Chinese Foreign Aid to Cambodia: Cambodia at Risk or Rising?

Var Veasna

04/July/2016, Feature

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Chinese Foreign Aid to Cambodia: Cambodia at Risk or Rising?

The emergence of China as the current second economic global superpower is allowing the country the opportunity to expand its foreign aid programs to more than one hundred developing countries around the world. It is widely regarded that China has taken different approaches and policies from traditional aid systems. The Chinese government, through its second White Paper on Foreign Aid released in 2014, states that its development assistance aims to enhance the prosperity of its neighbours. It also aims to support less developed countries by reducing poverty and improving the livelihoods of ordinary people. However, many critics postulate that the reasons behind China’s aid policy to developing countries are its own strategic interests; access to resources and for geopolitical influence.

As a developing country in Asia, Cambodia has come under China’s economic and political influence and become one of China’s closest international partners and diplomatic allies. The Cambodian Prime Minister Hun Sen recently described China as a “most trustworthy friend” for Cambodia.  China and Cambodia reached an agreement on a Comprehensive Partnership for Cooperation in April 2006 and upgraded this to a Comprehensive Strategic Partnership of Cooperation in 2010, a milestone of close and comprehensive cooperation. China has become the largest development aid donor and provider of foreign investment in Cambodia. It has disbursed over $200 million to Cambodia annually since 1992, and has provided around $2.7 billion in concessional loans and grants. Moreover, between 1994 and 2013, Chinese investment in Cambodia was approximated at $9.6 billion, focused mainly on agriculture, mining, infrastructure projects, hydro-power dams and garment production.

There are conflicting views of the appropriateness of China’s aid and investment in Cambodian development. Some Cambodians and the Cambodian government state that, ‘the assistance and investment from China is very important for Cambodia’s social and economic development”. These parties present this aid as coming without conditions and helping to develop the Cambodian economy while enabling Cambodia to maintain sovereignty and pursue independent foreign policy on the international stage.

Others hold contrasting views of the role of China in Cambodia’s development. Beside its own wider strategic interests in Cambodia, Chinese development aid and investment have had significant impacts on Cambodia’s social, political and environmental arenas. Chinese aid and investment, they argue, has made corruption worse, led to failure to achieve good governance and human rights and resulted in exploitation of Cambodia’s natural resources. One of Cambodia’s prominent scholars, Dr. Chheng Vannarith, argues that although China is one of the key development players in Cambodia’s development, its involvement has not been appreciated by the Cambodian general public because China’s strategic interests focus on the government, political parties and political elites and neglects to focus on benefit to the average Cambodian person. 

Despite China’s substantial aid program and investment in Cambodia, transforming Cambodia into a real liberal democracy with a prosperous society has not yet become a reality. Whilst Cambodia’s economic growth has been impressive in many areas, according to the World Bank report in 2014 high levels of social inequality remain, with a large proportion of the population still living in poverty with a daily income of less than US$2.3. Although poverty in Cambodia has fallen from 53% in 2004 to 20.5% in 2011, “many Cambodians are still at risk of slipping back into poverty” which eventually could lead to a doubling of the poverty rate to 40%. Cambodia remains one of the poorest countries in the Association of Southeast Asian Nations (ASEAN) and is heavily dependent on assistance from the international community and from a number of traditional major donors such as Australia, Germany, France, Japan, South Korea, and notably the U.S. to sustain its economic development. Such assistance accounts for more than half of its national budget.

Since 1992, Cambodia has received substantial foreign aid, equal to more than half of its government budget, from Development Assistance Committee (DAC) members. Multilateral agencies such as Japan, the USA, the EU, Germany, Sweden, the UK, the World Bank and the Asian Development Bank are also significant aid providers to Cambodia. For example, between 2009 and 2011, DAC countries provided an average of $640 million aid to Cambodia annually. These donors have played a significant role in shaping Cambodia’s political and economic development by conditioning their aid programs, to ensure that Cambodia pursues the path of liberal democracy.  

However, China has emerged as a major donor with less conditions and different motives and objectives surrounding its aid, engaging in substantial programs of development assistance in Cambodia. China’s involvement in Cambodia has significantly shaped Cambodia’s current and future agenda for reform commitment, political system and international relations.

