AFCA Working Paper
Cambodia and the Belt and Road Initiative
More importantly, regional cooperation can bring various benefits to the participating counties. Increasing regional business activity will naturally lead to further economic integration. The building of physical and communication infrastructure to facilitate trade will benefits everyone. Especially, it will connect the poor, remote, and disadvantaged to regional areas and thus improve the overall economy. Connectivity, in terms of both physical and human, can allow the poor to take advantage of the regional economic and social network, and so improve job opportunities and welfare. The availability of quality infrastructures is the foundation for all of the above since it can facilitate cross-border mobility of labor and capital and thus enhance the allocation of the region’s resources more efficiently.
I. IMPLEMENTATION OF THE BRI IN CAMBODIA
In June 2020, China’s Ministry of Foreign Affairs stated that 30 to 40 percent of BRI projects worldwide had been affected by the COVID-19 pandemic, and a further 20 percent had been seriously affected. Unlike other countries, it appears that implementation of BRI projects were less affected by the pandemic in Cambdia (Chheang, 2021). Consistent with this, from January 2021 to March 2022, Cambodia had 16 BRI projects, comprising one bid awarded, six completed projects, two projects whose construction just started, four contract signings, and four projects in progress. By type of sector, these include two agriculture projects, one chemicals project, two construction projects, four energy projects, one health services project, and six transport infrastructure projects. Also, there have been projects undertaken before the start of the BRI in 2013 that later were labelled as part of the BRI. The BRI projects in Cambodia have been spectacular and contributed to economic development. Namely, the mega projects are listed as follows:
Phnom Penh – Sihanouk Express Way: The 2-billion-U.S. dollar, 190-km Phnom Penh-Sihanoukville Expressway is the largest project under the BRI in Cambodia, and it will add a new impetus to Cambodia's economic development since it links the capital Phnom Penh with the international deep-water seaport in Sihanoukville".
Sihanoukville Special Economic Zone (SSEZ): Launched in 2008 as a future home of manufacturing, SSEZ is a flagship project under China’s Belt and Road Initiative (BRI), which was established in 2008. Situated about 20km northeast of the international deep-water Sihanoukville Autonomous Port, the SSEZ currently host 175 factories from China, Europe, the United States, Southeast Asia and other regions, generating nearly 30,000 local jobs. The SSEZ is regarded as a high-profile example of cooperation between China and Cambodia under the BRI.
Phnom Penh-Bavet Highway: the ceremony of this highway ground breaking took place in June 2023. It is a US$1.6 billion expressway to be built from Phnom Penh to Bavet, at the Cambodian-Vietnamese border, and financial support for a rail link between Phnom Penh, Bangkok, and Vientiane, Laos, from which a high-speed rail link has already been constructed into China. The expressway will be 138 kilometers long, with one long bridge. The Phnom Penh-Bavet Expressway is the second expressway in Cambodia after the Phnom Penh-Sihanoukville Expressway, which was officially launched in 2022.
New Phnom Penh International Airport: In November 2020, Cambodia Airport Investment (a domestic Cambodian JV/OCIC) chose the Metallurgical Corporation of China (MCC) to design and build the airfield for its US$1.5 billion, the international airport in Kandal province of about 20 kilometers to the south of Phnom Penh. After the project is completed, it will cover an area of 3,000 hectares and a construction area of 250,000 square meters. It will be Cambodia's first 4F-level airport with the highest level in the world. The US$400 million deal, MCC’s largest foreign contract in 2021, will be executed by its Shanghai Baoye Group subsidiary.
Dara Sakor Airport and Resort: Chinese investment for the Dara Sakor airport and resort is equivalent to US$3.8 billion. Although delayed due to Covid-19 pandemic, the project is expected to complete in the end of 2023. Situated on a 4.5ha plot of land in Botum Sakor district near the Gulf of Thailand, the new airport is being developed by Chinese firm Tianjin Union Development Group to serve the Dara Sakor Resort – an area touted as a “luxury eco-tourism destination” – at an expected cost of $350 million, with $200 million poured into Phase I alone.
Siem Reap International Airport: Siem Reap city, is a popular tourist destination famous for its Angkor archaeological park. he new Siem Reap airport is being developed in three phases on a 700-hectare plot in Sotr Nikum district’s Ta Yek commune, 50 km east of Siem Reap town and bout 40 km from Angkor Wat temple. The new new Siem Reap-Angkor international airport is being developed by Angkor International Airport Investment (Cambodia) Co Ltd (AIAI) with a total capital investment of $1.1 billion. Part of AIAI is YACA (Yunnan Air Investment Cambodia Airport Management) which is wholly owned by the Yunnan Provincial Overseas Investment Co., Ltd (YOCI) which is also actively working in “the Belt and Road” development strategy and has several other projects ongoing in Laos and Myanmar.
Morodok Techo National Stadium: inaugurated in December 2021, the national stadium was a 60,000-seat used for hosting tournaments of the 32nd Southeast Asian Games (SEA Games) and the 12th Para Games in May 2023. Built on an 85-hectare land, it is located at Across Prek Pnov Bridge and along the Phnom Penh-Kandal border. It features a three-tiered auditorium, with the two 99-meter-tall pylons. The stadium was built by “China State Construction Engineering Corporation” with financial grant from China of $150 million under the BRI. The design invokes the image of a Chinese sailboat, symbolizing friendship between the two nations. Its geographical position also makes it stand between the Tonle Sap and Mekong Rivers, which is another allusion from the boat-like design – a representation of the friendship between the Cambodia and China.
