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