China’s policy of “non-interference in domestic affairs” means that China offers assistance without conditions being placed on democratic reform, human rights or environmental protection. China has never talked about, or been critical of, human rights issues or elections in Cambodia. This non-interference has garnered appreciation from Cambodia and is regarded as respectful of Cambodian sovereignty. Prime Minister Hun Sen has previously praised the efforts of China:  “China talks less but does a lot”. Unlike the U.S. and other Western nations’ aid, Chinese aid is primarily allocated directly to the Cambodian government and usually does not impose requirements to report development results. However, it has been argued that Chinese aid is not transparent and there is no standard operating procedure regarding its disbursement.

It is important to recognise that foreign assistance has played an important role in boosting Cambodia’s economic development. Heidi Dahles’ piece on Cambodia’s development paradox points out that despite substantial economic growth, the country still continues to call for more aid and low interest loans.

One of the core national interests of Cambodia is national development and reducing poverty. With support from the international community, the country adopted a vision of a prospering, diversified, dynamic and resilient society and economy, with equitable distribution of opportunities. The overarching ambition of the government is for Cambodia to reach upper-middle income country status by 2030 and high income status by 2050.

To achieve this, in September 2013 Cambodia adopted the national development “Rectangular Strategy-Phase III” with its core themes of Growth, Employment, Equity and Efficiency. This strategy is the “Social Economic Policy Agenda” of the political platform of the government’s fifth legislature of the National Assembly. It emphasises the government’s strong commitment to promote long-term sustainable development and poverty reduction, to provide for the people’s wellbeing and to align with national and international development expectations. Promotion of good governance is at the core of the Rectangular Strategy, which has been underway for more than ten years, as it is a driving force for social justice, sustainability and equity.

It appears that the country’s national development goals are unlikely to become reality without receiving foreign assistance from diverse aid providers and further integration into the international community. During her visit to Cambodia in 2010, the then U.S. Secretary of State Hillary Clinton asked Cambodians to seek good multilateral-cooperation beyond China. She argued that “it is smart for Cambodia to be friends with many countries and to look for opportunities to cooperate with many countries”.

Therefore, in order to maximise the use of aid from both superpowers and other friendly nations to best serve its national developments interests, Cambodia needs a pragmatic and balanced policy. Cambodia should not be too dependent on one single country.

The West and China have significantly contributed to Cambodian national reconstruction since the first UN sponsored democratic elections in 1993. Whilst traditional donors have been the strongest supporters of democratization and development, China has been the strongest supporter for developing infrastructure such as roads, bridges and public buildings, without attaching proper conditions. The country needs both development assistance models from China and the West as the two development approaches align with Cambodia’s national development goals.

It is generally agreed upon that improved governance, respect for human rights, rule of law and democratic reforms have positively and significantly contributed to economic development. The key strategic interest for Cambodia is that new infrastructure and the promotion of human rights will lead to a prosperous and secure country. Approaches from both the West and China have their benefits and Cambodia’s task is therefore to balance the needs of both and to offend neither. Through constructive cooperation, win-win-win outcomes can be fully realised. 

To best serve its national development interests, Cambodian foreign policy should emphasize its strict adherence to neutrality, non-alliance and peaceful co-existence approaches as spelled out in the Cambodian constitution. This neutrality provides the best option for Cambodia to effectively deal with a complex regional and international envirionment. It would be effective for Cambodia to have diverse foreign investment to develop its economy independently and with ownership.

Keeping everyone happy is the biggest challenge for Cambodia’s foreign policy and requires a smart, flexible and consistent degree of diplomacy. An environment of mutual respect for independence and for common interests between Cambodia, the West and China will support reaching the optimal outcomes for all involved parties. The country must continue to see the value in engaging regional entities - Cambodia’s best long-term interests lie in regional initiatives such as ASEAN and working to harmonise foreign relations as far as possible with countries in the region. Refusing to cooperate with and accept constructive recommendations from the international community would appear to be a risky strategy because it contradicts the country’s national development interests.  

Veasna Var, PhD Candidate, University of New South Wales at the Australian Defence Force Academy (ADFA), Canberra