Ordinary Cambodians Can Only Look On, As Cambodia Ranks Among Most Indebted Countries to China
Research estimates Cambodia is the sixth-most indebted to Beijing globally, meanwhile the public has no influence on the debt and the large projects it funds.
KDOL LEU VILLAGE, TBONG KHMUM PROVINCE — Until two years ago, the lives of Paong Lat’s family revolved mostly around their small farm, daily fish catch, their sales at the local market, and some occasional day labor. Separated from the more populous Kampong Cham Province by the Mekong River, life in Kdol Leu Village on the eastern riverbank in Tbong Khmum Province in central Cambodia was quiet and livelihoods depended on ferries and other boat transport. This all changed when the area became the site for a $57-million, 1-kilometre-long bridge, which was part of a Chinese $2-billion loan package for roads and bridges agreed upon during President Xi Jinping’s 2016 visit to Cambodia. Soon after, authorities claimed large swathes of village lands on each riverbank for the project and in 2017 hundreds of Chinese workers moved in with heavy machinery. They set up living quarters and began large construction works in the river. Paong Lat, 66, a father of six, said the once-rustic life of his family was quickly transformed by the impacts and opportunities of the project. He was forced to accept $20,000 in compensation for his farmland. His daughter became a cook for the Chinese company for $200 per month, while his son-in-law stopped fishing to become a construction worker, earning $12 per day. Paong Lat and his family told VOA Khmer they had mixed feelings about the changes brought on by the project, over which local communities were never consulted—as is common in Cambodia, where dissent against well-connected companies is often suppressed by authorities. “The bridge will help my family and other villagers travel without taking the ferry, it is faster to go to the markets and hospital at the other side,” said Paong Lat. He added that though he welcomed the job opportunities, the compensation offered for his land was “very little” and below market value. His daughter Lat Seangly, 32, said the influx of Chinese workers was changing the area and she worried about its future. “If too many [Chinese] come to Cambodia, in the future, Cambodians may not have a place to settle on,” she said. In the past decade, as Prime Minister Hun Sen’s government grew ever closer to Beijing, dozens of similar large-scale infrastructure projects were built across rural Cambodia with Chinese loans, while massive Chinese investment flowed into real estate in urban and coastal areas. By April 2019, 31 highways and 8 bridges, totalling 3,000 kilometers, were Chinese-built and funded, according to a Chinese Embassy statement, which did not detail the total debt accrued for the projects. Like in Kdol Leu Village, tens of thousands of local Cambodians have had to accept the projects’ impacts with little or no consultation—nor has the public had any influence over the government’s decision to take on billions of dollars in debt to China to finance the projects. One project alone will cost a staggering $1.9 billion in loans; an expressway between Phnom Penh and Sihanoukville, a port town that Chinese investment has turned the port town into a high-rise studded, rowdy casino town for Chinese tourists. Dozens of families whose homes had to make way for the projects have protested to demand better compensation. Research has found that Cambodia is one of the largest recipients of Chinese loans globally and among a group of poor countries that are quickly building up debts at relatively high interest rates or opaque loan conditions, in order to pay for Chinese-built projects. The report released by the Kiel Institute in Germany in July estimates that Cambodia was the sixth most-indebted country as share of GDP among 50 recipients of Chinese government loans and private debt. Phnom Penh owes Beijing some 30 percent of Cambodia’s 2018 GDP, valued at $24.4 billion. Cambodia and other Asian countries like Laos and Kyrgyz Republic, researchers said, were “highly exposed, small economies that are in geographic proximity to China.” Sophal Ear, associate professor of diplomacy and world affairs at Occidental College in Los Angeles, who was not connected to the research, said, “It is too much money to borrow from one country. China has too much influence. “You don't want to borrow from one country this much, it is like putting all your eggs in one basket or as the African proverb goes, if you have your hand in another man's pocket, you must walk where he walks,” he said. Pen Thirong, a director general of the General Department of International Cooperation and Debt Management of the Ministry of Economy and Finance, played down such concerns. He said Cambodian debt to China, based on official state loans and excluding private lending and investments, stood at only 14 percent of GDP. “I don’t know where they get the data from and how they can calculate whether to include the