West opens up to Hun Manet

Relations between European countries and Cambodia's new premier get off on the right foot

By Tommaso Magrini

Having become premier of Cambodia last summer, Hun Manet is expanding his presence on the international stage. The son of former premier Hun Sen was recently in Davos for the World Economic Forum and then traveled to France, where he met with President Emmanuel Macron. The trip to Paris was seen as a success for Manet, who returned with $235 million in development agreements with France to build energy and drinking water infrastructure and support vocational training in Cambodia and a commitment to work toward a "strategic partnership." The trip also highlighted how, at various levels, Western countries saw Manet's administration, which came to power in August, as an opportunity to improve relations after nearly four decades of his father's rule. Post-election changes in tone were not limited to France. The United States had initially "suspended" an $18 million aid package after the elections, which a State Department official described as "neither free nor fair." But the decision to suspend aid was reversed two months later to "encourage the new government to live up to its stated intentions to be more open and democratic." At the Davos Economic Forum, the director of the U.S. Agency for International Development, Samantha Power, posted a photo with Manet on social media saying they discussed "the importance of protecting the environment, civil society and fighting corruption." Manet, who studied in the West and has a doctorate in economics, is seen as a real improvement over Hun Sen, say diplomatic sources cited by Nikkei Asia. Of course, there is no shortage of sticking points, but for now many seem willing to hope for a gradual change of pace with the new leader.

Cambodia, Hun Manet is the new leader

Hun Sen left the post of prime minister to his son after the July 23 election. But the two have different paths

By Tommaso Magrini

As expected after the July 23 elections, Cambodian Premier Hun Sen gave way to his son Hun Manet, whose confirmation as premier came by National Assembly vote on Tuesday, August 22. But who is Hun Manet? He is the eldest of Hun Sen's five children, born in 1977 in rural Cambodia. His father said his son was born of a spirit that emerged from a banyan tree in a flash of light. Hun Manet is married to Pich Chanmony, daughter of a prominent Cambodian politician, and has three children. Unlike his father, who had no formal education, Hun Manet enjoyed a privileged education, thanks to which he earned a master's degree from New York University and a doctorate from the British University of Bristol, both in economics. A graduate of the West Point Military Academy in the United States, the newly appointed PM quickly climbed the ranks of the Cambodian armed forces, leading a counterterrorism team and serving as deputy chief of his father's bodyguard unit, as well as army chief and deputy military commander. On the political front, he led the youth wing of the Cambodian People's Party (CPP) and was a member of its standing committee. Asian neighbors and Western countries will be watching closely to see whether Hun Manet will maintain the status quo or pursue greater liberalization, which actually on the economic front has already been initiated by his father. In early August, the chairman of the U.S.-ASEAN Business Council told Reuters that the body hopes to host Hun Manet in New York soon. In his first statements after becoming premier, Hun Manet promised to improve the economy, rule of law and social justice, as well as develop human resources and infrastructure, combat climate change and raise wages for workers and civil servants.

Cambodia, Hun Sen wins election again

Premier's Cambodian People's Party (CPP) dominated the elections on Sunday, July 23, garnering more than 82 percent of the vote

By Tommaso Magrini

As widely predicted, Prime Minister Hun Sen's Cambodian People's Party (CPP) dominated the elections in Cambodia on Sunday, July 23, garnering more than 82 percent of the vote. In fact, the Cambodian People's Party was unrivaled. The only credible opposition force, the Candlelight Party, was unable to stand in the election due to technical-bureaucratic issues, and the other 17 contending parties were too weak to challenge the prime minister, who has been in power since 1985 with a brief hiatus after the 1993 elections. Hun Sen's party won 120 of the 125 seats in the National Assembly. The royalist Funcinpec got 9.2 percent of the vote winning the remaining five seats. According to official figures, about 84 percent of eligible voters (8.1 million Cambodians out of 9.7 million voters) cast ballots, and 5.7 percent of ballots were invalid (432,000 invalid votes). The government promised legal action against those who spoiled the ballots, a form of protest that opposition members of the CPP had asked to join. Already during the counting stages there were some arrests. After months of speculation, shortly before the vote Hun Sen declared that he would leave the role of premier to his son Hun Manet "within three or four weeks." Hun Manet, commander of the Cambodian army, ran for the first time in this round of elections in one of the seats in the capital Phnom Penh, which he won without issue. In all likelihood, however, Hun Sen will remain chairman of the CPP, a role from which he should be able to maintain control over the government's policy direction. Analysts had expected a longer transition, but Hun Sen would seem to want to accelerate to preside over his son's rise while he is still in strength and with a strong grip on the party and country to which, after the troubled history of the last century, he has been able to ensure stability and economic growth.

