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From the Summer 2012 Games People Play issue

By Laura Rena Murray

PHNOM PENH—The 328 acres known as Boeung Kak Lake still appear on maps of Cambodia’s capital as a large blue patch, though its waters are now only a memory. Pumped full of sand, the area is being readied for a promised development that has already displaced some 4,000 families. Looming over the puddles and dirt, two massive billboards display portraits of the high-end residential and commercial wonderland intended for the plot.

In 2007, the Cambodian government handed Boeung Kak Lake to Phnom Penh-based Shukaku Inc. in the form of a 99-year lease, which allows the company to clear the land for economic development. The local company belongs to Lao Meng Khin, a close friend of Prime Minister Hun Sen and a senator from the ruling Cambodian People’s Party, but several Chinese companies also have a share in the new development project. The Inner Mongolian firm Erdos Hongjun Investment Corporation has a 50 percent stake in Shukaku. Another Chinese firm, Guangdong New Golden Foundation, has also announced its intent to invest in the project.

Cambodia today is quite literally giving itself away, especially to China and Vietnam—two rivals vying for regional influence. As the Cambodian government welcomes millions of dollars in investments from both nations, the land concessions handed out to these foreigners are forcing tens of thousands off their property and imperiling Cambodia’s future. Over the last 30 years, the Sino-Vietnamese rivalry has shaped Cambodia militarily, politically, and economically, and there are no signs this will change.

Much of the backdrop for this current activity was set during the 2008 financial meltdown that took a wrecking ball to the world economy and sent investors searching for stability in unexpected places. Mineral resources continue to deplete, while the costs of labor are rising in the mega manufacturing centers of southern China. Neutral, well-positioned smaller nations in Southeast Asia like Cambodia have become alluring targets for new investments. Although the commercial benefits have bolstered the economies of such nations, the smaller states have become ground zero in the struggle for resources by more dominant countries.

Following decades of conflict, Cambodia now actively courts foreign investors and aid organizations in its long process of rebuilding. With that aim, the nation’s leaders have sought to attract competing superpowers, drawn to the country by its cheap labor and strategic geographic location, and balance them against each other.

In Channy, president and CEO of Acleda Bank, notes that as of 2010, “foreigner investors can [now] own up to 100 percent of the company.” But it often remains difficult to decipher which companies are foreign and which are locally owned. Like Boeung Kak Lake’s Shukaku Inc., businesses may appear to be local, though the controlling stake is actually held by a foreign company. “There are different arrangements of shareholders,” says Chan Sophal, president of the Cambodian Economic Association. “So sometimes we might see the names of the company as local, but it could represent a lot of foreign interests as well.” Such scenarios, he says, occur much more often than is officially reported.

GIANT STEPS

Negotiating with giants has accelerated the pace of Cambodia’s economic development over the last decade. But as Cambodia becomes the stage of an economic power play between Vietnam and China, maintaining the delicate balance between regional powers will be risky. The Cambodian government says land concessions bolster the country’s economy and improve its infrastructure. Each concession is leased for 70 to 99 years for agricultural or industrial development. The Land Law stipulates that economic land concessions cannot exceed 25,000 acres, a rule that is easily and frequently circumvented by using multiple companies with interlocking ownerships, subsidiaries, or directorships. According to the Cambodian Economic Association’s Chan, half of the land concessions are held by foreign corporations, which he predicts will spell disaster for Cambodians in the years to come. “Land is limited,” he warns. “When you give a lot to foreign companies as free economic concessions, that means there will be less for the future generations.”

Although the law stipulates the concessions are given transparently to stimulate economic growth, the land goes most frequently to those coughing up the largest bribe and often spells disaster for residents living on the land without documents, says Chan. “The payment is informal with a lot of informal dealings in order to get the formal free economic land concessions,” he says.

Most Cambodians do not have land titles—one consequence of the Khmer Rouge decision to abolish all private property after they seized control of the nation in 1975. The continuing lack of such titles makes it easier for a corrupt government to evict people whose legal rights are difficult to prove even if they’ve lived and worked the lands for decades. Since 2007, almost 30,000 families have been forced from their homes, relocated to less desirable areas to make way for wealthy Cambodians or companies, according to Thun Saray, president of the Cambodian Human Rights and Development Association.

Land concessions are often given in large swaths to the country’s oknhas, wealthy and influential businessmen allied with the Cambodian People’s Party and favored by Hun Sen. Many of these oknhas, such as Shukaku’s Lao, are using their insider status with the current regime to attract foreign investment. In addition to Shukaku, Lao co-owns Pheapimex Fu Chan Co. Ltd. with his wife, Choeung Sopheap. The two companies share an address as well as a reputation for land grabbing. In February, Pheapimex demolished the homes of some 400 families after they were forcibly evicted from Phnom Penh’s Borei Keila settlement. The month before, 10 organizations issued a joint statement calling for the release of 24 women and six children from the Prey Speu center, a detention facility with a history of human rights abuses, where they were unlawfully detained following the demolition of their Borei Keila homes. According to a 2009 Global Witness report, Pheapimex holds more than three million acres in logging and economic land concessions.

