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Cablegate: Cambodia's Year of China (C-Al8-02576)

VZCZCXRO6667
PP RUEHAG RUEHCHI RUEHDT RUEHHM RUEHNH RUEHROV RUEHSR
DE RUEHPF #1027/01 3600352
ZNY CCCCC ZZH
P 250352Z DEC 08 ZDS
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 0251
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2555
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2355
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0426
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0188
RUEHUL/AMEMBASSY SEOUL PRIORITY 0699
RUEHKO/AMEMBASSY TOKYO PRIORITY 3253
RUEHWL/AMEMBASSY WELLINGTON PRIORITY 0129
RHMFISS/CDR USPACOM HONOLULU HI PRIORITY
RHHMUNA/HQ USPACOM HONOLULU HI PRIORITY
RUEKJCS/CJCS WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY 0152
RUCNDT/USMISSION USUN NEW YORK PRIORITY 2352
RUEHGV/USMISSION GENEVA PRIORITY 1691
RUEKJCS/DOD WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 PHNOM PENH 001027

****CORRECTED COPY (CLASSIFICATION MISMATCH)****

SIPDIS
NOFORN

STATE FOR EAP/MLS, D, P, INR
PASS TO USTR - D. BISBEE
NSC FOR L. PHU

E.O. 12958: DECL: 12/24/2018
TAGS: PREL PGOV CH CB
SUBJECT: CAMBODIA'S YEAR OF CHINA (C-AL8-02576)

REF: PHNOM PENH 1003

PHNOM PENH 00001027 001.2 OF 004


Classified By: AMBASSADOR CAROL A. RODLEY FOR REASONS 1.4 (B,D)

1. (SBU/NF) SUMMARY: China has spared no effort this year in
celebrating the 50th anniversary of bilateral relations with
Cambodia. This elaborate and lavish effort to court
Cambodia,s top leadership -- with royal banquets, trips to
Beijing, the first-ever visit by a Chinese warship, and
high-level visitors -- reveals a China set on achieving a new
apogee in relations with Cambodia and by extension, with
Southeast Asia. Cambodia's primary response to these
overtures has been to cite China as a model of "blank check"
diplomacy but simultaneously to maintain a steely pragmatism
by which Cambodia balances China with others, including the
U.S. China will figure prominently in any RGC balancing act
that leverages the continued engagement by all of the Paris
Peace Agreement signatories. In addition to a growing
assistance package, China,s trade and investment ties are
deepening, with China among the top investors in the last
five years and bilateral trade likely to reach USD 1 billion
this year. Cambodia,s physical proximity to China in the
Greater Mekong Subregion shrinks every year with new road and
developing rail connections. And while English schools may
have surpassed the influx of Chinese schools of a decade ago,
this may paradoxically serve to draw Cambodia ever closer to
China,s doorstep as Cambodia,s "Year of China" looks to
become its "Century of China." END SUMMARY.

2. (SBU/NF) The celebration of 50 years of Chinese-Cambodian
relations had two symbolic high points this past year. King
Norodom Sihamoni,s attendance at the Beijing Olympics (where
he mingled with the likes of President Bush) and a Royal
Banquet in Phnom Penh hosted by the Chinese Embassy and
attended by the King. Prime Minister Hun Sen,s meetings
with a long train of Chinese officials over the year have
been more workmanlike in character. For Cambodia, the
anniversary of 50 years of friendship and cooperation with
China is one more opportunity to seek development assistance
to bolster a strategy to build infrastructure and bring
Cambodia into the world economy. The Cambodian strategy
appears to be paying off handsomely: China pledged $256
million in bilateral assistance for 2009, the highest single
donor-country contribution to Cambodia ever. Ironically, as
Cambodia moves increasingly into the global economy, China's
economic influence here may decline.

Warming Relations - One Visit at a Time
---------------------------------------

3. (SBU) The list of Chinese visitors is so long that the
Chinese Embassy,s Political and Economic officers have
complained to emboffs that they never get any rest. PRC
Foreign Minister Yang Jiechi first visited in February to
kick off the bilateral "Year of Friendship". He announced
some USD 55 million in assistance and pledged a total Chinese
investment of USD 1 billion in the power sector. Just about
every week thereafter, a steady stream of technical advice
teams have visited Cambodia. Jiechi also noted extensive
plans for growing political, cultural, educational, sports
and other exchanges. All the while, major infrastructure
projects, such as dams in the southwest built by Sinohydro
(reftel) or a major road to the newly designated UNESCO World
Heritage site at Preah Vihear continue to be built by Chinese
construction companies. A Chinese warship also visited
Cambodia this year -- the first ever, it followed China's
gift of seven sea-going patrol boats.

