Over the past two decades, China has grown into a global economic power and established itself as Cambodia’s most important economic partner.
TToday, China is one of Cambodia’s most important economic partners, but the relationship between the two countries is not new – it dates back nearly 800 years and has evolved throughout the history of both countries.
One of the earliest recorded interactions between Cambodia and China occurred when a Chinese diplomat named Zhou Daguan visited the Khmer Angkor Empire between 1296 and 1297. Zhou Daguan left the world’s only first-hand account of the Angkor Empire in his book Records of the Angkor Empire. Cambodian customsIn 1958, the Kingdom of Cambodia formally recognized the People’s Republic of China (PRC), and the two countries have maintained diplomatic relations since then. Cambodia’s King Sihanouk spent several periods of self-imposed exile in Beijing and maintained close ties with China. The King’s father, His Majesty Samdech Sihanouk, died in Beijing in 2012.
In 1975, Pol Pot’s Khmer Rouge took control of the Kingdom of Cambodia and turned it into a communist state called Democratic Kampuchea. Under this harsh regime, almost a quarter of the population was executed or died from overwork and malnutrition. Under Pol Pot and the Communist Party of Kampuchea (CPK), money was illegal, as was private property and all forms of business.[1]
In 1979, the Vietnamese invasion liberated Cambodia from the oppression of the Khmer Rouge and established the People’s Republic of Cambodia. Under Vietnamese rule, the economy remained a strictly centrally planned communist system. Democratic Kampuchea had close ties with China, which subsequently launched a punitive invasion of Vietnam, sparking the so-called Sino-Vietnamese War or Third Indochina War. Both sides claimed victory in this conflict, and Cambodia remained under Vietnamese control until 1989.[2]
Since 1989, Cambodia has moved to a free market economy, following the example of China, and initiated an economic reform program that privatized state-owned enterprises, restored private property rights, removed price controls, and encouraged foreign investment. From that time until a decade ago, Cambodia experienced double-digit GDP growth. Over the past decade, this growth rate has slowed to a more manageable 6-7 percent. GDP per capita increased from $288 in 2000 to $900 in 2008 and $1,020 in 2016.[3] The Cambodian government is considering de-dollarizing (moving away from the US dollar) and sees the use of the yuan as a first step in that direction. It is also thought that the use of the yuan will increase Chinese tourism to Cambodia.[4]
As Cambodia has liberalized its economy, it has joined a number of international trade associations. It became a full member of the Association of Southeast Asian Nations (ASEAN) in 1999 and joined the World Trade Organization (WTO) in 2007. Xinhua News Agency reported that Cambodia has strengthened its trade relations with China through both organizations, as China is a full member of ASEAN+3 and the WTO. Cambodia enjoys a Generalized System of Preferences (GSP) arrangement with China and many other countries, allowing Cambodian products to be exported to these countries at low tariffs.[5]
China and Cambodia are also participants in a number of other economic associations and agreements. In 2006, China and Cambodia established a trade and economic cooperation zone in Sihanoukville. The East Asia Forum reported that the two countries formed a comprehensive cooperative partnership the same year, which was upgraded to a comprehensive strategic cooperative partnership in 2010. Another such agreement is the ASEAN-China Free Trade Agreement, the world’s largest free trade area by population.[6] The ASEAN-China Implementation Plan for Priority Projects (IWP), which promises to connect transport routes from China to Southeast Asia and Cambodia, was launched at a conference in Vietnam in 2010, according to Churun and others.[7]
China has granted special trade status to the ASEAN member states Cambodia, Laos, Myanmar, and Vietnam (CLMV). Under the Early Harvest Scheme, CLMs are given preferential tariffs. Hao (2008) reports that “as of January 1, 2004, zero tariffs were applied to 707 products from CLM (335 from Cambodia).” Chinese exports to CLMV include machinery, steel, and textiles. China mainly imports raw materials such as rubber and minerals from CLMV, with timber being one of the largest imports from Cambodia. Hao further explained that although China is Cambodia’s largest investor, much of the Chinese investment is focused on building infrastructure for the extraction of raw materials, including “forestry development, timber processing, electricity, textiles, building materials, contract engineering, and agricultural production.”[8]
