Cambodia

Cambodia

Since the 2010s, China has become Cambodia’s largest source of investment and development assistance. Although Chinese finance has greatly boosted the country’s infrastructure and manufacturing, controversies abound and Cambodia has become a focal point in the debate on Global China.

Historical Background

Over the past decade, China has risen to become Cambodia’s largest source of investment and development assistance. China’s presence as a major investor began to develop around 2006, after a state visit from then Premier Wen Jiabao, which resulted in the signing of several bilateral agreements and a commitment of 600 million USD in loans and grants. Since then, the relationship has strengthened significantly, and the two sides have upgraded relations to a ‘comprehensive strategic cooperation partnership’ in 2010.

China is now arguably Cambodia’s strongest political ally. In 2018 the two countries marked 60 years of diplomatic relations, though ties have experienced several shifts during that period. Relations were interrupted in the early 1970s by a republican coup that pushed the late King Norodom Sihanouk from power and replaced him with the pro-Western General Lon Nol. Sihanouk fled to Beijijng, where he lived in exile for five years, forming a government-in-exile and encouraging the Cambodian people to support the Khmer Rouge forces that were building up in rural areas and fight against the Lon Nol regime. The links between the Cambodian royal family and China remain strong to this day. In 1975, Lon Nol was ousted by the Khmer Rouge, a communist insurgent group that received economic, political, and military support from China. In 1979, the Khmer Rouge were in turn defeated by Vietnamese-backed Cambodian forces led by actors that in large part continue to rule Cambodia to this day. During the 1980s, in the midst of the cold war era Sino–Soviet split, China was viewed with distrust by the Cambodian leadership, which continued to receive backing from Vietnam. This mistrust was deepened by the fact that China continued to provide political backing to the Khmer Rouge, who were now waging guerrilla war from Cambodia’s borderlands. Only following the withdrawal of Vietnamese troops in 1989 and the UN-brokered elections of 1993, were diplomatic relations between China and Cambodia re-established.

After 1993, Chinese investment and aid to Cambodia began to increase, but Cambodia also maintained relations with Taiwan, which at the time was one of the country’s top sources of investment. Taiwan maintained a representative office in Phnom Penh, but as Cambodia drew closer to mainland China this office was closed by Prime Minister Hun Sen in 1997. This coincided with a period of international isolation for Cambodia, when factional fighting between the ruling coalition parties led to bloodshed in the capital, after which China was one of the few nations that maintained normal diplomatic relations with the country. As the relationship strengthened, subsequent attempts to re-open a Taiwan representative office in Cambodia have been blocked by the Prime Minister, who frequently voices unflinching support for the One China Policy.

Foreign investment in Cambodia began to rise in 2004, after the country joined the World Trade Organisation. China’s presence as a major investor began to take shape two years later, after Premier Wen Jiabao’s visit. This set a trend of high-level meetings between the two sides, which consistently result in high-profile investment and aid packages, and commitments to develop large infrastructure projects—including power plants, roads, and other major public works. Between the various meetings, there is no shortage of visits to China and Cambodia by government officials and business people, along with state-supported trade and investment junkets from provinces around China. In recent years, Cambodia has become a focal point for geopolitical tensions between China and the United States, with the latter increasingly concerned about China’s presence and influence in Cambodia and across the region.

BRI Status

Cambodia was quick to sign up to the Belt and Road Initiative (BRI) and in 2016 the two parties signed a memorandum of understanding (MoU) on developing a framework for jointly advancing the BRI in Cambodia. Subsequently, the two countries have signed several MoUs that discuss aligning the BRI with Cambodia’s ‘Rectangular Strategy’, that is the five-year plans that set out the government’s development agenda. 

Although the BRI is frequently brought up in statements by Cambodian and Chinese Embassy officials, as well as by companies active in Cambodia, it is often used in very broad terms. Numerous projects that were approved, commenced construction, or were even completed prior to the existence of the BRI, are now referred to as BRI projects. As there is no list of what exactly is a ‘BRI project’, many companies have used the label to enhance the profile of their endeavours. A more useful way to assess which projects are seen as a shared priority by the two governments is to refer to joint statements that come out of high-level bilateral meetings, which identify agreed cooperation projects between the two countries.

For instance, one recent high-level joint communiqué between China and Cambodia was released in January 2019 during a trip to Beijing by Prime Minister Hun Sen. It stated that the two countries will continue to support companies to invest in the development of agricultural, manufacturing, and processing parks, enhance cooperation in power supply and power grid construction, advance the development and application of clean energy resources, and construct basic public infrastructure—including water supply, roads, and rural schools. The communiqueé made specific reference to the Sihanoukville Special Economic Zone, Phnom Penh-Sihanoukville Expressway, and a new international airport in Siem Reap.

Pushing back on criticism that the BRI is an agenda pushed on its partners, the Chinese government frequently asserts that the initiative seeks to complement the development strategies of its partners, rather than acting as an external imposition. Cambodian officials have been equally keen to present the BRI as something that supports the realisation of national development goals, and the government frequently mentions the BRI in the same breath as Cambodia’s Rectangular Strategy, National Strategic Development Plan, and other long-term development plans such as its Industrial Development Policy.

