Asia Times, DevelopmentFDI|Opinion
November 8,
2019
Dynamism of Chinese investment
in Cambodia
By Sim Vireak
According to
the “ASEAN Investment Report 2019,” Cambodia’s FDI inflows reached an all-time high last year, with growth
concentrated in manufacturing and services, particularly finance and insurance.
Foreign direct investment increased by 15% to US$3.1 billion, the highest level
ever recorded.
Cambodia’s
record FDI number is easily dwarfed by what other member states of the
Association of Southeast Asian Nations are receiving, considering that the
region’s FDI inflows reached a record high of $155 billion last year, of which
Singapore received $77 billion, Indonesia $22 billion, and Vietnam $16 billion.
China is no
doubt the current largest investor in Cambodia. In 2017 and 2018,
China accounted for 23% and 26% of the total $2.7 billion and $3.1 billion
respectively. It was followed by a combined FDI from ASEAN member states, at
22% and 25% in 2017 and 2018 respectively.
The
unfortunate thing is that when there is talk about China, negative views always
come up. It is strange that people are complaining about China while everyone
is trying so hard to gain more trade, more investment, and larger tourist
inflows from China. Simple examples abound. Bilateral trade
between China and Vietnam hit $106.71 billion in 2018. More than 10 million
Chinese visited Thailand last year, contributing more than $100
billion in revenue to the country. Every country in the region envies that
number.
China
contributes a lot to Cambodia’s economy, building infrastructure such as
hydropower plants and road connectivities, contributing capital through the
real-estate and construction sectors, creating jobs though increasing
manufacturing investment and sending in more than 2 million tourists last year.
To improve
connectivity between Sihanoukville and Phnom Penh, an expressway costing $1.87
billion under a build-operate-transfer arrangement is being constructed, the
first expressway in Cambodia. The most rapid increase in high-rise building
numbers in the provincial capital of Sihanoukville hit a record last year when 238 buildings were approved, up
from 188 buildings in 2017.
Over-reliance
on China does involve macro-economic risks that can be heightened further by
superpowers’ geopolitical rivalry and constant internationalization of
Cambodia’s domestic politics.
Chinese FDI
mainly focuses on the real-estate and financial sectors, which typically are
prone to boom-and-bust cycles and external factors. Rising domestic credit in
the construction sector also increases the financial sector’s vulnerability.
Geopolitically,
Cambodia is often labeled as “being bought” or as a “vassal state of China”
whenever the dynamism of superpowers’ geopolitical rivalry is put into focus.
The
internationalization of Cambodia’s domestic politics has caused much harm to
its economy and investment confidence at a level not seen in any other country
in the region. Anti-China rhetoric provoked by opposition groups, threats of a
coup or toppling of the government through people power, threats of the possible
withdrawal of trade preferences provided by the European Union through the
Everything But Arms (EBA) scheme, all of these have caused investors and
tourists to drag their feet.
Even though it
has yet to materialize, the threat of the EBA withdrawal has already caused
investors to think twice about buying or sourcing products from Cambodia.
According to a study by the World Bank, the estimated decline in
Cambodia’s garment and footwear exports if the EBA is suspended is $510
million, or 5.4% of Cambodia’s total garment and footwear exports. This does
not take into account of the social impact caused by disruption of economic
sustainability and efforts on poverty alleviation. It is hard to imagine the
possible impact on the livelihoods of 800,000 garment workers, 80% of whom are
women, should many of them be forced out of their jobs, leaving them to resort
to migration or other forms of vulnerable jobs.
Cambodia
understands that “internationalization” of its domestic politics will not go
away any time soon, especially when its evolving young democracy is becoming
“electoral currency” for some foreign politicians who often have oversimplified
views over Cambodia’s historical and political complexities, and are not fully
aware of the values of the “longest peace in Cambodia’s modern history.”
In addressing
macroeconomic challenges apart from the above-mentioned political aspects, it
is observed that the government is pursuing three major venues, namely
structural and industrial diversification, drastic reforms to cut business
costs and the strengthening of the logistics sector, and development of a digital
economy.
Structural and
industrial diversification has been pursued through various supports and
incentives that the government is providing toward non-garment manufacturing
companies, especially those that can create many jobs and provide technical training
for higher-skilled labor. The main strategies and action lines are elaborated
in the Industrial Development Policy (IDP).
Structural
adjustment has been put into place starting from late March this year through
drastic reforms that outlined a 17-point strategy to reduce the cost of doing
business. With these new reforms, the government expects to save the private
sector up to $400 million a year. Development of Cambodia’s logistics
masterplan and strengthening of a more competitive logistics sector also added
up momentum to efforts in cutting business costs.
On cultivating
new industries, Cambodia’s strong orientation toward building a digital economy
presents opportunities not just for the country but also for potential
investors. Cambodia’s digital economy has been gradually taking shape and
creating new business activities in digital payment, online entertainment and
e-commerce, while a tech-savvy new generation can become both market users or
even a workforce to create such platforms.