Other Chinese investments include a $100 million investment plan to build a new Olympic Stadium to host the Southeast Asian Games in Cambodia by 2023 (Liger 2015). Chinese developers have built 10 bridges and more than 2,000 kilometers of roads. The East Asia Forum of More Than 3,000 said Chinese companies are investing in the garment and textile sector, which accounts for 80 percent of total exports and employs about 500,000 Cambodians. In northeastern Cambodia, China is building the $800 million Lower Sesan 2 Dam project. On the southwest coast, China’s Union Development Group (UDG) is building a 90,000-acre international trade and ecotourism center, according to the Washington Post. Hao explained that some of China’s investment in transportation infrastructure can be used to boost the export of raw materials, such as the Chinese-built highway linking Kratie, Cambodia, and the Laos border. Other Chinese investments directly benefit the Cambodian government, such as the construction of government buildings.[9] Given the large scale of economic activity between China and Cambodia, the National Bank of Cambodia has been handling RMB since 2013. In 2015, a forum on Renminbi (RMB) internationalization was held in Phnom Penh with the aim of expanding the use of RMB-denominated banking products by the Bank of China Phnom Penh branch.[10] In 2016, Cambodia’s Ministry of Tourism began encouraging merchants to accept Chinese yuan in addition to US dollars and Cambodian riel.[11] By using the renminbi, Cambodia would join a number of African countries that use the renminbi, at least in part, as a reserve, settlement or alternative currency.[12]
Economic ties between Cambodia and China date back centuries. Since the founding of the People’s Republic of China in 1949, economic activity between the two countries has steadily increased. Over the past two decades, China has grown into a global economic power and established itself as Cambodia’s most important economic partner. Relations between the two countries are expected to expand as China invests heavily in Cambodia’s infrastructure and manufacturing industry. Meanwhile, Cambodia supports China in the internationalization of the Renminbi.
[1] Aljazera, Key Facts about the Khmer Rouge, February 2012
http://www.aljazeera.com/in Depth/features/2012/02/20122314155454169.html
[2] BBC, Cambodia Profile – Timeline, 22 February 2017
http://www.bbc.com/news/world-asia-pacific-13006828
[3] Trade Economy, Cambodia’s GDP per capita | 1993-2017
www.tradingeconomics.com/cambodia/gdp-per-capita
[4] Prak Chan, China’s ally Cambodia considers introducing the yuan, August 3, 2016
http://uk.reuters.com/article/uk-cambodia-china-yuan-idUKKCN10E174
[5] Chreung Sok, et. al. Cambodia 2013 China-ASEAN Infrastructure Interconnection Seminar Report, 2013,
[6] Var, V. 2016A, Cambodia should be cautious about Chinese aid
http://www.eastasiaforum.org/2016/07/09/cambodia-Should-be-cautious-when-it-comes-to-chinese-aid/
[7] Hao, H. (2008), “China-CLMV Trade and Economic Relations”, in Sotharith, C. (ed.), Development Strategies of CLMV in the Era of Economic Integration, ERIA
Research Project Report 2007-4, Chiba: Institute of Developing Economies, JETRO, pp.171-208.
[8] Xinhua News Agency, 2014: Chinese investment in Cambodia increases from 2013
http://www.globaltimes.cn/content/838148.shtml
[9] Denier, S. 2015, “The Push and Pull of China’s Trajectory.”
http://www.washingtonpost.com/sf/world/2015/09/05/the-push-and-pull-of-chinas-orbit/
[10] Xinua 2015B: RMB Internationalization Forum held in Cambodia
https://www.everyday.com.kh/en/article/47242.html
[11] Arno Meyerburger, Cambodia to Introduce Third “Official” Currency, Yuan, July 31, 2016
http://investvine.com/cambodia-to-get-third-official-currency-the-yuan/
[12] Tonderai Mukherjej, Chinese Yuan penetrates African markets, could it become the next global reserve currency?, August 2014
http://www.un.org/africarenewal/magazine/august-2014/chinese-yuan-penetrates-african-markets