In an August 9, 2007 cable released by Wikileaks, the American embassy in Phnom Penh reported that Choeung, who is ethnically Chinese, “uses her contacts in China to attract foreign investment from Chinese companies such as Wuzhishan LS and Jiangsu Taihu International.” The cable noted that Hun Sen’s relationship to oknhas was “both symbiotic and self-limiting. … Hun Sen’s very reliance on his tycoon network may hinder progress in battling corruption, illegal logging, and other sensitive issues that he claims are priorities.”

“The problem is the coalition between the politicians and businessmen,” says Chheang Vannarith, security director of the Cambodian Institute for Cooperation and Peace, a non-partisan Phnom Penh-based research center. “We don’t know what the deals look like, but most of the time, they violate human rights.”

According to Acleda Bank’s In, the former lake behind his office building showcases the negative repercussions and fallout from the country’s zealous courtship of foreign investors. “Investors from China joined by local investors evicted people from their own land,” he says. “If they don’t follow the law, they evict the people with no compensation and cause a lot of social problems.”

The Cambodian government has granted more than 17 million acres to businesses as land concessions over the last three years, a shocking 40 percent of the country, according to the Cambodian Human Rights and Development Association. Calling the practice “messy” and “difficult,” ANZ Royal Bank CEO Stephen Higgins says the current method for redistributing land is not transparent enough for ANZ Royal, a joint Australian, New Zealand, and Cambodian venture. “We are very wary of touching land concessions,” he says. “There’s a couple that we won’t [underwrite], because they wouldn’t pass the ‘K.Y.C.’—know your customer test. We need to be able to show that their money is from legitimate sources. Boeung Kak Lake we wouldn’t touch with a 10-foot-pole. It’s just disgraceful.” Higgins believes the practices reflect poorly on the country and attract more shady investors, adding, “Bribery is a way of life in Cambodia.”

Given the sheer scale of these handouts and the length of time granted for these leases, there will be little possibility for Cambodians to develop their own agricultural sector in the future. This could spell trouble for future generations. “If we have given out a lot of free land concessions for 70 years,” says Chan of the Cambodian Economic Association, “what will happen if in 20 or 30 years we have a lot of local people who have the capital, capacity, and technology to do the same things? There will not be much land remaining for them.”

Kao Kim Hourn, state secretary of the Ministry of Foreign Affairs, responds that the land concessions are more of a “long term benefit to the state budget and help contribute to the economy.” Although he admits that the “temptation” for land grabbing and land banking exists, he says the onus is on civil society to monitor corruption. He insists the government is diligently rooting out land grabbers who fail to abide by the terms of development. “If you get the license, and you do nothing except sit on it for a long period of time or you try to sell the license to another investor,” Kao says, “that’s something that’s being reviewed, and a number of licenses have been revoked.”

Whether or not the land concessions are developed, Kao believes there remains plenty of land to go around. With a population of only about 15 million, it is still possible to move people to unoccupied plots. “The idea is to encourage people to live in the border areas,” he says. Kao argues that displacing and relocating families reinforces Cambodia’s geographic boundaries and prevents countries like Vietnam and Thailand from claiming land near the frontier, much of which is not securely demarcated. Of course, Vietnamese state-owned companies have already received large land concessions along the border, especially in Cambodia’s northeast.

UNEASY FRIENDS AND NEIGHBORS

Historically entrenched adversaries, both China and Vietnam have been variously patrons and armed foes of Cambodia. Khmer Rouge leader Pol Pot allied with both China and Vietnam through much of the Vietnam War, which ended in the spring of 1975 with Hanoi’s takeover of South Vietnam and the fall of Phnom Penh to the Khmer Rouge. But escalating violence along the Cambodia-Vietnam border and fear of Vietnam’s increasing rapprochement with China’s bitter enemy, the Soviet Union, led to growing tensions. Eventually, Vietnam invaded Cambodia, overthrowing the Pol Pot regime in 1979. In turn, China invaded Vietnam in February 1979 in a bloody 28-day war that ended when China withdrew, and both sides claimed victory. In Cambodia, Vietnam installed the current ruling party—the Cambodian People’s Party. Ties between the two governments remain strong today.