The EU's peculiar approach on Cambodia

Under the Everything But Arms (EBA) preferential regime, the EU resets its tariffs to zero for developing countries that engage in the promotion of human and political rights. But Brussels has often pragmatically overstepped, even with Myanmar. Cambodia, which is preparing for elections on July 23, is an exception

On Feb. 12, 2020, the European Commission partially suspended the Everything But Arms (EBA) trade regime granted to Cambodia because of civil and political rights violations by the country led by Hun Sen. Brussels' decision is virtually unprecedented, and, to date, Cambodia is the only country in the world affected by such a measure. Even post-Golpe Myanmar still enjoys EBA, despite many observers and NGOs calling on the Commission to take similar action against the Tatmadaw regime. The revocation of EBA is still in effect, and the European choice reveals that relations, political and commercial, between the bloc and the Asian country are not in good health. But, in the complex Southeast Asian chessboard, Brussels and Phnom Penh must watch the moves of other players and maintain a pragmatic approach if they do not want to end up in a corner.

To understand the scope of the Commission's measure, one must first know the characteristics of this trade policy instrument. EBA is one of the three Generalised Scheme of Preference (GSP) schemes and the most beneficial. The other two are the "simple" GSP and the GSP+. GSP schemes grant developing countries greater access to the EU market by substantially reducing duties on goods exported to the EU. EBA allows its beneficiaries to export almost any product, "except arms," to the EU without quotas and duties. The System has two objectives: first, to stimulate the economic development of partners; second, to promote respect for rights in these countries. Rights in a broad sense: human, political, labor and even environmental. This second purpose is achieved through a "conditionality" mechanism: a state can accede to GSP+ or EBA if it commits to ratifying and concretely implementing a number of international conventions; for example, those of the UN on human rights and the environment, or those of the International Labor Organization (ILO/ILO) on working conditions and trade union freedom. If the partner does not commit to this, or even moves in the opposite direction, the EU can suspend the preference regime, leading to an immediate increase in tariffs on goods coming from that country.

Before Cambodia, the EU had revoked the GSP and GSP+ regime a couple of times between 1997 and 2010, but never the EBA. Brussels' choice came in response to the Hun Sen regime's extremely harsh crackdown on the opposition, which has been particularly intense since 2017. After the judicial dissolution of the main opposition party, the National Salvation Party of Cambodia, in 2017, all its members were first expelled from every level of Cambodian institutions and then arrested, forced into exile, and in some cases even murdered under unclear circumstances. Before taking such a drastic decision, Brussels had indicated to Phnom Penh some urgent measures to be implemented to protect the opposition, receiving a flat refusal from the Cambodian government. Hun Sen had responded mockingly to Brussels, downplaying the importance of European support and confusing himself with the entire country: "Don't try to scare me. Don't threaten me. Don't threaten Cambodia by cutting development aid."

Indeed, EU-Cambodia trade relations, while good, are of relative importance to both sides. China (23.4 percent of trade), the U.S. (15.5 percent), Japan and the rest of ASEAN are closer partners than Phnom Penh, with the EU overall ranking fifth (9 percent). Nonetheless, Hun Sen's dismissive tone and affected confidence jar with the importance of the EU to the country's development and the actual concern of the Cambodian apparatus over the revocation of the EBA. In the months leading up to the decision, both Cambodian representatives and the lobbies of the country's most prominent industry groups (in particular, sportswear and bicycle companies) had gone out of their way to try to dissuade the Commission. And even among the European apparatus there were different perspectives on the line to take. Indeed, on the trade side, the EBA liberalizes international trade "one way," that is, it favors exports from Cambodia to the EU, but not vice versa. Some European companies benefit, however. Establishing production in Cambodia led to double savings: cheap labor and no duties. The suspension of the EBA therefore prompts such companies to invest elsewhere. Not so much out of dissent from Hun Sen's policies but, more prosaically, to keep "global supply chains efficient."

On a more purely political level, the situation becomes even more complicated. Brussels must hold together two opposing demands. On the one hand, to maintain the credibility of the GSP and, more generally, its sustainable development-oriented trade policy. Ignoring the alarming developments in Cambodia and continuing business as usual might seem hypocritical--though perhaps the EU should take similar steps toward other countries to remain consistent. Limited to the GSP, there are many cases of human rights violations, but all "controversial" countries have benefited from some flexibility on the European side. All except Cambodia. On the other hand, cutting trade ties and making harsh political condemnation explicit may not have the desired effect of promoting democratic values in the country but, on the contrary, may push it toward other "less demanding" partners that provide aid without conditionality. On this, too, Hun Sen was quite direct: "China has never given me any concerns and has never threatened or ordered Cambodia to do anything. Other partners should also not threaten Cambodia."

