Trade

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play a significant role in further outward expansion to meet the most important goal of Beijing’s grand strategy – to secure and encourage the economic growth which leads to further modernization (2015, 28). For example, in 2001 China introduced the ‘Go Out’ strategy, which was supposed to open the door of international market for local businessmen. Such move was subsequently adopted through mobilization of all levels of China’s society. From official diplomatic agreements; through government deployment of SOE that took part in the infrastructure projects; to small distributors, who provide the Chinese goods and supplies for Chinese migrant workers, constructing the necessary facilities for further economic expansion (2015, 46). Wen and Tan (2013, 131) further elaborate that with improving infrastructure, the inflow of FDI brings about Chinese companies that are encouraged to secure commodity assets, often with government help in overbidding the competition. Consequently, such environment is even more fueling Chinese exports and political presence. Overall, it has been always acknowledged that Chinese foreign aid is the tool of Beijing’s foreign policy, but even though political essence is obvious, economic factor also plays a very important role (ibid).

3.1.1. Trade

Throughout the last decade China has been encouraging trade expansion to almost every part of the world, which resulted in becoming the world assembly and number one exporter. Trading engagement with countries of SEA is also a part of Beijing’s strategy to embrace the countries on its periphery, and Cambodia is naturally not exclusion. Although it still belongs to low-income basket-case, Cambodia is running one of the fastest growing economies in the region. According to Cambodia Economic Update¹⁵, the average GDP growth between 2011 and 2014 estimated 7.2 percent. Based on the ASEAN figures, the GDP in current prices has increased by 262%

from US$ roughly 4.6 billion in 2003 up to almost US$ 17 billion in 2014. Though, that is the second lowest raise among GMS countries right after Thailand, the numbers are still positively looking. Indeed, China certainly takes a significant credit for these results as well.

Figure 3: China's share in total trade in goods of Cambodia (%)

15 Cambodia Economic Update 2015, available online: http://www.eurocham-cambodia.org/uploads/a7b60-wb-cambodia-economic-update-oct-2015.pdf, [Accessed 7^th-July-2016].

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Calculations using data from Asean Statistics + China Commercial Yearbook

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The figure above stands for the rising share of China’s presence in the Cambodia’s trade relations throughout roughly the last decade. The total trade volume of Cambodia has been growing consistently from US$5.9 billion in 2003 up to almost US$ 30 billion in 2014, which is almost a fivefold increase. The biggest shift for Cambodia was in 2014, when the total trade in goods jumped 62 percent higher. However, this happened in the exact same year, when China’s share in the total trade proved the lowering tendency. As we can see, while in 2003 China represented just 6 percent of the total Cambodia’s trade volume, and in 2013 reached the peak at 21 percent, the very next year the China’s share significantly decreased to 13 percent in 2014.

This might be caused by various reasons, appearing both in China and Cambodia. Since PM Xi has taken office one of his main agendas has been cracking down on corruption among Chinese business and political elites. Such action, for instance, severely hurts Macao gambling industry.

Bilateral trade with Cambodia might have faced the same destiny. Second reason might be the attempts of Cambodia to balance the presence of Beijing in its trade, which will be discussed in the following paragraph. The last reason might be the marginal role of Cambodia in terms of trade from China’s perspective. If we look closer on the numbers from ASEAN statistic and China Commercial Yearbook, the total trade volume between China and Cambodia in the same period barely shows any change.¹⁶ Both years estimate roughly US$ 3.7 billion. In comparison with other members of GMS, Thailand and Vietnam have always accumulated the biggest amounts of mutual trade with China. In 2014 Vietnam overpassed Thailand and became the biggest trading partner among GMS with estimated trade reaching US$ 8.4 billion. Laos and Cambodia have been always at the bottom over the time, perhaps, given the lower population.

All in all, it is obvious that despite the raising tendency of mutual trade, Cambodia plays a little role in comparison with other states of GMS. In addition, from the Beijing’s point of view, Cambodia did not reach even a 1 percent of the total China’s trade share in Asia.

