Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

Cambodia: Impact of Chinese
Investment Assessed
Carlyle A. Thayer
February 13, 2018

We are writing a report regarding recent massive inflows of Chinese investments in

Cambodia. We request your assessment of the following issues:
Q1.There have been mounting concerns that Chinese investments in Cambodia have
posed more negative impacts than positive to Cambodian population and the
country’s future. What are your general observations about this issue?
ANSWER: Chinese investment in Cambodia has skyrocketed in recent years. In 2017,
for example, Chinese investment in Cambodia amounted to about thirty per cent of
the total. In December 2017, after a meeting between Prime Minister Hun Sen and
Chinese leaders in Beijing, Chinese business pledged $7 billion in new investment.
China is currently the largest source of foreign direct investment in Cambodia.
Chinese fixed asset investment accounted for 20.2 per cent of total investment in
Cambodia for the period 1994-2017. In 2017, Chinese fixed asset investment in
Cambodia totalled $1.43 billion or 27 per cent of the total.
Most of Chinese investment is directed at mega-infrastructure projects like
expressways, a satellite city near Phnom Penh, new airports, skyscrapers,
apartments and condominiums (One Park project in Phnom Penh for example), and
dams. Without Chinese investment these projects would probably never have gotten
off the ground.
Chinese companies have also invested in construction (new roads, bridges, tourism
centre), garment and footwear, energy, telecoms, banking and finance, agriculture,
agro-industry, tourism (hotels, resorts, casinos, and restaurants) and real estate.
In 2017, the Ministry of Land Management, Urban Planning and Construction
approved 3,052 new construction projects. The value of these projects rose to $6.4
billion in 2017, an increase of more than 22 per cent over the previous year. This rise
was largely due to increased Chinese investment in Cambodia.
On the face of it, these projects will update Cambodia’s connectivity and facilitate
quicker movement of goods and services and cater to a growing tourist industry. For
example, Chinese companies will build a modern two-lane divided expressway from
Phnom Penh to Sihanoukville on a Build Own Operate concession agreement and
charge tolls (estimated at $1.9 billion). The new expressway will be built in parallel
with the existing National Route 4.
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Plans are underway to build the world’s ninth largest airport in Kandal province
(estimated at $1.4 billion). Hun Sen said new Chinese investment would create
20,000 new jobs for Cambodians.
In January 2018, Cambodia and China signed nineteen agreements or Memoranda of
Cooperation to fund infrastructure and development during the visit of Premier Li
Keqiang to Phonm Penh. Agreements were signed for the construction of an
expressway linking Phnom Penh with Sihanoukville (valued at $2 billion), a new
international airport for Phnom Penh, two electricity transmission schemes
(including a national transmission line connecting to Laos’ power grid), and a forestry
centre to cultivate high-quality timber, as well as developing Cambodia’s first
communications satellite and an agreement on rice trade.
There are many negative aspects of Chinese investment. First, it is so massive that
Cambodia risks becoming more dependent on China. The piper - or in this case the
investor - will play the tune. Second, Chinese workers have poured into Cambodia to
do construction work at the expense of hiring and training local labour. Third, the
focus of foreign investment is primarily aimed at physical infrastructure leaving
public health and agricultural development underfunded. Fourth, Cambodia lacks
the capability to effectively monitor all of the Chinese investment projects and
financial arrangements. This has led to the development of virtually “China only”
residences, shops, restaurants, and casinos at the expense of local Cambodian who
are forced to relocate through eviction or as a result of Chinese financial pressure.
Fifth, China gets access to Cambodia’s natural resources such as timber and oil and
gas.
Q2. Chinese ambassador to Cambodia lately told reporters in a rare press
conference that, any suggestions by foreign media outlets that Chinese investments
in Cambodia mostly involved in money laundering are ‘fake news’ as employed by
Western media outlets so as to serve their ‘political gains because they don’t want to
see sound relations between Cambodia and China and they don’t want to see the
‘one belt, one road initiative’ from flourishing and being implementing smoothly in
Cambodia.’ What is your perspective on this statement?
ANSWER: The Chinese Ambassador may be literally correct that most Chinese
investments do not involve money-laundering. But his comments are disingenuous.
The Ambassador likely was responding to an article in The New York Times on
January 9 this year that specifically focused on Chinese property investment in
Phnom Penh. This article quoted a political risk consultant as stating, “Given my
experience doing investigations in Cambodia, I am convinced that laundered money
from the P.R.C. (People’s Republic of China) is a substantial portion of property
investment in Phnom Penh.”
In February, the Chinese Ambassador to Cambodia, Xiong Bo, characterised reports
of Chinese money-laundering as “fake news.” Radio Free Asia, however, reported
that Ambassador Xiong Bo “called on Cambodian authorities to track money
laundering and promised to cooperate in cracking down on violations of Cambodia’s
financial laws.” The Ambassador also stated that “the Chinese government will
oppose any Chinese investors who want to build casinos in Cambodia or build a
China town in Siahnoukville.’
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It is widely known that Chinese businessmen have invested heavily in property

