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US-China trade tension diverts foreign investments to Kingdom’s benefit

Chhut Bunthoeun / Khmer Times No Comments Share:
Phnom Penh Special Economic Zone in Cambodia enables tariff-free trading. Khmer Times

Cambodia and other Southeast Asian nations have been receiving an increase in diverted investments because of the ongoing trade dispute between China and the United States, stated the National Bank of Cambodia in its latest report.

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The National Bank said the prolonged trade war has driven major challenges, which has seen a slowdown in international trade activities and investments. However, this tension has actually diverted investments to some countries in the Southeast Asia region, such as Cambodia and Vietnam.

US-based bicycle maker Kent International Inc announced that it will be shifting production from China to Cambodia. The company’s factory, located approximately 10 miles from downtown Phnom Penh, is expected to begin operations this year.

Shanghai General Sports, one of China’s largest bicycle exporters and producers announced last year that it is opening a factory in Cambodia to avoid tariffs imposed by the United States.  Furthermore, US shoe giant Steve Madden and Baowu Group, China’s leading steelmaker, are also planning to increase production in the Kingdom.

Lim Menghour, Deputy Director of the Mekong Centre for Strategic Studies of the Asian Vision Institute, said the trade war has resulted in several short-term and long-term impacts for the country.

In the short-term, he said Cambodia will benefit in terms of trade because some Chinese companies are finding difficulties in exporting their products to the US market  because of high tariffs the US are imposing. Hence, many companies will be looking somewhere else for their new production base like Cambodia.

“Cambodia will be an alternative destination for Chinese investors, thanks to a good relationship between the two nations. In this moment, more Chinese investments will be flowing into the Kingdom, raising the competitive advantage and economic growth of Cambodia,” he said.

Cambodia and other exporting countries, however, will experience negative impacts from the trade war in the long run; explaining that it will reduce investment from China to the Kingdom and vice-versa if there is a global economic crisis resulting from a trade war.

Aun Pornmoniroth, the Minister of Economy and Finance, recently said that Cambodia has yet to feel the negative effects of the US-China trade tensions, but warned that a protracted trade war could hurt the Kingdom.

“Trade tension could create opportunities for developing countries such as Cambodia, expanding our export markets and attracting more foreign direct investment,” he said.

In the long-term, however, the trade war will damage the Kingdom’s economy. “A protracted trade war will lead to a global economic slowdown, which, in turn, will lead to fewer tourist arrivals and less foreign investment in Cambodia.”

The Nikkei Asian Review recently reported that 16 companies are seeking to alternate production bases from China to Southeast Asia to circumvent US import tariffs resulting from the trade dispute.

Vietnam, Thailand, and Indonesia are reportedly to absorb the bulk of the new production. With 11 of the 16 companies stating they are planning to start manufacturing in Vietnam or Thailand. Cambodia was not included in the list of countries they are considering for the shift.

Lim Heng, vice president of the Cambodia Chamber of Commerce, said Cambodia’s less attractive to companies wishing to relocate out of China must be chalked up to Vietnam and Thailand’s superior capacity and infrastructure. Vietnam’s geographical proximity is also a factor that relocated businesses have gravitated towards.

“Compared with neighboring peers, Cambodia lacks infrastructure and skilled labour,” he said, adding that these are weaknesses that must be urgently addressed.

“Cambodia must prioritise investments in road infrastructure, electricity, and its labour force,” he pointed out.

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