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Cablegate: Encouraging Chinese Engagement with Cambodia's

VZCZCXRO7665
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0926/01 1910705
ZNR UUUUU ZZH
P 100705Z JUL 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 8687
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2464

UNCLAS SECTION 01 OF 03 PHNOM PENH 000926

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EAP ASSISTANT SECRETARY CHRISTOPHER HILL
DEPT FOR F, EAP/MLS, EAP/CM--JOY YAMAMOTO, EAP/RSP,
EEB/IFD, EB/TPP/MTA/ANA--TED SAEGER, AND OES--JEFF MIOTKE
AND ANN COVINGTON,
PLEASE PASS TO USAID FOR ANE--KIMBERLY ROSEN

E.O. 12958: N/A
TAGS: EAID PREL ECON PGOV CB CH
SUBJECT: ENCOURAGING CHINESE ENGAGEMENT WITH CAMBODIA'S
DONORS


1. (U) This is an action request. Please see paragraph 13.

2. (SBU) Summary: China's economic influence in Cambodia is
immense and growing. Already Cambodia's largest donor and
foreign investor, China's aid comes with no overt conditions
and often serves to build infrastructure used to ship
Cambodia's natural resources to China's insatiable factories.
Prime Minister Hun Sen frequently seizes on China's "no
strings attached" attitude to criticize other donors who seek
to tie aid to political and economic reforms--rather than the
Chinese model of just tying assistance to greater and easier
access to natural resources. China's persistent refusal to
engage with other donors in Cambodia undermines the efforts
of all donors to promote accountability and progress on
Cambodia's toughest governance challenges. A number of ASEAN
missions openly worry about China's increasing influence and
the Japanese especially complain about China's "no strings"
assistance. Post requests that the Department via Embassy
Beijing encourage China to participate in donor coordination
efforts. End Summary.

China: The (Economic) Elephant in the Room
-------------------------------------------

3. (U) Since the 1950s, China has been cultivating a cozy
relationship with a succession of Cambodian leaders,
providing support to King Sihanouk, the Khmer Rouge, and PM
Hun Sen, and often using foreign aid as a major tool in
promoting closer ties. In 1997, when CPP-FUNCINPEC fighting
caused Western donors to temporarily suspend their aid, China
rushed to Cambodia's rescue with a USD 10 million loan and,
six months afterwards, provided USD 2.8 million in military
equipment. One academic claims that Beijing provides more
non-military aid to Cambodia than any other country does,
having spent USD 2 billion since the 1970s to build roads,
bridges, and offices. Although much of this money is in the
form of loans, these debts are often canceled at maturity.
China is also Cambodia's largest provider of military aid.

4. (U) In addition to foreign assistance ties, Cambodia and
China also boast a strong commercial relationship. Since
2004, China has been the top foreign investor in Cambodia,
and in 2006, a Chinese firm made history with the largest
foreign investment project in Cambodia yet: a USD 280
million, 193-megawatt hydropower station. China also has a
heavy presence in Cambodia's critical garment sector, and
Chinese oil firm CNOOC has reportedly been in talks with the
Cambodian government over exploration rights off the
Cambodian coast. Chinese-Cambodian trade is growing quickly;
total trade between the two countries tops USD 1.4 billion.

5. (U) Yet China's commercial interests in Cambodia often
have a seamy underbelly. Many of the companies involved in
logging Cambodia's remaining forests are Chinese-owned or
Cambodian-Chinese joint ventures, including two of the most
notorious companies holding the country's largest
concessions: Wuzhishan and Pheapimex. In 2004, Chinese firm
Green Rich was accused of logging in a national park and
wildlife sanctuary.

What's In It for China?
-----------------------

6. (U) All of this Chinese involvement has paid off in terms
of access to Cambodian natural resources and political
support. Much of the foreign aid received by Cambodia goes
to build ports, bridges, and roads that facilitate the
movement of natural resources like trees and minerals from
Cambodia to China's insatiable factories.

