The Price of Progress: Cambodia’s Bet on China
- Young Diplomats Society
- Oct 2
- 6 min read
By Charlie Stephenson
As a visitor enters the bustling capital of Cambodia, Phnom Penh, they are greeted with the jarring sight of a small regional city bursting into a major Southeast Asian skyline. Amid the low-rise markets and housing, direct foreign investment (‘DFI’) from China has seen over 1,800 high-rise buildings shoot up, including luxurious hotels such as Prince Central Plaza, The Peak, and The Bridge. Yet this tale is not limited to the capital. Across the nation, major development is fuelled by Chinese investment in critical infrastructure projects, commercial buildings, and residential properties.
While the Cambodian government maintains that it is simply leaning into a genuine “everlasting friendship,” the man on the street in Phnom Penh looks up at the exploding skyline. He asks himself: Is this a much-needed helping hand? Or is it a poisoned chalice of economic dependency?
How did Cambodia get here?
Cambodia’s modern history is a tragic story. Following the Japanese occupation in WWII and the fallout from the French colonial exit from Indochina, Cambodia was unwillingly dragged into the Vietnam War and subsequently exposed to the brutal dictatorship of Pol Pot’s Khmer Rouge. After the eventual expulsion of the Khmer Rouge, who purged 90% of doctors, engineers, and teachers, Cambodia’s infrastructure and rebuilding capacity were annihilated.
Phnom Penh itself was entirely evacuated in 1975, and by the time residents returned in 1979, there was no running water or electricity, and most public infrastructure buildings had been destroyed or repurposed for imprisonment and torture. It was in this setting that Cambodia was forced to find a path to rebuild its economy and infrastructure, leading it to open its borders to international capital.
Chinese Investment – Cambodia’s Saviour?
In 2006, China turned its attention to Cambodia. Then-premier Wen Jiabao pledged over US $600 million in aid and loans for infrastructure projects. With initial efforts focused on roads and bridges, investment rapidly increased and spread to the tourism, real estate, and hydropower sectors. After Cambodia joined the Belt and Road Initiative in 2013, the acceleration of DFI saw China back several major projects.
These projects have had an undeniably outstanding impact on Cambodia's connectivity. Notably, the Sihanoukville - Phnom Penh Expressway connects the nation's largest port to the capital. Other examples include the Funan Techo Canal, which will link the Mekong River near Phnom Penh to the Gulf of Thailand upon completion, and the Techno International Airport set to open in July. Within urban Cambodia, the construction sector is expanding at over 7 per cent per year, directly correlating with the construction of eight bridges and 3,287 kilometres of roads, largely enabled by US$3 billion in concessional loans from Beijing.
Undoubtedly, this investment has significantly contributed to Cambodia’s remarkable economic rise. The Lowy Institute’s Simon Roughneen explains that the “boom arguably epitomises Cambodia’s increasingly close diplomatic and economic alignment with China.” Indeed, since Wen Jiabao’s visit in 2006, Cambodia has had an annual growth rate of 7 per cent pre-COVID, growing from US $6.2 billion to around $51 billion in 2024.
Yet this partnership has not only filled government coffers, but it has also led to a drastic improvement in the quality of life. The economic growth has translated to around a $500 to $3,000 increase in GDP per capita. Additionally, in 1993, only 6 per cent of the population had access to electricity; now, that figure is around 89 per cent. Mobile cellular subscriptions grew from virtually zero in 2000 to over 21 million in 2017, and water access has improved from 52 per cent to 75 per cent over the same period. With such remarkable statistics, it is easy to understand Prime Minister Hun Manet’s praise for Cambodia’s “everlasting friendship” with Beijing.
All Is Not What It Seems
Despite these positives, Cambodia’s China policy is rarely discussed openly. The perspectives I heard during my travels were delivered in hushed tones with swivelling heads. Following the forceful disbanding of major political opponents, the Cambodian People's Party won all 125 seats in the 2018 election, effectively establishing a one-party system. Since elections are evidently neither free nor fair, and independent media is repressed, it is difficult to ascertain the true feelings of Cambodians towards increasing Chinese influence.
