General News Details

China & the United States have Different Dreams in Cambodia

Publish Date: 26-Oct-2016

by: Daniel Mitchell

Then Cambodian minister of Commerce Cham Prasidh told the Los Angeles Times in September 2006 that if the United States has lost economic influence in Cambodia to China, U.S. policymakers have only themselves to blame — arguing that the Chinese feel very much at home in Cambodia.

Since then, Cambodia has politically shifted closer to China, most visibly by providing support for China’s South China Sea claims. Cambodia several times in recent years has blocked efforts by the Association of Southeast Asian Nations (ASEAN) to develop a consensus statement criticizing Chinese behavior in the South China Sea.

China and the United States, which has concerns about Beijing’s assertiveness in the South China Sea, have different objectives in their relations with Cambodia. China needs Cambodia, as a member of ASEAN, to support its claims in the South China Sea. In exchange, China provides Cambodia aid, investment, and the attention it needs to be taken seriously on the international stage. The United States has strong partners among other ASEAN countries such as the Philippines and Vietnam, which have borne the brunt of Chinese actions. Cambodia is of far greater strategic importance to China.

Cambodia’s role supporting China often puts it at odds with the United States. Compared to China’s strong support of the current government, the United States is critical of the country’s human rights problems and has been perceived to support the leading opposition party, although that is not an official policy. Against the wishes of the United States, Cambodia has repeatedly extradited persons to China, including Taiwanese and Uighur Chinese minorities. According to a 2015 Reuters article, roughly half of Cambodia’s military officers have graduated from a Beijing-funded military academy, under a Chinese developed curriculum that includes a six month stint in China. Cambodia is arguably China’s most dependable ally in ASEAN.

Chinese president Xi Jinping’s state visit on October 14-15 was clearly intended to reward Cambodia and strengthen ties in the wake of the arbitral tribunal’s recent decision on the South China Sea. Xi and Cambodian prime minister Hun Sen discussed a range of Chinese projects developed over the last several months totaling $5 billion. Included was $1.9 billion promised for roads and bridges, and $600 million for election infrastructure, education, and healthcare development. China has also agreed to provide a loan of $300 million to develop Cambodia’s rice milling industry, support for 31 other projects totaling $180 million, $15 million in additional defense aid, and forgiveness of $90 million (600 million yuan) of debt.

The Cambodian and Chinese leaders agreed to increase this year’s $4.4 billion of trade between the countries by 13.6 percent to $5 billion in 2017. Much of that increase is targeted at agricultural goods. China increased its quota of rice imports from Cambodia from 100,000 to 200,000 tons annually, having an estimated value of up to $120 million. The leaders also targeted tripling Chinese tourism to Cambodia  over the next 4 years to 2 million annual visitors by 2020.

Is U.S. economic influence waning as China’s expands? The short answer is no. U.S. influence is primarily derived by export trade that has grown at an average of 4.3 percent annually for the past decade. That does not make headlines like a state visit. In contrast to its relationship with China, the United States — is the destination for nearly a quarter of Cambodia’s exports, with a value of $1.8 billion in 2015. The bulk of the exports are garments that represent over 70 percent of Cambodia’s total exports.

These products are produced by workers the government does not want protesting in the streets of Phnom Penh ahead of the 2018 national elections. Under changes to the U.S. Generalized System of Preferences (GSP) announced in July, the United States expanded export opportunities for Cambodia and other developing countries, allowing the import of travel goods to the United States duty free. This will shift jobs from China to places like Cambodia.

While China might be Cambodia’s largest trading partner, the $2.7 billion total import and export trade between the countries is dominated by the $2.3 billion of Chinese goods that Cambodia imports, creating a large trade deficit. Only 5.1 percent of Cambodia’s exports go to China.

In Cambodia, the United States continues to focus on economic diplomacy, with limited foreign aid. U.S. objectives continue to be the development of democracy, human rights, and a free market economy. Policy changes affecting U.S. imports raised during this U.S. presidential election campaign would, if implemented, have much greater impact on Cambodia’s economy than the aid provided by China. Policy changes under former president Clinton’s administration in the 1990s provided the foundation for the garment export industry Cambodia still relies on that today. It is because of the United States’ sustained economic influence that the Chinese feel the need to conduct a state visit to Cambodia bearing gifts.

Mr. Daniel Mitchell is the CEO and managing director of SRP International Group Ltd., and formerly served on the board of governors of the American Chamber of Commerce in Phnom Penh, Cambodia.