Even these words hide the real concerns of the Cambodian leadership. For Phnom Penh, depending too much on its unwieldy neighbor could become a problem, so it is better to follow a kind of "two-oven policy": taking advantage of China's (for now) unconditional aid, but also cooperating with the United States and its allies, so as to "diversify" sources of economic support and political legitimacy. In this sense, it is interesting to observe the Cambodian posture regarding the Russian-Ukrainian war, which is distinctly pro-Kyiv. This rapprochement with Washington could push liberal-democratic countries to turn a blind eye to human and political rights violations in the name of realpolitik. Pragmatism could also help restart a dialogue between the EU and Cambodia. For the time being, Brussels is holding the hard line, but it may reconcile with the Asian country in the future. Perhaps not in the name of rights, but pragmatism.

Cambodia and Myanmar new manufacturing hubs in Southeast Asia

Some exogenous pressures on Beijing have encouraged the relocation of manufacturing production facilities from China to Southeast Asia. The primary beneficiaries of this transition in addition to Vietnam are Cambodia and Myanmar

Global value chains in manufacturing are shifting their production center of gravity from China to Southeast Asia. This is one of those phenomena that the spread of the pandemic has accelerated, triggered by rising Chinese labor costs and then confirmed by exogenous factors such as the trade war between Washington and Beijing in recent years. The exodus of the manufacturing sector thus seems to be rewarding some countries in the southern neighborhood: although Vietnam has always been a popular destination for export orders from China, it is now Cambodia and Myanmar that are the contenders for the role of manufacturing hub in East Asia.

The intra-regional offshoring dynamic had been ushered in by rising labor costs in China, prompting several companies in the manufacturing and textile sectors to explore other markets in the region. Given the restrictions caused by the Covid-19 pandemic, for example, Apple, Samsung, and Xiaomi recently moved their assembly lines to Vietnam as Beijing grappled with new variants of the virus. Hanoi offered those multinationals that had once built manufacturing plants in China with a view to minimizing costs and maximizing profits easier access to the promising Southeast Asian market, which has inherited from its northern neighbor the role of the new frontier of globalization.

But in addition to Vietnam, which has long been considered the locomotive of Southeast Asia, other countries in the ASEAN bloc are vying to serve as regional production hubs. According to Wang Huanan, a manufacturing expert, "Vietnam has been a very popular destination (...) but Myanmar and Cambodia have been catching up in recent years." Indeed, Naypyidaw and Pnom Penh have implemented shrewd economic policy strategies to attract as much foreign direct investment as possible, thereby boosting their own domestic growth. Between tax exemptions and policy incentives, they have made themselves attractive in the eyes of East Asian-based multinationals seeking new profit opportunities in the emerging markets of the Southeast.

In Cambodia, total trade volume reached $22.47 billion in the first five months of 2022, up 19.7 percent from the same period a year earlier. Total exports saw a 34.5 percent year-on-year increase, while the most exported goods were garments, leather goods and footwear. On the other hand, Myanmar is a popular destination for Chinese garment factories. The number of these companies, according to experts, has increased from less than 100 in 2012 to more than 500 in 2019. Between 2012 and 2019, the average annual growth of Myanmar's garment exports exceeded 18 percent and in some years exceeded 50 percent. The sector's development was slowed only by the pandemic in 2020 and last year's military coup.

As the Chinese economy recovers from the restrictions of the strict "Zero Covid" policy, multinationals that had benefited from China's low labor costs are now looking to the southern neighborhood for new profit opportunities. Among the emerging markets in the ASEAN bloc, Vietnam leads regional growth. But an eye must be kept on the incipient development of Cambodia and Myanmar, among the biggest beneficiaries of China's manufacturing exodus.

