As Cambodia Launches a $36.6 Billion Construction Offensive, China and Japan Fight for Spoils - Latest Global News

As Cambodia Launches a $36.6 Billion Construction Offensive, China and Japan Fight for Spoils

Phnom Penh, Cambodia – Cambodia is pushing for an infrastructure renaissance but needs help from its friends abroad to recoup the estimated cost of $36.6 billion.

That was the final sum calculated by the Cambodian government and released earlier this year in a 174-project master plan that would transform the national transport and logistics network within an ambitious time frame of just a decade.

The goal of crisscrossing the kingdom with highways, high-speed rail lines and other structures fits well with the state’s long-standing desire to become an upper-middle-income country by 2030 and a high-income country by 2050.

Since the unchallenged rise last year of Prime Minister Hun Manet – the son of former Prime Minister Hun Sen, who ruled the country for nearly 40 years – his new government of aspiring technocrats has pushed the recovery campaign, asking foreign allies for closer ties and increased investment at the same time the certainty that great things lie ahead for the public.

“We will not refrain from setting our goals for building road and bridge infrastructure,” Hun Manet said at a groundbreaking ceremony in February for a bridge in Phnom Penh financed with a Chinese loan.

“Roads are like blood vessels that supply the organs wherever they lead…soon we will have the ability to do more than just own.” [material things] but also for the Cambodians, who can build infrastructural marvels such as bridges, highways and subways.”

Cambodian Prime Minister Hun Manet has launched a major infrastructure offensive [Athit Perawongmetha/Reuters]

According to the World Bank’s Logistics Performance Index, Cambodia has experienced more than two decades of rapid economic growth with one of the worst infrastructures in Southeast Asia.

With the bank forecasting accelerated gross domestic product (GDP) growth in the coming years, Cambodia’s already overburdened transport system could be strained to the breaking point.

As the new prime minister seeks to consolidate his own status after his father’s long rule, advances in hard infrastructure will pose a test of his governance as well as the traditional Cambodian balancing act of international relations.

The launch of the master plan, with a to-do list of projects large and small, could represent an opportunity to capitalize on geopolitical rivalries as foreign partners vie for influence – especially as competition increases between two of its biggest benefactors, China and Japan.

“I think the Cambodian government feels that it is high time to maximize what it can get from donors,” Chhengpor Aun, a research fellow at Future Forum, a Cambodian public policy think tank, told Al Jazeera.

“It is logical that if an infrastructure project initiated by the Cambodian government is not accepted by one partner, they could still turn to the other partner to finance it. The way they play the major powers against themselves to take advantage is strategic and flexible.”

While the Cambodian government and private companies are funding infrastructure projects in the kingdom, much of that investment comes from China and Japan combined.

Both are also the only countries to hold Cambodia’s highest diplomatic honor of “comprehensive strategic partnership,” a status Japan achieved just last year.

So far, China’s flagship Belt and Road Initiative (BRI) has led the infrastructure charge with major projects such as the kingdom’s first expressway, running from the country’s capital Phnom Penh to the coastal city of Sihanoukville.

Meanwhile, Japan is pursuing its own set agenda, focusing on a range of projects such as new wastewater treatment plants and upgrading existing roads.

Perhaps most notable is a Japanese-led expansion that could more than triple the capacity of the international deep-sea port of Sihanoukville, the only facility of its kind in Cambodia.

The busy facility handles about 60 percent of the country’s import and export traffic and is increasingly congested after more than a decade of steady growth.

Under the supervision of the Japan International Cooperation Agency (JICA), port crews broke ground on the expansion late last year.

The proposed three-part, decade-long project is included in the new master plan and has an estimated total cost of approximately $750 million.

Sihanoukville port
The port of Sihanoukville handles about 60 percent of Cambodia’s import and export traffic [Tang Chhin Sothy/AFP]

“Compared to Chinese [infrastructure] “The level of Japanese investment is very limited,” Ryuichi Shibasaki, an associate professor and researcher in global logistics at the University of Tokyo who has studied Cambodia’s shipping industry, told Al Jazeera.

“We need to find niche markets because there is so much investment from China to fill the gaps or focus the investments on a broader perspective.”

In recent years, the BRI has sharpened its focus.

Accusations that China is ensnaring poorer countries in “debt traps” have led Beijing to move away from making large loans to countries to finance mega-projects – typically those worth more than $1 billion – and instead expected returns to investment-oriented projects.