II. BENEFITS OF THE BRI TO CAMBODIA
As infrastructures are backbones for activating economic activities, especially the flows and exchanges of trade, tourism, and labor; development of new and necessary infrastructures that connects different parts within an economy as well as with other countries would contribute to higher economic growth. For Cambodia, the participation in the BRI have allowed her to build from time to time necessary infrastructures that she needs with better financing mechanism. The benefits that Cambodia has witnessed so far are as follows:
Addressed infrastructure needs of Cambodia: as a developing country, Cambodia is in need to upgrade important infrastructures to address bottlenecks to economic growth. Especially, Cambodia needs to improve her competitiveness in terms of trade effectiveness and regional development to make it more conducive to investments and increase job creation as well. The BRI participation has brought the much-needed capital for Cambodia to meet this demand.
Reduced transport and trade costs: Particularly, the Phnom Penh – Sihanoukville express way have cut the travelling time dramatically for both tourists and logistic companies. In addition, Road accidents that used to occur when people travel between the two cities have reduced dramatically. More benefits in terms of transportation of goods were also observed as Sihanoukville is the port city where major imports and exports were conducted at that port.
Technology transfer and know-how knowledge (Skill transfer): the establishment of SSEZ for example has hosted different factories where many Cambodians were employed. This investment have allowed Cambodian to witness the governance, technology, and other skills needed to run those businesses. In addition, employment increases were also obtained through the SSEZ under the BRI as well.
Increased tourism and cross-border trade: the developments of airports in both the capital and Siem Reap province are expected to boost Cambodia’s competitiveness in terms of tourism and logistics. Both the increase in trade and tourism are expected to contribute to higher economic growth for Cambodia.
Overall, the BRI participation so far has supported Cambodia to address infrastructure deficits, reduce trade and transportation costs, support productivity and boost economic growth as well as improve living conditions and reduce poverty.
III. CHALLENGES OF THE BRI IN CAMBODIA
While there were challenges as raised, Cambodian government has also been trying to tackle the problems along with the Chinese authorities. For instance, Cambodian government has introduced Development Cooperation and Partnerships Strategies to coordinate aid to develop both BRI and non-BRI related infrastructure to meet its economic needs. Moreover, although China has been dominating the financing of infrastructure projects in Cambodia through the BRI, there have also been other donors and financiers involved in transport and energy infrastructure development in the country. Cambodia’s government has been very cautious in preventing crowding out aid and investment from funding sources.
Regarding the ESG compliance problem, there are some early signs that environmental impacts are being taken more seriously in the implementation of projects following the second BRI Summit. For instance, in the construction of the Phnom Penh-Sihanoukville Expressway, there were some measures taken to protect the fragile ecosystem by reducing the impact of the construction work on the green hills and surrounding water to avoid any land erosion. Technologies were also used to recycle the wastes and construction materials from the project. However, issues over other aspects of the ESG principles, especially the social and governance aspects, related concerns about land disputes with the local and forceful resettlement could be improved.
In terms of financing, more innovation financing mechanism such as PPP and the co-financing by multilateral development bank such as the AIIB should be employed for large projects for the purpose of risk sharing and obtaining large funding. Multilateral development banks can play an important role as broker who ensure that standards are observed and long-term national interests are served. For example, the AIIB or NDB maybe the future options to seek in multilateralizing the BRI should Cambodia start borrowing to finance infrastructure projects.
The digression from relying on China’s state-owned banks or corporations to the AIIB or NDB would increase transparency as well as other standards although they might still not meet those imposed by other multilateral development banks. While this shifting mechanism reduces the problem but may not completely address it, keeping this momentum would allow for future improvement overtime. What’s more, China expressed its commitment to improving the quality of BRI investments at the second BRI summit in 2019. Commitments were made to multilateralise the BRI by adopting international standards in project selection and all aspects of operation and implementation. The BRI projects were also expected to be more sustainable, financially, environmentally and socially, from the borrowing country’s point of view.
It is important to acknowledge that stronger benefits from the BRI projects for Cambodia cannot be realized without complementary policy reforms especially those that improve the competitiveness of the country. Particularly, policies should improve trade facilitation and reduce trade restrictions.
In addition, removing impediments that stand in the way of a more efficient reallocation of factors or production and resources across sectors could increase these medium to long-term benefits even further. Therefore, the direct cost-reducing effects from BRI-related infrastructure development present a lower bound of economic benefits, and may represent only a fraction of the full benefits if accompanied by complementary policies.
In almost any cooperation, there are always benefits and costs to implementing them. However, weighing between cost and benefits for both in the short versus long-term are crucial. Particularly, it is extremely important to do so for any policy implementations that were just launched and are colossal in size.
Clearly, benefits of participating in the BRI appear to outweigh costs in Cambodia. Nevertheless, China is trying to improve the environmental, social and financial sustainability of BRI investments. Although there are early signs that implementation of projects is becoming more environmentally friendly, concerns over inadequate environmental impact assessments and resettlement programs remain. Increasing reliance on one country also carries risks – diversifying sources may also help in achieving Cambodia’s aim of diversifying its economic structure.
Expert Biography
CHENG Oudom, is a Fellow of Asian Financial Cooperation Association Think Tankers Committee, the Economist at National Bank of Cambodia. He is an experienced Economist with a demonstrated history of working in the banking industry, skilled in Analytical, Government, Monetary Economics, Macroeconomics, and International Relations, with strong business development professional with an MA in Public Management and Policy Analysis.
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