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July 22, 2008 Source: www.AsiaEcon.org Asian regioinal economic cooperation is burgeoning. A good example of this are the efforts made by China to enhance its economic cooperation with Cambodia.

July 22, 2008

Source: www.AsianEcon.org

Asian regional economic cooperation is burgeoning. A good example of this are the efforts made by China to enhance its economic cooperation with Cambodia.

The deal signed in mid-June between the China National Offshore Oil Company and the Cambodian government (with the participation of France’s TOTAL) to explore oil and gas deposits on Cambodia’s mainland is just the latest in a string of major agreements intended to boost economic ties. This comes on the heels of several agreements made earlier by Chinese companies to help finance major dam projects. At the start of June, China’s Datong Corporation signed a deal with the Cambodian government to start construction on a hydropower plan that would be in operation by 2010. Less than two weeks later, China National Heavy Machinery Corporation and Michelle Corporation inked separate deals to build two dams, the combined cost of which would surpass US$1 billion.

These major deals illustrate the growing trend in Beijing to take a more active interest in Cambodia’s economic development. China is Cambodia’s second-largest contributor of foreign direct investment (FDI) and has contributed more investment than any other country in four of the last five years, including last year, when Chinese investment totaled more than US$500 million, bringing the total amount to US$1.58 billion at the end of 2007. And just a couple of weeks ago, the CEO of China’s leading textile company announced that Cambodia will soon be the best investment destination for Chinese textiles manufacturers, surpassing even Vietnam.

But China’s involvement does not stop at business investment. Economic aid has also been an important component of Sino-Cambodian cooperation. Over the past 15 years, China has provided Cambodia with 118 aid projects, including the most recent significant effort by Beijing to offer aid by donating US$600,000 to help clear mines and unexploded ordnances near Cambodia’s border with Laos. During his trip to Cambodia in February, the Chinese foreign minister promised a further US$55 million in aid. China has also written off significant loans to the Cambodian government, notably during Premier Wen Jiaobao’s trip to Cambodia in 2000 when he also promised a further US$600 million in loans.

In exchange for China’s pecuniary generosity, Cambodia stepped in to help after the devastating earthquake in Sichuan, donating well over US$1 billion in aid. China’s ambassador to Cambodia praised the nation for its magnanimous gesture, considering the fact that it is still rather poor. The ambassador lauded the aid as an example of the “sincere emotional tie” shared by the neighbors.

Sentimentality such as this was taken to a new level just a couple of weeks ago at the Exhibition of Economic and Trade Cooperation Achievements in Celebration of the 50th Anniversary of China-Cambodia Diplomatic Ties. In case that name is not descriptive enough, the People’s Daily, the main mouthpiece of the Chinese Communist Party, goes on to explain that the purpose of the exhibition was to “show the economic and trade cooperation achievements between China and Cambodia at both governmental and non-governmental levels.” There have been so many achievements, in fact, that three days were required for the exhibition, which was jointly coordinated by the Chinese embassy in Cambodia and the Council for the Development of Cambodia.

As the exhibition’s title suggests, the two countries have had a close relationship for decades. Mao Zedong gave steadfast support to Pol Pot’s Khmer Rouge, even going to war with Vietnam in 1979 after Vietnam’s invasion of Cambodia to defend the ethnic Vietnamese being slaughtered there. After the fall of the Khmer Rouge that same year, Sino-Cambodian ties grew even stronger thanks to the close relationship between Beijing and Cambodian King Norodom Sihanouk. But it wasn’t until 1998, when Cambodia began to undertake serious reforms of its economy, that the economic relationship really took off.

So what can explain China’s eagerness to engage Cambodia’s economy? Beijing would most likely claim that China is merely trying to be a good neighbor, and that the purpose of its “charm offensive” (as many Western commentators characterize such behavior) is primarily to engender good relations.

Although it would be wrong to deny the existence of some degree of international altruism—after all, the two countries have had warm relations for years—it is clear that China is reaping economic benefits from this cooperation.

Perhaps foremost in the minds of Chinese policymakers is the energy security that Cambodia might offer. Beijing is betting that significant oil and gas deposits will be found within the country. Also, China is trying to secure access to the southern port of Sihanoukville, which would be a major delivery point for oil imports. To facilitate the transfer of that oil to its borders, China has actively supported the modernization of transportation networks throughout Cambodia and Southeast Asia (China does not actually share a land border with Cambodia). Beijing has been developing economic corridors in the Greater Mekong Subregion (GMS) by improving water, rail and road links among major points in the region. An example of this would be the Nanjing-Singapore economic corridor, a highway and railway project which would pass through nearly all of the national capitals of the region, including Phnom Penh.

Greater transportation networks also facilitates trade, which is another major benefit to economic cooperation. Between 2006 and 2007, trade between Cambodia and China increased over 30 percent, to a total volume of US$730 million. This number will continue to grow rapidly as Cambodia’s economic advance will make it an even more attractive market for Chinese goods. The Chinese-ASEAN Free Trade Agreement (CAFTA)—which will take effect between China and Cambodia by 2015—will also accelerate the growth of trade. In February, the Chinese foreign minister unilaterally waived import tariffs on about 400 Cambodian products as a sign of goodwill.

Lastly, economic cooperation can ensure diplomatic support. It is generally believed that China’s economic assistance to developing countries is motivated largely by two major political issues: the desire to solicit support in United Nations in the form of congruent voting and the effort to isolate Taiwan by persuading countries to withdraw their diplomatic recognition of the nation. Although Cambodia hasn’t recognized Taiwan for years, China still seeks the support of Cambodia in the U.N. and in other international fora. The Chinese ambassador to Cambodia expressed great appreciation, for example, of Cambodia support of Beijing’s actions during the protests in Tibet earlier this year.

The fact that Beijing and Phnom   Penh had similar responses to the Tibetan disturbances further illustrates the gap that still exists between these countries and many Western countries. Even Cambodia’s economic liberalization has been a huge success for the past decade—the International Monetary Fund last month went so far as to praise the government’s “consistent and reasonable” policies to fight corruption and inflation—many in the West are still reluctant to engage Cambodia because of its lackluster human rights record. The situation is furthered by the distrust among many Cambodians (and many Asians in general) of the West. While Cambodia and other ASEAN countries were resentful of the harsh reforms demanded by the West during the 1997-98 Asian Financial Crisis, these countries were grateful to China for not devaluing its currency, which would have hurt exports of other Asian countries and made the crisis much worse.

There are many problems for China’s involvement with Cambodia—the huge influx of investment money, for example, has fueled corruption and exploitation across the country. But while the West for the most part stands on the sidelines, China is making sure it will not miss out on what may be the best investment opportunity in Asia over the next decade, and its opportunity to promote regional cooperation.

Source: www.AsiaEcon.org

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