OPINION: Weighing the Costs of Cambodia's Rental to China

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Why you need to know

Chinese companies are taking out swathes of Cambodia on 99-year leases, largely to the exclusion of average Cambodians.

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Cambodia has made headlines this year over its increasingly cozy relationship with China, with journalists picking up on the tensions this has caused with local populations.

Much of the coverage has zeroed in on the once sleepy beach-blessed city of Sihanoukville on the Gulf of Thailand coast in the southwest of the country, where Chinese-owned and operated casinos have sprung up to service monied Chinese investors pouring into the city to take advantage of an ongoing construction boom.

With the influx has come rising rents, accusations of economic exclusion for Cambodians given Chinese companies’ tendency to bring their workforce with them when they travel, and a public backlash over disruptions to the peace caused by drinking, gambling (which Cambodians are forbidden to do), and occasional outburst of rowdiness.

Indeed, a taskforce was established in March to address problems related to the Chinese investment in Sihanoukville, but reports suggest the team is hamstrung by fears that taking action would deter future investment decisions.

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Photo Credit: Reuters / TPG
Tourists play on the beach front in Sihanoukville, Cambodia.

Sihanoukville is the site of a special economic zone (SEZ) backed by the Chinese and Cambodian governments, which according to a February China Daily article, now houses “121 companies, including 104 Chinese ones, five Cambodian, and the rest from developed markets such as the United States and Japan.”

Moreover, the SEZ is set to be upgraded as a result of Chinese investment under Xi Jinping’s estimated US$900-billion Belt and Road Initiative (BRI), promising yet more growth and friction between Cambodia’s new tenants and its natives.

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Photo Credit: Reuters / TPG
A Chinese casino in Preah Sihanoukville Province, Cambodia, Sept.27, 2017.
National concern

The idea of SEZs is not a bad one per se; you need these islands of commerce where the power supply is reliable, and the idea is that Cambodia can export what the various goods produced there. But Sihanoukville is indicative of a trend that is sweeping through the country.

Cambodia is forfeiting land and debt security in return for investment and economic growth, a phenomenon that is only set to accelerate given Prime Minister Hun Sen's enthusiastic support for the BRI.

According to the “New Frontiers 2018” report by UK real estate developer Knight Frank, a visit to Cambodia by President Xi in 2016 saw the signing of “as many as 31 economic agreements, including US$238 million in soft loans, US$89 million in debt forgiveness and US$15 million in military aid.”

China is by far Cambodia’s largest source of overseas direct investment, and the BRI has seen purse strings loosened and further financing made available for Chinese outbound investment projects directed at land development, notably the Cambodia-China Comprehensive Investment Development Experimental Zone in the coastal region of Koh Kong.

A Chinese state-owned firm, Union Development Group, has a 99-year lease on a port in Koh Kong that also includes 20 percent of Cambodia’s coastline, and the development of the area, permitted under secret lease, has come under fire for being illegal, as well as entailing environmental destruction and human rights abuses.

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Photo Credit: Reuters / TPG
An airport construction site is seen in an area developed by China company Union Development Group at Botum Sakor in Koh Kong Province, Cambodia, May 6, 2018.

A report from Global Risk Insights details a bevy of other BRI infrastructure investments that are either in the pipeline or which have already broken ground, including the “Cambodia-China Friendship Bridge” across the Mekong River, one of eight large bridges slated to be built with the aid of Chinese concessional loans, a 190-km expressway connecting Phnom Penh to Sihanoukville in the southwest, expected to be completed by 2020, and massive hydropower plants, one of which a leaked Cambodian government report suggested could “literally kill” the Mekong River.

In January, a visit by Chinese Premier Li Keqiang saw a further 19 agreements signed by Cambodian government ministers and tycoons for a host of projects. While few details were made available, the deal included the creation of a Chinese vehicle to finance the above-mentioned expressway.

Knock on effects

Along with these landmark infrastructure projects come less high-profile Chinese real estate developers intent on building luxury accommodation and hotels across the country.

Nowhere has the conflict this can cause been made more apparent than around Boeng Kak Lake in the capital Phnom Penh, where thousands of farmers have been evicted from their land to make way for big money real estate developments in return for paltry compensation.

The lake makes starkly apparent that the trade-off Cambodia is making with China, which while extremely lucrative for the 0.01 percenters, i.e., the economic and political super-elite, is more doubtful for the rest of country and its people.

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Photo Credit: Reuters / TPG
A woman cries during a protest in front of the building of Cambodia's prime minister's office in Phnom Penh Aug. 22, 2014. Boeng Kak lake residents and other communities embroiled in land disputes gathered in front of the building of Cambodia's prime minister's office in Phnom Penh to appeal for help from the prime minister.

Sure, in the places infrastructure is being built, it will be used by a broad array of people, but the land concessions also entail the removal of people who were living on the land (or around a lake), and that has been disastrous for those families.

Unless hiring requirements are imposed and contracts include clauses about employing Cambodian workers, the model of exporting labor from China to places like Cambodia to do literally all the construction work is robbing Cambodians of the opportunity to learn by doing, to improve their skills, and to earn a living wage.

There is also a worrying lack of transparency regarding the terms of the deals surrounding these projects, some compromising land being leased for as long as 99 years.

Such terms might be worth it if the returns are sure to be incredible, but 99 years is a very long time, equivalent to the original concession under which Hong Kong was leased to the United Kingdom. While Hong Kong was an exception to the rule, most colonies are not better off while ruled by outsiders.

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Photo Credit: Reuters / TPG
People collect fish from Boeung Kak Lake in Phnom Penh, in this picture taken in 2011. A total of 2,752 families had already been driven from their homes around Boeng Kak to make way for a luxury housing estate to be built by a Chinese developer and a well-connected Cambodian tycoon.

The general public is not blind to the dangers of deals. Anecdotal reports from a friend who knows Sihanoukville well suggest that the city is being overwhelmed as a result of the Chinese influx.

Chinese buyers are snapping up property all over the place, guesthouses are filled to the brim, and, to hear my friend tell it, health clinics are being bought up and converted to serve Chinese patrons to the exclusion of Cambodians. Meanwhile, businesses are changing hands and workers are finding it hard to keep pace with rising rental prices.

The friend is not anti-government or anti-Chinese by any stretch of the imagination, but there is clearly an underlying sentiment that something is wrong with this picture.

The failure to account for these issues suggests the Cambodian government’s rose-tinted view of Chinese investment is either naiveté or willful blindness to the dangers of overdependence.

Cambodia owes about half of its US$6 billion debt to China, or about 15 percent of Cambodia’s US$22 billion GDP. And a recent Bloomberg report cites the Center for Global Development, a Washington research group, as indicating that a further US$3.5 billion in Chinese loans are being pumped into Cambodia on the back of BRI.

As it stands, Cambodia’s overall debt level at 38 percent of GDP in 2017 is manageable, even enviable by the standards of Japan (245 percent) and the U.S. (118 percent), but the African proverb “If a man’s hand is another man’s pocket, he must walk where he walks” surely applies.

It’s just not advisable to put half your eggs in one Chinese basket. But for too long Cambodia has been viewed as a country not for sale, but for rent. And right now, the renter is China.

Read Next: What's the Deal with China's Control of Sri Lanka's Hambantota Port?

Editor: David Green


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