Demand for industrial developments increase as Chinese manufacturers shift production overseas

• 29 July 2019
• Local News
• 1887 Views

Industrial zones have reported that demand has increased from Chinese manufacturers looking to relocate to Cambodia, due to the US-China trade war that has resulted in products made in China having higher tariffs. As a result, industrial developers are getting enquiries from Chinese companies that want to switch their manufacturing base from China to Southeast Asia and Cambodia has become one of the destinations for their relocation plan.

Out of all Southeast Asian countries, Vietnam has been the biggest beneficiary of Chinese manufactures relocating, but Cambodia is also benefiting. With labour costs rising and regulatory requirements increasing in China, Southeast Asian countries are slowly becoming the manufacturing hub and are poised to continue doing so, as most of the countries, including Cambodia, have the advantages of being geographically located close to China and relatively lower production costs (together with low wages and relatively young populations). This has enticed multinationals as well as Chinese manufacturing companies to relocate production facilities to Southeast Asia, enabling them to serve the enormous and lucrative domestic Chinese market while reducing costs.

In the past few years, China has been the largest source of foreign direct investments in the manufacturing sector in Cambodia and some of the industrial estates. Foreign direct investment into Cambodia’s manufacturing sector was increasing before the trade war too, and is now seeing increased participation from China. In addition, demand could increase further if US tariffs push more manufacturers out of China. This would be the basis for more growth and helping Cambodia to become one of the attractive investment destinations for the manufacturing industry.

Although the trade war is helping to drive investment into Southeast Asia, factors such as rising labour costs in China, and a broad diversification of Chinese manufacturing to reduce future risks etc. will be the key to determining growth in investment in industrial properties. With advantages created by socio-economic development and policies by the Cambodian government, industrial real estate markets are getting more opportunities to develop. To further improve the attractiveness of the industrial zones, all upcoming industrial zones in Cambodia should be connected with the developments of logistics infrastructures and urbanisation towards sustainable developments, with the systematic planning, connectivity and synchronisation to ensure sustainable development and competitiveness of the industrial zones in the future. On top of it, regulations for investments, taxes, finance and land to support industrial infrastructure and industrial parks are necessary and these are the key factors to attract investors.

Some argue that with China’s top-notch infrastructures, together with the large talent pool and extensive sourcing options among other reasons, the country will still retains its appeal as a manufacturing base for multinational and Chinese manufacturing companies. Therefore, to attract and retain investors in the long term after the US-China trade war, it is time for Cambodia to simplify administrative procedures and improve connectivity for industrial developments. The country needs to continue to invest in infrastructure developments – including highways, deep-sea ports and most importantly, improving the quality of electricity and water supplies. There is a need to continue and improve the infrastructures – particularly seaports and airport infrastructures to support cargo transportations to other countries by developing more deep-water ports etc. After all, the strong increase in foreign direct investments, along with the improved infrastructures and the shift in the value chain will continue to open up opportunities for the industrial property markets in Cambodia in the years to come.

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