Business opportunities in Cambodia increase

Phnom Penh is gaining a central role within supply chains. And it is increasingly opening up to international investment

Editorial by Lorenzo Lamperti

2022 is bringing Cambodia more and more in the global scene. Both politically, with the rotating chairmanship of ASEAN until next December 31, and economically. New industrial plants were opened in the first five months of the year in Cambodia at a much higher rate than the previous year. The new factories have already generated jobs for about 57,000 Cambodians. This is a clear sign of investor’s trust. In Phnom Penh's favor played an efficient management of the Covid-19 pandemic, which among other things also earned the commendation of the EU-ASEAN Business Council. However, measures put in place by the local government to boost international business are playing an important role. Under the new investment law enacted on October 15, 2021, foreign investors receive the same rights as domestic investors, except for land ownership. In addition, investments are open in every sector, and there are no restrictions on capital repatriation. The moment is also favorable for trade interchange. Between January and April, Cambodia exported goods worth 7.6 billion dollars. These were mainly clothing products, machinery, and electronic equipment but also manufactured goods such as bicycles, auto parts, furniture, leather, and plastics. The Italy-Cambodia partnership is an important tool for increasing ASEAN institutional capacity and has great economic potential in terms of both trade and investment. Trade between the two countries recovered in 2021 reaching 416 million euros, marking a 12% increase over the previous year. In a recent webinar organized by the Italian Cambodian Business Association in Cambodia (ICBA), with the support of the European Chamber of Commerce in Cambodia (Eurocham) and the Italy-ASEAN Association, Prof. Romeo Orlandi participated. The Vice President of the Italy-ASEAN Association stated how the opening path toward free trade is a key tool for the growth of Cambodia and other Southeast Asian countries. According to Orlandi, it is important to support the development of shared values to deepen bilateral cooperation. Not least because Phnom Penh is acquiring a more central role in supply chains.

Italia e Cambogia, una relazione con tante opportunità

La Cambogia sembra confermarsi un terreno fertile per nuove opportunità, mostrandosi molto aperta all’innovazione in molti settori. Un webinar tenutosi il 7 aprile ha fornito una panoramica generale per aiutare le imprese italiane a comprendere meglio gli sviluppi chiave dell’ambiente di investimento cambogiano e a capitalizzare le opportunità emergenti nel Paese.  

Il 7 aprile scorso l’Italian Cambodian Business Association in Cambogia (ICBA), con il supporto della Camera di Commercio Europea in Cambogia (Eurocham) e dell’Associazione Italia-ASEAN, ha organizzato un webinar per presentare le opportunità di collaborazione commerciale tra Italia e Cambogia. Come ha spiegato Sok Chenda Sophea, Ministro legato al Primo Ministro e Segretario Generale del Consiglio per lo Sviluppo della Cambogia, il Regno del Sud-Est asiatico è una delle economie in più rapida crescita al mondo, nel 2018 il tasso di crescita  si è attestato intorno al 7 per cento del PIL; trainata dall’aumento delle esportazioni e dai maggiori consumi interni. Nonostante le chiusure e le restrizioni di viaggio per il contenimento della pandemia, la rapida crescita della Cambogia è in gran parte destinata a persistere.

Subito dopo la guerra civile negli anni Settanta, il Paese ha avuto bisogno del supporto del settore privato, il sostegno del sistema internazionale e di donatori bilaterali per la sua ricostruzione, e, negli anni, è riuscito a creare un ambiente commerciale che punta su crescita inclusiva e sostenibile.

Tra le altre misure, la nuova legge sugli investimenti promulgata il 15 ottobre 2021 rappresenta un altro tassello per rendere l’ambiente di investimento in Cambogia più incentivante e conforme alle esigenze degli investitori. Nel Paese, gli investitori stranieri ricevono gli stessi diritti degli investitori nazionali, ad eccezione della proprietà del terreno; in proposito le normative stabiliscono che la partecipazione maggioritaria, pari ad almeno il 51 per cento, debba essere riservata a cittadini di nazionalità cambogiana e/o allo stesso Governo. Inoltre, gli investimenti sono aperti in tutti i settori e  non ci sono restrizioni sul rimpatrio di capitali.

Nel suo intervento al webinar, Lorenzo Galanti, Ambasciatore d’Italia in Thailandia, Cambogia e Laos, ha sottolineato come l’Italia stia prestando sempre più attenzione all’ASEAN e di conseguenza anche a Phnom Penh. A testimoniare l’impegno italiano, la donazione di oltre un milione di dosi di vaccini Astrazeneca e, a proposito della gestione della pandemia, Galanti ha rilevato come il Regno sia riuscito a contenere con efficacia la diffusione del virus e come ad oggi registri uno dei più alti tassi di vaccinazioni con una quota che raggiunge il 92 per cento della popolazione. 

Alla luce delle attuali tensioni internazionali, l’Ambasciatore ha voluto esprimere il pieno appoggio alla presidenza cambogiana dell’ASEAN nel 2022 e alla nomina di S.E. Prak Sokhonn, Vice Primo Ministro e Ministro degli Affari Esteri e della Cooperazione Internazionale della Cambogia, in qualità di inviato speciale dell’ASEAN in Myanmar.