These are typically funded through “build-operate-transfer” arrangements, in which the company overseeing the work covers the costs of development in return for the revenue generated by the finished project over a set period of time .

At the end of the agreement, which can extend for decades, ownership passes to the host government.

Significant parts of Cambodia’s overall vision will depend on this type of financing.

“I’m trying to be Cambodia’s best friend”

The kingdom’s infrastructure master plan includes proposals for nine megaprojects with a total estimated value of more than $19.1 billion.

While most of these are still being studied for feasibility, almost all have been undertaken at some point by JICA or the China Road and Bridge Corporation (CRBC), a subsidiary of state-owned giant China Communications Construction Company.

CRBC previously led the construction of Cambodia’s first expressway, which opened in late 2022 and was widely hailed as a success.

The company last year broke ground on a $1.35 billion second expressway between Phnom Penh and Bavet, a city on the Vietnamese border, which is among nine megaprojects planned.

There is also work such as another expressway system being investigated by the CRBC, which will connect Phnom Penh with the important tourism center of Siem Reap and the town of Poipet on the Thai border.

The construction of this road system is divided into two parts and is estimated to cost a total of $4 billion. In addition, an existing railway line to Poipet will be upgraded for high-speed trains at a cost of US$1.93 billion, and another to Sihanoukville will be upgraded for US$1.33 billion.

The plan would later include a light rail and subway system for the capital Phnom Penh and part of Siem Reap, all together at an estimated cost of $3.5 billion.

Shipping projects also play a major role in the plan.

The largest of these is a 180-kilometer-long and 100-meter-wide shipping canal that directly connects the Mekong river system near Phnom Penh with the Gulf of Thailand. The $1.7 billion canal would bypass the current, less convenient river shipping route that runs along the Mekong through Vietnam.

The canal is currently being studied by CRBC for its commercial viability.

Although few details have emerged from this process and no company has signed an official contract to actually build the project, the Cambodian government has announced that groundbreaking will take place by the end of this year.

The scale of the proposal and the government’s urgency to put it into action have attracted positive attention in the logistics industry, while raising environmental concerns about its potential impact on the transboundary river system.

Poor communication with the public about the details has left residents along the proposed route confused and worried about whether they will be able to stay in their homes.

The Mekong think tank Stimson Center believes the canal itself will have a negative impact on a key floodplain that stretches across key agricultural regions of Cambodia and Vietnam.

Later calls will be made for a light rail and subway system for the capital Phnom Penh and part of Siem Reap, all together costing an estimated $3.5 billion.
The Cambodian government has proposed building a light rail and subway system in the capital Phnom Penh for $3.5 billion [Tang Chhin Sothy/AFP]

Hong Zhang, a postdoctoral fellow in China public policy at Harvard Kennedy School’s Ash Center, said the project’s momentum could see it through regardless of concerns.

“If the project has very strong political support, I don’t think environmental and social impacts would stand in its way or prevent it,” Zhang told Al Jazeera.

Zhang added that Cambodia’s relative political and macroeconomic stability – as well as its government’s pro-China stance – has likely given it options that other countries would not necessarily receive.

“Cambodia continues to be a relatively hassle-free market for Chinese engagement compared to many other countries such as Pakistan, Sri Lanka or even Laos,” she said.

“Even if [the canal] will not be economically feasible, but seems to have good value in terms of public benefit, many externalities, such a project will be completely legitimate for them to still return to the old model of borrowing from China with concessional loans, It will built and then the government pays back the loan.”

Even if not all of the master plan’s projects are implemented, there are definitely good reasons in the national logistics and transport industry.

Matthew Owen, project development manager for the Phnom Penh office of Singapore-based shipping agency Ben Line Integrated Logistics, said the plan has great potential but its success will depend on Cambodia’s ability to simultaneously increase the value of its exports.

“I don’t think it’s ‘build it and they will come,’ but I think so [the government] is ahead of its time,” Owen told Al Jazeera. “With everything in place, they can attract more people to invest and do business.”

According to Owen, the fight for large-scale public works goes hand in hand with the push for more private sector involvement.

Owen said the new Cambodian government had pushed international investors from across Asia to take on projects initiated before the political transfer of power last year.

“Everyone has influence, everyone has something to gain, and that balances China’s influence,” he said.

“It’s not even a competition, it’s like a group of countries trying to be Cambodia’s best friend. Cambodia is open to any country that is willing to improve Cambodia – if they want to have their own competition to see who can build the biggest bridge, then go for it.”

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