Cambodia: China's Newest Appendage?

During my stay, Secretary of State Hillary Clinton was also present in Phnom Penh. Her visit was not mentioned on local television or in the local newspapers. The Cambodians I spoke with stated that they feel the U.S. has written off Cambodia as an investment target. In particular, they see the close relations of the U.S. with Viet Nam and Thailand as a threat to Cambodia. As a result, Ms. Clinton’s visit was treated as a non-event.

November 15, 2010
ChinaLawBlog.com

Co-bloogger Steve Dickinson just returned from a business trip to Cambodia. As China's costs rise, American and European companies are beginning to turn to Vietnam, and to a lesser extent, Cambodia, and even Laos, for their manufacturing outsourcing. This post focuses on Steve's time in Cambodia, and, specifically on its growing relationship with China.

By Steve Dickinson

I just returned from Cambodia. On this trip, I stayed in Phnom Penh and explored the city carefully for the first time. There are a number of notable changes from the last time I was there, about a year and a half ago:

• The Cambodian government has worked hard to develop the riverfront area. Though the rest of the city remains in a state of remarkable disrepair, the parks and riverfront along the Mekong and Tonle Sap have been entirely modernized. The locals have taken to the modern park-like atmosphere and have made the waterfront a local hang-out, especially on mornings and weekends. This is in marked contrast to the old days, where the riverfront was mostly relegated to tourists.

• Most of the current development seems to be highly dependent on Chinese (Hong Kong/Mainland/Singapore) investment. The visible, modern developments in Phnom Penh all seem to be based on Chinese money. The locals even claim that their new parliament building and prime minister’s office were funded by the Chinese. On a larger scale, the Chinese and Cambodian governments on November 4 announced that China had agreed to invest $USD1.6 billion on infrastructure projects in Cambodia over the next five years.

• Cambodia has become a center for outsourcing of textiles. Conditions in this business seem to have improved. When I was last in Cambodia, five of the textile factories in Phnom Penh were on strike. The strikes were all directed at mainland Chinese employers. This worker unrest seems to have passed and on this visit all the factories were operating at full capacity. Cambodia has a small but skilled workforce, primarily composed of young women from the countryside. The government plan is to move more aggressively into outsource-focused manufacturing. The major limitation is the supply of electricity. During my visit I had talks with several consultants who are working on electricity issues throughout S.E. Asia. The problem for Cambodia is that it has no good locations for hydro-power. The Chinese are rumored to be planning a major power plant project in Cambodia as part of the investment program discussed above. The mystery is what will be used to fuel the proposed power plant. Cambodia has no coal resources, no coal port and no coal transport infrastructure. So the building of a power plant requires consideration of all these infrastructure issues.

• The Cambodians I talked with appear to have accepted that their economy will become dominated by China. If true, this would mean that China has successfully moved to dominate Cambodia, Laos and Myanmar in S.E. Asia. The presence of the Chinese is greeted by the locals with indifference. There is very little evidence of any real interest in Cambodia by any other country, so the impression given by the locals is consistent with the facts on the ground. From the standpoint of the Cambodians, Thailand and Viet Nam are their traditional enemies. Alliance with China is seen as a way to keep those traditional enemies at bay. This is in stark contrast with Viet Nam which is moving closer to the United States, in large part as a counter to China.

• During my stay, Prime Minister Hun Sen announced a plan to close down the United Nations War Crimes Tribunal and terminate trials of the remaining Khmer Rouge. This was a topic of interest in the foreign NGO community. The locals greeted the news with indifference.

• During my stay, Secretary of State Hillary Clinton was also present in Phnom Penh. Her visit was not mentioned on local television or in the local newspapers. The Cambodians I spoke with stated that they feel the U.S. has written off Cambodia as an investment target. In particular, they see the close relations of the U.S. with Viet Nam and Thailand as a threat to Cambodia. As a result, Ms. Clinton’s visit was treated as a non-event.

• I took a number of visits into rural villages. In the area around Phnom Penh there is definitely a feeling that more money is moving into the rural economy. The people are starting to paint their houses and they are moving from wood construction to concrete. These are the usual signs of rural wealth. The birthrate in the country side is high, which means there will no doubt be plenty of laborers down the road to work in the textile, shoe and furniture factories being planned for the Phnom Penh area. Let’s hope they get the electricity situation figured out by the time these kids are ready to go to work.

• I visited for the first time the National Museum in Phnom Penh. This museum houses most of the fragile sculpture from the Angkor Wat temple complexes. This museum is one of the best I have been to in Asia and is well worth a visit. It is very laid back, like the rest of Cambodia. The exhibits, however, are world class.

• My overall impression is that Cambodia is not trying to compete with Viet Nam for American business, nor would it be likely to succeed if it did. At this point, most foreign direct investment in Cambodia is coming from China and from overseas Chinese and I do not see that changing in the shot term.

What are you seeing out there?