Honey Over Vinegar: China's Slow and Steady Approach to Military Access in Cambodia

9/12/2019

In this two-part series, I examine the story behind China’s potential future military basing in Cambodia.  Part I focuses on China’s use of economic tools to win over the Cambodian leadership and draws conclusions about the intersection of China’s economic diplomacy and overseas military expansion. Part II will turn to what the installation would likely mean for regional security.

           [Hun Sen and Jiang Zemin meet in 1999]  

 

In July 2019, the Wall Street Journal reported that China’s People’s Liberation Army Navy (PLAN) will be allowed to use a designated section of Cambodia’s Ream Naval Base according to American officials who have seen drafts of the basing agreement. Speculation also continues over a resort at nearby Dara Sakor whose affiliated sea and air infrastructure would be capable of servicing People’s Liberation Army (PLA) ships and planes. Cambodia and China have denied any basing plans, and even if there is an agreement regarding Ream, there is no guarantee that it holds up over time. That being said, the report is credible enough to take seriously.

 

The news from Cambodia tells us quite a bit about how China approaches military expansion overseas. The United States’ large network of overseas bases dates back to the end of World War II, when the American government was in a position to impose terms, particularly on the defeated Axis countries. China, on the other hand, faces a peacetime environment in which few countries are interested in hosting foreign troops. Beijing’s opportunities to find places from which to patrol sea lanes and protect overseas citizens are relatively limited. China uses the tools it has at its disposal—especially economic power, with a limited role for military cooperation—to win over leaders of small countries with limited economic prospects. This strategy is easier to achieve in countries like Djibouti and Cambodia in which rates of leadership turnover are very low and rulers are able to stifle domestic opposition to foreign bases. It is also easier to achieve by fostering economic success—Cambodia’s economy is booming and carries relatively low levels of debt—than by burdening the country with unproductive loans and tempting the leadership to seek greener pastures. 

 

In this article, I outline 1) how China cultivated a close relationship with the Cambodian leadership over the course of decades; 2) how Beijing’s economic engagement generated important benefits for the Cambodian economy and leadership; and 3) how these benefits (along with arms transfers) paid security dividends for Beijing’s policy in the South China Sea long before credible reports of a potential base emerged. 

 

Historical Background

 

While a Chinese naval base in Cambodia would be a new development, a close Sino-Cambodian relationship is not. Chinese warships docking at Ream would be the latest development in a decades-long trajectory of progressively closer cooperation across a variety of issues.

 

In particular, the personage of Cambodian Prime Minister Hun Sen has been pivotal to Sino-Cambodian relations. Hun Sen was originally part of the Vietnamese-backed government which took power in 1979 after Vietnam invaded Cambodia and toppled the Chinese-supported Khmer Rouge regime of Pol Pot. He has been the head of government since 1985. Given China’s views on the post-Khmer Rouge regime—China invaded Vietnam in retaliation for its invasion of Cambodia—Hun Sen might have seemed an unlikely partner for Beijing. However, the end of the Cold War changed this calculus. A post-Cold War power-sharing agreement between Hun Sen and his royalist rival Prince Norodom Ranaridh collapsed in 1997 when Hun Sen executed a coup d’état to take control. The coup left him internationally isolated as many developed democracies began to demand democratic reforms in exchange for aid. As Southeast Asia scholar Ian Storey wrote, “China seized the opportunity to expand its influence in Cambodia: it immediately recognized the results of the coup, opposed the imposition of international sanctions against Phnom Penh, and admonished Western countries not to interfere in Cambodia’s internal affairs.”

 

The Economic Dimension

 

China’s near-term security ambitions and capabilities were much more limited in 1997 than they are today. So its early outreach to Cambodia was more heavily economic than military in nature, although the defense component has increased over time. We will discuss both sets of contributions, beginning with economics. Researchers at AidData estimate that between 2000 and 2014, China provided Cambodia with US $198.2 million in grants and technical assistance, $6.3 billion in loans, and $400 million in debt forgiveness. Many of these funds went to infrastructure projects such as hydroelectric power, electrical grid improvements, highways, and bridges. In addition, the China Global Investment Tracker estimates that Cambodia received an additional $5.9 billion in foreign direct investment from China between 2006 and 2018. While differences in annual data availability prevent direct comparison of the equity and debt figures, readers should note that they are at least roughly in the same ballpark, a notable fact given China’s heavy reliance on bank financing both at home and in most overseas markets.

