Does Cambodia Still Lean Towards China, or Has It Already Shifted & Why? Effects on Economy & Real Estate
Recently, the Cambodian government has taken a proactive stance and issued a series of measures to crack down on gambling and related crimes across the country, especially in Sihanoukville, which has been labeled by the foreign press as a hotbed of online crime.
This issue has been occurring continuously in Cambodia for some time, but why is the government rushing to act now? What is the Cambodian government’s master plan? How does it affect the economy and the real estate sector?
According to the FULCRUM, what the Cambodian government is doing is an open policy, aiming to present to the world transparency and its effort to strengthen the legal and business environment. This policy is in line with the government’s plan to push the post-COVID-19 recovery.
Cambodia no longer relies only on China
What Cambodia is doing to Sihanoukville is to show the world that Cambodia does not rely on China as before and will no longer allow the Chinese mafias to abuse Sihanoukville. In fact, Cambodia had made such a decision in 2019 by shutting down online gambling but has not yet taken full action due to the COVID-19 crisis.
However, the order issued by Prime Minister Hun Sen recently to crack down on gambling and related crimes is a sign that Cambodia is ready to attract new investors, referring to the ‘good’ besides current or previous Chinese investors.
Cambodia is starting to lean towards the United States and European countries once again as they have learned that Chinese investors are relatively weak in investing capacity given the current economic status in China.
The key player in the United States
According to research by Chanrith Ngin, an Honorary Academic at the University of Auckland, Cambodia is turning again to the United States and European countries and is actively working on plans to attract investors from these countries.
The key player in this game is the United States. Before the US suspended the Generalized System of Preferences (GSP) in Cambodia in 2021, Cambodia exported more than US$8.7 billion worth of goods (mostly agricultural and garment products) to the United States, up from US$6.5 billion in 2020. This accounted for 30% of total exports, which is more than the amount exported to China, which was only 7%.
“Cambodia applies an ‘open position’ policy with the US while attempting to refine their relationship and desiring ‘a full reconciliation’ with the superpower,” said the report.
In 2021, the Cambodian government spend US$2 million to hire a lobbying firm to convince American politicians about the ‘true’ situation and mutual interests in the country.
In addition, Cambodia is trying to be part of the Indo-Pacific Economic Framework while also discussing investment opportunities with the New York Chamber of Commerce in the US, which will conduct a reconnaissance visit to the kingdom
This strategy is being jointly implemented by the Cambodian Chamber of Commerce (CCC), the Council for the Development of Cambodia (CDC), and the Ministry of Commerce.
Besides, Cambodia has recently enforced a new investment law and signed trade agreements with South Korea, while also developing a free trade agreement with India. The Cambodian Chamber of Commerce also opened a representative office in Canada to attract Canadian business communities to invest in Cambodia.
This depicts another strategy that Cambodia has employed to minimize dependence on China and diversify foreign investors.
Cambodia generates “competition” among donors & creditors to increase investment in infrastructure
Chanrith Ngin added that the Cambodian government is also pursuing a policy of balancing the powers of the creditors and donors over Cambodia. Cambodia does not depend on China alone but tries to divide the power of donor countries and creditors wisely to take the most advantage.
In 2018, 48% of Cambodia’s official development assistance (ODA), equivalent to US$7 billion, came from China. China has also promised about US$600 million in aid for the 2019-2021 period. China is also Cambodia’s number one lender, accounting for 41% of its US$9.8 billion debt as of June 2022.
However, Cambodia also has other donors and creditors such as Japan (10%), France (5%), and other international agencies (32%), while managing these countries’ power over its country effectively.
For example, the Cambodia-China Friendship Bridge and the Cambodia-Japan Friendship Bridge, which stand side by side on the Tonle Sap River in Phnom Penh, are the most obvious example of power balancing. South Korea is also planning to build the Cambodia-Korea Friendship Bridge in 2023.
In Sihanoukville, China has power in Sihanoukville city and in special economic zones, while Japan has rights over the deep-sea port. China built the Phnom Penh-Sihanoukville Expressway, South Korea built NR2, 22 and 48, and Japan upgraded NR5.
“In this manner, the government has generated “competition” among donors that have over time increased investment in infrastructure,” said the report.
In addition to the aforementioned factors, the reason why the government chose to crack down on gambling and related crimes is also due to pressure from the ASEAN meeting and the foreign press, which also affects investors’ decisions. The government has realized that it is time to act as the country needs more investors for economic recovery.
How does the real estate market benefit from this policy?
If the government succeeds in attracting new investors to Cambodia, one of the noticeable changes in the real estate sector is the hope for the frozen construction in Sihanoukville.
With fresh foreign investors, the stagnant condo market in both Sihanoukville and Phnom Penh will also recover.
According to Cambodian Valuers and Estate Agents Association (CVEA) President Chrek Soknim, with new investors coming, there will an influx of cash that inevitably goes to real estates, such as land, to set up a factory or office.
“Besides, if the economy overall grows, the real estate sector will do so as well, driven by growth in local purchasing power and foreign demand,” he added.
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