La partnership Italia-Cambogia è un importante strumento per aumentare le capacità istituzionali dell’ASEAN e  ha un grande potenziale economico sia in termini di commercio che investimenti. Il commercio tra i due Paesi si è ripreso nel 2021 raggiungendo 416 milioni di euro, facendo segnare un +12 per cento rispetto all’anno precedente. L’Ambasciatore ha inoltre posto l’accento sul grande valore che le imprese italiane possono offrire alla crescita sostenibile in Cambogia, grazie alla loro solida esperienza e know how in molti campi come quelli di infrastrutture ed energia.

In conclusione del suo intervento,  ha invitato le autorità cambogiane a mostrare il loro supporto per la candidatura di Roma al World Expo nel 2030 dove il tema principale sarà un nuovo modello di città più inclusivo, interconnesso e  sostenibile sulla scia della trasformazione digitale.

In aggiunta, il Vicepresidente dell’Associazione Italia-ASEAN Romeo Orlandi ha affermato come il percorso di apertura verso il libero commercio rappresenti uno strumento fondamentale per la crescita della Cambogia e di altri Paesi del Sud-Est asiatico. Phnom Penh può essere presa come uno degli esempi più recenti in cui un Paese asiatico, globalizzandosi, ha acquisito  un ruolo crescente nelle catene di approvvigionamento. Il Regno ha la possibilità di attrarre investimenti grazie alla stabilità politica, network di infrastrutture in rapida crescita, un mercato interno in costante crescita e grandi incentivi per gli investimenti, come la possibilità di rimpatriare i profitti.

Orlandi ha infine ribadito che altrettanto importante è sostenere lo sviluppo di valori condivisi tra i due Paesi per approfondire la cooperazione bilaterale. L’Associazione Italia-ASEAN esercita da sempre un forte impegno nell’avvicinare le realtà dei 10 Paesi dell’ASEAN all’Italia, mettendo in luce le opportunità di cooperazione e di crescita, organizzando eventi per riunire le rispettive comunità business e di decision maker.

Cooperation agreements between Cambodia and the EU

Relations between Brussels and Phnom Penh deepen, taking advantage of the ASEAN rotating presidency.

Relations between the European Union and Cambodia took another step forward at the Cambodia-EU Joint Committee meeting held in Phnom Penh last week. The meeting, chaired by Luy David, Secretary of State of the Ministry of Foreign Affairs of Cambodia, and Paola Pampaloni, Deputy Director General for Asia and the Pacific of the EU, addressed several topics: the invasion of Ukraine, global economic trends, climate change, the political situation in Myanmar and the EU-ASEAN strategic partnership. The EU confirmed its full support for Cambodia's chairmanship of ASEAN in 2022 and the appointment of Prak Sokhonn - Cambodia's Deputy Prime Minister and Minister of Foreign Affairs and International Cooperation - as ASEAN's Special Envoy to Myanmar. Then, the group on institutional strengthening addressed the broad topic of human rights development, analyzing it from different perspectives: from civil and political rights to the right to work, from human trafficking to gender equality. In view of this year's municipal elections in Cambodian cities, the EU did not fail to stress the importance of democratic pluralism, human rights and fundamental freedoms. The parties also discussed economic recovery measures, and the development of bilateral trade relations, including the temporary partial withdrawal of EU trade preferences under the European Banking Authority. The importance of improving the business environment by introducing new regulations to investments and diversifying the Cambodian economy was discussed. Finally, the implementation of the new EU Multi-Year Indicative Cooperation Program for 2021-2024 was discussed. This €155 million program aims at intervening in three main fields: ecological transition, education and training, and good governance, in line with the UN Agenda 2030 goals.

Cambodia ready for 2022 ASEAN rotating presidency

Cambodia’s last experience in the rotating presidency has been controversial, as foreign policy of the Asian kingdom particularly prefers the relation with Beijing

The rotating presidency at the ASEAN is a great opportunity for the diplomacy of Southeast Asian countries. 2022 is the Cambodia’s turn, ready to work for the creation of a “fair, strong and inclusive” regional community, under the leadership of Prime Minister Hun Sen. The head of the Cambodian government has shown that takes this commitment seriously and has declared that the Association’s “policy and security” pillar will be at the top of the agenda during his mandate at the regional organization. What awaits it in 2022 is experienced as a prestigious honor for Phnom Penh, that will use the occasion to amplify his diplomatic aura and enjoy prerogatives associated with the presidential title, as the renovated recognition from major players of the world.