 

Equity investors, many of them small and privately owned, made use of debt-backed infrastructure by contributing to new productive economic sectors. Cambodia has been enjoying a major manufacturing boom, especially in the textile industry. The Association of Southeast Asian Nations (ASEAN) estimated that in 2012, as the manufacturing boom was underway, China contributed $367.8 million of Cambodia’s $1.6 billion in total inward FDI; Hong Kong added another $91.6 million, some portion of which was mainland Chinese capital being routed through Hong Kong. In the manufacturing sector, which traditionally creates more jobs than capital-intensive extractive industries, China and Hong Kong contributed $247.5 million in investment inflows out of $548.6 million total.[1] 

 

These investments have mostly been quite successful. In 2017, Cambodian exports totaled $21.7 billion, of which $12.4 billion were apparel and footwear:

 

Figure 1: Cambodian Exports, 1995 to 2017

                     [Source: Atlas of Economic Complexity, 2019]

 

Figure 1 illustrates the importance of textiles to the Cambodian economy and also hints at the second-largest earner: tourism. In 2017, travel and tourism constituted $3.6 billion out of $4.6 billion in total service exports. The share of this revenue derived from China is unclear, but the Cambodian government estimates that during 2018, 32.6 percent of all visitors came from China, the largest country of origin by a good margin. Notably, the seaside city of Sihanoukville has emerged as a beach resort and casino destination catering to Chinese tourists, leading both to an influx of revenues and to tensions between developers and locals.

 

The expansion of manufacturing and tourism have created a positive trajectory for Cambodia’s economy and fiscal health. In every year since 2011, Cambodia has recorded per capita GDP growth between 5 and 6 percent. Growth in economic output and exports have kept debt manageable, albeit growing. As of 2017, Cambodia owed 73.1 percent of gross national income (GNI) in external debt; however, much of this was owed by the private sector, and public and publicly guaranteed (PPG) external debt only amounted to 30.7 percent of GNI. At least as of the end of 2016, the Center for Global Development estimated that roughly half of this external debt was owed to China.[2] Despite fears that China is luring Cambodia into a “debt trap” in which China can use excess debt as a source of leverage, the reality is that Cambodia owes relatively little money to China and is not in immediate danger of falling behind on payments. The Center for Global Development’s 2018 report on Chinese debt states that “Afghanistan and Cambodia may see a significant rise in total debt to China as a percentage of total public external debt, but we do not believe the projects in these two countries will lead to a debt default or debt treatment due to the overall low level of debt” (12). In its December 2018 Debt Sustainability Analysis for Cambodia, the International Monetary Fund (IMF) concurred, writing that “Cambodia remains at low risk of external and overall debt distress. However, the total PPG debt-to-GDP ratio is expected to rise by more than 10 percentage points during the next decade due to projected increasing fiscal deficits between 2018 and 2023” (emphasis original, p. 5). 

 

China’s strategy in Cambodia is not to drive the country into financial ruin; it is to provide it with economic prosperity in exchange for closer security partnership. This entails a mix of profit and security motivations on Beijing’s part. Profitable equity investments can be explained by firms’ simple desire to make money. Firms have brought Cambodia and China economically closer, but this is mostly the work of small, private, often family-owned organizations with little connection to the Chinese state. The Chinese government, though, has shown an unusual willingness to expend financial resources in Cambodia. Infrastructure loans from state-owned banks will benefit Chinese construction firms and are not out of keeping with Chinese policy in many other developing countries, but roughly $200 million in grants and $400 million in debt forgiveness through 2014 are clearly less profitable. The debt write-offs are especially noteworthy in a country that even the fiscal hawks of the IMF believe does not need the help. Clearly, China has interests other than profit. It is to these which we turn next.

