Cambodia has asked China to open the door wider for Cambodian products and not only of the agricultural type. It wants the country to accept more garments as well as textiles and science-based goods among others.
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The move comes as the two countries schedule the finalisation of a free trade agreement (FTA) later this year.
China is the world’s second-largest economic nation. The kingdom wants to be attractive to it and other countries as an investment vehicle.
Prime Minister Hun Sen has called on Cambodia to diversify and reform its economy following the European Union’s sanctioning of the Everything but Arms (EBA) trade deal.
The suspension would affect 20 percent of exports to the EU, worth about $1.1 billion.
Mr Hun Sen noted that currently the majority of garment and footwear factories in Cambodia are owned by Chinese investors.
Cambodia imports most of its raw materials from China for processing and exporting to third countries, Mr Hun Sen said, adding that China can then import the finished products from Cambodia.
This year, 400,000 tonnes of milled rice, which is the quota that China offered to Cambodia, has started to be exported.
The balance of trade between Cambodia and China is very much in the latter’s favour, meaning that Cambodia exports to China less than it imports from China.
Cambodia’s current exports to China are milled rice, sliced and dried cassava, bananas and corn. From China, Cambodia imports raw materials for garments, construction materials and electronic devices.
Trade between Cambodia and China reached $7.4 billion in 2018. The Kingdom exported $1.3 billion worth of goods to the Chinese market, an increase of 37 percent year-on-year.
The trade volume between the two countries has steadily increased from $5.16 billion in 2016 to $6.04 billion in 2017. The two countries aim to reach $10 billion in trade per year by 2023.
FTA brings high hopes
With his close relationship with Beijing, Mr Hun Sen called on Chinese investors, who now hold about 70 percent of investment in the country, not to move out of Cambodia because of
the 20 percent EBA trade agreement withdrawal.
Additionally, Mr Hun Sen asked for more investment from China to invest in Cambodia in manufacturing technology and science products.
“We are asking for more Chinese investment in Cambodia to produce products such as technology and science goods and allow us to export the finished items to China,” Mr Hun Sen said, adding that the model is similar to other investments from South Korea and Japan, in which investors come to invest in Cambodia before goods are exported back to the two countries.
Cambodia and China have just wrapped up the first round of talks on the FTA in Beijing and, as planned, the FTA will be signed in November this year during Chinese Prime Minister Li Keqiang’s visit to Cambodia to join the Asia Europe Meeting (ASEM) that Cambodia will host.
“I hope China will import more product from Cambodia when the FTA comes into effect,” Mr Hun Sen said.
Lim Heng, vice-president of the Cambodia Chamber of Commerce, shared the view that more products will be exported from Cambodia to China after the FTA of two countries comes into effect.
“Exporting garment products to China is a good thing and we hope to export more items, particularly from November,” he said.
“If we have a free trade agreement with China, it will potentially be equal to the whole EBA deal, not just 20 percent of it, because China is a big market for countries to export to and it is good for Cambodia to attract more factories to make products in Cambodia and export them to China,” Lim said, adding he is also appealing to other Asean members and the US to invest, especially over the ongoing trade war between the latter and China.
Lim Menghour, deputy director of the Mekong Centre for Strategic Studies, part of the Asian Vision Institute, writing in an opinion piece published in Khmer Times recently, said the FTA would be a new mechanism that boosts and diversifies the economic potential and visions of the two nations.
“This FTA offers a new opportunity for growth for both China and Cambodia. The two countries would likely gain reciprocal benefits considering the positive trading trends in recent years,” he wrote.
Through the FTA, Cambodia may reach similar trade deals with the other trading partners of China, such as Singapore, South Korea, Australia, New Zealand, Switzerland and Pakistan, which have already signed an FTA with the giant economy.
“Therefore, it could be strongly suggested that the FTA with China is crucial for Cambodia because the Kingdom is trying to look for more opportunities to diversify its export destinations, finally reducing its heavy dependence on the West,” he said.
In a meeting with Prime Minister Hun Sen in Beijing in February, Chinese President Xi Jinping said that in 2020, China will continuet to maintain close high-level exchanges with Cambodia, implementing the action plan to build a community with a shared future and raise China-Cambodia relations to new heights.