Analysis: China pumps up Cambodia economy, but at what cost?

Angry Boeung Kak Lake protesters

Hun Xen shaking hand with his Chinese benefactor

By Prak Chan Thul

"The future is that there will be more serious human rights violations, and unrest like in the Arab countries."

PHNOM PENH (Reuters) - Ly Mom has been driven out of her lifelong home in Cambodia's fast-growing capital. Like thousands of other Cambodians forcibly evicted by the authorities, she is homeless, jobless and angry.

Her grocery store on the banks of Phnom Penh's Boeng Kak Lake is being bulldozed to make way for a luxury housing estate to be built by a Chinese developer and a well-connected Cambodian tycoon.

"People living here have nothing apart from their bare hands," she said. "They have been given no choice."

Ly Mom's story is the flipside of a "no strings" Chinese investment boom that Cambodia's government says will transform its underdeveloped $10 billion economy and improve living standards for millions of impoverished people.

A total of 2,752 families have already been driven from their homes around Boeng Kak.

Ly Mom's family is one of 1,500 refusing to budge, protesting each day and rejecting the developer's compensation of just $8,500, or relocation to a small flat on the fringes of the sprawling city. Their latest demand is for 64 sq meters of lake land to be left for each family.

But no-one is listening to them. Similar protests are held every week in Cambodia as families with no title deeds are told to pack their bags.

Experts warn that Cambodia's government could one day have a rebellion on its hands.

"The long-range economic costs to a country's development impact ultimately on the welfare of the people," said Donald Weatherbee, an expert on Southeast Asian politics at the University of South Carolina.

"The political costs? Well, look at Egypt or Libya."

The luxury housing project is led by China's Inner Mongolia Erdos Hongjun Investment Corp, which has pledged to spend $3 billion in Cambodia on real estate, metal processing and power generation.

China is Cambodia's biggest source of foreign direct investment (FDI). China plans to spend $8 billion in 360 projects in the first seven months of this year -- the same amount it invested in the whole of Southeast Asia in 2008.

Beijing is also Cambodia's largest source of foreign aid, providing about $600 million in 2007 and $260 million in 2008.

But as Chinese, Vietnamese, South Korean and local businesses snap up lucrative concessions and real estate, farmers are being evicted and entire villages shifted to make way for mining, agriculture and hydropower projects.

Rights groups and donor countries are concerned and have threatened to withhold much-needed aid to one of Asia's poorest countries, home to 14 million people and sandwiched between larger neighbors Thailand and Vietnam.

The evictions have risen as Beijing cozies up to its cash-strapped and underdeveloped ally and strengthens a relationship that analysts say has the United States concerned about China's expanding influence in Southeast Asia.

"FEW STRINGS"

According to Housing Rights Task Force, a Cambodian group monitoring forced evictions, 30,000 people were moved off their land last year, up from 27,000 in 2009. An estimated 150,000 more evictions are expected in the next few years, 70-80,000 in Phnom Penh alone.

World Bank President Robert Zoellick recently said he was "deeply troubled" by the Boeng Kak evictions and offered financing and expert advice to the government.

Cambodia's authoritarian premier, Hun Sen, has not responded. In several speeches he has expressed a clear preference for Chinese investment, because it comes without conditions, unlike Western nations that relentlessly prod his government to carry out democratic reforms and improve its dismal record on human rights and corruption.

"China's investments have few strings attached," said Cambodian political analyst Chea Vannath. "China's push for more power and influence works very well with Cambodia, because it needs a cash injection into its economy and infrastructure."

Most Cambodians who have been forcibly evicted are unable to prove ownership of land and property because legal documents were destroyed during the Khmer Rouge's brutal 1970s "Year Zero" revolution that killed some 1.7 million people.

Weatherbee said the evictions could one day lead to a groundswell of public discontent over what he calls "crony capitalism" between Cambodian elites and Chinese firms.

"For the people, the short term economic gains seem offset by the disruptions of human displacement, environmental disaster, and political oppression," he said.

Growth and development seems to be Cambodia's priority. Trade with China climbed 42.1 percent in 2010 to $1.12 billion. During Hun Sen's visit last year to Beijing, China promised a $300 million loan to build two national roads and an irrigation project. Other deals worth around $293 million, mostly infrastructure related, were also agreed.

Chinese has so far invested just over $1 billion in Cambodia, a figure dwarfed by huge investment pledges over the next five years. Total Chinese FDI in other Southeast Asian economies, up to the end of 2009, included $799 million in Indonesia, $448 million in Thailand and $728 million in Vietnam, official Chinese figures showed.

POLITICAL SUPPORT

Analysts say the arrangement with Cambodia has been designed to go beyond business. China will be assured of Cambodia's political support, while Beijing's veto as a permanent member of the United Nations Security Council could offer Cambodia some international protection, as it has the military generals that run Myanmar, who are also key allies of China.

Cambodia showed its unwavering support for China in December 2009 by defying international pressure and deporting 20 Muslim Uighurs who sought asylum after fleeing ethnic violence in China. Two days later, Chinese Vice President Xi Jinping visited Phnom Penh and signed 14 trade deals worth $850 million.

Following a recent visit to Beijing, Cambodian Foreign Minister Hor Namhong made his country's stance clear.

"It's a good thing that China, as the rising superpower, contributes to solve the world's problems," he said.

"Should we rather accept Chinese tourists who spend money in our country, or Chinese refugees?"

Similar patterns of Chinese investment are being seen in Myanmar and Communist Laos as Beijing splashes its cash and boosts its presence in Southeast Asia.

China is planning to pour money into rail and road projects to increase trade, investment and tourism in the region, underscoring strengthening ties with the 10-member Association of South East Asian Nations, with which it has agreed a free trade pact covering an area with a combined population of 1.9 billion people and GDP of nearly $6 trillion.

For people like Ly Mom, China's interest in Cambodia has left a sour taste and protests are increasingly common.

Strict laws were passed in 2009 to restrict demonstrations, which rights groups and experts saw as a pre-emptive strike by Hun Sen's government, aware it could have problems on its hands.

Sia Phearum, the director of Housing Rights Task Force, said that if the rights of ordinary Cambodians were ignored, the result would be instability and eventual upheaval:

"The future is that there will be more serious human rights violations, and unrest like in the Arab countries."

(Additional reporting by Ben Blanchard in Beijing; Editing by Martin Petty and Andrew Marshall)