 

The Security Dimension

 

Even before the immediate prospect of a naval base, China and Cambodia shared a consistently strong security relationship. China provides material support for the Cambodian military; in exchange, Cambodia provides diplomatic support for the Chinese position on the South China Sea. Since the 1997 coup, Cambodia has had limited access to international arms, meaning it still relies heavily on Cold War-era Soviet equipment. The Stockholm International Peace Research Institute (SIPRI), which tracks shipments of major military hardware, shows that almost every major weapons shipment to Cambodia since the coup came from either China or former Warsaw Pact countries.[3] The European imports were all secondhand vintage equipment; China, on the other hand, has provided more current systems in the form of patrol boats, surface-to-air missiles, helicopters (some of them armed), and transport aircraft. In June 2018, China pledged another $100 million in military aid for “whatever Cambodia required.” It is still unclear how the money will be used, but it is the largest defense aid package from China to Cambodia to date.

 

Cambodia has reciprocated China’s military and economic largesse within ASEAN, whose ten Southeast Asian members have struggled for decades to come to any consensus on how to approach the disputed waters of the South China Sea. Brunei, Malaysia, the Philippines, and Vietnam—all ASEAN members—claim some islands and features in the South China Sea. China and Taiwan both claim most of it, either through islands and features or through a “Nine-Dash Line,” the meaning of which has never been clear but which encompasses much of the Sea.

 

Figure 2: The South China Sea Dispute

 

                           [Source: Voice of America]

 

As the map above shows, the ASEAN countries have various boundary disputes among them, but the large, red nine-dash line looms large over all of them. Many in ASEAN had long hoped to shelve these internecine disputes and project strength in numbers against the larger threat. In 1992, with the divisions of the Cold War rapidly fading, ASEAN issued its first statement on the South China Sea, promoting peaceful resolution of the disputes and a future “code of international conduct over the South China Sea.” Negotiations with China, however, dragged on interminably. In 2002, China and ASEAN issued a “Declaration of Conduct” promising to move toward an eventual “code of conduct” establishing a set of rules for the Sea. In 2017, the parties agreed to a “framework” for a code of conduct, but without any substantive progress toward a deal. In 2019, twenty-seven years after ASEAN’s first declaration, there is no real prospect for an agreement.

 

It is debatable whether ASEAN ever could have extracted meaningful concessions from China, but Cambodia certainly did its part to back the Chinese position. Cambodia, it should be noted, does not have any territorial disputes with China, but does have territorial disputes with both Thailand and Vietnam. With little direct interest in the outcome of ASEAN-China tensions—and a degree of historically-rooted popular mistrust of Vietnam—Cambodia has been persuaded to enthusiastically take China’s side. The July 2012 ASEAN Summit, chaired by Cambodia, became the first in the organization’s history not to produce a joint statement as Cambodia tried to water down ASEAN’s proposed Code of Conduct and avoid any references to a clash at sea between China and the Philippines earlier that year. This pattern repeated itself at the July 2016 ASEAN Summit, when Cambodia blocked any mention in the joint statement of the Permanent Court of Arbitration’s recent invalidation of most of China’s claims. Just days after the 2016 Summit, China announced $600 million in grants to Cambodia. (For reference, China committed just under $200 million in grants to Cambodia from 2000 to 2014 combined.) Part of the money was slated for organizing Cambodia’s 2018 elections, the outcome of which was not in serious doubt but which was highly significant to Chinese security interests. Several months later, in October 2016, Chinese President Xi Jinping visited Phnom Penh and promised $59 million in new loans, $90 million in debt forgiveness, and $178 million in grants. (To underscore the point, Xi agreed to erase more debt than was being created with the new loans, and this even before the large grant package.)

 

In Cambodia’s Chinese-funded 2018 elections, Hun Sen’s Cambodian People’s Party (CPP) “won” every seat in Parliament after banning the main opposition party. While not completely surprising, this outcome has generated backlash in many democratic countries. The European Union is in the process of potentially repealing duty-free access for Cambodian goods. The Cambodian Democracy Act currently before the U.S. Senate Foreign Relations Committee provides for sanctions against senior Cambodian officials. Cambodia is increasingly isolated but is getting by with help from its closest friend.