overseas to evade controls in China. The Chinese government has taken well-
publicized actions to stop the outflow of this money and repatriate it to China.
Cambodia is a prime example. It lacks the ability to effectively audit and monitor the
inflow of Chinese money. The Basel Anti-Money Laundering Index places Cambodia
ninth on its list of 146 countries as a hotspot for money laundering.
In December last year the Deputy Commissioner of the Preah Sihanoukville
Provincial Police publicly admitted that Chinese money laundering, illegal casino
operations and human trafficking had become acute concerns. The Economist
Intelligence Unit reported that Cambodia’s law enforcement against money-
laundering was “inadequate at best” due to widespread corruption and lack of
transparency. The governor of Preah Sihanoukville province bemoaned the rise of
crime, extortion, and kidnapping associated with organised Chinese criminal gangs.
In January this year, the Cambodian government established an inter-ministerial
Task Force to deal with predatory behaviour by Chinese businessmen that stoked
tensions with the Cambodian community in Sihanoukville. The influx of Chinese
investment has led to a rise in land prices and rentals, the inflow of Chinese
construction workers (some without work permits), and the emergence of “Chinese
only” restaurants, casinos and tourist facilities that have muscled out of local
Cambodian businesses.
Q3. Will Cambodia fall into both China’s political and economic debt traps that
may lead to any eventual military alliance, say possibly the establishment of Chinese
military base in Cambodia in the near future?
ANSWER: Cambodia will more likely become a Chinese economic dependency than a
formal military ally. As Prime Minister Hun Sen burns his bridges to Europe and the
United States, he has little option but to bargain with the devil. Hun Sen needs
Chines political support and cash, in the forms of investment, aid and loans, to keep
regime in power.
China has already developed close military ties the Royal Cambodian Armed Forces.
It has built military education facilities, instituted Chinese language training that
requires military students to complete their course in China, and supplied weaponry.
This ensures that the Hun Sen regime stays in power.
China has now established its first foreign military base in Djibouti in Africa. It is
possible that as the Belt and Road Initiative picks up pace, that China will seek access
to ports along sea lanes from the Middle East through the Indian Ocean/South China
Sea to China’s eastern seaboard. Cambodia is not geographically located along this
strategic maritime route. This could alter if China decides to finance the construction
of a canal across the Kra isthmus in southern China.
Q4. What should Cambodian government do to cope with such growing concerns
about Chinese investments in Cambodia?
ANSWER: The Cambodian government should be more proactive in working to
secure China’s cooperation to enforce existing laws on foreign investment, property
ownership, word and residence permits etc. The Cambodian government should
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review these laws to strengthen them while at the same time building capacity to
enforce them.
The Cambodian government should take steps to ensure that Cambodian small
businessmen and local labour take part in and benefit from Chinese investment. For
example, Chinese investors should be required to hire and train local Cambodians as
part of construction projects.
The bottom line, however, is that Cambodia’s current autocratic one-party regime is
not really equipped to address effectively concerns about the negative aspects of
Chinese investment. There are no effective checks and balances on the government.
The police and courts are subject to political influence. The press has been muzzled.
There is no transparency in financial matters. Finally, because Hun Sen and the CPP
benefit from their cozy relations with China they have no incentive to change the
way things currently operate.

Suggested citation: Carlyle A. Thayer, “Cambodia: Impact of Chinese Investment

Assessed,” Thayer Consultancy Background Brief, February 13, 2018. All background
briefs are posted on Scribd.com (search for Thayer). To remove yourself from the
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
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