But, in the international community, the enthusiasm is not as widespread. Cambodia’s last experience in the rotating presidency has been controversial, as foreign policy of the Asian kingdom particularly prefers the relation with Beijing. This historic pro-Chinese posture was also vindicated by the national government in 2019, when Prime Minister Hun Sen defined Cambodia as an “iron friend” of China. It is precisely because of this proximity that, according to analysts, we can expect a very different ASEAN compared to the one left by Brunei in 2021. According to expert voices, while most of the Southeast Asian countries distance themselves from Beijing criticizing its adversity, Phnom Penh stays loyal to the bandwagoning line: due to security and development issues, China remains a fundamental ally for the Cambodian regime, and this connection could compromise the unstable balance of the regional Association.

The most relevant files of 2022 call into question the ASEAN centrality in managing the Covid-19 health crisis and in the regional and international trust towards the most pressing political controversies. Cambodia will succeed Brunei after a year full of criticality, inheriting political and social challenges caused by two years of global pandemic, Myanmar’s political crisis and the long-standing diatribes in the South China Sea. But according to Charles Dunst of the Center for Strategic and International Studies (CSIS), Beijing’s incumbency could undermine the Cambodian freedom of maneuver on these topics, resulting in a dangerous immobilism of the Association. This could deal the deathblow to the ASEAN’s principle of centrality, already compromised by the tendency of other international players to prefer bilateral relations with countries in the area.

Regarding challenges caused by the pandemic, worsening social inequalities are likely to cause political instability everywhere in Southeast Asia. Phnom Penh will also have to deal with the increase of global interest rates that in many regional economies will cause an increase in fiscal pressure and limit expansive public policies, causing discontent and economic suffering in local communities. In this regard, the bilateral relation with China is crucial for Cambodia, which heavily relies on its big brother’s aid and infrastructure funding for its national development programs.

About Myanmar’s crisis, Cambodia has then assumed bivalent behaviors. After strongly reiterating the principle of non-interference claimed by ASEAN as the cornerstone of its paradigm of values, he then supported the Association’s decision to not want to confront except with “non-political” representatives of Myanmar. Prime Minister Hun Sen has declared in this regard: “ASEAN has not expelled Myanmar from ASEAN”. Myanmar has abandoned its right (…). Now we are in a situation of “ASEAN less one”. It is not so because of ASEAN, but because of Myanmar itself. According to Dunst, however, Cambodia does not consider it a priority to confront the Burmese regime on issues of democracy and human rights. That’s why on Myanmar, ASEAN’s next first voice may turn out to be weaker than hoped for by other member countries, such as Malaysia and Indonesia.

Instead, territorial disputes in the South China Sea are the elephant in the room for the Cambodian presidency, and it seems that the experience of the 2012 mandate could be repeated. At the time, as now, Cambodia and China have preferred to use bilateral mechanisms of dispute resolution. According to Vannarith Chheang, researcher associated at the IASEAS - Yusof Ishak Institute, the promotion of code of conduct (CoC) in the South China Sea is a way to avoid cumbersome binding measures and encourage so-called preventive diplomacy. “Cambodia is not interested in internationalizing the South China Sea issue”, the analyst notes in an article in the Turin Would Affairs Institute’s journal, “and is cautiously restricting other suitors such as Vietnam and the Philippines from using ASEAN to directly counter or challenge China”. At the annual summit of ASEAN representatives, held last November 22nd, President Xi Jinping also intervened by videoconference, reassuring those present that China would never seek hegemony in the region by taking advantage of its strength to resolve disputes. Rather, stressed the Chinese Communist Party secretary, the hope is that ASEAN will be able to cooperate with China to eliminate foreign “interference”. Xi’s words seem to prophetically welcome the arrival of Phnom Penh as president of the organization. Although ASEAN and China have already agreed on the preamble to the CoC in the summer of 2021, Cambodia could slow down its negotiation process by protecting its historic friendship with Beijing and limiting any actions or statements by the ASEAN bloc that might imply a criticism of Chinese assertiveness.

The Cambodian presidency’s approach to challenges most relevant to Southeast Asia will also affect tones and preferences of international cooperation. According to David Hutt, of The Diplomat, the fact that the kingdom is considered a “pariah for democracies” and its reputation is that of “Beijing’s lackey”, also affects the foreign policy of major international players. On the one hand, it is the goal of the Biden administration to rally its allies to maintain greater control over the regional dynamics of Indo-Pacific Asia. Think of the emergence of the AUKUS defense alliance, stipulated by the US, the UK and Australia, which is programmatically designed to curb China’s international ambitions. The infrastructure program for post-pandemic recovery, the Build Back Better World (B3W) is a clear antagonist to the global development strategy, promoted by Xi with the Belt and Road Initiative (BRI). Biden then took a more uncompromising attitude toward Cambodia itself, having sanctioned two senior officials for corruption and announced a review of preferential trade agreements last month. About the EU, Phnom Penh hosted the 13th Asia Europe Meeting (ASEM) on November 25th and 26th, demonstrating the renewed European interest in opportunities offered by Southeast Asia, reaffirming the partnership with the regional counterpart organization. Among all, the one with the Union could prove to be a strategic link for ASEAN, to weigh Cambodia’s contested pro-Chinese tendencies and devote itself to enhancing relations with another important regional player.