Vietnam’s red flags lined Phnom Penh’s main boulevards to greet a visiting Vietnamese delegation in mid-December. It’s a predictable affair, the banners unfurling and the roads cleared to make way for the ceremonial procession of the prime minister and his honored guests. The pomp and circumstance carries on for the duration of the delegation’s stay—anything to impress a valuable ally and investor.

When it comes to the issue of who has the largest controlling stake in Cambodia, land plays prominently into the equation. Boeung Kak Lake is a prime example of the growing foreign control over the country’s land use, production, and economic output. The Chinese investment in this project—$98 million—is just a fraction of the $1.16 billion China invested in Cambodia in 2010 alone, and the pace is only accelerating. Since the launch of the China-ASEAN Free Trade Agreement in January 2010, Chinese investments in Cambodia have increased dramatically. Although China isn’t the only outside investor—Japan, Vietnam, and Korea are also in the mix—it is by far the largest, accounting for more than 20 percent of total foreign investment in Cambodia.

By comparison, Vietnam’s investments in Cambodia totaled $248 million by the end of 2010. However, Vietnam is the most active foreign investor when it comes to developing its concessions, using the property to boost rubber production. As a result, forests across the country have been converted into Vietnamese state-owned rubber plantations. Vietnam’s rubber exports have grown 55 percent in the past year, largely due to exploiting the new holdings in Cambodia.

Although China has also claimed large stretches of Cambodia’s land through concessions, it has been slower to implement land-based investment projects than the Vietnamese. Instead, Chinese companies have focused on building controversial hydropower stations in Cambodia—a pattern China has repeated across much of the developing world. Currently, there are 11 proposed dams along the Mekong. According to ANZ Royal’s Higgins, each hydro scheme costs $300 to $500 million. Although activists claim the results will be catastrophic for families living along the Mekong—as they have been along scores of rivers where Chinese dams have appeared—several Cambodian officials have welcomed such long-term investment projects and the promises of new sources of cheap electricity.

The acquisition and exploitation of Cambodia’s land and water resources showcase the muscles of its patrons. By controlling more of the country’s economy, Vietnam and China are positioning themselves to exert greater political influence. In essence, Cambodia’s great giveaway is the perfect opportunity for its two neighbors to advance their own geo-political strategies. Cambodia has relied on external patrons for centuries, and the last three decades have proved no different. According to Chheang, more than 30 percent of the country’s national budget comes from foreign donations.

When restrictions are imposed by international agencies like the World Bank, the ruling Cambodian People’s Party invokes its connections with countries that continue to give aid, seemingly without strings. When Cambodia handed over 22 dissident Uighur refugees to China for persecution in the face of American disapproval, the United States cancelled a large shipment of military trucks to the country. “The next thing you know, there’s a load of trucks from China, as in military trucks,” snorts Higgins.

Most economic and political analysts worry that, at least in the near-term, it will be impossible for the country to remain autonomous. “As long as you don’t have economic independence, especially concerning the national budget, then you cannot have a purely independent foreign policy,” Chheang observes. In its struggle to achieve neutrality, Cambodia has sought to diversify the foreign investors it attracts. “Cambodia has an open policy to invite all foreign investors to invest in the kingdom,” says Cheam Yeap, a chairman of the National Assembly, maintaining that there are no preferences for one country over another. “As a neutral country, we’re open to all.”

A BUSINESS HAVEN?

The fact that Cambodia is open for business is apparent as soon as the plane touches the ground. Along the main road leading to Phnom Penh airport, billboards advertise country clubs and condominiums. The extravagant images contrast sharply with the piles of trash burning along the highway. Still, Cambodia’s government will bend over backwards to accommodate new investors. “This is one of the most pro-business countries in Asia,” says Higgins. “For an ex-communist country, it’s very easy to run a business here.”

Cambodia’s last coup in 1997 and the country’s tumultuous history might be expected to lead to doubts from investors. Yet, over the last decade of relative political stability, Cambodia has experienced rapid development. “Cambodia, pre-[financial] crisis, was one of the fastest growing economies in the world,” Higgins continues. “It was the second fastest in Asia, after China.” Cambodia’s growth is still relatively new, and it still has potential for exploitation, especially of its natural resources.

In 2008-2009, “the global financial crisis and economic downturn caused [investors] to shift their investments to this region,” Acleda Bank’s In explains. Aside from the option of total ownership by a foreign investor, the country also offers appealing special economic zones with one stop service—infrastructure, electricity, telephone, and paperwork for import-export. “You can get everything done in one place,” the foreign ministry’s Kao says. “The idea is to create a very conducive business and economic environment.”

Higgins adds that there’s the strong draw of cheap labor, which is on average about a 10th the wage levels in China. As the costs of labor and electricity continue to increase in Vietnam and China, businesses in both countries have moved operations abroad. Cambodia is a nearby destination with a young, growing population. “Labor arbitrage is very important,” Higgins says. “Cambodia has 250,000 to 300,000 people entering the workforce every year. So that should keep wage levels pretty reasonable.”

