In May 2024, Cambodia renamed one of the major roads in the capital city of Phnom Penh the ‘Xi Jinping Boulevard’. The occasion highlighted the prominent role of China’s ample economic and political support for Cambodia’s development. While their relationship has aided Cambodian growth and stability, some underlying issues remain.

China has significantly boosted the funding of Cambodia’s development infrastructure. Beijing has financially contributed to the construction of the Phnom Penh-Sihanoukville Expressway, the Phnom Penh Ring Road project, the Funan Techo Canal waterway and the Siem Reap–Angkor International Airport, among others. The developments are improving Cambodia’s connectivity and the overall economic situation. But Cambodia’s decision to source funding for large-scale infrastructure from China has caused concern for Cambodia’s debt trap.

While Cambodia has multiple Chinese-funded projects, China has contributed to more than 40 per cent of its US$11 billion of external debt. The US government argues the Belt and Road Initiative is a debt trap that could lead to countries losing sovereignty over the strategic assets offered to China as collateral. Sri Lanka is commonly cited as a country that was ‘trapped’ in 2017 when a Chinese state-owned enterprise leased Sri Lanka’s Hambantota International Port for 99 years to allow Colombo to repay unrelated non-Chinese creditors.

Cambodian Prime Minister Hun Manet has defended the use of Chinese funding, stating that Cambodia is safe from any potential debt trap because Cambodia’s annual budget laws delineate a clear debt limit.

The Sihanoukville Special Economic Zone is one of the most significant sites for foreign investment in Cambodia. It can accommodate up to 300 factories and is expected to create up to 100,000 job opportunities. But rising Chinese investment in Sihanoukville has driven up the price of real estate and land. It has also caused an influx of foreign investors and migrant workers.

Sihanoukville’s economy has expanded from heavy reliance on the tourism industry to also include an industrial base. Sihanoukville’s tourism industry has benefited from foreign investment in the Special Economic Zone as most of the invested capital has flowed to the hotel and gambling industries.

During the height of Chinese investment before the COVID-19 pandemic, Sihanoukville’s rapid expansion led to soaring real estate prices, increasing 10 times over from 2014–19. This transformation has displaced local businesses as an estimated 90 per cent of Sihanoukville businesses in 2019 were owned by Chinese citizens.

But Cambodia has benefitted from Chinese support in various sectors, from tourism to education and beyond. The Cambodia–China People-to-People Exchange Year 2024 is expected to attract more visitors to the Kingdom and foster closer cultural ties. Chinese funding has also facilitated the construction of educational facilities like the University of Kratie, including four dormitory buildings to house instructors and students from rural Cambodia. The Chinese–Cambodian Traditional Medicine Research Centre of the Cambodian–Chinese Preah Kossamak Friendship Hospital, opened in 2023, has added to the healthcare system and advanced scientific research.

China has also promised to help Cambodia remove landmines and unexploded ordnance. Since 2018, China has distributed US$14.4 million in grants to aid in the clearance of over 107 square kilometres of minefields — 77,954 mines and munitions have been found and disposed of.

But this support has not been without geopolitical implications. Cambodia’s alignment with China’s stance on the South China Sea has strained ASEAN unity. This reflects broader tensions within the region that have simmered ever since Cambodia, as the 2012 ASEAN Chair, refused to include a reference to the Philippines’ and Vietnam’s territorial disputes with China in the Chairman’s Statement. At the annual ASEAN Summit in Jakarta in 2023, ASEAN remained divided about handling China’s assertive behaviour in the disputed waters and the decision to seek support from non-ASEAN partners.

The Chinese-funded Funan Techo Canal project under development in Cambodia exemplifies how economic cooperation and geopolitical concerns intersect. Even though the project may be economically advantageous to Cambodia, it has elicited concern in Vietnam, where some analysts have suggested that it will facilitate the deployment of Chinese forces southwards toward Vietnam’s southern coast.

The Vietnamese claim that the Cambodian canal will ‘reduce the flow of the river’ by up to 50 per cent in Vietnam’s Mekong Delta, where 17.4 million people live. But Cambodia has dismissed the concern, arguing that such a move would be irrational given that Cambodia would be the first to feel the pinch of water scarcity.

The ‘ironclad’ bond between China and Cambodia has manifested in several massive infrastructure projects and consistent economic assistance. But serious questions have been raised about Cambodia’s growing external debt, its geopolitical alignment and the consequences of reliance on Chinese funding.

The Cambodian government must ensure that it has proper control over its debt and sources of investment. They should also look to form new partnerships with regional and global actors for the sake of the overall development and sustainability of the state. A balanced approach will allow Cambodia to reap the most benefits of cooperation with China while mitigating the potential negative impacts. Such an approach is important to ensure Cambodia’s continued development and regional stability.