Always in the orbit of Chinese influence, Cambodia will conduct its mandate as president of ASEAN under the banner of “iron relations” with Beijing. Although some analysts believe that Hun Sen’s government is now less willing to accept China dictating the terms of its foreign relations, challenges facing ASEAN in 2022 all confront Cambodia with a choice: with Beijing or against Beijing. Judging from the historical bond, made all the stronger by the common colonial past and shared political culture, it seems that the direction of the Cambodian presidency at ASEAN is already marked.

Here is why one in four bicycles imported into the EU is made in Cambodia

Last year saw a growth in demand for bicycles in the EU. Exports from Cambodia account for a quarter of non-European imports. Between diversification needs and low labour costs, here are the reasons for a success story

The COVID-19 pandemic is causing changes in the habits of people all over the world. According to data released by the European Commission on international trade reveal an interesting aspect: a rapid increase in European demand for bicycles, estimated at around 35% per year in 2020. One of the environment-friendly consequences of the various national lockdowns, together with the photos of some of the world's most polluted skies turning blue again after decades, has encouraged the use of alternative transport. In some cases, the only exception to the restrictive measures imposed by governments was the possibility of doing some individual sport nearby: some people could not resist the idea of stretching their legs in the open air on a bicycle. On the other hand, reopenings have gradually allowed commuters to return to their jobs. Rather than travelling crammed into public transport without a safe distance, they soon replaced it with a bicycle… often made in Cambodia.

According to the EUROSTAT, the increase in European demand for bicycles has been mostly satisfied by productions located in the Indo-Pacific. The report shows that Cambodia accounted for a quarter of non-European imports of this product in 2020 (24%) - followed by China (17%), Taiwan (11%) and Bangladesh (8%). Exports of bicycles produced in Cambodia, in general, grew at an average rate of 20% from 2015 to 2020, according to the International Trade Centre database.

Although the data return a promising picture of the Cambodian emerging market, the health crisis has taken its toll. The national economy of the Asian kingdom grew rapidly until the outbreak of the pandemic, at an average rate of 7.7% since 1998. Restrictions from COVID-19 have cost it a setback, causing GDP to contract by 3.1% in 2020. Economic diversification has been a priority on the Cambodian government's political agenda for some time, as the national economy depends on exports to foreign countries. Over the years, investment reforms and industrial policies have been promoted, though most of them have proved insufficient. The government knows that diversification means promoting structural changes aimed at economic development and poverty reduction, essential objectives for the well-being of the local population. However, Phnom Penh is still heavily dependent on the clothing and footwear industry, as well as the tourism sector - which the pandemic has hit particularly hard.

The need to vary sources of economic supply and trading partners gets more urgent in times dominated by uncertainty. COVID-19 was emblematic: it caused, among other things, a shock in global value chains that some analysts have deemed irreversible. As Paul Krugman suggested, amid security issues and an international trade competition that takes on increasingly antagonistic connotations, the idea of a return to practices of economic nationalism no longer seems as absurd as when it was promoted by the Trump administration. Economic globalization has therefore been halted by an equally global phenomenon. The COVID-19 pandemic not only transcended national borders but has rapidly spread to the supply chains, which constitute the lifeblood of Southeast Asia's trade relations with the rest of the world.

However, the increase in Cambodian bicycle exports to the European Union seems to be the expression of an opposite trend. The assembly of the final product is often the result of several production steps, many of which are located in Vietnam. The bicycle factories are strategically located near the Vietnamese borders. The sector is then further supported by foreign relocated companies attracted by the low wages of local labour, which have relocated production to Cambodia. The national economy is still dependent on foreign trade, an extremely narrow basket of exports, and foreign investments. However, the reactivity of the country's bicycle supply bodes well for the recovery of the national economy, which continues to rely on some of the traditional factors of Southeast Asia's economic success: exports, low labour costs, production chains that continue to thrive.

