Cambodia As China Appendage: Not So Fast

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?

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