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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