China’s Rise is Good News for Cambodia

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Scholar, researcher and columnist Chheang Vannarith. KT Photo

Despite China’s slowing growth, the country is becoming an increasingly important trade partner and major investor globally, challenging the economic and political order that has been primarily driven by the United States and Europe.
 
What does the economic and geopolitical competition between China and the United States mean for Cambodia and can Cambodia maintain its impressive economic growth in this climate?
 
Academic Chheang Vannarith spoke with business editor May Kunmakara during a recent visit to Phnom Penh about the strategic and economic implications of China’s rising assertiveness. Mr. Vannarith is co-founder and chairman of the Cambodian Institute for Strategic Studies, a consultant for the Southeast Asia program at the Nippon Foundation, a lecturer of Asia Pacific studies at the University of Leeds and a columnist with Khmer Times.
 
KT: Since China became the largest economy after the US, its government has taken initiatives to influence not only Asia but Europe by encouraging investment there. What is your view of the expansion of Chinese influence in the global economy?
 
Mr. Vannarith: To maintain its growth momentum, China needs to deepen integration of its production and services networks with global supply chains. The steady downward economic spiral that China is experiencing is a normal economic development phenomenon as China is moving up the ladder from labor-intensive industry to skill-driven industries, transiting from production-based growth to consumption-driven growth.
 
China has expanded its global and regional production chains through the facilitation of outward foreign direct investment and the expansion of international markets. China’s economic role and influence has drastically increased in the last decade, particularly after the global financial crisis that began in the United States in 2008 and the lingering Eurozone crisis that started in 2009.
 
KT: China and numerous other nations have set up the Asian Infrastructure and Investment Bank (AIIB) with initial capital of $100 billion to lend to poor or developing countries in Asia to improve their infrastructure. Is the AIIB a political move to reduce the power of the US in Asia, a region overly reliant on funds from International Monetary Fund, the World Bank and the Asian Development Bank?
 
Mr. Vannarith: Global financial institutions do not give a fair share of power to emerging economies. The World Bank and the International Monetary Fund are very much dominated by the US and Western Europe.  The governance and power structure of these financial institutions have not been effectively reformed to meet the emerging global challenges.
 
They are not inclusive and representative enough to accommodate the rising economic prowess of emerging economies. China and other emerging economies have been working closely together to establish new global financial institutions that can serve their national interests. The Chinese-led Asian Infrastructure and Investment Bank focuses on infrastructure development and connectivity in Asia and beyond. The governance infrastructure is more inclusive.
 
It is a welcome move to assist developing countries further integrate their economies into an open global financial and economic system. The developing countries in Asia will benefit greatly from the AIIB.
 
The AIIB plays complementary role to the Asian Development Bank led by Japan and the World Bank led by the US. These three international development and financial institutions need to work closely and coordinate their development projects in order to optimize their impact and generate greater positive changes.
 
China does not have a hidden agenda to compete with the ADB or the World Bank. What China wishes to accomplish as a major economic power is to have greater space to exercise its global economic role.
 
KT: Cambodia has a long history of close relations with China. The two giant economies – China and the US – are trying to set up trade deals in Asia, especially with ASEAN. What can Cambodia do to benefit from this competition?
 
Mr. Vannarith: The mega-trade arrangements taking place in the Asia-Pacific region are the driving forces of future economic growth. Through the deepening of trade liberalization and openness, the regional economy will continue to grow. Everyone will benefit from such open trade.
 
The US-led Trans-Pacific Partnership (TPP) and ASEAN-led Regional Comprehensive Economic Partnership (RCEP) complement each other
 
As economic interdependence keeps growing, regional countries will work closer to address the differences and manage conflicts. Complex interdependence is the foundation of long-term peace and stability in the Asia-Pacific. China and the US are wise enough to avoid unnecessary conflicts. War between China and the US is beyond imagination.
 
KT: China is a major donor and investor in Cambodia, pumping in $2 billion in grants, loans and direct assistance and with FDI reaching $10 billion since 1990. Both governments are targeting bilateral trade of $5 billion next year, up from $3.75 billion in 2014. How much influence does China have compared with the US?
 
Mr. Vannarith: As long as Cambodia defines its national interest in terms of economic development and poverty reduction, China remains the most important strategic and economic partner.
 
Japan is gaining more influence in Southeast Asia through combining economic power with security and soft power. Washington’s security role is increasing at a faster speed compared with its economic engagement and influence. Its soft power is also rising through its strategy to engage young people in Southeast Asia. In the long run, the combination of military power, economic power, and soft power will determine who will lead the Asia-Pacific region.
 
KT: Cambodia wants to join the Trans-Pacific Partnership (TPP). But given the ASEAN plus Six [Japan, China, South Korea, India, Australia and New Zealand] trade deal and the large market in China, do you think the country should join the TPP?
 
Mr. Vannarith: Cambodia’s economic system is relatively liberal and open compared with other countries in the region. Cambodia will gain more from joining mega-regional trade arrangements. The main challenge and obstacle is legal and institutional reforms. It is not about political will or economic sovereignty or economic loss.
 
Cambodia has to speed up its legal reforms to grasp the opportunities stemming from regional economic integration.
 
KT: At recent meeting of the Mekong-Lancang committee, China pledged to give billions of dollars for development of the Mekong sub-region while the US has also promised money. Why are they both offering this?
 
Mr. Vannarith: The Mekong Sub-region is the most important strategic and economic backyard for China. China is concerned that US engagement in this sub-region may transform some countries to become suspicious of China’s behavior and intentions. China’s top security concern is maritime disputes in the East and South China Seas. The Lancang-Mekong Cooperation [group] will help China stabilize its southern border and build a strong sphere of influence in the region. China has geographic advantages over the US and Japan in connecting its economy with the Mekong sub-region.
 
Lancang-Mekong cooperation also helps China deal with its domestic economic development gap issue – assisting the less-developed in the southern and western parts of China to develop by linking its economy with Southeast Asian countries.
 
KT: What can Cambodia’s foreign policy do in terms of stabilizing its economy and establishing a good diplomatic presence in the global arena? What steps would you recommend the government to take?
 
Mr. Vannarith: Southeast Asian countries are wise enough not to take sides or become pawns in major power games. ASEAN is the shield for small countries in Southeast Asia. Cambodia’s foreign policy sticks to the principles of neutrality, non-alignment, non-interference and equal relationships. Cambodia’s strategy is to build close ties with all major powers to strengthen the ASEAN-centric regional order.
 
The effectiveness of Cambodia’s foreign policy depends on its national strength.

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