Sophal Ear is an associate professor of diplomacy & world affairs at Occidental College in California who has written "Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy" and co-authored “The Hungry Dragon: How China's Resource Quest Is Reshaping the World." The policy analyst gave an interview by e-mail with Sovannarith Keo of RFA's Khmer Service about Cambodia's deepening economic relationship with China and concerns about the Southeast Asian country's growing debt to its giant northern neighbor as Beijing ramps up its signature Belt-Road Initiative infrastructure plan.
RFA: What are your general observations and assessment of Cambodia's debts to China, especially since China introduced its Belt Road Initiative (BRI) projects for Cambodia? Has such an initiative induced Cambodia to take on more debt to China than ever before? If so, is the trend a good or bad sign for Cambodia's future?
Sophal Ear: $4.3 billion in debt to China is about 20 percent of Cambodia’s GDP. This is a lot to owe one single creditor: China. Belt Road Initiative projects are just a way of categorizing a bunch of lending--much of which would have taken place anyway. It's putting a nice label on something--like the same old wine in a new bottle. Of course, it sounds so impressive, globally the spending could approach $1 trillion, but if it’s loans, it’s great for China. The money lent becomes income for Chinese companies which use Chinese workers (who receive paychecks). A win-win-win for China. As for Cambodia, if it builds infrastructure that can transform Cambodia and add value to its economy, that’s good. But if it’s just white elephant projects, ghost cities, and Potemkin villages, then (it's) terrible for Cambodia. Chinese President Xi Jinping said this for China and it applies to Cambodia: 'Houses are built to be inhabited, not for speculation.' Yet that is what is happening on Diamond Island and in other parts of Phnom Penh and Cambodia.
RFA: A new report published by the Center for Global Development (CGDEV) identified Cambodia among 23 countries at 'risk of debt distress' today as a result of Chinese BRI. But the report did not classify Cambodia among eight countries 'vulnerable to debt distress' due to future BRI-related financing. Do you agree with this finding? Which such trends, can you predict when Cambodia may face debt default as a result of such Chinese BRI financing?
Sophal Ear: It’s a reasonable finding. Cambodia’s overall debt sustainability is not bad. Look, this analysis is based on debt as a percentage of GDP, export revenue, etc. Exports bring in foreign exchange, which is used to service debt. You cannot pay foreign debt in Riels. Cambodia is in the 32 percent of debt-to-GDP range, but could be inching up to 40 percent of GDP before you know it, especially if Cambodia's economy hits a bump and a recession happens or if debt grows more rapidly than GDP growth. Right now, based on existing numbers, it’s not yet unsustainable. The acceleration of indebtedness is probably what puts it “at risk”. It’s going up, but if it goes up too quickly, that’s worrisome. The U.S. has about 106 percent debt-to-GDP. Japan’s is 245%, but most of Japan’s debt is held by Japanese citizens. China and Japan own about 5% each of U.S. debt. No-one believes the U.S. or Japan could default. The risk is very small. Cambodia, on the other hand, has a painful history of banning money. This is why the dollar is used in Cambodia and the country is still only talking about issuing bonds.
RFA: What are your general recommendations so that Cambodia can escape from a Chinese debt trap?
Sophal Ear: Diversify who you borrow from. Borrow too much from one source, especially if that source is not your own people, and you become a wholly owned subsidiary of that source: China. Who wants Cambodia to be a province of China? I don't think Cambodians want that.
RFA: Prime Minister Hun Sen recently defended his government's foreign debt status, saying that it is still healthy since the entire debt-to-GDP ratio remains lower than 40 percent or so. What is your reaction to that?
Sophal Ear: Mathematically, it is correct. However, if Cambodia’s Chinese debt-to-GDP ratio is 20 percent, and we’re still below 40 percent debt-to-GDP ratio overall (as I mentioned earlier 32%), then about 62.5% of Cambodia’s current debt is owed to China. That is an incredible level of dependency on one country. If one wishes to avoid being a wholly owned subsidiary or a province of China, one had better diversify with no foreign country lending Cambodia in excess of 50 percent of its debt, and preferably a lot less than 50 percent. The African proverb applies: "If your hand is in another man’s pocket, you must walk where he walks."