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‘Debt-Trap’ Ahead of Cambodian PM Visit to China Belt, Expert Alerts

China’s Embassy responded with a statement accusing the U.S. of “trying to stir things up again with the so-called trade deficit issue,” adding that bilateral relations are “not just about trade.”

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A woman uses a Chinese national flag to protect the sun as she listens to Prime Minister Hun Sen who delivering his speech during an inauguration ceremony of a sky bridge funded by China for its official use in Phnom Penh, Cambodia, Monday, July 2, 2018. In early July, Cambodia will begin its election campaigning for the 2018's general election. (AP Photo/Heng Sinith) RFA

Overdependence, coupled with loans and the cost of maintaining infrastructure, could leave Cambodia in a “debt trap” to China, an expert said Tuesday, as Cambodia’s Prime Minister Hun Sen prepares to attend a summit in Beijing on Chinese President Xi Jinping’s sweeping Belt and Road Initiative (BRI).

China will hold its second Belt and Road Forum for International Cooperation from April 25-27 to outline the implementation of the BRI, which aims to strengthen infrastructure, trade, and investment links between the Asian superpower and 154 countries and international organizations.

Hun Sen will join nearly 40 other heads of state and 150 global representatives at the event, where he will speak on “boosting connectivity to explore new sources of growth,” according to a statement issued on Monday by Cambodia’s Ministry of Foreign Affairs.

Last week, China’s economic planning agency said that the total trade volume between China and BRI nations had exceeded U.S. $6 trillion from 2013 to 2018, and that China has spent U.S. $80 billion in direct foreign investment in these countries.

Critics of the BRI say that China is using investment to push its own political agenda, and that nations involved in the initiative see their sovereignty undermined if they fall into a “debt-trap” that leaves them beholden to Beijing because they are unable to meet regular payments on loans and default.

Speaking to RFA’s Khmer Service, Carlyle A. Thayer, Emeritus Professor at the University of New South Wales, noted that Cambodia is already an estimated U.S. $3 billion in debt to China, and that it stands to take on further debt through the BRI.

“China provides most of overseas development assistance in the form of loans—these must be repaid,” Thayer said.

“In addition, although China finances major infrastructure projects that do contribute to Cambodia’s economic development, recurrent maintenance costs are left to the host country,” he added.

“Overdependence on China, coupled with loan repayments and maintenance costs, could result in Cambodia’s falling into the so-called debt trap … Chinese companies involved in providing infrastructure take possession of the infrastructure. This could hypothetically mean Chinese ownership of Cambodian ports and even airports.”

Under the BRI, China has pledged to invest in Cambodian agriculture, finance, special economic zone development, capacity building, culture and tourism, and environmental protection—though the lion’s share of funding will be set aside for infrastructure projects that include highways, bridges, ports, airports, and high-speed rail.

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Cambodian Minister of Information Khieu Kanharith accused the U.S. of releasing “fake news,” as part of a bid to drive Cambodia and China apart. Pixabay

‘No realistic alternative’

Thayer noted that Cambodia was an early backer of the initiative and said Hun Sen’s attendance at this week’s forum will reaffirm his nation’s support for the BRI, while adding political clout for China’s hosting of the event.

“Beijing expects nothing less and will continue to reward Cambodia by extending diplomatic and political support, continued economic engagement [such as aid, trade and investment], and defense cooperation,” he said.

As Cambodia’s largest trade partner, its most important foreign investor, and a major supplier of development aid, Thayer said the country “has no realistic alternative to dependence on China,” while Beijing benefits from maintaining a regional client it can count on to support its core interests.

Cambodia drew condemnation from Western trade partners and aid donors  after its Supreme Court dissolved the CNRP in November 2017, paving the way for Hun Sen’s ruling Cambodian People’s Party (CPP) to steamroll a general election in July last year widely seen as unfree and unfair.

China, which offered its full support of Hun Sen’s government following the election, typically offers funding without many of the prerequisites that the U.S. and EU place on donations, such as improvements to human rights and rule of law.

But Thayer said Cambodia’s government had “painted itself in a corner” by targeting its political opposition amid a wider crackdown that also included restrictions on NGOs and the independent media.

Since the election, the U.S. has announced visa bans on individuals seen as limiting democracy in the country, as part of a series of measures aimed at pressuring Cambodia to reverse course. The European Union, which was the second biggest trade partner of Cambodia in 2017, has said it will drop a preferential trade scheme for Cambodian exports based on the country’s election environment.

Comparing ties

Hun Sen’s planned visit to Beijing comes as the U.S. Embassy in Phnom Penh warned through social media that Cambodia’s relations with China had done little to create jobs in the country, when compared to its partnerships with the U.S.

“China is Cambodia’s largest trade partner, but this relationship is heavily skewed in China’s favor,” the post to the embassy’s Facebook page said.

“About 87 percent of trade are Chinese imports, which do not support jobs or industry in the same way Cambodia’s trade relationship with the United States or EU does. This is just one more way Cambodia has shifted from a more balanced and diverse economic approach to one more dependent on China.”

China’s Embassy responded with a statement accusing the U.S. of “trying to stir things up again with the so-called trade deficit issue,” adding that bilateral relations are “not just about trade.”

The statement noted that China had built nearly 40 highways and bridges for Cambodia and helped to construct every hydropower station in the country, while questioning how the U.S. had contributed.