debt in the private sector,” he added. In June, total foreign debt stood at $7.27 billion (or some 30 percent of GDP), about 49 percent of which is owed to China, according to the ministry, which said that Cambodia can safely increase its debts up to around $12.62 billion by 2023. “The space [we have left] is big, so that we can continue to borrow and are able to borrow more than what we have,” Pen Thirong said. “We borrow in accordance with our laws and ability to borrow and pay back.” Researchers did not respond to VOA Khmer’s request for comments on their findings. According to Sophal Ear, Cambodian government estimates downplayed indebtedness, while “Beijing has a pattern of writing off debt the more it likes a regime, so when debts come due, they write off a chunk to make the debt sustainability reasonable.” The Kiel Institute report warned most Chinese loans came from official state banks and that Beijing and recipient countries shared relatively little information about overall debt and loan conditions. This makes it difficult for the public, private investors, and economists and credit agencies to assess these countries’ finances. “We find that about one half of China’s overseas loans to the developing world are ‘hidden’” due to a lack of information, according to the researchers, who said they conducted one of most comprehensive overviews of global indebtedness to Beijing to date using a variety of databases. The report also cautioned that where information was available, it indicated that many low-income developing countries are piling up Chinese debt at commercial market interest rates and “a risk premia and contractual characteristics that resemble private bank loans.” “In low-income countries, China’s loans are generally repayable at interest rates of 2 to 3 percent, in contrast to the interest-free loans and grants LIDCs usually receive from most other bilateral and multilateral creditors,” such as the World Bank and International Monetary Fund, the report said. They added that loan interest and repayment are often ensured by agreements in which Chinese state banks can claim natural resources, commodities or profits of local state-owned enterprises as collateral. The Kiel Institute researchers offered a historical perspective of approach and objectives of China’s lending, adding that it was similar to patterns set by French, German and British 19th-century foreign lending in the colonial era. “[O]fficial lending is likely to be shaped by the geopolitical objectives of the Chinese government,” they wrote. “[R]ising economic powers have recurrently used state-driven lending to tap into new markets abroad, to secure commodity imports, and to further their global ambitions.” The United States government, which has become entangled in a global rivalry with China in recent years, has warned countries against taking on large debts under China’s broad regional infrastructure Belt and Road strategy. Washington said the initiative is a debt trap and can lead countries to lose control over vital infrastructure that was put up as collateral, such as in Sri Lanka where Beijing gained control over its main port. In July, The Wall Street Journal reported Cambodia signed a secret bilateral agreement this year that would give China exclusive rights to parts of its Ream naval base near Sihanoukville. The U.S. government expressed concern over the report, which Cambodia has denied. Prime Minister Hun Sen—whose government has grown highly dependent in recent years on China, while becoming alienated from Western governments after he banned all political opposition to his rule—has dismissed claims of falling under Beijing’s influence and praised it for supporting Cambodia’s development. He said it has no need for the smaller loans provided by Western governments, which come with lower rates but specific spending conditions. Speaking at the 2018 ground-breaking ceremony for the Mekong bridge in Kampong Cham and Tbong Khmum provinces, Hun Sen reportedly said, “For sure, some people said that we are too close to China, but I want to ask back . . . Have you offered me anything apart from insulting, advising and threatening to impose sanctions on me?” The villagers in Kdol Leu said they knew that Cambodia was growing indebted to China in order to pay for large development projects like the nearby bridge, but they were careful not to criticize the government. “I don’t know the cost of bridge, I just know that China builds it. Our [government] has to borrow money so they can build [infrastructure]. It will not happen if we don’t,” said Paong Lat. “[I] worry that [we] are unable to pay it back,” he said. “But I am just an ordinary person and under them [the government].” Huot Dalin, 26, another villager employed as a construction worker, said he read on Facebook that Cambodia’s debt to China was ballooning, but he added, “As you know about our society right now, I am afraid of saying something wrong.” The Chinese Embassy did not respond to an emailed request for comment for this story.