Using cheap labor to attract businesses might fulfill the short-term employment goals for Cambodia’s growing youth population, but Chan of the Cambodian Economic Association warns there is real concern when it comes to depleting the country’s assets. “GDP growth doesn’t account for whose growth it is. Much of this income doesn’t stay in the country. It goes to a foreign country. So that’s what we lose. Just like we give land for free to foreigners to make income from.”

Just as the majority of earnings from many of its foreign investors leaves the country, so too does infrastructure aid. Even though China appears to provide generous development assistance, often the funds are merely recycled back to Chinese contractors and developers—a pattern the country has used and abused across much of Asia and Africa. This may not always win China friends, but it takes care of China’s pressing need to find and develop new, cheap labor sources.

PUPPET OR PEACEKEEPER?

While courting foreign investment, the Cambodian government is sacrificing the rights of its own people and the future of the country in favor of competing regional powers. It is a battle that promises only to intensify since Cambodia assumed the chairmanship of ASEAN in January, a milestone for the country. With the chair comes a complex entanglement of disputes over land and water resources, the most challenging of which concerns rights to the South China Sea claimed by China, Vietnam, and four other Southeast Asian nations. In addition to providing crucial trade routes and rich fishing grounds, the sea is estimated to contain large underwater oil and gas reserves. Hoping to preserve its own strategic interest in the South China Sea, the United States supports ASEAN’s key role in resolving the territorial disputes. Some worry that Cambodia won’t be able to balance the pro-American ASEAN nations and Phnom Penh’s Chinese benefactor, giving the negotiating edge to China. “China uses economic diplomacy to create regional influence. It really works,” Chheang notes.

Cambodia’s steadfast commitment to neutrality is an essential component of maintaining peace in Southeast Asia, especially during its chairmanship of ASEAN. While Hun Sen appears to lean more toward China, Cambodia wants to prove itself a key player and an honest broker for the region—potentially a powerful motive to avoid playing favorites. The country worked hard to win admission to ASEAN. After serving as ASEAN’s chair in 2012, Cambodia will seek to become a non-permanent Asia representative at the United Nations Security Council from January 2013 to December 2014.

On the other hand, Cambodia is eager to expand its economic relationship with its largest investor. Cheam is a firm advocate of Chinese support and believes Cambodia will continue to thrive by cooperating with its giant neighbor. “China is a big country that respects the sovereignty of other nations,” he says. “To cooperate with China is to ensure peace and serenity in the region.” Still, China’s continuing role as the leading investor in Cambodia and many other developing nations makes other regional and global powers nervous. “In the long term, China uses economic dependency to create strategic political influence,” Chheang says. For the moment, China and Vietnam are relatively balanced. But Cambodia’s challenge will be to maintain that equilibrium—and encourage others, from Asia and beyond, to assist in that process so no single power wrests too much control.

Without stronger infrastructure, Cambodia will remain a pawn in the geo-political strategies of great powers. Establishing stronger trade agreements and attracting foreign investors is at the top of Cambodia’s priority list. So far, China has obliged. To have more weight in Cambodia’s foreign policy considerations, the United States and other OECD countries should do the same.

Two days prior to the ASEAN summit in April, Chinese President Hu Jintao visited Phnom Penh and pledged to double bilateral trade with Cambodia to $5 billion in the next five years. Some saw this as a move to keep the South China Sea dispute off the agenda. If that was the intent, the tactic failed. Hun Sen insisted the speculations were false. “There is no hindrance from China for discussion of these issues. The forum for discussions over the South China Sea is between ASEAN and China,” the prime minister said. “We cannot solve the problem of the South China Sea with outside countries. Cambodia will be proactive in stopping outside interference, as it leads to complications.”

Although the sea was discussed, there was no consensus on how to move ahead and include China in the negotiations. As ASEAN chair, Hun Sen took the opportunity to deride his critics during a press conference, insisting that China’s influence on his country was exaggerated, and Cambodia could not be bought by anyone.

Right now, the Friendship Building and Peace Building sit cheek-by-jowl in Phnom Penh, towering over the Boeung Kak Lake development site. A nearby motorist points at the Friendship Building and explains it was a Chinese gift for Prime Minister Hun Sen. Because the prime minister was paranoid that the office was bugged by the Chinese, he claims Hun Sen had a trusted Cambodian architect build the Peace Building next door. While Hun Sen is willing to accept Chinese gifts, he neither trusts nor relies on them.

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Laura Rena Murray is an investigative reporter based in San Francisco. Research support for this story was provided by the Investigative Fund at The Nation Institute.