Sihanoukville Special Economic Zone
Chinese Name: 西哈努克港经济特区
Project Location: Prey Nob District, Preah Sihanouk Province, Cambodia
Type of Project: Industrial
Project Developers: Jiangsu Taihu Cambodia International Economic Cooperation Zone Investment Co., Ltd. (majority owned by Hongdou Group); Cambodia International Investment Development Group
Main Contractors: Various aspects of zone development were contracted to Chinese and Cambodian companies
Known Financiers: Export–Import Bank of China (Jiangsu Branch); Industrial and Commercial Bank of China
Project Status: Operational
Located in the coastal province of Preah Sihanouk, the Sihanoukville Special Economic Zone (SSEZ) is situated strategically in close proximity to National Road 4, Sihanoukville Airport, and the deep-water port. The SSEZ covers 11.13 square kilometres. When completed there will be space for 300 factories, which the developer claims will employ 80,000 to 100,000 industrial workers. The first phase focuses on textiles and apparel, luggage, leather goods, bicycles, electronics, and wooden furnishing. The second phase will seek to take advantage of the local port, focussing on the introduction of machinery, equipment, building materials, and other industries. By March 2020, 174 factories were established in the zone, reportedly employing 30,000 people and making the SSEZ Cambodia’s largest export base. The vast majority of zone tenants are Chinese companies. In 2019, the SSEZ began building a dedicated 100 MW coal power plant in order to provide reliable energy supply. This was financed via a loan from ICBC Phnom Penh.
The project is a joint venture of two private companies: Jiangsu Taihu Cambodia International Economic Cooperation Zone Investment Co., Ltd. and Cambodia International Investment Development Group Co., Ltd. (CIIDG). Jiangsu Taihu is owned by four Chinese companies, with Hongdou Group holding the largest stake. CIIDG is a local conglomerate owned by relatives of Cambodian Senator Lao Meng Khin, a well-known tycoon, ruling party senator, and confidant of Cambodia’s prime minister. Hongdou is a major private company from China’s Jiangsu Province, one of 120 elite enterprises selected by the Chinese government for piloting market reforms in 1997.
The embrace of the SEZ model in Cambodia predates China’s emergence as the country’s preeminent investor, and has been promoted from the early days of Cambodia’s post-conflict restructuring by its multilateral and bilateral partners, including Japan’s government development agency, the Asian Development Bank, and the United Nations Industrial Development Organisation. Cambodia began to integrate SEZs into its long-term development strategy as far back as 1998. This was expanded in subsequent Rectangular Strategy documents, the five-year plans that set out the government development agenda. SEZs have consistently received high-level support as part of a drive to attract foreign investment, increase productivity, generate employment, and bolster the export-oriented economy.
Although China was not the architect of this development path, SEZs in Cambodia present a natural alignment with the development priorities of the Chinese authorities, as they seek to offshore low-tech production. The SSEZ has been a priority of the two governments since 2006, when it was selected as a pilot ‘foreign economic trade cooperation zone’ by China’s Ministry of Commerce (MOFCOM). Although it predates the Belt and Road Initiative (BRI) by at least seven years, the project is now recognised as a model BRI investment by both Cambodia and China.
In 2010, Cambodia and China signed an agreement to jointly cooperate on the development of the project. This established a Coordination Committee chaired by the Cooperation Department of MOFCOM and the Council for Development of Cambodia, which meets periodically to discuss progress of the project. The Jiangsu National Development and Reform Commission also plays an oversight and support role, with the SSEZ reporting progress to it. China’s MOFCOM recognises the SSEZ as one of the 20 key overseas economic cooperation zones.
In line with the strong state support from China, the project is financed by several actors. Not only has it received performance-based subsidies from the Chinese Government (Bräutigam and Tang 2012) , but the Jiangsu branch of the Export–Import Bank of China also provided financing to support its development, and Sinosure provided 61 million USD in insurance for the project in its early stages. Bank of China has also expressed support for the project and stated that it would ‘actively seek cooperation opportunities’, and, as mentioned above, ICBC has financed a power plant located within the zone.
A major selling point for the SSEZ is the market access that it provides Chinese companies seeking to benefit from Cambodia’s trade status. The zone developers actively promote the SSEZ as a strategic destination for companies looking to avoid trade barriers and benefit from preferential treatment under the EU’s Everything But Arms (EBA) and the United States’ Generalised System of Preferences (GSP). Even when garment factories are wholly Chinese-owned and utilise materials produced in China, they can benefit from relaxed tax regimes and quotas when exporting to Europe and the United States, provided products are assembled in Cambodia. However, in August 2020, the EU partially withdrew Cambodia’s EBA privileges due to human rights concerns. This withdrawal impacts 20% of exports to the EU, mostly garments—which is a major focus for companies operating within the SSEZ.
