China is important, but so is prudence

Monday, 13 December 2010
Steve Finch
The Phnom Penh Post

However, on the minus side China’s rising dominance comes with too few strings attached. The concern is that dealing with companies that explicitly make no effort to promote transparency and general good business practice in other countries can only serve to entrench the persistent problems of corruption in Cambodia.

A YEAR after Chinese Vice President Xi Jinping visited Cambodia to sign a staggering US$1.2 billion in economic deals with the government, Prime Minister Hun Sen heads to China for this week’s five-day visit to further entrench economic ties between the two countries.

After the recent introduction of Bank of China, the country’s second-largest in terms of lending, Industrial and Commercial Bank of China, the largest in China, looks set to follow with its first Cambodian branch after a signing ceremony scheduled for this week.

With Cambodia’s banking sector set for another period of consolidation as the deadline for banks to triple the minimum capital reserve requirement to $37.5 million, the entrance of another large Chinese bank points to a shift in Cambodia’s financial sector that could lead to a rise in the influence of banks from the mainland.

Certainly, with previous deals that have seen Chinese firm Huawei and Bank of China offer loans to the leading mobile firm in the country, Mobitel, China has increased its influence in the Kingdom’s telecommunications sector significantly in the past 12 months.

Recently, China has said it will import Cambodian rice, a move which analysts say could mean significant opportunities for the agricultural sector given the size of the Chinese market when the government is attempting to raise the country’s ability to process paddy.

Without resorting to the usual rhetoric on China’s creeping influence across the world, this trend of greater Chinese influence in Cambodia offers both positives and negatives for the economy.

On the plus side, deals like the $591 million Mobitel refinancing package have allowed the Kingdom’s biggest mobile provider breathing space to find a suitable international partner with which to work in the future, possibly France Telecom.

This is important for the company in question, the sector and indeed the country in terms of development and putting Cambodia on the map in terms of finance. The anticipated entrance of ICBC to Cambodia is a further coup for the financial sector.

However, on the minus side China’s rising dominance comes with too few strings attached. The concern is that dealing with companies that explicitly make no effort to promote transparency and general good business practice in other countries can only serve to entrench the persistent problems of corruption in Cambodia.

China’s continuing desire to invest and offer financing in Cambodia is hugely important and this trend will no doubt continue after Hun Sen’s visit. But if competition makes for a healthy economy then balancing China’s influence by reaching out to the same degree to other countries more ready to promote sound business practice would surely be a prudent way to move forward.