Current Economic Relations

Trade: China is Cambodia’s largest trade partner, with total trade reaching 8.53 billion USD in 2019. In the 2019 joint communiqué, the two countries have committed to increasing the bilateral trade volume to 10 billion USD by 2023. Currently this trade is heavily imbalanced. In 2019, China was Cambodia’s largest source of imports, worth over 7.5 billion USD (about 51% of total imports), but Cambodia shipped just over 1 billion USD of goods to China (about 7% of total exports). In order to achieve the increased trade target, and potentially reduce this deficit, negotiations began in 2019 on a Cambodia–China free trade agreement (FTA). This was signed in October 2020 and held up by both sides as a landmark achievement, having been negotiated and finalised in just seven months, and being the first FTA between China and a least developed country, and the first to have a specific chapter dedicated to the BRI. It is expected to come into force in 2021.

Chinese companies also benefit from Cambodia’s trade agreements with other partners, including the European Union’s Everything But Arms (EBA) and the US Generalized System of Preferences (GSP). Both provide tariff free market access to products made in Cambodia, and manufacturers of garments, footwear, and accessories have been a major beneficiary. In August 2020, the European Trade Commissioner took the drastic step of partially withdrawing EBA benefits due to ‘serious and systemic violations’ of freedom of expression, labour rights, and freedom of association, in addition to long-running concerns regarding workers’ rights and land-grabbing. Chinese companies are deeply embedded in Cambodia’s export-oriented manufacturing sector and dominate the garment industry. This development therefore has potentially serious impacts for companies in mainland China that produce and sell equipment and materials that are used in the manufacturing industry—which make up the bulk of China’s exports to Cambodia. On the Cambodian side, Chinese companies will factor EBA and GSP benefits into their investment decisions, and several Chinese economic zone operators list these agreements as ‘trade advantages’ when promoting their zones to potential Chinese tenants. Withdrawal of this tax benefit is likely having a significant impact on this low-profit margin industry. 

Investment: Although China’s officially recorded global investment has been dropping since 2016, its investment in Cambodia does not follow the same trend, and has increased relatively steadily between 2015 and 2018.

Source: Chinese Ministry of Commerce.

The above data is gathered from company self-reporting to China’s Ministry of Commerce (MOFCOM), as per the Ministry’s 2018 Statistical Bulletin of China’s Outward Foreign Direct Investment (中国对外直接投资统计公报). Therefore, it does not include investment that is not declared, for whatever reason. Smaller private investment that is not in full compliance with Chinese regulations will therefore not show up. Likewise, secondary investments by Chinese companies that are already established overseas may not be represented. Nevertheless, MOFCOM data shows that recorded investment into Cambodia has risen significantly since the 2000s, reaching 778.34 million USD in 2018.

Figures from Cambodia’s top investment body report approved investment, rather than realised investment, but indicate a rapid increase in approved investment from China in the 2010s. According to this data, China has been Cambodia’s top investor since 2013, accounting for 22% of all approved foreign investment from 1994 to 2019. In 2019, approved investment from China hit 2.75 billion USD. Chinese capital flows to a wide range of sectors, including agriculture, industry, energy, transport, mining, tourism, and entertainment. In 2020, Cambodia’s central bank reported that China accounted for over 50% of all FDI inflows. This put China far ahead of the second largest source, Singapore, with just 8%.

Aid: Since 2010 China has been the largest source of bilateral development assistance to Cambodia. As of December 2018, China had provided a total of 5.8 billion USD in development assistance to Cambodia. In 2019 alone, China’s development assistance amounted to almost 500 million USD, up from 353 million USD in 2018. More than half of the projects funded via concessional loans or preferential buyer’s credits from the Export and Import Bank of China concern transport (mostly road development or improvement), energy (mostly high-voltage transmission lines), and irrigation. Grants and interest-free loans mostly support prestige projects, such as stadiums and government buildings, as well as several new hospitals. Chinese aid also supports capacity building and training in areas such as agriculture technology and techniques. As of 2020, Cambodia’s outstanding foreign debt stood at 8.8 billion USD. Of this amount, 44.3% was owed to China through interest-free and concessional loans (down from 48% in 2019).

Takeo temple conservation and restoration project. Credit (CC): Inclusive Development International.

Key Controversies in Bilateral Relations

Land conflict & displacement: With foreign investment flowing into Cambodia and land prices increasing, land conflicts and evictions have been a major and ongoing concern since the mid-2000s. Development projects led by both local and foreign investors have been linked to serious land rights abuses. Chinese companies have been implicated in several high-profile cases, including the Boeung Kak Lake case in Phnom Penh, which saw the eviction of over 4,000 families between 2007 and 2010, and the Dara Sakor tourism project in Koh Kong province, which cut 45,000 hectares from the national park and displaced over 1,000 after it commenced in 2008. 