- Employment & labour rights: Conditions will differ across factories, but civil society reports have documented testimony from workers at several factories stating that in some cases workers were docked pay for taking sick leave, pressured to work overtime, and fired and blacklisted for union activity or activism.
- Governance: The project is a joint-venture with a powerful Cambodian tycoon and senator who has close links to the prime minister, and is connected to numerous high-profile and controversial projects around the country linked to evictions and environmental harms.
- Other: The SSEZ is building its own coal-fired plant exclusively for provision of energy to factories inside the zone. In addition to the air quality and climate change impacts this will have, it may push major global brands with renewable energy commitments to cease purchasing from the SSEZ, putting at risk hundreds of jobs.
A report by a local civil society group (Khmer, English) in 2018 documented interviews with 20 workers from ten factories within the SEZ, who recounted a number of apparent labour rights violations, including docked pay for people taking sick leave and pressure to work overtime. Company representatives were asked for comment on these accusations and denied their validity, stating that their companies operated in compliance with the labour law. A labour ministry official also hit back against these claims, saying: ‘At the SSEZ, we have a committee with representatives from the Council for the Development of Cambodia, the Ministry of Labour, the Ministry of Commerce, CamControl, customs and local authorities. All complaints can be put in a mailbox.’
Under Cambodian law, there are no additional restrictions on establishing unions within special economic zones, however, civil society reports indicate that it is in practice much more difficult to do so within SEZs. As of late 2018, there were 12 government unions active in six factories out of 100 operating at the time, and no independent unions. Most workers interviewed for the report mentioned above stated their factory had no union. In some factories there were worker’s representatives, but in cases of severe labour violations they ‘could not help’. In 2014, one factory owned by Jinchenyuan Cambodia Co. Ltd. reportedly fired ten union leaders and activists, who then struggled to find work in other factories within the zone due to their activities. Interviews compiled by an academic researcher in 2017 also included testimony from people who claimed they were fired and then blacklisted across the zone for their union activities.
The SSEZ has touted on its website the Cambodian Government’s commitment to preventing and suppressing strike activity within the zone. In 2014, during a period of social and labour unrest in Cambodia following the contested 2013 elections, a division of Cambodia’s counterterrorism unit visited the SSEZ. As documented on the SSEZ’s website, during the tour of the zone, the head of this unit stated that it would ‘take responsibility for the stability and harmony of all the SEZs in Cambodia for counter-terrorism special operations … and eliminate signs of unrest initiatives.’ Later that year, after meeting the provincial governor, the SSEZ general manager referred to the provincial government as a ‘powerful supporter’ of the zone, which would help to resolve problems ‘including illegal worker strike’.
The Cambodian joint-venture partner, CIIDG, is owned by the wife and children of Lao Meng Khin, who, as mentioned above, is a well-known tycoon, ruling party senator and confidant of Cambodia’s prime minister. A 2014 Forbes article described the couple as a ‘magnet for capital from China’. The family has extensive business interests in agriculture, energy, real estate, and mining, among others. This includes controversial coal power plants, massive agricultural concessions that resulted in major conflicts with local people, and the notorious Boeung Kak Lake development, which evicted thousands of families to make way for a high-end property development in Phnom Penh.
A number of international brands that source products from Cambodia have committed to move their supply chains to 100% renewable energy, or pay offsets when this is not possible. In August 2020, a letter was sent by several top brands to the Ministry of Economy and Finance communicating concerns that Cambodia’s ongoing shift to coal power will threaten the viability of their business in Cambodia. This was signed by major US and EU brands including H&M, Nike, Adidas, Gap, Puma and Specialized. Some of these companies source from the SSEZ, and after the zone’s plant is operational and it moves to 100% coal power, they will likely cease sourcing from factories there, putting at risk hundreds of jobs.
- Bräutigam, Deborah and Xiaoyang Tang. 2012. ‘Economic Statecraft in China’s New Overseas Special Economic Zones: Soft Power, Business or Resource Security?’, International Affairs 88, no. 4: 799–816.
- Inclusive Development International. 2020. ‘Briefing Paper: Reassessing China’s Investment Footprint in Cambodia.’ Inclusive Development International website. Link.
- Loughlin, Neil and Mark Grimsditch. 2020. ‘How Local Political Economy Dynamics Are Shaping the Belt and Road Initiative.’ Third World Quarterly, online first. Link.
- Royal Government of Cambodia. 2005. ‘Sub-decree “On the Establishment and Management of the Special Economic Zone.’ Sub-decree no. 148 ANKr.BK. Link.
- Thame, Charlie. 2017. ‘SEZs and Value Extraction from the Mekong: A Case Study on the Control and Exploitation of Land and Labour in Cambodia and Myanmar’s Special Economic Zones.’ Focus on the Global South website. Link.