China investment signals support for Cambodia

The premier of China, Li Keqiang, met Cambodian prime minister Hun Sen in January 2018. During the visit, Mr Li signed 19 agreements – valued at several billion dollars in total – and pledged China’s support for a variety of investments in Cambodia.

The projects vary in scope and size, but all focus on improving Cambodia’s infrastructure. Roughly $2bn will help finance the construction of a highway from the capital Phnom Penh to the beach town of Sihanoukville, while additional funding will be earmarked for a new international airport outside the capital.

Some believe that these agreements signal a pivot by Cambodia towards its neighbour, rather than the West. China is a vital partner and is Cambodia’s biggest source of investment. China’s government and companies have invested about $4.89bn in 24 distinct greenfield projects since January 2008, according to fDi Markets, a greenfield investment monitor.

Despite this substantial investment, 2017 was economically and politically shaky for Cambodia. FDI plummeted from about $5bn in 2016 to $1.16bn in 2017, not least because Cambodia received no Chinese greenfield FDI last year, according to fDi Markets. The number of jobs created by foreign investment dropped from 15,732 in 2016 to 2594 in 2017, placing additional pressure on the labour market.

A main cause of this FDI downturn in 2017 was political instability. Hun Sen concentrated his authority by obstructing labour unions’ registration, dissolving the Cambodia National Rescue Party (the main opposition party) and jailing Rescue Party leader Kem Sokha. Consequently, Western nations were quick to condemn his drift towards a dictatorship by threatening sanctions. This makes Mr Li’s visit all the more meaningful.

Although Hun Sen’s political machinations have caused investor uncertainty in the short term, the prime minister’s one-party rule may stimulate Cambodia’s rather stale investment climate by cutting labour laws that are unfavourable to businesses, and attracting funding from non-Western governments and companies. China’s recent visit and investment is an early indication of this trend.