China’s growing infrastructure projects in Cambodia and their geostrategic implications

“History will ultimately prove who is the real host of the South China Sea and who is its fleeting passerby.” These implicit remarks by China’s top diplomat Wang Yi in 2016 have since turned out to be an explicit reference to China as the “host” with an extensive footprint in the South China Sea and the US as a “passerby”.

Even as the China-Philippines maritime tussle at the Second Thomas Shoal and elsewhere hits the news intermittently, China has strategically blazed a long, wide and permanent trail of geoeconomically influential land-sea corridors to and around the southwestern South China Sea, through the Belt and Road Initiative (BRI).

The China-Laos Railway, built by China and launched in December 2021, has carved out a critical transport path allowing landlocked Laos to access the sea through the Gulf of Thailand with growing logistics and trade benefits, as documented in my article on the China-Laos Railway for ThinkChina.

Here I turn to Laos’ neighbour Cambodia to examine China’s extensive infrastructure construction and its geoeconomic and security implications, especially from a new canal project that will open a connective waterway from the Mekong River to the sea for Cambodia.   

China’s presence in Cambodia has expanded considerably through the BRI’s first decade (2013-2023). It manifests itself visibly in rapidly growing investment and financing into multiple sectors, notably large-scale infrastructure construction.

In 2013, Chinese enterprises made US$490 million of non-financial direct investment in Cambodia. A decade later, China’s investment into Cambodia in just the first two months of 2024 was about US$545 million, or about 39% of total foreign direct investment (FDI).

These aggregate statistics often mask on-the-ground evidence on the varied forms and channels of Chinese investment directly and indirectly related to infrastructure construction. 

Flying under the radar of China’s BRI-enabled state-driven infrastructure buildup in Cambodia, Chinese private companies have relocated labour-intensive factories to Cambodia, especially garments and shoes due to high domestic land and labour costs.

My research has tracked a shoe company in the shoe-making city of Dongguan in southern China and its Cambodia-based factory since the mid-2010s. Having shrunk its workforce to around 500 from over 1,000 in Dongguan, in 2016, this company invested US$1.6 million, a huge sum for its size and asset base, to set up a factory in Phnom Penh hiring around 1,000 Cambodian workers. Besides labour cost savings, the company has taken advantage of Cambodia’s duty-free exports of brand-name shoes like Aldo to Canada and the EU.

The company’s managers indicated in 2017 that they would be able to make money in Cambodia for several years largely from paying Cambodian workers one-third of China’s wage. The factory director told me in February 2024 that it has maintained a workforce of 1,000 and a small profit despite the Cambodian wage rising to about one-half of China’s today.

The factory’s performance has benefited from lower transport costs and faster delivery by shipping components and finished shoes along the new China-built Phnom Penh-Sihanoukville Expressway. Costing US$2 billion and opened to traffic in November 2022, the expressway has cut travel time between Cambodia’s two largest cities from five hours to under two. It saw around 5.19 million car trips by November 2023. A Phnom Penh-based Uber driver informed me in February 2024 that he makes the easy trip on the expressway taking Chinese businessmen regularly from the capital’s airport to Sihanoukville. 

China’s expansive infrastructure work has extended to Siem Reap, a small city and the site of Cambodia’s top tourist attraction in Angkor Wat. Financed by an affiliate of China’s Yunnan Investment Holdings Ltd for US$1.1 billion, the China-built Siem Reap-Angkor International Airport was opened to business in November 2023. Designed just like any airport in a third-tier Chinese city, this new airport can handle seven million passengers a year, with planned capacities of handling 12 million annually from 2040.

Since the airport is located almost 50 km from the city centre, China has built a new and still lightly used highway linking them. And the highway was also lined with high-voltage towers and signs of planned industrial zones and tourist facilities, as I observed in February 2024. These new infrastructure projects have been completed on the heels of eight bridges and 3,287 km of roads built by China as of June 2021. Besides scale, China-built infrastructure in Cambodia has become increasingly connected. 

In building up its infrastructure further, the Cambodian government has recently made a strategic move to build the Funan Techo Canal from its Autonomous Port on the Mekong River near Phnom Penh to the Kep Port on the Gulf of Thailand. Estimated to cost US$1.7 billion financed largely by Cambodia’s domestic sources, the canal has been contracted to China Road and Bridge Corp (CRBC) to begin construction in 2024 and to be completed in 2028.

The canal will be 180 km long, 100 metres wide and 5.4 metres deep, allowing ships up to 3,000 deadweight tonnage (DWT) to plough through. With 33% of Cambodia’s cargo moving along the Mekong River to the sea via the Port of Ho Chi Minh City, the canal can reduce this dependency to 10% and cut the shipping cost by 70% with an annual saving of US$88 million. This new project has upset Vietnam which not only will lose much revenue from clearing less Cambodian river cargo but may lose some agricultural output, especially rice as the canal will disrupt water flows to the lower Mekong Delta.

By itself, the Funan Techo Canal may not produce any direct geoeconomic benefit for China as it is hard to imagine that large commercial boats would sail down from Yunnan province along the Mekong to access the sea. In connection, however, China Harbour Engineering, a subsidiary of CRBC, in 2023 signed a contract to help build the nearby Kampot Port.

In its proximity and geostrategically, China has been involved in building a section of Cambodia’s Ream Naval Base since 2020. According to satellite images and geospatial intelligence by a Western source, China’s construction at Ream included roads, piers, pilings, buildings and other facilities through 2023. 

In September 2024, the Cambodian defence ministry announced that China would deliver two Type 056 Corvettes to Cambodia in 2025. Two vessels of the same type had been docked at Ream for several months after arriving there in December 2023.

With 1,500 DWT and equipped with a fairly advanced onboard communications system, the 056 Corvette carries strong anti-air, anti-submarine and sea-surface fighting capacities. Already decommissioned from China’s naval service and available at a reasonable cost, the 056 Corvette meets Cambodia’s needs for coastal defence. This is suggestive evidence that China may look at Ream as its second overseas military base, after Djibouti.      

The reality is more complex and the future unclear. Building at Ream before the announced canal project reveals China’s anticipatory security considerations. Cambodia’s coast is about 1,000 km from the Strait of Malacca, the geographical chokepoint for shipping the bulk of energy supplies and traded goods to and from China, much closer than any other anchor in the South China Sea.

Coupling a new canal with even a periodic naval visit at Ream allows China to monitor that critical shipping lane from a close geostrategic point. This also gives both Cambodia and China a close-range locational advantage in countering Vietnam’s strong influence. 

As China continues to strengthen economic ties with Cambodia using the Sihanoukville Port and the Phnom Penh-Sihanoukville Expressway, it could also benefit from a future access to commercial and even military shipping on the Mekong from Yunnan through the new canal to the sea. In this complex and evolving regional geoeconomic context, gaining a military foothold at Ream seems to make a long-term geostrategic sense for China. 

Related: BRI’s Funan Techo Canal could steer Cambodia away from Vietnam and towards China | Easy highway, troubled city: How China wins and loses Cambodians’ hearts