By Francesco Guarascio
PHNOM PENH (Reuters) – At a ceremony in August, Cambodian President Hun Manet knelt to receive blessings from saffron-clad monks as fireworks and balloons heralded the groundbreaking of a canal he hopes will transform his country’s economy.
Speaking to hundreds of people raising the Cambodian flag, Hun Manet said China will contribute 49 percent to the cost of the Funan Techo Canal which will connect the Mekong River with the Gulf of Thailand and reduce Cambodia’s reliance on shipping to its neighbor Vietnam.
The Cambodian government estimates the planned, or controversial, construction project will cost $1.7 billion, about 4% of Cambodia’s annual gross domestic product.
But months later, China’s financial contribution remains uncertain.
Four people directly involved in the investment plans or briefed on them told Reuters that Beijing has expressed skepticism about the plan and has made no real commitments on the money it is offering.
“It is normal business for Chinese companies to assist Cambodia in evaluating the construction of water conservation projects based on the market,” China’s foreign ministry said in a letter sent to Reuters when asked about the canal.
The Chinese ministry did not respond to a direct question about the investment but said the two countries are “iron friends,” a statement echoed by Hun Manet in late October.
The Cambodian government has declined requests for an interview, and reporters have not responded in recent weeks to requests for comment on the canal’s funding.
China’s clear non-commitment could undermine the entire process, given the uncertainty about the project’s costs, its environmental impact and the financial viability of experts, officials and diplomats.
It also highlights how Beijing is reducing overseas investment as its economic concern, even in countries it sees as partners, such as Cambodia.
A good example of Western-backed “nation-building” after the long civil war that followed the fall of the Khmer Rouge regime, Cambodia has recently been widely seen by diplomats and foreign experts as a country of Chinese clients, owing Beijing more than a third of its total national debt.
But Chinese investment in the Southeast Asian nation has been on the decline, after a series of failed infrastructure projects, amid concerns about criminal gangs targeting Chinese nationals, and falling tourist numbers.
DIFFERENT ISSUES
The 180km (112 miles) canal would greatly expand the existing waterway and divert water from the rice-growing Mekong Delta to the Gulf of Thailand, cutting off Cambodian shipping through Vietnamese ports.
In the months after the Cambodian government signed an “investment agreement” in October 2023 with the China Road and Bridge Corporation (CRBC), a state-owned construction company, Cambodian officials publicly announced China’s financial involvement. The text of the agreement is not public.
In an interview with Reuters in May, the minister in charge of the project, Deputy Prime Minister Sun Chanthol, said that CRBC will build the canal and “fully” pay its costs, receiving a 10-year repayment period.
But at the dawn of August, the prime minister set CRBC’s stake in the project at 49%, leaving Cambodian companies behind.
The same day, his father and Cambodia’s decades-long leader, Hun Sen, posted a statement on Facebook calling on Japan to build the tunnel.
China’s official Xinhua News Agency did not comment on Chinese involvement in its report on the collapse.
A few days later, Sun Chanthol’s communications director told Reuters that the ownership of the remaining part of the canal development and CRBC “will be determined”.
When asked about Cambodian claims that CRBC will have a 49% stake, a company official told Reuters in mid-October that the figures circulating publicly were incorrect. “It’s difficult,” said the official, who did not elaborate.
CRBC and its parent company did not respond to requests for comment.
A person directly involved in the investment plans told Reuters in early November there was no Chinese money on the table at the time, confirming an account from another official.
A source from one of the Cambodian investors in the project said it would not be surprising if China did not invest in the canal at all.
A fourth official briefed on the matter said China earlier this year secretly criticized Cambodian officials for announcing Chinese funding for a project that had not yet been decided.
Both declined to be named because of the complexity of the case.
More than three months after the explosion, the ceremonial site on the banks of the Mekong has been abandoned, a Reuters reporter said.
CHINA INVESTMENT BASE
The sinking over the canal comes as China’s development aid to Cambodia, including infrastructure funding, is dwindling.
China’s remittances to Cambodia are expected to drop to $350 million in 2026 from $420 million in 2021. There were no new Chinese loans in the first half of this year, down from $567 million in 2022 and $320 million last year. . Cambodian official data.
Chinese investment in foreign projects is also declining elsewhere, but in Cambodia the trend is “very telling,” said Grace Stanhope of the Lowy Institute, a Sydney-based think tank.
China is still building roads and other infrastructure but has pulled out of the construction of Phnom Penh’s new airport, where it has started spending $1 billion.
The exclusion came as the transport link built by the CRBC connecting Phnom Penh to the coastal city of Sihanoukville remained unused by Cambodian drivers and truck drivers who to avoid taxes prefer the old busy but free road, a Reuters reporter noted, confirming accounts from several Cambodians. – built for senior officials.
A recently completed Chinese-backed airport in Siem Reap to serve the UNESCO World Heritage site of Angkor Wat is “quiet,” said Ou Virak, head of the Cambodian think tank Future Forum, noting that investors could face losses.
Private Chinese investment remains high, but many Phnom Penh-based diplomats and financial experts point to a large pool of informal Chinese investment targeting the gambling industry and the real estate sector has dried up.
Chinese tourism, once Cambodia’s biggest source of income, has also struggled to recover from the COVID pandemic.
It coincided with a long-running Chinese campaign to warn tourists about the dangers associated with the internet scams industry in Cambodia.
As relations between China and Cambodia evolve, the progress of the canal project and its sustainability remain uncertain.
“With so much that I don’t know, it’s not surprising to me that the investors in this project haven’t come with their money in hand,” said Brian Eyler, an expert on the Mekong region at US-based think tank Stimson. Center.
(Reporting by Francesco Guarascio in Phnom Penh; additional reporting by Liz Lee and Yukun Zhang in Beijing; editing by David Crawshaw and Lincoln Feast.)