Water: China’s role in Cambodia’s energy sector is now so extensive that as of 2018 almost three quarters of the domestic power supply came from Chinese-built and financed power plants. The nine Chinese-supported hydropower projects alone represented just under half of the country’s total generating capacity in 2019. Several of these hydropower projects have been highly controversial, especially the Lower Sesan 2 in northeast Cambodia, which displaced as many as 5,000 people, and raised concerns of environmentalists due to its likely impacts on sediment flows, fisheries, and biodiversity.

Climate change: Cambodia only began to develop coal power plants relatively recently, with the first plant built by a Malaysian company coming online in 2014. Since then, two more plants have come online, with four more under construction and a number under study. Of the seven active projects, five are linked to Chinese companies. This expansion of coal and plans for the development of Chinese-supported natural gas infrastructure could shift the country’s energy mix drastically to almost 75% fossil fuel. As a result, Cambodia may face the withdrawal of major international brands who produce in or purchase products from Cambodia, and do not want to be associated with manufacturing powered by fossil fuel. 

Labour conflict: Since the early 2000s, Cambodia has maintained annual GDP growth of around 7%. This growth has been fuelled in large part by the export-oriented garment and footwear industry. As of 2019, almost 70% of Garment Manufacturers Association in Cambodia (GMAC) members were from the Greater China region: 285 from mainland China, 82 from Taiwan and 52 from Hong Kong. Although Chinese garment and footwear companies are often implicated in labour disputes, there is no evidence that labour conditions and labour relations present any substantial difference when compared to companies of other ownership. However, serious concerns have been raised about Chinese employers in the construction sector. Due to the ban on online gambling (see below), which fuelled much of the construction industry in Sihanoukville, combined with the economic downturn caused by the Covid-19 pandemic, many construction projects have ground to a halt. This has resulted in companies failing to pay wages to both Cambodian and Chinese labourers, and throughout 2020, local media reports have covered protests by construction workers, including many Chinese citizens who have become trapped and impoverished in Cambodia without funds to return home.

Gambling and other illicit activities: A significant focus for Chinese investment in Cambodia has been the gambling industry. This expanded rapidly in just a few years, and between 2017 and 2018, the number of licensed casinos in Cambodia jumped from 98 to 150, with many located in coastal Sihanoukville. As well as in-person gambling, a huge online gambling industry also grew in Cambodia in a short space of time. This includes actual gambling and lotteries, but also various scams and fraudulent activity. Operations are generally led by criminal elements who target Chinese citizens, but need a base where law enforcement and digital regulation is lax. As these operations expanded in Sihanoukville, so did gang activity, eventually leading to a ban on online gambling being announced in August 2019. The online gambling ban heavily hit Sihanoukville’s economy, as much of the city’s development was centred around the industry.

Military presence: Since 2018, the United States has raised concerns that Cambodia is being used as a base for Chinese military operations. This began with rumours that the port and airport facilities at Union Development Group’s Dara Sakor project in Koh Kong were either a cover for a military base, or intended for dual use. The US Treasury later sanctioned Union Development under the Global Magnitsky Act due to alleged connections to human rights abuses. Attention later shifted to the Ream Naval Base in Sihanoukville, after the Wall Street Journal reported that it had obtained a leaked draft document between China and Cambodia discussing the basing of Chinese forces within a newly developed area of the base. Both the Cambodian and Chinese governments have aggressively denied these claims.

Construction sites in Phonm Penh, Cambodia. Credit (CC): Inclusive Development International.

Key Sources

English-language Media:

Reports and Scholarly Articles:

  • Council for the Development of Cambodia. 2020. ‘Development Cooperation and Partnerships Report.’ Council or the Development of Cambodia website, March. English, Khmer.
  • Franceschini, Ivan. 2020a. ‘As Far Apart as Earth and Sky: A Survey of Chinese and Cambodian Construction Workers in Sihanoukville.’ Critical Asian Studies 52, no. 4: 512–29. Link.
  • Franceschini, Ivan. 2020b. ‘The Chinese Trade Union Goes Global: Evidence from Cambodia.’ China Perspectives 4/2020: 29–37. 
  • Franceschini, Ivan. 2020. ‘At the Roots of Labor Activism: Chinese and Cambodian Garment Workers in Comparative Perspective.’ Journal of Contemporary Asia, vol. 50, no. 1: 144–67. Link.
  • Grimsditch, Mark. 2019. ‘The Cambodia Conundrum: The Belt and Road, Private Capital and China’s “Non-interference” Policy.’ Panda Paw Dragon Claw, 25 June. Link.
  • Inclusive Development international. 2020. ‘Briefing Paper: Reassessing China’s Investment Footprint in Cambodia.’ Inclusive Development International website, August. Link.
  • Mertha, Andrew C. 2014. Brothers in Arms: Chinese Aid to the Khmer Rouge, 1975–1979. Ithaca, NY: Cornell University Press.

Updates & Corrections

5 June 2021: Updated data about 2020 added to the paragraphs about investment and aid.

Cover Photo (CC) @mayanais.

Updated on 5 June 2021.


Inclusive Development International (IDI) is an independent, not-for-profit organisation dedicated to supporting communities to defend their rights and resources in the face of harmful corporate activities and creating a more just and inclusive global economy.