China Business

Cambodia As China Appendage: Not So Fast

Cambodia Lawyer

Many of you have no doubt heard the rumors about China investing $3.0 billion in Cambodia’s energy and transport sectors. I recently discussed these rumors with some Cambodian lawyer friends of mine and they told me that resistance to these Chinese investments has started and it appears the projected investments are, at best, provisional plans.

During my most recent visit to Phnom Penh less than a month ago, I noticed protests from locals related to redevelopment of the Boeng Kak Lake in the Northwest corner of town. This polluted and rather miserable lake (swamp is a better description) is where many foreign backpackers stay. It is also one of the primary slums in the PP area. The area has been designated for several years as a major urban renewal project. The project involved demolishing the current homes, ridding the area of the backpacker community (regrettable) and relocating more than 4,000 families. Protests have been centered on inadequate compensation for the families being forced to move, a complaint that resonates for those of us who live in China. During my stay in PP, the protests were focused on the local Cambodian developer, Shukaku, Inc., a company connected with the powerful senator Lao Meng Khin. See

Things began to change at the end of last year. At the end of December, local press reported that the project developer was actually a joint venture between Shukaku and a Chinese partner: Erdos Hongjun Investment Co. Ltd. Protests then turned from the non-responsive Cambodian entity to the equally non-responsive Chinese partner. On January 18, local residents staged a demonstration in front of the Chinese embassy, requesting the embassy force the Chinese partner to confer more acceptable compensation for the loss of property. In good Chinese fashion, the embassy staff refused to communicate with the protesters. Instead they called the police who dispersed the group with clubs and batons.

These recent protests do not fully contradict what my Cambodian friends reported to me earlier. Cambodian still welcomes Chinese investment in infrastructure projects such as the construction of power plants, dams and railroads. On the other hand, as might be expected, locals are not receptive to Chinese participation in large real estate projects which dislocate local residents and provide little or no benefit in return. In the mind of Cambodians, Chinese real estate investment is associated with large casino projects that cater to Chinese and Thai gamblers. These gaudy projects can be found throughout Cambodia. The locals say the Chinese care about money and nothing else. Whether deserved or not, this is the reputation China seems to be developing in Phnom Penh. It does not appear that anyone in the Cambodian government cares, so the matter is perhaps irrelevant.

The more interesting issue is whether the proposed $3.0 billion investment from China is real or or not. The situation is murky, as is usual in Cambodia. The reported facts do raise some questions. The proposed investment was announced as a result of a September, 2010, meeting between Cambodian prime minister Hun Sen and Chinese entrepreneur Wang Linxiang. Wang is the Chairman of Erdos Holding Group. Erdos is an inner Mongolian company that started in the cashmere sweater business (Erdos Cashmere Products Co. Ltd). Recently, Erdos has expanded into metals and energy. How did a cashmere sweater company become an energy conglomerate? Why would a cashmere sweater company from Inner Mongolia invest $3.0 billion in Cambodia? Most importantly, what is the source of their funding? Certainly, they are not planning to invest $3.0 billion from their annual profits? There are no current answers to these questions.

The situation gets even stranger as we dig a little deeper. The actual proposed investor in Cambodia is Erdos Hongjun Investment Co. Ltd. There is absolutely no information on this company available in China. Cambodian press reports state that Hongjun was formed in June of 2010. The Cambodian press reports that Hongjun has two shareholders. One is Erdos and the other is Qingdao Dezheng Resources Holdings Co. Ltd. Dezheng does have an office in Qingdao just up the street from my own office. Nothing else is known about this company in China, which is unusual for a company planning to invest $3.0 billion outside of China.

Consider this: a $3.0 billion investment from a Chinese company that has existed for only six months. The two shareholders have no connection to Cambodia. The two shareholders are relatively unknown in China. The total proposed investment would equal half of what has been invested in Cambodia from China over the past decade, yet there is not a single news report in China discussing the matter. The announced investment target is in power plant and other heavy infrastructure, but the first actual project is a sleazy real estate deal in Phnom Penh. The whole thing raises substantial questions for me. Though there is no way to know for certain what is going on, I would not be betting on seeing any new Chinese power plants in Cambodia anytime in the near future. On the other hand, we can expect gaudy casinos and luxury villa complexes with Chinese names on the front door will continue to blight the Cambodian landscape for the next several years.

Then the question will arise: where will the electricity come from to power the lighting and air conditioning for those architectural wonders?

9 responses to “Cambodia As China Appendage: Not So Fast”

  1. The Cambodian people do not specifically dislike Chinese attempts at taking land, they dislike any attempts to take their land, whether those attempts come from China, Vietnam, Thailand, France, of from within Cambodia itself. When someone feels their land is being inappropriately or illegally taken, they protest and they appeal to the prime minister for redress. This is how it works, whether against Chinese investment or otherwise. Admittedly, the Beong Kak Lake project has been handled poorly, but general perception seems to blame that mainly on the Cambodian party involved in the project. Cambodia welcomes responsible, development oriented investment and, from my understanding, is actively pursuing multiple power projects with Chinese investors.
    I would like to stop there, but between the unwarranted generalization, the unquestioning reliance on obviously message-oriented press, and the awkward use of innuendo this post is a sore disappointment from an otherwise excellent blog.