Regardless of this, the data of imports and exports might draw a clearer picture of Cambodia’s economic dependency on China. According to ADB, Cambodia accumulates a trade deficit almost every year. The main destination for Cambodia’s export is USA, followed by Hong Kong and United Kingdom. On the contrary, among the country’s biggest suppliers are China, as the number one, followed by Thailand and Vietnam. Trade deficit, or trade surplus, sheds the light on the mutual economic dependence of given countries. The figure number three shows the trend of China’s trade surplus with Cambodia over time, and also the comparison with other marginal trade partners. At the beginning of Beijing’s Peaceful Rise policy in 2003, trade balance accounted just a very little amount – almost US$ 270 million. From then on the figure was growing rather steadily exceeding US$ 1 billion in 2008, falling below just the year after.

However the real boom began in 2010, when the trade surplus started to increase significantly up

16 The whole table is available online: http://www.stats.gov.cn/english/statisticaldata/AnnualData/, and ASEAN stat:

http://www.asean.org/storage/images/2015/July/ASEAN-Yearbook/July%202015%20-%20ASEAN%20Statistical%20Yearbook%202014.pdf,[Accessed 7^th-July-2016].

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to the peak overcoming US$ 3 billion in 2013, which accounts almost for a 250% increase in just 4 years. If we take into account the whole studied period of time from 2003 to 2014, we will come to sum of money more than 10 times bigger than it was at the beginning. In other words, the trend proves a rising engagement of China’s businesses in Cambodia, which subsequently led to the situation, when China might hold a huge amount of Cambodian currency, and therefore, an advantageous position towards Phnom Penh.

Figure 4: Trade surplus with Cambodia over year (US$ millions)

In order to explore the real economic power clout of China, we need to compare the trade balance statistics between China, Vietnam, and Thailand, since China is not the only country which holds the favorable trade balance with Cambodia. These four countries represented 64%

of the total Cambodia’s imported goods in 2014. Both Thailand and Vietnam also succeeded to facilitate higher and higher amounts of goods by each year in 2003-2014. Though, they never managed to catch up with China, not at least until 2014. For instance, in 2011 China’s export to Cambodia exceeded the US$ 2.3 billion in value of goods, which was 72% more than in the previous year. At the same time Thailand and Vietnam both sold goods just about for US$ 800 million. China continued to export more up to 2013, when it reached the maximum at US$3.4 billion, while Thailand barely crossed over US$ 1 billion, respectively Vietnam did not reach even that in that particular year. As I have already noted, China’s position declined in 2014, although the trade volume barely proved any change. The reason behind this result is Cambodia’s skyrocketing trade relations with Thailand and Vietnam. In 2014 Vietnam’s export almost reached US$ 3 billion. That is three times more than the year before. Thailand’s grew by more than four times in one year attacking the US$ 5 billion in total export value of goods. That indicates that while China in the same year fell down by US$ 2 million, Thailand accelerated its export by 350% increase. This could mean that Phnom Penh decided to buy more from its neighbors in order not to rely solely on China. In terms of foreign policy, it represents a counter-balancing against the Chinese dragon. What all of these three countries have in common is that they have hold a relatively low export value with Cambodia over years, resulting in the positive

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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Vietnam China Thailand

Source: Calculations using data from ADB, OEC, Chinese Statistical yearbook

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trade balance for all of them. That is also reflected in the figure number three, where we can clearly observe rising tendency of positive balance trade of all mentioned countries. Years 2003-2009 represent a steady increase period of time with a slight reverse after 2008, which might be caused by Global Economic Crisis during that time. Afterwards China apparently was not influenced by economic stagnation as heavily as other countries and facilitated a significant boost which lasted until 2013, as I already pointed out. Whatsoever, then China slowed down and that might have given space to other competitors. As for the future predictions, the implementation of ACTFA in 2015 will be definitely an important driver for mutual trade.

All in all, trade represents an important part of mutual relations between China and Cambodia, and in the last decade these two countries enjoyed a significant mutual economic interaction, mostly at the expense of Cambodia, given the value of China’s surpluses. However, in terms of total economic statecraft, trade might not be considered to be the main source of China’s leverage in Cambodia. If we take into account the most recent development, Thailand and Vietnam have much more to offer as trading partners, surely, mainly due to the close proximity of these countries, and also by long historical mutual engagement, when Cambodia had always found itself clashed between its two neighbors. If we look at this trend from the perspective of China’s foreign strategy, the mutual trade slow-down might have been also caused by transformation of power in China. I do not think that trade might be influenced so rapidly as a deliberate tool of foreign policy, intending to achieve some certain goals.