Cambodia's interest in the European Union market is mutual, although the power relations are unbalanced. a href="" target="_self">The bicycle boom is great news for the Asian kingdom, partly because it is a sign of a détente for the sanctions imposed by the EU in August 2020. In 2001, the EU launched Everything But Arms (EBA), a free trade scheme tailored for trade with developing countries, but due to "systematic violations of human, political and labour rights", the Commission had opted for a partial withdrawal of the programme. Although the Kingdom still seems far from regaining free access to the EU market (as Prime Minister Hun Sen strongly rejects European accusations, claiming the freedom to exercise sovereign prerogatives) Cambodian bicycles are a successful case of diversification in the fast-growing economies of Southeast Asia.

Cambodia’s Future at a Cross Road

As Cambodia strengths the ties with China, US express concerns about what this means for the region

On October 2nd, CSIS's Asia Maritime Transparency Initiative published a satellite imagery of a demolished US-built facility at Ream Naval Base, Cambodia. The building previously was the Tactical Headquarters of the National Committee for Maritime Security, and it served as the center for commanding, controlling, and coordinating multi-force operations. The demolition raised the year-long rumor of Chinese access to the area, and whether this means Cambodia will grant China basing privilege at Ream.

The concern stemmed from a report published by the Wall Street Journal back in July 2019, stating that Cambodia and China had signed a secret agreement allowing Chinese armed forces to use a Cambodian navy base. The early draft of the agreement – which was claimed to have been seen by unnamed US officials – would allow China to use the base for 30 years, with an automatic renewal every ten years. The agreement would also enable People’s Liberation Army to post its military personnel, store weapons, and dock their warships.

Aside from the demolition of the Ream Naval Base, the surrounding areas have also been leased by several Chinese companies for the development of a $16 billion resort, alongside with the construction of the Dara Sakor Airport – which is supposed to become the largest in Cambodia. The airport’s infrastructure itself raised a few questions. Evidence gathered showed that the length of the airport’s runaway exceeds the need of a regular aircraft – creating aspeculation that it might not be used solely for commercial purposes, but for military as well.

Despite myriads of questions and comments, the Cambodian government denied these allegations. Prime Minister Hun Sen repeatedly declared that China has not been given exclusive rights to use the Ream Naval Base, as the Cambodian Constitution forbids the establishment of foreign military bases. In addition, he underlined that warships from all nations – including those from the United States – are welcome to dock. However, the response from China was limited. In an interview, China’s Foreign Ministry Spokesman Geng Shuang said «As I understand it, the Cambodia side denied this». Yet, he refused to clarify whether this means China also denied the claim – he focused on the nature of China-Cambodia relations instead, which he described as ‘open, transparent, mutually beneficial and equal’.

Regardless, strategic implications following this situation still put Washington on edge. If indeed a Chinese military base will be established in Cambodia, it will greatly shift the balance of power in Southeast Asia. Due to the strategic location of the base, it will allow China to extend its influence over the Strait of Malacca, one of the world’s busiest shipping routes. Simultaneously, China also has multiple projects in other countries: a military installation in Djibouti, ongoing construction of a deep-sea port in Myanmar, and a plan to invest in Sri Lanka as a part of the Belt and Road Initiative. According to experts, it is highly likely that China is trying to create a ring of infrastructure from the South China Sea to the Indian Ocean and East Africa in order to reinforce its position among global powers.

Furthermore, facts on the ground show that out of the ten ASEAN member states, the Cambodian government has been the most welcoming towards China. At the same time, China is by far Cambodia’s largest trading partner and source of foreign direct investment – with its bilateral trade volume reaching $7 billion last year. Both countries have recently signed a Free Trade Agreement (FTA) – making this Cambodia's first bilateral FTA. On the contrary, Cambodia’s relationship with the United States seemed to have grown increasingly tense, due to Washington’s critical approach towards Cambodia’s domestic affairs. However, the United States seemed to have readjusted their strategy as of this year. Rather than conducting direct interventions, under the leadership of US Ambassador to Cambodia Patrick Murphy, their latest method seems to be more diplomatic, flexible, and friendly.

Although it is far too early to see what’s in store for the three countries, we know this much is true: both the United States and China are seeking to have a good relationship with Cambodia. Currently, China seems to have succeeded in doing so, as the ties between the two nations continue to flourish. Nevertheless, the future also looks promising for the United States as they proceed with their newest diplomatic strategy, working hard to ‘reset’ their relations with Cambodia. Undoubtedly, the world will see moreof the development of US-China-Cambodia relations in the coming months – one that hopefully turns out tobe mutually beneficial for all parties.

By Rizka Diandra 

Translated by Andrea Passannanti