China Pledges Multimillion-Dollar Development Aid to Cambodia

Cambodia's Prime Minister Hun Sen (L) greets China's President Xi Jinping (R) before a meeting at Diaoyutai State Guesthouse in Beijing, Nov. 8, 2014.

 AFP

Cambodian Prime Minister Hun Sen has returned from a regional meeting in Beijing with a pledge from China of hundreds of millions of dollars in loans for development programs, but an opposition party lawmaker warned about the country’s rising debt to its main ally China.

During talks with Hun Sen, Chinese President Xi Jinping and other leaders agreed to provide annual economic development loans of U.S. $500-$700 million, according to Kim Hourn, a Cambodian politician close to the prime minister, reports said.

Kim Hourn said the aid would begin next year, but did not provide details on whether it would be in the form of loans or grants or what interest rate the Chinese would charge, according to a Xinhua News Agency report.

Hun Sen was in Beijing to attend meetings on the sidelines of a leaders’ meeting of the Asia-Pacific Economic Cooperation (APEC) forum.  

Impoverished Cambodia, which relies heavily on foreign aid for development, currently spends about U.S. $100 million annually to repay its overseas debt of U.S. $9 billion, according to a lawmaker and reports.

Cambodia expects to spend nearly U.S. $4 billion for its national budget for the coming financial year.

Soft loans

China granted Cambodia U.S. $2.85 billion from 1992 to 2014, mostly in the form of concessional loans that the country has had to pay back, according to a Ministry of Economy and Finance report.

Such loans, also known as “soft loans,” have terms that are more generous than market loans by offering below-market interest rates, grace periods, or both.

Son Chhay, a lawmaker from the opposition Cambodia National Rescue Party (CNRP), cautioned that Cambodia should not borrow excessively from China, whose loans he said may be closely linked to the exploitation of natural resources.

Instead of relying on loans from China, he said the Cambodian authorities should beef up tax collection within the country for additional revenue.

“The government has a better choice than to borrow the money from China,” he told RFA’s Khmer Service. “What the government needs to do is just strengthen its tax collection system,” said Son Chhay, who is vice president of the parliament’s Commission on Economics, Finance, Banking and Auditing.

He also cited an unnamed study that indicated Cambodia lost about U.S. $1.9 billion to faulty tax collection. 

Sok Touch, a political analyst and rector of Khemarak University in the capital Phnom Penh, told RFA that Cambodia should cast its net wider for loans that are more attractive.

He said China wanted to provide more aid to Phnom Penh in a bid to wield greater influence in the Association of Southeast Asian Nations (ASEAN), of which Cambodia is a member.

“If money is loaned by the Asian Development Bank or European countries, it comes with strings attached—it’s tied up with human rights, with democracy,” he said.

Both China and Cambodia have come under heavy criticism from non-governmental organizations for alleged human rights abuses.

Direct investment

China’s direct investment in Cambodia amounted to nearly U.S. $10 billion as of 2012, according to the Cambodian government.

Most of China’s investments have been in agriculture, mining, infrastructure and garment production, according to a report by the Council for the Development of Cambodia, a government body that promotes public and private investment and is chaired by Hun Sen and composed of senior ministers from related government agencies. 

Besides the multimillion-dollar annual loans, China pledged to open its market to Cambodian agricultural products, according to a local news report.

Kim Hourn also said Hun Sen met with Chinese Vice President Li Yuanchao and executives from major firms, including the China Road and Bridge Corp., Huawei Technologies Co. Ltd. and the State Development & Investment Corp. (SDIC), a state-owned investment holding company, Xinhua said.

SDIC would partner with The Royal Group, Cambodia’s largest, diversified conglomerate and holding company with investments in various industries, on a railway project, a Chinatown development, an island development along the coast, and an electricity generation project from burning garbage, it said.

Hun Sen backed China’s plan, announced at the APEC meeting, for a U.S. $40 billion Silk Road infrastructure fund to better connect Asian countries, including Cambodia, reports said.

Written by Vann Vichar for Cambodia’s Khmer Service. Translated by Yanny Hin. Written in English by Roseanne Gerin.