News Article

In Cambodia, even debt-free roads lead to more Chinese influence

Beijing-funded $2bn expressway raises questions about costs and benefits

PHNOM PENH — A Chinese state construction company is building Cambodia’s first expressway — without saddling the Southeast Asian country with a pile of new debt.

The arrangement will help China avoid international accusations of predatory lending to developing countries, which have dogged its Belt and Road infrastructure initiative. But some skeptics say the expressway is just another way for Beijing to extend its influence, and that there might be more to the story than what has been revealed.

China Road and Bridge Corp. will finance the entire project, which will connect Phnom Penh with the southern coastal city of Sihanoukville at a cost of nearly $2 billion. The company intends to recover the money by collecting tolls over 50 years.

The 190 km road is due to be completed in 2023. A groundbreaking ceremony was held in the Cambodian capital in late March, with China’s vice minister of foreign affairs and other officials on hand. Before a crowd of more than 1,000 Cambodian citizens, Prime Minister Hun Sen thanked China and said, “The expressway would not be possible without the resolve of the Chinese government.”

Upon completion, the highway will reduce the driving time between the cities to two and a half hours or less, from about five hours. This could have major implications for Cambodian business: Sihanoukville is the country’s biggest export base, and is home to its sole deep-sea port.

Although National Road No. 4 runs through the area, the two-lane thoroughfare is chronically congested. Fatal accidents caused by overtaking are frequent, according to a local trucking company official. A 36-year-old Cambodian worker attending the ceremony said, “I’m happy because our town will have an expressway for the first time.”

The Cambodian government and CRBC signed what is known as a build-operate-transfer, or BOT, contract for the project in 2018, relieving the former of any financial burden.

Of course, Cambodia is already heavily indebted to China — it owes around $4.5 billion, accounting for about 40% of its total foreign obligations. In 2017, roughly 70% of foreign direct investment in Cambodia came from China, which was ramping up the Belt and Road.

While Cambodia’s ratio of foreign debt to gross domestic product is reasonable, the cash-strapped government hopes to avoid taking on new loans for infrastructure as much as possible. The deal with CRBC allows it to build a needed road while shielding it from criticism that it is financially depending on China.

Still, while the project calls for CRBC to recover its investment over five decades, many observers think the Chinese company will find it difficult to set high tolls because the expressway will be used mainly by trucking companies.

“Recovering [the funds] in accordance with the official contract is almost impossible,” said an official in the Japanese government, which has been looking into building another expressway in the Southeast Asian country.

Analysts speculated that, given Cambodia’s weak negotiating position, it may have granted China priority rights to develop areas along the expressway, and potentially elsewhere.

Koji Sako, a senior economist at Mizuho Research Institute, said that although BOT projects “do not officially become liabilities, they increase China’s influence without countries realizing it.”

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