Who will Hun Xen back: China, his bankroller or Vietnam, his boss?

Courting the Khmer

Cambodia struggles to play China off against its other neighbours

Jun 9th 2011
The Economist
PHNOM PENH

TWENTY kilometres (12½ miles) down the Mekong river from the capital, Phnom Penh, a new container terminal is taking shape on a 30-hectare site. Upstream, two new ports are planned. Whereas other countries that share the mighty waterway favour dams and power plants, the Cambodians are turning the Mekong into a commercial highway. As Sam Olan, the deputy director of the container terminal argues, the project is tailored to the war-ravaged country’s needs: transport by water is cheaper than by road and requires less maintenance—and there are not many good roads anyway.

Like much else in Cambodia today, the new port is being built by the Chinese; 50 or so Chinese engineers and technicians live on site. The Cambodians are confident they will get their new port quickly and on time (it is due to open next year)—one of many reasons why the Chinese are welcome there, as in other poor countries.

As one of the poorest countries in South-East Asia struggles to end its dependence on foreign aid, the Chinese presence has become pervasive. Just down river from the new container terminal is the huge Chinese-built Prek Tamak bridge, which opened last year. The Cambodian prime minister, Hun Sen, recently broke ground on a $46m Chinese-built road linking the capital to the coastal province of Kampot. There, a new Chinese-built hydroelectric power station is about to begin operation—supplying, by one official estimate, half of Cambodia’s demand for power. The Chinese plan to build three more. Overall, China accounts for almost half the foreign investment in the country.

China is everywhere, of course. What makes Cambodia unusual is that China has a rival there. Neighbouring Vietnam has had a prickly relationship with Cambodia. Few Cambodians forget that Vietnam invaded their country in 1979, overthrowing the murderous regime of Pol Pot, and then occupied it for ten years. Yet Vietnam is now devoting a lot of time and money to investing in its neighbour.

Trade between the two countries expanded from $950m in 2006 to $1.8 billion last year. In the first two months of this year two-way trade reached $382m, up 65% compared with the same period in 2010. Vietnamese investment is now worth around $2 billion, spread over a bewildering variety of industries, including retailing, agriculture and telecoms. A subsidiary of Viettel, the Vietnamese state telecoms operator, started operations in Cambodia in 2009 yet already has 42% of the mobile market. The company, Metfone, has built many of Cambodia’s mobile masts and laid 16,000km of fibre-optic cable, 80% of the network. It also provides handsets to the army.

Other Asian countries are also coming in. Until Vietnam elbowed its way up the league table, South Korea was the second-biggest investor, mainly in construction and banking. It has a vast new trade hall on one of Phnom Penh’s smarter boulevards. Thai investors have been buying hotels, and Taiwan has a toehold.

.More commercial investment must be good news for Cambodia. But in a country that has for centuries been squeezed by bigger neighbours, the scramble raises concerns about sovereignty—and these are exploited to the full by the small but vocal opposition. It uses Vietnam’s projects to attack Hun Sen, the prime minister who (it claims) owes his career to Vietnamese political meddling. And it argues that China’s vast presence risks turning the country into a vassal of the Middle Kingdom.

The evidence so far is that Cambodia is using the largesse without being swamped by it. Unlike many other countries that China invests in, tiny Cambodia, with a population of just 14m, has no oil or minerals to trade in return, so China’s interest seems to be to gain an ally in ASEAN, the regional block. China claims that its help comes with no strings attached, and so far there has been only one recorded instance of China exploiting its economic presence for political ends (it persuaded Cambodia to return 20 Uighur asylum-seekers in 2009). The Vietnamese foray might be partly strategic too. Vietnam wants to counter the expansion of China which is seen as having hostile ambitions in the disputed South China Sea (see Banyan). If so, Cambodia is enjoying being fought over, and plays one off against the other.

It helps that some of the new influences in Cambodia are not exclusively Asian. The new Cambodian elite looks westward more than it has done for a long while, especially to America. English is more widely spoken than in any other country in the region, and the hundreds of English-language schools that have opened up are packed. Two deputy prime ministers sent their sons to college in America, and Hun Sen’s eldest son (and probable successor) went to the West Point military academy.

For the moment Cambodia seems unlikely to fall into any particular sphere of influence. Given its neighbours’ size and clout, that is a remarkable—and remarkably difficult—balancing act.