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Cambodia Welcomes Chinese Investment Surge


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For Cambodia, struggling to regain its economic footing after 30 years of civil war and keen to shrug off its dependence on aid, Chinese investment has been welcomed with open arms and few questions asked, at least publicly.

The Chinese government is pouring money into bridges and roads (it donated 6 million dollars of steel bridges to Cambodia in 2001) and pledging military assistance in the form of new vessels for the country's dilapidated navy.

But China's emphasis is increasingly looking beyond aid towards desperately needed investment. Chinese, and now Cambodian investors, are planting hectares of bio-fuel crops like jatropha, which the Chinese industry devours insatiably.

Just last month yet another Chinese company inked a deal to grow mulberries over a tract of land in the country's south to supply raw silk to its factories and offering to build a factory to process the silk worm cocoons in Cambodia.

In May, China's fifth largest steel mill, Wuhan Steel, announced it had joined Shanghai-based Baosteel Group, Anshan Iron and Steel Group and Beijing's Shougang Iron and Steel Group to explore for iron ore in Cambodia's remote northern Preah Vihear province on the Thai border.

The relationship has not been built overnight. China's Ministry of Foreign Affairs website boasts diplomatic ties with Cambodia since 1958 and notes China's agreement to wipe outstanding loans to Cambodia five years ago - something the US, amongst others, still steadfastly refuses to do.

Cambodia's revered former king Norodom Sihanouk spends months at a time in Beijing and Chinese Premier Wen Jiabao showed the value he placed on the relationship in April 2006 when he included Cambodia in a tour of New Zealand and Australia.

"Chinese companies come to Cambodia because we have a long relationship and Cambodia is openly courting Chinese investment," Chhin Cheadara, deputy director of the Phnom Penh Chamber of Commerce explained.

"Most of these investments are in the garments and construction industries, as well as mining and electricity production," said Chhin Cheadara. "This creates infrastructure and employment opportunities here, but more importantly, it is long term investment. In the future, we envisage more and more Chinese companies coming to Cambodia."

But this Chinese investment boom has worried some environmental and human rights groups. For instance, Australian mining giants such as BHP Billiton Ltd, currently exploring in the north-east for bauxite, have vast corporate responsibility programmes and are accountable to the scrutiny of media and shareholders at home.

Activists claim that Chinese companies may not feel these restraints and the Cambodian government has refused to rule out mining in environmentally sensitive areas if it deems the benefits outweigh the risks.

Chinese investors are not confined to mining either. In January one group was given the go-ahead for a hydroelectric plant in the coastal province of Koh Kong worth up to 215 million dollars.

Critics point out other potential drawbacks. The International Monetary Fund warned last month that soaring property prices constituted a risk to the country's nascent banking sector, going as far as to call the situation "a bubble" and cautioning that 90 per cent of loans were currently secured against property.

Analysts say the sudden rise in land values is due at least in part to the long Chinese tradition of property investment and speculation. Huot Pongan, undersecretary of state for the Ministry of Industry, Mines and Energy said the benefits outweigh the risks.

"We don't have enough electricity. China is developing that for us. We don't have the resources to build mines and harvest our resources. China does. And China has been here for a long time and will stay here for a long time," said the energy minister.

By 2004, the World Bank listed China as one of Cambodia's key sources of FDI as countries like the US and Japan continue to drag their feet, preferring instead to fund aid and soft loans.

Council for the Development of Cambodia figures show domestic and foreign investment approvals more than doubled to 2.6 billion dollars in 2006 from 2005, fed by key areas which China has shown vast interest in, including mining, energy and construction.

And of foreign investment approvals, China was dominant, with 763 million dollars in approvals in 2006 - nearly double its 2005 total. In comparison, Russia was a distant second, with approvals totaling 278 million dollars for 2006.

"There are a number of reasons why Cambodia is receptive to China. One is the way it does business. China understands Cambodia. It doesn't throw us scraps of aid and then scold us in front of the world like a naughty child. That is not the Asian way - that is the colonial way," one Cambodian analyst said on condition of anonymity.

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