  2. Very interesting read. I’ve been to Cambodia three times in the past year, with the latest trip only a few weeks ago. I was surprised to note the amount of Chinese industry going on, especially on the outskirts of Phnom Penh past the airport. There were numerous textile factories with Chinese names. I was told that some Chinese manufacturers are outsourcing a lot of production to Cambodia. A friend even said they’d seen someone sewing “made in China” labels onto garments constructed there. I was also shown several casino/hotels labelled almost exclusively in Chinese – apparently they exist for the benefit of the growing Chinese tourism industry, and have very little patronage from other groups.

  3. “Dodgy Chinese investment in backward nation” the reality being we’ve heard all this before – where’s anything new in this concept? And you thought Cambodia was gonna take off?

  4. This author is ignorant of the situations in Cambodia, is anti-business, and is an irresponsible journalist. Without foreign investors, Cambodia would be a failed state and its people would have no job. Don’t blame investors. Blame the Cambodian officials who profited from the sale of land and did not build housing for the poor.

  5. Hi Steve – an interesting piece and certainly raises important issues. A couple of quick thoughts, which are only observations as I don’t know anything about this particular case:
    1) As a cashmere sweater firm I wouldn’t be surprised if Erdos had connections with Cambodia, which is after all one of the big knitwear bases. Even if it doesn’t have operations there itself it may have contractual ties.
    2) Diversifying from one field to another completely unrelated one in pursuit of a quick buck is not exactly unusual for a Chinese company – especially if the new field is real estate. I understand drinks firm Wahaha is discussing expanding into retail and mining (overseas) of all things! However, I share your suspicions regarding this particular energy investment. Usually if it’s a big infrastructure investment one would expect to see first of all a big lead-off event with a senior Chinese politician, and then secondly the involvement of one of the big state contractor firms like China National Machinery and Equipment Import and Export Corporation (now building power plants in Sri Lanka). This would guarantee financing from the Ex-Im Bank of China, the usual source of funds for an investment of this size (possibly CDB as well).
    3) Chinese state banks have a very bipolar view on financing big external investment. If it’s backed by the state (Qingdao Dezheng?) then all’s fine and to hell with any associated risks. If it’s not then they won’t even look at it, partly because getting regulatory permission to remit the money from China will be more hassle than it’s worth.

  6. Cambodia has a open door policy towards all investment.
    Some reactionary members of the US congress might prefer to inhibit trade or deny help to Cambodia based on Cambodia receiving help from Vietnam..A small state always feeling threatened by a Big Brother from another country. US policy has often pushed Cambodia towards China.
    Cambodia should remember during the 1950s Mao invited his opposition to speak out and return to China. Then 100s of thousands died. China gave Vietnam a billion dollars to fight the French and Americans. then China tried to take Vietnam and invaded Vietnam several times.
    Recently China wants the Vietnam Islands ,Spratly, So China Seas and claims it is entitled to all the islands and minerals, oil deposits…Helping little brother then wipe out little brother for the profit China has proven what loyalty is about. Cambodia beware China also wants your land for agriculture. Do not forget when Genocide and hunger ruled Cambodia the rice was being loaded on ships to China.

  7. Duncan: Diversifying from one field to another completely unrelated one in pursuit of a quick buck is not exactly unusual for a Chinese company – especially if the new field is real estate.
    There’s a finance reason for this. It’s relatively easy for a US company to get a good return on its cash in the bank, and it’s also relatively easy for a US company to get money from a bank when it needs it. So US businesses tend to focus on one thing and the moving of money between businesses is done within through the capital markets. When you don’t have liquid capital markets, then conglomerates tend to form (i.e. South Korea or Japan).
    Because it’s hard for Chinese non-state businesses to both get good returns and loans from the banks, the tendency for Chinese non-state business is to diversify into unrelated sectors. This was really common in the United States in the 1960’s when you had diversified conglomerates. Most of them were broken up in the 1970’s when it became easier for US businesses to raise money on the capital markets, with GE being the main survivor.

  8. Hi! I don’t think Cambodians dislike the Chinese! Only those people who are evicted in the Boung Kak Lake development project are outrage! The rest of the people don’t really care! They just want to see more skyscrapers being build in the city! The Local developer Lao Meng Khin is actually an Ethnic Chinese who have strong ties with China and Chinese companies in China! I wouldn’t be surprised Inner Mongol Corp. and the Local Shukaku Inc. just met each other over the past few months! This deal was made before the Lake was being pumped! You have to know that most of the local Cambodian developers are ethnic Chinese with strong ties with Mainland China!

  9. The other thing to watch out for is Cambodia’s oil potential! It will start pumping on 12-12-12! China is already trying to build a port on it’s south coast and probably a pipeline! Koh Kong province is the NEXT BIG potential for gold,iron, ore, etc! Don’t sleep on Cambodia! It also have one of the prettiest Island’s in the world!

Leave a Reply

Your email address will not be published. Required fields are marked *