7. (U) Cambodia has also become, in the eyes of one scholar,
"one of China's closest friends in Southeast Asia, second
only to Burma." Cambodia strongly condemned the accidental
1999 NATO bombing of the Chinese embassy in Belgrade. In
2002, Cambodia refused to issue a visa to the Dalai Lama and
clamped down on the Falun Gong spiritual movement here. Hun
Sen has visited China six times since 1997 (often returning
with bilateral agreements and aid pledges) and King Sihamoni
chose China for his first official visit as head of state.
The presence of an estimated 350,000 ethnic Chinese Cambodian
citizens and the recent migration of 50,000 to 300,000
Chinese to Cambodia further strengthens ties between the two
countries.


PHNOM PENH 00000926 002 OF 003


China's Aid: No (Reform) Strings Attached, No Coordination
Necessary
--------------------------------------------- ---------------

8. (U) China's aid and investment in Cambodia dwarfs what
most other donors can offer, and is only growing. In April
2006, Chinese Premier Wen Jiabao took Chinese involvement to
a new level, announcing USD 600 million in foreign assistance
for Cambodia, including the construction of two bridges, a
hydropower project, electric transmission lines, and a new
Council of Ministers building. (Comment: China is often
vague about the time period over which announced aid will be
disbursed, and is thought to re-announce the same aid
programs, making it seem as if they are giving more than they
actually are. In addition, China brings its own equipment
and laborers, making its aid relatively inefficient compared
to donors who use locally supplied equipment and laborers.
End Comment.) Wen Jiabao and Hun Sen signed 11 bilateral
agreements during the Premier's two-day visit to Cambodia,
covering everything from transnational crime to establishing
a national botanical garden. In contrast, Western countries,
international aid agencies, and Japan collectively pledged
USD 601 million in 2006 assistance for Cambodia.

9. (U) Even more disturbing for Western donors, China's aid
comes with few requirements related to political or economic
reform and no effort at coordinating with other donors.
Prime Minister Hun Sen delights in lauding the lax Chinese
approach. He has praised China for honoring Cambodia's
"independence and integrity," described the country as
"Cambodia's most trustworthy friend," and told the press
"China talks less (than other donors) but does a lot."

Getting China to Play Ball with Other Donors
--------------------------------------------

10. (U) The Government's Action Plan on Harmonization,
Alignment and Results (2006-2010) commits both the Cambodian
government and donors to ensuring that all sector plans and
development programs/projects in Cambodia are coordinated and
achieve targeted development results. There is general
acknowledgment that the government-donor consultative process
and coordination structure, including the Cambodia
Development Cooperation Forum (CDCF), the Government Donor
Coordination Committee (GDCC), and Technical Working Groups
(TWGs) have resulted in better understanding and coordination
among donors and the RGC.

11. (SBU) Dialogue between all actors has been maintained
through TWGs established in 18 sectors and thematic areas. It
is their role to facilitate coordination and technical-level
discussions. China is noticeably absent from the dialogue,
and its participation would be a major improvement in the
process. Furthermore, without China's involvement,
development of a regional perspective on aid effectiveness
and coordination is impossible. As a possible first step, it
would seem particularly appropriate for China to participate
in the "Infrastructure and Regional Integration" TWG.

12. (SBU) Various donors have urged the Chinese Ambassador
to Cambodia to participate in donor meetings, but with little
success. She is either not interested in participating or
feels that she lacks the authority to overturn China's
historically distant relationship with other donors. Even
the Cambodians have called for greater coordination, inviting
the Chinese to attend this year's CDCF meeting, held June
19-20 (septel), and requesting that China announce its
foreign aid pledge with the other donors. China's level of
participation in this year's meeting was minimal, with one
diplomat telling us that a Chinese embassy official--though
not the Ambassador herself--attended this year's CDCF meeting
but said nothing, while the Cambodian Finance Minister told
the press that no Chinese representatives attended. The
Chinese did include their foreign aid pledge in the official
tally for the first time: more than USD 90 million from the
Chinese, making them Cambodia's second largest donor (after
Japan) and exceeding US assistance levels by nearly 50%.

13. (SBU) ACTION REQUEST: Given the critical and growing
importance of China's foreign assistance engagement with
Cambodia, and the strong pull and often negative consequences
of China's commercial interests in Cambodia, post recommends
the Department engage China on this matter, encouraging China
to work with other donors at as many levels as possible--from

PHNOM PENH 00000926 003 OF 003


Technical Working Groups to the high-level Cambodia
Development Cooperation Forums. End Action Request.
MUSSOMELI

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