Cambodia’s aim in trade deals: keep the US and Japan close, but China closer

Phnom Penh is negotiating a raft of free-trade agreements, but the pacts are not expected to lessen its reliance on Beijing

Analysts say the agreements are intended to help Cambodia diversify its trade game and will not pull the country out of Beijing’s orbit

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Chinese Foreign Minister Wang Yi, left, with Cambodian Prime Minister Hun Sen before their meeting in Phnom Penh in October, when the two countries signed a free-trade agreement. Photo: AP

Published: 8:30am, 28 Nov 2020Updated: 8:30am, 28 Nov 2020

When Cambodia and China announced in August that they had negotiated a free-trade agreement (FTA) in just under a year, some analysts said it was a sign Beijing would further cement its economic influence on the Southeast Asian nation – even as Phnom Penh was engaged in other efforts to diversify its trade game and seek new partners.

Since overtaking Japan as Cambodia’s biggest aid donor in 2010, China’s influence in the country has grown steadily through an influx of investment, workers and tourists. It now supplies about 40 per cent of Cambodia’s foreign direct investment and holds half of its public external debt, valued at US$7 billion in 2018, according to World Bank figures.

China has also overtaken the European Union as the largest importer of Cambodian rice, and the FTA came with pledges from Beijing of US$140 million in loans and grants for infrastructure projects.

This week, China staked another claim in the country of 16.8 million, when it was reported that a major portion of the new US$405 million international airport in Phnom Penh would be built by Metallurgical Corporation of China, a state-owned company.

Given the economic impact from the coronavirus pandemic on many countries in the Association of Southeast Asian Nations (Asean), analysts have pointed to the need for its members – including Cambodia – to diversify away from China and tap into global supply chains.

Yu Hong, a senior research fellow at the East Asian Institute of the National University of Singapore, wrote in ThinkChina, an English language e-magazine with a China focus, that as global supply chains realigned in the wake of the crisis, Southeast Asian countries should implement bold domestic reforms, develop their manufacturing sectors and grow supporting industries.

To that end, Cambodia is in FTA negotiations with South Korea and the Eurasian Economic Union, which is made up of Belarus, Armenia, Russia, Kazakhstan and Kyrgyzstan.