 

Western backlash may complicate China’s efforts. The American legislation would only target government officials, but the prospect of EU tariffs presents a larger problem. As of 2017, 87.9 percent of Cambodian merchandise exports were manufactured goods. These mostly go to developed-world markets.

 

Figure 3: Cambodian Manufactured Export Destinations

                          [Created by author using data from United Nations Commission on Trade

                          and Development. *China includes Hong Kong and Macau.]

 

The EU buys more Cambodian manufactured goods than any other party, and revocation of duty-free status (if it passes) could damage the Cambodian factory boom, including the Chinese investors backing it. There may be a lag period as those already invested in Cambodia simply deal with the tariffs, but political risk could lead future investors to look to other low-cost markets instead. Paradoxically, this could make Hun Sen even more reliant on China for economic support via either more direct government-backed support or greater importation of Cambodian goods, a possibility as China offshores some of its own lower value-added sectors over time. For this reason, Japan, the developed-world importer with the most direct stake in Asia-Pacific security, has quietly stayed invested in Cambodia regardless of the political situation. However, Japanese FDI inflows are less than a quarter of those from China and Hong Kong, and Cambodia remains fairly dependent on its giant neighbor and willing to provide diplomatic support on regional issues.

 

​Lessons from Cambodia

 

China’s strategy to date has been clear and coherent: target a country with severe development needs, geopolitical relevance, and a leader who will be willing to cut a deal connecting the two for the foreseeable future. From armaments to better economic prospects for his citizens, China has provided Hun Sen with much of what he needs to stay in power, and he has steadfastly supported China’s foreign policy in return. Cambodian diplomatic support has followed Chinese economic and military support along a long-term upward trajectory that may now be leading to a military installation. Whether or not a Cambodian base even happens, its story tells us quite a bit about China’s overseas security expansion strategy. Three important points stand out.

 

First, national leaders have agency. Djibouti, the site of China’s only overseas military base to date, also hosts troops from up to eight other states in order to convert its geostrategic location into basing revenues. This is atypical, and most countries do not want to accept the popular backlash, compromise to security autonomy, and social costs associated with hosting bases. Even in a very friendly country like Cambodia, China has only over the course of many years tiptoed towards the issue of basing.

 

Second, China is likely to target small, economically isolated countries whose elites are either unanimously in favor of hosting Chinese forces or (much more likely) are in power indefinitely and able to deal with the predictable domestic backlash to foreign military visitors. Djibouti and Cambodia both fit this pattern well. Leadership turnover in places such as Malaysia and Myanmar, on the other hand, has brought about a pendulum effect in relations with China. This has presented notable obstacles to economic cooperation and would be even more damaging to more politically controversial basing arrangements. China funded Cambodia’s elections for good reason.

 

Third, honey catches more flies than vinegar. Accusations of China using debt as a weapon against poor country governments are largely based on the case of Sri Lanka, which has not even allowed Chinese naval port visits since the handover of its Hambantota port in exchange for debt relief. A more reliable strategy from Beijing’s perspective would be to create a situation in which the local leadership is able to use Chinese capital to deliver economic goods to its people and would be loath to do anything to threaten bilateral relations. Had Chinese investments in Cambodia been less successful, Hun Sen might not be so cozy with Beijing. 

[1] The figures cited come from pages 20 and 21 of the above link.

 

[2] They put PPG debt to China at $3.191 billion out of $6.385 billion total. See page 28.

 

[3] The two exceptions were turboprop engines from Canada and a Soviet-manufactured patrol boat from Vietnam.

Scott Wingo is a doctoral candidate in political science at the University of Pennsylvania focusing on China’s economic engagement in the developing world and why its modes of doing business are different from those used by Western governments, international organizations, and multinational corporations. He has previously worked with the Woodrow Wilson Center, the World Bank, and in the private sector, and has served as a teaching assistant for five semesters at Penn. Scott is proficient in Mandarin Chinese and Spanish and reads Portuguese. He holds both a Bachelor’s of Science in Foreign Service and a Master’s of Arts in Asian Studies from Georgetown University. You can follow him on Twitter @ScottCWingo.

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