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“China is Cambodia’s largest trade partner, but this relationship is heavily skewed in China’s favor,” the post to the embassy’s Facebook page said. RFA

Cambodian Minister of Information Khieu Kanharith accused the U.S. of releasing “fake news,” as part of a bid to drive Cambodia and China apart.

“We want to build a good relationship with all countries, especially the U.S., but some individuals are trying to destroy this relationship because of their ignorance,” the minister wrote on social media.

Lack of transparency

On Tuesday, Koul Panha, director of local NGO Comfrel, told RFA that Chinese money is negatively impacting the people of Cambodia because of the way it is invested.

“Chinese investment in Cambodia lacks transparency and doesn’t help to promote democracy,” he said, adding that the loans have left Cambodia “under Chinese influence both economically and politically.”

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Chinese investment has flowed into Cambodian real estate, agriculture and entertainment—particularly to the port city of Sihanoukville—but Cambodians regularly chafe at what they say are unscrupulous business practices and unbecoming behavior by Chinese residents, and worry that their country is increasingly bending to Beijing’s will.

Trade volume between Cambodia and China was valued at U.S. $5.8 billion in 2017, up 22 percent from U.S. $4.76 billion dollars a year earlier. China, Cambodia’s largest investor, has poured U.S. $12.6 billion into the Southeast Asian nation from 1994 to 2017. (RFA)

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Amid Intensifying US China Trade Dispute, Indian Exporters Eye Gains

Orient Craft’s new unit in Jharkhand, one of India’s least developed states, will employ about eight thousand workers

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US, China, Trade Dispute, Indian Exporters
Orient Craft, one of India's largest apparel exporters, says it could benefit from increased business as the US-China trade war intensifies. This building in Gurgaon on the outskirts of Delhi houses its office and one of its garment units. VOA

As work on establishing a massive garment-manufacturing unit by one of India’s leading apparel exporters enters the final stages, the company is optimistic about keeping the machines humming. Slated to begin production in August, Orient Craft’s new unit in Jharkhand, one of India’s least developed states, will employ about eight thousand workers.

Inquiries from buyers in the United States, its biggest market, have increased in recent months as a trade dispute with China intensifies, according to A.K. Jain, who heads the Commercial department at Orient Craft. That is why he is upbeat about generating new business. “This is an unbelievable blessing in disguise,” he says. “It will give us an edge.”

Exporters in India are reaping the benefits of the trade war between the world’s two biggest economies as business with both countries jumps, according to Ajai Sahai, who heads the Federation of Indian Export Organizations.

“While overall exports have gone up by nine percent, exports to the U.S. have gone up by 13 percent and to China by 32 percent,” he says. And as the confrontation escalated last week after the two countries failed to reach a deal, his optimism increased. “Since the tariff hike is now substantial from 10 to 25 percent we feel we will have more advantage in market access.”

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A slowdown in the Indian economy is being attributed to a drop in consumption by an affluent middle class. VOA

India is among a handful of countries set to benefit from the U.S.-China trade dispute, a report by the United Nations Conference on Trade and Development stated in February. “The saying ‘it’s good to fish in troubled waters’ could apply to some bystander nations,” the report said, pointing out that most of the Chinese exports subject to U.S. tariffs will be captured by firms in third countries.

While China has opened its doors wider to a range of agricultural products from India such as rice and sugar, exports to the United States have increased in areas such as chemicals, pharmaceuticals, jewelry, auto components and apparel.

“In various products we were losing out to China with a very narrow margin. With the hike, we are able to offset that,” says Sahai. “That is why the tariff war has presented us an opportunity to enter markets in the U.S. in some areas we were hardly penetrating.”

But even as Indian exports benefit, trade experts warn that clouds are also gathering over New Delhi’s trade relationship with Washington. In recent months, U.S. President Donald Trump has slammed Indian duties on some U.S. goods, saying that India is not providing “equitable and reasonable access” to its markets.

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Economists also warn that an eventual slowdown in global trade due to the U.S.-China trade spat will hit all countries including India, which is already staring at an economic slowdown

Growth in the world’s fastest growing major economy flagged to 6.6 percent in the last quarter of 2018 – it’s lowest in more than a year. It is not expected to fare much better this year.

The slump is blamed on slackening domestic consumption, which powers the Indian economy. Unlike East Asian countries, which have raced ahead on the back of exports, growth momentum in India is largely based on an affluent middle class snapping up goods such as cars, refrigerators, air conditioners and other consumer goods.

But there are concerns as automobile sales, the barometer of consumption, plunged to the lowest in nearly eight years in recent months.

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Like other carmakers, the Hyundai showroom in Gurgaon has witnessed a decline in sales of cars in recent months. VOA

At the Hyundai car showroom in the upscale business hub of Gurgaon, near Delhi, a range of swanky models beckon customers, but there are few to be seen. This is in marked contrast to the last three years when buoyant automobile sales helped India overtake Germany to become the world’s fourth largest automobile market. That prompted car makers such as Hyundai, Honda and Toyota to expand their presence in the country.

“In recent years, March and April used to be good months. But now 20 to 30 percent drop is there in these months also,” says Gagan Arora, business head at the Hyundai showroom. “There is a slowdown in the whole industry. New buyers are not being added so frequently.”

Economists say while rising exports to the United States and China present a silver lining, the first challenge facing India’s new government due to take office after vote counting in elections is completed this week, will be how to restore overall momentum to the economy and see why consumers are not so willing to open their wallets. (VOA)