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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.”

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.”

Also Read: Rare Earth Metals in Smartphones Can Now Be Tracked

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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