambodia may find itself in a similar scenario to Sri Lanka in which state property is used as equity to pay their Chinese creditors.

Cambodia’s acceptance of the BRI is likely to lock this small state securely under China’s growing strategic sphere of influence. Cambodian foreign policy has been criticized for prioritizing short-term benefits in a way that privileges Chinese political and diplomatic interests at the expense of ASEAN counterparts and other regional powers.

On the South China Sea issue, Cambodia has repeatedly blocked ASEAN from making statements that criticize China’s expansive territorial claims, even though they conflict with those of several other ASEAN members. Last year, less than a week after Cambodia supported China’s commitment to resolve maritime claims bilaterally, China gave Cambodia an aid package worth approximately $600 million.

These compromises have sparked concerns that China’s growing political and economic leverage over Cambodia will bring a future of Cambodian foreign policy as no more than an extension of Chinese regional influence.


Categories: Asia Pacific, Finance

About Author

Qi Lin

Qi is a Washington, D.C.-based analyst. She specializes in East Asian security and Chinese foreign policy. She is a Chinese native speaker and proficient in English. She holds a Bachelor’s in Political Science from the University of North Carolina and a Master’s in International Affairs from the George Washington University.