4. (SBU) Cambodian official visits to China have been
equally numerous. Cambodian national elections put a damper

PHNOM PENH 00001027 002.2 OF 004


on these visits in the first half of the year; however, since
October, PM Hun Sen, DPM Sar Kheng, and DPM Sok An have paid
calls on their counterparts in China. Senate President Chea
Sim, head of the Cambodian Peoples Party (CPP), also led a
delegation to Beijing. National Assembly President Heng
Samrin will lead a Cambodian delegation of lawmakers to China
in January 2009.

The Sihanouk Connection
-----------------------

5. (C/NF) King Father Sihanouk's complex relations with the
PRC's political elite since the 1950's explain another
deep-rooted "Chinese connection" of Cambodia. However,
because the relationship is highly personalized, it also
marks some of the boundaries on Chinese influence on
Cambodia's internal affairs and external relations. From his
close relationship with Zhou Enlai to Sihanouk's reliance on
Chinese support of a national front movement when he was
toppled by Lon Nol in 1970, to his permanent residence in
Beijing -- where he resides about six months out of the year,
undergoing medical treatment for cancer -- the King Father
has charmed countless generations of Chinese leaders. Just
this past February, Premier Wen Jiabao called on the King
Father at his Beijing residence to convey Lunar New Year
greetings. However, like the residence itself, the
relationship is more or less the "property of China" and will
revert to the PRC upon Sihanouk's death. When King Norodom
Sihamoni ascended to the throne in 2004, he brought only a
glimmer of his father's personal relationship to his new
role. The Chinese Ambassador recently confided that she has
little interaction with the "new" king.

Pragmatic Foreign Policy
------------------------

6. (SBU/NF) Cambodia over the past decade has demonstrated
time and again that it will work with any government that
shows its dedication to Cambodian development, preferably on
Cambodian terms. Taiwan for many years was a welcome
addition to the donor and business community in Phnom Penh
because of its contributions. (In 1997, the RGC reversed its
stand and has since announced full support for a one-China
policy.) Nations that bring investors or donations flourish
and have a certain degree of access and influence. However,
when Cambodian national finances or sovereignty are at stake,
the RGC has shown that it can be a tough negotiator with all
friends. As an active member of the WTO and ASEAN -- and
more recently a contributor of peacekeeping troops to the UN
-- Cambodia is intent on developing an outward-looking
foreign policy that not only ensures legitimacy in the world
community but protects against entangling alliances.

Cambodia Can Never Forget
-------------------------

7. (SBU/NF) An important section in Hun Sen's recent
biography (compiled by CPP admirers) notes that when he was
Foreign Minister one of Hun Sen's great achievements was to
secure the neutral stance of the Non-Aligned Movement towards
Cambodia's membership in the United Nations. At the time,
the newly formed People's Republic of Kampuchea (PRK)
supported by tens of thousands of Vietnamese troops, was
desperately seeking international legitimacy, including
membership in the UN, then held by the Democratic Kampuchea
of the Khmer Rouge. However, in 1979 the U.S. would not back
the Vietnamese-supported PRK and China, which had just
concluded a border war with Vietnam, sided with the U.S. The
Democratic Kampuchea flag of the Khmer Rouge flew over the
United Nations until 1991. Hun Sen often cites this moment

PHNOM PENH 00001027 003.3 OF 004


in history as one indication of the flaws of the UN, and by
inference, of its two leading P-5 members. Cambodians, with
the help of the Vietnamese, expunged the genocidal Khmer
Rouge from their midst by themselves. The U.S. and China
took Cold War positions in favor of a coalition that included
the Khmer Rouge. As his many speeches attest (including one
as recent as early December 2008), Hun Sen does not forget --
the RGC inherently does not trust its big friends, China
included. (COMMENT: We expect, therefore, that Cambodia will
continue to play its balancing act among great powers as it
charts its own course in the future. END COMMENT.)

