ANALYSIS: China Deepens Economic Ties to Cambodia
This alliance between China and Cambodia was developed by Xi Jinping and Hun Sen (Wikimedia Commons).
Providing half of all direct investment and most foreign aid, China is Cambodia’s primary investor, trading partner, and donor.
As China secures its economic position across Southeast Asia, Cambodia has emerged as one of its most substantial and strategic destinations for investment. By early 2024, Chinese investments made up nearly 40 percent of the total FDI to Cambodia, according to the World Bank.
Such large-scale investments are transforming Cambodia into a regional production hub, increasing its export potential. However, economic objectives are just one side of the story. Besides capital injections, these projects deepen Cambodia's dependence on China and pivot the country's political orientation closer to Beijing.
The Funan Techno Canal is expected to be 180 kilometers long (Wikimedia Commons).
The programs partially financed by China are mostly focused on industrial projects and large-scale infrastructure within the framework of the Belt and Road Initiative. One notable example is the newly financed Funan Techo Canal set to cost 1.7 billion dollars, 51 of which will be funded by Cambodia and 49 percent by China, reports the Council on Foreign Relations. The goal of the project is to boost trade in Cambodia, especially through the development of deep-water ports. Its feasibility study was entrusted in September to the China Road and Bridge Corporation (CRBC). A Chinese state-owned enterprise has therefore been involved from the very start of the project. The main region to benefit from the canal will be the port city of Sihanoukville, a Special Economic Zone (SEZ).
A Dependency with Historical and Cultural Roots
Nikkei reported that in 2021, Hun Sen, then the Prime Minister of Cambodia, declared, “If I don’t rely on China, who will I rely on?”
The historical dependence of Cambodia on China can be traced to Cambodia's post-colonial period. Ties cemented further after the 1997 coup Hun Sen led. Since then, China has been the main political and financial supporter of Cambodia, helping Phnom Penh counter Western influence and sanctions.
This partnership is evident in socio-cultural affinities. The cultures of both countries are similar, with many Cambodians having Chinese ancestors, and China's influence can even be found in the dishes enjoyed by the Khmer people. Furthermore, there are many Chinese citizens in the “Land of Angkor.” As Chinese influence grows, Cambodia has adapted to their nationals’ growing presence. “The Chinese like to gamble, so Hun Sen is building more casinos in Cambodia because lots of Chinese are coming,” explains Professor Sodhy, Adjunct Professor in the Asian Studies Program at Georgetown’s School of Foreign Service.
Mutual Interests in These Investments
The international aid China provides Cambodia is closely linked to its foreign policy goals and investment strategy. Cambodia affords China leverage over neighbors like Vietnam and U.S.-allied Thailand, particularly in shaping regional trade routes. Unlike the larger ASEAN economies, Cambodia is too small to balance China and thus makes an ideal partner in China's greater strategic design.
Overall, China's investments in Cambodia are less a pursuit of direct economic returns and more a quest for long-term regional influence. The projects all serve China's ambition to embed itself inextricably in ASEAN. Cambodia is also a reliable outpost in the South China Sea, a purpose that aids in China’s growing competition with the West, particularly when it comes to military projects, such as the construction of a naval base near Sihanoukville.
These projects are mutually beneficial. “China wants to expand its influence in Southeast Asia, and Cambodia is weak in the sense that it needs money, and China is able to give loans and help with projects,” Professor Sodhy says.
Beyond serving as an instrument for conquering the business world in Cambodia, China's aid also bears significant political stakes in the diplomatic stance of the Khmer government and in the governance of the Cambodian People's Party, which now operates with the help of the Chinese Communist Party. For Cambodia, the alliance guarantees economic growth and political stability at the cost of solidifying the country's reliance on China as it becomes an enthusiastic partner in the Belt and Road Initiative.
The Khmer government’s new Prime Minister since August 2023, Hun Manet, continues his father Hun Sen’s policy, who is now the President of the Senate. For the latter, “China is Cambodia's most trustworthy friend,” says Professor Sodhy, quoting Hun Sen.
Hun Manet, Cambodian Prime Minister, launched the Funan Techo Canal in August 2023 (Free Malaysia Today).
Hun Manet has committed, in particular, to a "four-year action plan" (from 2024 to 2028) aimed at "building a China-Cambodia community with a shared future in the new era, and on international and regional issues of shared interest," as stated in a joint communiqué between the People's Republic of China and the Royal Government of Cambodia on September 16.
These Chinese investments have allowed the Cambodian political elite and the Hun family to strengthen their power and influence. China's aid has reinforced Hun Sen's grip on the Cambodian economy and his hold on the domestic political sphere.
In Cambodia’s authoritarian regime, there is little room for dissent, especially concerning China’s interference. “The authoritarian character is mainly Hun Sen and his regime. And because they are so friendly with the Chinese getting money, and the money is for economic purposes but also military, there is less criticism of China. There are some [people] from some quarters who don't like foreign influence, but because the leadership is all favorable, the criticism is muted,” according to Professor Sodhy.
However, the first limits of this partnership are already emerging, as citizens have become wary of the authoritarian nature of the regime. “In fact, many people think that Hun Sen's leadership is not good because it's all about himself and power grabbing and helping his family. Every time they get money from China, some of it goes to Hun Sen and his cronies. There is a lot of corruption,” Professor Sodhy explains.
Projects Impacting Local Life
At the population level, China’s aid is widely accepted because it helps increase employment. However, in the areas affected by large projects, the local population is undergoing displacement, which is souring relations. “Because of projects like this canal they're building, people have had to move to clear the space. So there's unhappiness about the relocation of the villagers. There's also environmental consequences with all the land projects. And so this is not good for the country. So there's a problem with how projects are being done,” Professor Sodhy attests.
The case of the coastal city of Sihanoukville illustrates the sad limits of certain projects, reports China Daily, as, according to studies like Williamson (2023), SEZs undergo the most visible changes. In 2020, Williamson (2023) attests, scholars estimated that Chinese individuals owned 80 to 90 percent of companies in Sihanoukville.
Sihanoukville began to emerge as a hub for online gambling and casinos around 2016, a shift that created a construction and real-estate boom in housing and hotel development, per BBC. However, in 2019, a crackdown on the gambling economy, followed by the COVID-19 pandemic, abruptly halted the city’s real estate projects, leaving half-built buildings. The city became an epicenter of Cambodia’s illicit economy, with human trafficking and criminal scamming becoming prevalent.
What are the consequences of this growing dependency?
Cambodia's dependency on China is growing. However, it may have limits. As Professor Sodhy puts it, “China is like a friend, but a friend with cables. And they don't really check into the cables because when they are hungry for money, all they can think of is getting the money. The money is coming in, but it's also going out.”
The Cambodian challenge is to have effective "checks and balances" to avoid excessive Chinese debt. Sophal Ear, professor at Arizona State University, told BBC, “ When China sneezes, Cambodia catches a cold.”
The consequences of excessive dependency could be both economic and political. “If you borrow too much, you can get in debt. And when you get in debt, there are other problems. And then it affects your own outlook. You are not looking after your own national interests. You are letting another country play a big role. The lender has the power, and you lose your own,” says Professor Sodhy.
Finally, China’s political and financial influence in Cambodia has an impact on the regional dynamics of the area. This is one of the primary objectives of the Chinese government, which seeks, through Cambodia, to extend its influence closer to its neighbors. The Cambodian situation is therefore not only national, and could be a significant lever in the balance of ASEAN states and the region as a whole.