The call of Cambodia proves irresistible

Despite some local risks, Chinese investors exploit opportunities presented by the initiative, Xu Wei reports from Phnom Penh.

Editor's note: This is the ninth in a series of reports focusing on the development of the Belt and Road Initiative, China's proposed trading routes linking Asia, Europe and Africa.

Chinese businessman Li Weichun first visited Cambodia as a tourist last year. After the 10-day trip, he made up his mind to move key parts of his electric wire and cable business from a town near Beijing to the Southeast Asian country.

"What I saw then was a country very similar to China of the 1970s and 1980s. The Cambodia market is still yet to be developed, but the booming infrastructure drive means the demand for our products will be definitely strong," Li said.

That's because Cambodia does not produce electric cables and wire products, and instead relies on imports, said Li, a native of Nantong, Jiangsu province, who owns a factory in Yanjiao, a township in Hebei province, near Beijing.

He started by finding a business partner in Cambodia. Next, a joint venture－Phnom Penh Wire and Cable Electric Co Ltd－ensued, which started production in January. Li expects sales revenue of $4 million to $5 million this year.

"I'd not be here without the Belt and Road Initiative," said Li, adding his determination has been boosted by the large number of Chinese State-owned enterprises investing in Cambodia.

China is already the largest foreign investor in Cambodia with investment of $748 million in 2016, the Kramer Times reported, citing figures from the National Bank of Cambodia.

China has also been the biggest trade partner of Cambodia for three consecutive years to 2015. Bilateral trade reached $4.4 billion in 2015.

Li is one of several Chinese businessmen who are eager to exploit opportunities in the emerging Cambodian infrastructure sector, which is also largely spurred by the Belt and Road Initiative.

In a report published in January, the NBC said that the expansion of economic activities will be buoyant this year, with the Belt and Road Initiative expected to allow Cambodia to increase its investment and trade with China and other economies along the Initiative.

The NBC also said in the report that the country's real estate market had increased significantly last year, with 2,636 investment projects, up 14 percent year-on-year. Capital flowing into the sector expanded by 156 percent to about KHR 34,341 billion ($8.46 billion).

The country's GDP growth rate has been robust over the past five years, reaching an estimated 7 percent in both 2015 and 2016. The Asian Development Report 2017, published by the Asian Development Bank, expects Cambodia's GDP to grow by 7.1 percent this year and in 2018.

The report noted that the potential for light manufacturing to relocate out of China into lower-cost economies in the region should offer Cambodia scope to attract foreign direct investment or FDI in a variety of areas beyond garments and footwear, which have long been the mainstays of the local economy.

China remained the largest source of FDI (60 percent) in Cambodia's real estate in 2016, followed by Singapore (30 percent), the NBC report said.

Businessman Li noted that his decision to relocate to Cambodia is in part related to China's cooling real estate market and infrastructure drive.

In Cambodia, large Chinese investments have brought about unprecedented business opportunities for his electric wire and cable business, he said.

To be sure, opportunities abound in other areas as well. Jiang Shengqiang, founder of the Zhongzhicai Supply Chain Co Ltd, a Beijing-based building decoration company, made a second trip to Cambodia in April, to find a location for an exhibition hall to display his company's products.

He said Zhongzhicai Supply is aiming to be a wholesaler of building materials, ranging from ceramic tiles, timber floors to toilets, in Cambodia.

"The prices of my products will be unparalleled. When I start my business there, all the small players in the market will find it difficult to continue," he said with a beaming smile.

Like Li, Jiang is keen on Cambodia because he believes the country is set to see a infrastructure and real estate boom on the back of a rise in FDI.

"We are planning to bring all our products here within two months after the completion of the exhibition hall," he said.

He is already facing competition from Chinese peers as the land in capital Phnom Penh is in short supply. "There are already a lot of people who want to have a finger in the pie. Some lands have been leased out in a very short period," he said.

But the close relationship between China and Cambodia is encouraging Jiang to invest. "The close ties are part of the favorable investment environment."

The relatively cheap labor is another reason that drew him to Cambodia. Jiang estimates labor costs to be only about one-fifth that of China.

Te Seurphann, board director of the Federation for Small and Medium Enterprises of Cambodia, said the Cambodian authorities are taking a variety of measures to support SMEs, which could also benefit Chinese investors.

"The SMEs are the heart of a country's economy. We need more investors who can create job opportunities, rather than people who are just trying to sell their products. Even though the domestic market in Cambodia is relatively small, the fact that it is a member of the Association of Southeast Asian Nations means about 600 million people are potential consumers."

But it's not hunky dory all the way. Cambodia sees frequent droughts and floods, so an investment is not always 100 percent risk-free.

"A plot's location appears perfect, but that may turn into a river during the wet season. I've heard stories of entrepreneurs being able to do nothing when their factories are washed away by floods," said Li.

The lack of a proper drainage system means that entrepreneurs must choose higher ground to set up factories and prevent them flooding, he said.

Chen Chenjiang, the acting president of the Chinese Chamber of Commerce in Cambodia, told Xinhua News Agency that it is important for Chinese investors to find the right local partners.

Background credit checks through the embassy or bank outlets from China is important to protect themselves from potential frauds. Even though there is little competition in the Cambodian market, the market volume is still small, Chen said.