Transforming China-Led Initiatives and Other RCIs Into a Source of Development

SOK Kha at SSEZ site visit

Prime Minister Hun Sen’s delegation is traveling to Beijing this week to participate in the second Belt and Road Forum. The announcement of newly signed agreements that the delegation will bring back to the country after the trip will be under the watchful eyes of Cambodians across the country, who are increasingly interested in the course of the relationship between Cambodia and China. These new agreements will add to the list of existing projects arising from bilateral cooperation under the framework of the China-led Belt and Road Initiative (BRI).

The economic centre of gravity’s shift to Asia, led by China, continues to present opportunities for Cambodia, who hope to seize upon the opportunities arising from various China-led initiatives, such as BRI and Mekong-Lancang Cooperation (MLC), and transform them into a source of national development.

Bilateral cooperation in physical infrastructure and connectivity development has been in the spotlight in Cambodia. Prime Minister Hun Sen was quoted in the media as saying that the country needs US$500-700 million a year for infrastructure development such as roads, bridges, electricity, and irrigation systems. The public sector cannot afford this magnitude of investment, while the private sector is limited in capacity and reluctant to take part due to large financing requirements, associated risks, and potential land conflict with locals, which thus undermines the potential of public-private partnership financing mechanisms. While financing in this field mainly comes from multilateral development agencies such as the World Bank, the Asian Development Bank (ADB), and bilateral donors, China’s BRI- and MLC-associated financing vehicles such as the Asian Infrastructure Investment Bank (AIIB), Silk Road Fund, and the New Development Bank are potential alternative financing sources for further infrastructure and connectivity development in Cambodia. This has become especially true after Cambodia’s development status was revised by the World Bank and elevated to lower-middle income territory. While this status upgrade indicates success in poverty alleviation and income-level improvement and is a point of pride for many, it comes with its own set of challenges. The World Bank and ADB use countries’ income levels to determine which to lend to and at which interest rates. In this context, these alternative financing vehicles will ease Cambodia’s efforts to mobilise resources to support further development in infrastructure and connectivity in the country.

As a matter of illustration, the infrastructure and connectivity development projects arising from BRI in Cambodia include the Sihanoukville Special Economic Zone (SSEZ), the Phnom Penh-Sihanoukville Expressway, and new airports in Phnom Penh and Siem Reap. These projects align well with Cambodia’s most recent and important economic growth strategy—the Industrial Development Policy (IDP). The IDP lays out key concrete measures to strengthen and diversify Cambodia’s industrial sector, as well as increase and diversify exports by enhancing connectivity in transport and logistics and improving the labour market and skills. Currently, over 20,000 Cambodian workers, mostly low-skilled and female, are employed by over 100 factories currently operating within the SSEZ to produce garments, textiles, bags, leather products, hardware, machinery, wooden products, and other light manufacturing products for export. Benefits are substantial considering the extent of indirect employment and income generation (i.e. to immediate families of the workers, businesses supported by the spending of workers, prevention of risky migration, etc.). The on-going construction of the expressway and planned new airport projects have potential to significantly enhance connectivity and logistics within Cambodia and beyond, improving logistic efficiency, reducing trade costs, better-facilitating trade and investment cooperation, and deepening regional integration and connectivity.

The MLC, comprising the six riparian countries along the Mekong/Lancang River, promotes regional connectivity, production capacity, cross-border economic cooperation, trade and investment facilitation, customs and quality inspection, financial cooperation, water resource management, agriculture, forestry, environmental protection, and poverty reduction. The US$300 million Special Fund launched by China is currently being used to support small- and medium-scale cooperation projects proposed by member countries. In 2017, 16 of Cambodia’s projects were approved and received support from this fund. In 2018, an additional 19 projects were also secured. One project example is a training programme on project management and sectoral development of the five key areas of the MLC: (1) Connectivity, (2) Production Capacity, (3) Cross-Border Economy Cooperation, (4) Water Resources, and (5) Agriculture and Poverty Reduction.

BRI and MLC are two of the emerging regional and sub-regional initiatives in which Cambodia actively engages. As a Mekong nation, and part of the evolving ASEAN Economic Community (AEC), Cambodia has capitalised on the opportunities presented by the other Mekong- and ASEAN-driven regional cooperation and integration initiatives, including the Greater Mekong Subregion (GMS), Mekong-Japan Cooperation, and the Regional Comprehensive Economic Partnership (RCEP), among others.

The Master Plan for ASEAN Connectivity (MPAC), adopted in 2010, aims to promote connectivity in all dimensions, including basic infrastructure, rules and regulations, and people-to-people connectivity, leading to a Seamless ASEAN. The GMS aims to strengthen infrastructure linkages; facilitate cross-border trade, investment, and tourism; enhance private sector participation and competitiveness; develop human resources; and protect the environment and promote sustainable use of shared natural resources. Over the years, the Mekong-Japan Cooperation has been strengthened with subsequent releases of milestone documents, titled ‘Tokyo Strategy’, laying out a comprehensive scope that covers both the hard and soft connectivity aspects of development, with a strong focus on industrial human resource development. The RCEP, though not yet concluded, has guiding principles which aim to facilitate trade and investment and engage participating countries, comprising all ASEAN member states and ASEAN’s six free trade agreement partners—Australia, China, India, Japan, South Korea, and New Zealand—in global and regional supply chains.

In the past two decades, Cambodia has made significant progress in terms of sustaining high growth and poverty reduction. Going forward, ensuring linkages, complementarities, and synergies of these initiatives with Cambodia’s growth strategy for shared development and win-win cooperation will be crucial to addressing remaining growth and development concerns, particularly regarding the challenges of diversification, inadequate infrastructure and connectivity, as well as limited human resource capacity.

This article first appeared in the Asian Vision Institute (AVI)’s Commentary Issue: 2019, No. 6. AVI is an independent think tank based in Cambodia.

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