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Analysis: Chinese investment galvanizes Cambodia's fiery premier
February 10, 2011 / 6:22 AM / 7 years ago

Analysis: Chinese investment galvanizes Cambodia's fiery premier

PHNOM PENH (Reuters) - Cambodian Prime Minister Hun Sen's ruffling of Thailand with threats of "war" shows how a growing alliance with China is allowing him to stand up to his neighbor and, in the process, boost his credentials at home.

This week's deadly border clashes between the two countries' armies have put Thailand's government under domestic political strain and given Hun Sen a chance to score points at home without much risk to Cambodia's fragile economy.

Two-way trade with Thailand is on the decline and a continued flow of investment from China, South Korea and Vietnam has left the long-serving strongman Hun Sen with very little to lose as he seeks to embarrass Thailand by internationalizing the spat.

"Hun Sen realizes he doesn't need Thailand for very much. Strong ties with China and investors in East Asia, and good relations with Singapore, all leave him in very different position than in the past," said Michael Montesano, a research fellow at Singapore's Institute of Southeast Asian Studies.

"He has consistently since 2008 had the political initiative and outplayed Thailand at pretty much every turn. He looks very much in control and these confrontations at the border can only help him politically while indicating trouble in Bangkok."

The standoff -- which has killed at least 11 people and wounded 85 -- in disputed jungle surrounding the 11th century Preah Vihear temple, a symbol of Cambodian national pride, has complicated a political crisis in deeply divided Thailand.

OPPOSITION TO THAI PM

That might please Hun Sen, who has made opposition to Thai Prime Minister Abhisit Vejjajiva's Democrat-led government clear over the past two years.

Ironically, Thailand's nationalist "yellow shirt" protesters reviled by Hun Sen because of their staunch anti-Cambodia stance and claims of Thai ownership of Preah Vihear, have now turned against their former ally, Abhisit.

Their protests in Bangkok, while small, come at a difficult time for the British-born, Oxford University-educated Abhisit, whose government has encountered two years of crippling, at times violent, resistance from another color-coded protest group, the "red shirts," and will likely faces a crucial election this year.

The yellow shirts say Abhisit's diplomatic stance toward Cambodia in recent months has resulted in a loss of Thai sovereignty. They're demanding he steps down.

In contrast, Hun Sen's tough stand against Thailand works in his favor domestically, where his blend of populism and nationalism has won his party a sizable parliamentary majority.

A severing of Thai-Cambodia trade ties would not make a huge dent on either country's economies.

Thailand's central bank says its $265 billion economy, Southeast Asia's second-biggest, would not suffer because exports to Cambodia were worth less than 1 percent of GDP.

Blossoming business with other rising economic powers in Asia will ensure Hun Sen's stance does little harm to Cambodia's economy, either. Its economy is worth a far smaller $10 billion, according to the World Bank, and is benefiting as China loses its cheap labor edge to frontier markets such as Cambodia.

"We trade a lot with Thailand. The question is, how easy is it to substitute that trade," said Chan Sophal, president of the private Cambodian Economic Association.

"The things we import from Thailand can also be imported from Vietnam, China, Malaysia or South Korea."

Thailand's economic involvement in Cambodia has slipped relative to China, Vietnam and South Korea since a bout of anti-Thai disturbances in 2003, when protesters torched the Thai embassy in Phnom Penh and attacked several Thai businesses.

RISING CHINESE INFLUENCE

In contrast to Thailand, China's influence and diplomatic clout over Cambodia has swelled significantly -- as has Hun Sen's confidence in his dealings with Bangkok.

Cambodia and China pledged in December to double bilateral trade to $2.5 billion in five years, driven largely by agriculture, mining and hydro power.

China promised a $300 million loan for construction of two national roads and an irrigation project in Cambodia, in addition to 12 other deals worth around $293 million, mostly infrastructure related.

Chinese investors are increasingly active in impoverished Cambodia, pledging to spend $8 billion in 360 projects there in the first seven months of this year, mostly in power and agriculture.

Beijing is also Cambodia's largest source of foreign aid, providing about $600 million in 2007 and $260 million in 2008, helping to build roads, dams and other infrastructure. China also gives military aid and has provided much of the arms currently being used at the Thai-Cambodia frontier.

In return, China's geopolitical footprint has grown larger and it now has staunch diplomatic support from Cambodia.

It defied international pressure by sending back to China 20 ethnic minority Uighur asylum-seekers in 2009 and has remained silent amid concern that Chinese dams are adversely affecting the flow of the Mekong river in Laos, Cambodia, Thailand and Vietnam and could create serious food security problems.

South Korea is also a major player in Cambodia's economy, which saw double-digit growth for four straight years until the global economic crisis took its toll.

South Korea had Cambodian projects worth $1 billion approved last year, a sharp increase from the $120 million in 2009, and its stock exchange operator, Korea Exchange, is helping Cambodia set up a bourse, due to open this year. Vietnam invested $114 million last year and that is expected to rise in 2011.

In comparison, Thai investment shriveled 98 percent to just over $2 million in 2010, according to Cambodian figures.

Peter Brimble, an economist with the Asian Development Bank (ADB), said the Thai-Cambodia row would hurt those dependent on border trade, while tourism -- Cambodia's second-biggest currency earner -- would suffer as many visitors come via Thailand.

"For people along the border it would be disastrous," he said. "For both sides it's just bad PR (public relations)."

Additional reporting by Martin Petty; Editing by Jason Szep and Jonathan Thatcher

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