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Investment Or Imperialism? Tracking China's Big Ambitions In Cambodia

Article illustrative image Partner logo Poverty and commerce in Cambodia

PHNOM PENH - A few years ago this scene would have played out in China. More specifically, it would have played out in a Chinese coastal region to which millions of rural folks had arrived looking for work. A huge hangar, piles of fabrics of all colors at both ends, and some 200 heads lowered over sewing machines set up one behind the other.

The atmosphere is not oppressive, just focused. But the workers here are too dark-skinned to be Chinese – though there are some: the managers of this clothes factory on the outskirts of the Cambodian capital Phnom Penh.

From his office next door, He Enjia directs operations at Sunkind Textile. He left China in 1996 to set up his first factory in Cambodia. At the time, he was a pioneer. He moved for one reason – to get around export quotas on Chinese fabrics.

Sixteen years later the sector has exploded. It generates over $4 billion of revenue a year, which makes it Cambodia’s biggest export by far. In a country of only 14 million inhabitants, the textile industry employs over 300,000 in the Phnom Penh region and plays a major role in the annual growth of 7% on average that the kingdom has been experiencing over the past decade.

Attracted by the legal framework, which is very favorable for investors, the Chinese have taken the lead. “Cambodia is the easiest Asian country to invest in,” says Daniel Zarba, Director General of the Franco-Cambodian Chamber of Commerce. What’s more, the cost of production is lower in Cambodia than it is in China. “Here a worker costs on average $150 a month compared to $600 in China. Even if you take into account the fact that Cambodians are less productive, it still means your labor is two times less expensive,” says He Enjia.

Over 80% of the textile factories here are managed by the Chinese,” says Chea Mony, who heads one of the few independent unions in the country. He adds that things are far from easy with these bosses who “don’t speak Cambodian and are often unpleasant.” Sunkind Textile however appears to be the perfect counterexample. A 19-year-old worker confirms this. She says she’s happy to have left her former Chinese employer “who paid better but treated us much less well.”

The textile industry is part of a much wider phenomenon. In Cambodia, in the logging, mining, farming, construction, and energy sectors, the Chinese are filling their pockets. The six hydroelectric dams presently being built? All by Chinese companies. The mines in the north? Often run by Chinese groups. “I even saw Chinese soldiers guarding the entrance to a mine,” says a European man living in Phnom Penh. At the recently created Phnom Penh Stock Exchange, where only one – state-owned – company is listed, the Chinese presence is freely acknowledged. “In many sectors, Chinese investors are essential for us,” explains Charles Lu, deputy director of Phnom Penh Securities, adding that Chinese groups invested $9.1 billion in Cambodia between 1994 and 2012.

Political dimensions

But that’s nothing compared to what has just been announced – two Chinese groups have signed a $9.6 billion deal. The colossal sum is to build a steel factory that will produce a million tons of steel and iron a year, 400 kilometers (249 miles) worth of railroad tracks, and a port from which the metal can be exported. There were no calls for tender prior to the signing of this deal.

Investment of such magnitude has political dimensions. Chinese money is not only a boon for the regime because it gives them the means to build infrastructure that improves daily life for Cambodians – it has become indispensable for the country’s finances. Cambodia’s fiscal system is rudimentary and with government spending in the neighborhood of $3 billion and revenue around $2 billion, the country loses money every year.

Sok Chenda Sophea, Secretary General of the Council for the Development of Cambodia sums the situation up like this: “China has become our main lender. For a long time it was Japan, with loans amounting to $120-$130 million a year. But over the past three or four years, Beijing has taken the lead with annual financing from $300-$350 million.” He adds: “I don’t deny that there are political reasons for the steel contract.”

This is where the problem lies. Having opened its doors wide to Chinese investors, Cambodia is suspected by some of its neighbors of having sold its soul.

However Sok Chenda Sophea is visibly annoyed at the idea that the Chinese are dominating his country. “I don’t feel dominated. I am not subjected to a horrible pressure. However, I do my utmost for Westerners to be a part of this, to maintain a balance,” he says. If most of the investors in the natural resources sector are Chinese that’s because they got here first. “Some people arrive after the rice is cooked,” he jokes with regard to Japan and South Korea.

He also sends a little jibe in the direction of lesson-giving Westerners. “Our dear Europeans are very sensitive to human rights, sexual equality, the sorts of subjects people like to discuss in the great cafés of Paris,” Sok Chenda Sophea says. “I believe in democracy too. But my first task is to see to it that my fellow Cambodians don’t die of hunger, that they have access to basic healthcare and electricity. You can criticize all you want, but China is helping us by building infrastructures, dams and roads.”

Suspicions of corruption

However, there is also a downside to China's Cambodian ambitions. The $9.6 billion steel deal is considered by many as much too high. Corruption? The issue deserves to be raised.

Recently, the construction of a dam was awarded to a Chinese company even though a European company with better references had offered a better deal, which included “teaching and training for Cambodians, environmental protection measures and even financing solutions,” according to someone close to the deal. This person says the Chinese deal can be summed up in one word: "bribe."

“I have seen many corrupt countries, but never in these proportions,” says an observer. There are plenty of stories to illustrate this, in a country where the elite share the riches among themselves, without qualms, abusing their prerogatives, while the rest live in utmost poverty. A European manufacturer who was hesitating between Cambodia and Laos for his new production center chose the latter because he couldn’t believe the bribes he was been asked in Cambodia.

The Chinese did not create this context, they are just making the most of it. By reproducing here what they have done at home – unabashed development with no regard for the environment or workers – they “are not helping Cambodia’s development,” says an economist. He regrets that the Chinese investors “have not done here what has helped other Asian countries to develop: investing in the education sector, which is totally neglected, and helping the country become a leader in one specific industrial sector.”

And while all this money flows in, Phnom Penh has no incentive to start the difficult development process. Meanwhile, business will continue to boom for Chinese investors in Cambodia.

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