Assistance Blossoming: Blank Check Diplomacy
--------------------------------------------

8. (U) During a recent visit to Cambodia by 200 government
officials and private business representatives lead by Jia
Qinglin, Chairman of the National Committee for the Chinese
People's Political Consultative Conference, the two countries
reiterated their commitment to greater economic and trade
cooperation. Cambodian Senate President Chea Sim described
China as a close friend and cooperative partner. China is
Cambodia's largest source of foreign aid. In 2007, China
pledged USD 600 million in assistance and recently announced
USD 256 million in aid for 2009. (By contrast, European
countries pledged a total of USD 213 million for 2009, Japan
pledged USD 112 million, and the U.S. pledge -- not yet
announced -- is likely to be approximately USD 50 million.)

9. (SBU) Chinese assistance is mostly in the form of
concessional loans. Of the USD 256 million in aid pledged
for 2009, only an estimated USD 17 million is grants; the
remaining USD 240 million is loans. These loans target
infrastructure projects, such as roads, bridges, and
hydropower projects, and oil and mineral exploration. These
preferential loans are often used to support projects
invested in by Chinese companies. With a USD 10 million
grant and USD 20 million soft loan, the Yunan Construction
Company just built the prominent Council of Ministers
offices, a notably modern building which sweeps in front of
one of Phnom Penh's classic French gateway avenues. The
Chinese are proposing to build more offices in the Senate.
Prime Minister Hun Sen repeatedly praises Chinese aid to
Cambodia's other donors, citing its "no strings attached"
feature, although many point to the Chinese access to mineral
and resource wealth as one among a number of non-transparent
quid pro quos.

Trade and Investment Booming
----------------------------

10. (U) A decade ago the heavy influx of Chinese-language
schools was seen as a sign of Cambodia's deepening relations
with China. Nowadays, virtually every major street corner in
Phnom Penh is graced with an English school packed with
hundreds of students. The best go on to Pannasastra
University, with its all-English curriculum. Paradoxically,
this phenomenal growth in English is fueling even stronger
economic relations with China. English, after all, is the
language of trade.

11. (U) Trade ties between the two countries continue to
grow. In the first nine months of the year, trade between
the two countries was valued at USD 912,817,000, an increase
of forty percent year on year. In 2007, trade flows were
estimated at USD 933 million, up from 482,426,000 in 2004.
The number of Chinese tourists visiting Cambodia is rising.
In the first seven months of the year, Chinese tourists
accounted for 6.3 percent of foreign visitors to Cambodia, up
from 5.4 percent in 2007. (U.S. tourists accounted for 7.2

PHNOM PENH 00001027 004.2 OF 004


percent in the first seven months of 2008 and 5.6 percent in
2007.)

12. (U) There are more than 3,000 registered Chinese
companies operating in Cambodia. Chinese investment in
Cambodia grew significantly in 2008, accounting for 43.5
percent of foreign direct investment projects approved during
the first nine months of 2008. In 2004 and 2005, China was
also the largest investor, accounting for 31 percent and 33
percent of total approved investment projects respectively.
However, China slipped to second place in 2006 (behind South
Korea) and stayed there in 2007 (behind Malaysia). Chinese
companies are estimated to have invested over USD 1.76
billion to date, primarily concentrated in the areas of
garment factories, agriculture, infrastructure, energy, and
tourism. In terms of accumulated registered capital, from
1994 to 2008, Malaysians have outstripped Chinese investors
by almost three to one; the Chinese have registered about USD
560 million.

13. (SBU/NF) Given the strong economic and trade ties
between the two countries and the amount of resources China
brings to the table, China is able to influence Cambodia's
foreign and domestic economic policies. In 1999, Hun Sen
shut down a Taiwan commercial office in Phnom Penh,
overruling the Phnom Penh municipality. The promise of
access to Chinese resources, either through aid, loans, or
investment, serves as a strong incentive for Cambodian
decision-makers to award economic or concession contracts
that favor Chinese investors.

Comment
-------

14. (SBU/NF) China's strong economic influence can be
counterproductive to donor efforts in linking assistance to
improvements in good governance and fighting corruption.
Similar to the situation among Southeast Asian neighbors,
Chinese money with few strings attached can exacerbate
corruption and unbridled natural resources exploitation. The
lack of transparency in the economic relationship and the
decision-making process in general enables the politically
connected to benefit from concessions at the expense of the
Cambodian people and the environment. That said, whether
China has the inside track in Cambodia for the long term
remains to be seen.
RODLEY

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