What can be measured, however, is the issue of overreliance. While China’s support brings many benefits, Cambodia has become heavily dependent on Chinese capital. Around 40 per cent of Cambodia’s foreign debt is owed to China, and FDI has only skyrocketed since COVID, with 90.5 per cent of it coming from China in 2022. This is staggeringly high, especially compared to neighbours like Thailand and Vietnam, where FDI from China was only 24 per cent and 15.8 per cent, respectively. Such heavy dependency creates economic vulnerability, as shifts in Chinese policy or slowdowns in China’s economy may disproportionately affect Cambodia.
Moreover, it is clear that China stands to gain significantly from its investments, perhaps more than Cambodia. Dr Kin Phea, Director General of the International Relations Institute of Cambodia, explains that “BRI projects in Cambodia may turn opportunities into challenges and threats if the Cambodian government does not take [them] into serious consideration.” For example, the Sihanoukville–Phnom Penh Expressway was supposedly created to cut commute times for goods from the port to the capital. In practice, however, it is largely empty, used mostly by fancy cars and buses ferrying Chinese tourists to Chinese-owned casinos in Sihanoukville. Due to unaffordable toll prices, most local goods still travel along the old, often unsealed highway.
Similarly, the “ghost hotels” in Phnom Penh illustrate the misalignment between development and demand. Despite a citywide hotel occupancy rate of only around 40%, over 9,800 four-star and 4,200 five-star hotel rooms have been added. These developments have sometimes displaced locals through land grabs and forced evictions. Additionally, some resentment has developed from locals who can, on average, expect to earn US$8 to US$15 per day, while Chinese workers can earn several hundred dollars per month. In some cases, Chinese companies bring in their own workers, bypassing local labour markets entirely.
Another concerning consequence has been the toxic cycle fuelled by Chinese investment in casinos. While gambling is illegal for Cambodian citizens, it is permitted for foreigners and has contributed to a surge in Chinese-backed casinos. By 2019, over 150 casinos were operating in Cambodia, most of them Chinese-funded.
A strong example is Sihanoukville, which had over 70 casinos by mid-2019, leading to local economic dependence on the industry. Following a 2019 ban on online gambling, the city’s economy collapsed, leaving behind unfinished buildings, empty casinos, and a wave of unemployed workers. In the vacuum left by legitimate investors, criminal syndicates moved in. Similar issues have plagued Phnom Penh and other regions, highlighting how Chinese investment can destabilise local economies when not carefully regulated.
The future?
Will Cambodia change direction? Possibly. This year, Cambodia has pursued bilateral agreements with Gulf nations and South Korea and made the most of ASEAN’s free trade agreements. In 2023, Cambodia signed a Comprehensive Economic Partnership Agreement with the UAE, aiming to increase non-oil trade to $1 million by 2028. Further, President Sen’s regional tour of Türkiye, Qatar, Saudi Arabia and the UAE last year saw him attempting to negotiate for more investment from the Middle East into Cambodia, with moderate success.
Meanwhile, Cambodia’s trade with ASEAN has increased with a 12.8 per cent increase from 2023 to 2024, leading President Sen to proclaim “Cambodia’s strategic membership in key regional and global trade agreements, including ASEAN and the World Trade Organisation, positions it as a highly integrated player within the dynamic global market”. Indeed, Cambodia’s attempts to diversify its trade suggest that the Cambodian government may be seeking to reduce its dependency on China. However, the full impact of this remains to be seen. Within the unstable economic context of the China-US trade war, Cambodia may find more economic safety remaining under China’s wing. Alternatively, it might take an opportunity to integrate even further into ASEAN or pursue trade agreements with the Middle East. Ultimately, Cambodia’s economic future remains uncertain. With each passing year, the country enjoys increased growth, rising living standards, and access to world-class infrastructure, delivered with help from Beijing. Yet it is the same hand that poisons local economies, builds projects for its benefit, and exerts influence over Cambodia’s foreign policy. Only time will tell, but for now, Cambodia remains firmly under Xi Jinping’s thumb.
Charlie is studying the Bachelor of Laws and Bachelor of International Studies double degree at Macquarie University, majoring in Germanic studies. Additionally, he works as a volunteer with the United Nations Association of Australia, where he helps run events showcasing the UN and its mission to Australians. Currently, he works with the Shadow Attorney General, Julian Leeser MP, where he has gained a unique insight into civics, politics and domestic and foreign affairs. Charlie is passionate about diplomacy and international relations, particularly Australian foreign policy.
