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Chinese investment strains Cambodian society

Drastic transformation of Sihanoukville should warn other Asian countries

| Myanmar, Cambodia, Laos

The past decade has witnessed an unprecedented and massive influx of Chinese investments and tourism into Cambodia. The capital inflow and rising visitor numbers have been both beneficial and disruptive for Cambodia's economic development and social cohesion.

Chinese investments have impacted Cambodia's domestic politics and foreign policy in ways that have facilitated the country's drift toward autocratic rule. They also appear to be leading to far-reaching environmental and sociocultural changes.

The experience offers valuable lessons for other countries in Southeast Asia, and highlights an urgent dilemma for the government and society alike.

Relations between Cambodia and China gained momentum after the two countries established a comprehensive strategic partnership in 2010. At the heart of the relationship is Phnom Penh's close embrace of China's Belt and Road Initiative. There has been remarkable progress in infrastructure development throughout the country under BRI since 2013, such as the Chinese-funded Sihanoukville Special Economic Zone and the Phnom Penh-Sihanoukville Expressway, on which construction began in March under a build-operate-transfer scheme.

In the process, China has replaced Japan as Cambodia's largest foreign direct investor and become the country's closest ally. Beijing has financed seven hydropower dam projects that are collectively capable of producing half of Cambodia's entire electricity needs. It has also constructed 3,000 km of highways and eight bridges since the mid-1990s. The Nikkei Asian Review has previously reported that Cambodia was planning to host Chinese military assets at a naval base.

Between 2013 and 2017, China invested $5.3 billion in Cambodia, or roughly $1 billion annually. In 2018, foreign direct investment inflows to Cambodia reached $3.1 billion, with China the biggest investor.

Bilateral trade amounted to $6 billion in 2017, with Chinese exports to Cambodia accounting for 87% of that figure, and China will seek to increase that to $10 billion by 2023, according to Prime Minister Hun Sen.

More recently, in early 2019, Beijing pledged an additional 4 billion yuan ($588 million) in direct aid to Cambodia over the next three years.

In other assistance offered as part of the regional Lancang-Mekong Cooperation initiative, China said it would import 400,000 tons of Cambodian rice in 2019, grant about $90 million in aid to support Cambodia's defense sector and provide assistance if Cambodia loses its preferential trade access to the EU market due to Brussels' concerns over human rights violations.

Significant amounts of Chinese investment have recently flooded into Cambodia's coastal province of Sihanoukville because of its convenient location and the government's openness to investment, particularly in real estate and casinos.

There are now more than 80 casinos, mainly Chinese-owned, in the area. This has in turn prompted more Chinese tourists to flock to Sihanoukville for gaming, making the town a magnet for Chinese investors.

In 2018, about 2 million Chinese tourists visited Cambodia, up 70% from a year earlier, according to the Cambodian Ministry of Tourism. This is expected to reach 3 million by 2020.

According to a recent report by the Sihanoukville provincial authorities, Chinese nationals now own more than 90% of businesses in Sihanoukville, including hotels, casinos, restaurants and massage parlors -- fueling concerns over Chinese domination of the local economy.

Local and international media outlets have painted a stark picture of how Sihanoukville has been transformed from a sleepy beach town into a cheap Macau-style gambling center. Many critics believe the area is losing its local charm amid the Chinese boomtown atmosphere.

In a recent study for the Cambodian Institute for Cooperation and Peace, Sovinda Po and I recorded growing concerns and anti-Chinese sentiment among local residents about Sihanoukville's development, despite the infrastructure development and employment opportunities generated by Chinese investments.

The collapse on June 22 of a Chinese-owned high-rise apartment block under construction in Sihanoukville, which left 28 people dead and at least 26 injured, most of whom were Cambodian construction workers, has deepened negative feelings about Chinese investment.

Reports about sexual harassment, kidnappings and traffic accidents involving Chinese nationals are also fueling anti-Chinese sentiment. Many Cambodians now tend to avoid Sihanoukville, once a popular holiday destination for locals, due to the perception that it has become a "Chinese enclave." A report by the tourism ministry showed that the number of Cambodians visiting Sihanoukville during the popular Pchum Ben festival last year fell by an annual 13.5%.

They are also deterred by rising costs of food and accommodation. Cambodian holidaymakers are instead going to other provinces such as Kampot, Siem Reap, and Ratanakiri.

Although BRI-linked Chinese investments have significantly contributed to Sihanoukville's economic growth, the benefits of Chinese investment have not been widely shared with the local population. It appears that only local elites or Cambodians who own land or buildings or operate businesses that cater to Chinese nationals come out ahead.

Moreover, evidence suggests that many of the Chinese-built facilities are not properly regulated or monitored by the relevant local authorities.

In the wake of the fatal building collapse, a new inspection committee was tasked with reviewing all construction projects across the country, and the Ministry of Land Management, Urban Planning, and Construction reported that it had found at least five operating without proper permits in Sihanoukville.

In light of the unchecked development by Chinese investors and the sociocultural and environmental impact of these investments, it is crucial that provincial and national government bodies in Cambodia rethink their approach to Chinese and other foreign investment.

As a small and open country embracing a free-market economy with a limited institutional capacity, it is hard for Cambodia to impose stringent rules and regulations to monitor and control foreign investors. But the government must do so if the rest of the country is to avoid the "Sihanoukville syndrome."

Provincial and national authorities have vital roles to play to ensure that rapid development and urbanization are inclusive and sustainable. Strict law enforcement, effective regulatory and monitoring mechanisms and promotion of accountable and responsive public institutions are key to addressing the adverse impact of foreign investments.

Cambodia needs to find ways to ensure Chinese and other foreign investment has a positive rather than negative impact. It must continue to combat corruption, promote good governance, enhance human capital, and engage in meaningful institutional reforms, all of which are vital to achieving the country's ambition of becoming an upper middle-income country by 2030 and a high-income economy by 2050.

These steps are vital if Cambodia wants to realize its vision of becoming a progressive, inclusive and sustainable nation.

Kimkong Heng is a research fellow at the Cambodian Institute for Cooperation and Peace. These are his personal views.

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