Hun Sen has a ‘One China’ dilemma

Cambodian Prime Minister Hun Sen reaffirmed last month that his government fully supports Beijing’s ‘One China’ policy, a diplomatic nod to the notion that Taiwan is a breakaway Chinese province rather than an independent state.

“Taiwan is only a province of China…We allow Taiwanese companies to do business in Cambodia, but no Taiwanese flag will ever be flown here,” Hun Sen said, referring to the government’s decision in 2017 to formally ban Taiwan’s standard from flying in the country.

Doing so, the leader said, “would be just like recognizing Taiwan’s independence.” Most Cambodian official ministerial documents refer to Taiwan as a “province of China.” Such high-level comments are intended to please policymakers in China, now Cambodia’s closest ally and larger provider of aid and investment.

In recent years, Beijing has tried to further isolate Taiwan within the international community, while making increasingly hostile noises about a possible invasion.

Yet some analysts think that Hun Sen’s stance against Taiwan, a string attached to China’s largesse, could cut off a vital new trading outlet as Cambodia faces economic sanctions that would inhibit its access to key Western markets.

“Any official attention to – or even acknowledgement of – Taiwan’s positive economic role in [Cambodia] would be met with severe blowback from China,” said Bradley Murg, assistant professor of political science at Seattle Pacific University.

“Lack of news coverage is certainly related to the low profile that Taiwanese firms take. Many people are simply unaware of the significant scale of Taiwanese investment in [Cambodia’s] garment sector,” he added.

Taiwanese companies invested roughly US$171 million in Cambodia in 2017, rising to $181 million last year, according to a recent Forbes report. Last year’s sum was its highest in six years.

In 2017, Cambodia imported more goods from Taiwan – valued at $709 million – than it did from South Korea, Singapore or Japan, according to Cambodian Ministry of Commerce’s figures. Exports to Taiwan, however, were minimal, worth just $40 million that year.

Grand Twins International, a Taiwanese manufacturer, has been a mainstay of Cambodia’s garment sector for years, with assets worth almost $89 million in the last quarter of 2018, according to the firm’s latest financial report. In 2014, it became the second foreign firm to be listed on Cambodia’s stock exchange.

It is just one of many Taiwanese firms that play a significant role in Cambodia’s garment sector, the country’s largest provider of jobs and the producer of its main export good, which contributed to around 40% of gross domestic product last year.

Asia Times’ independent analysis found that Taiwanese-owned businesses in Cambodia’s garment sector are often more productive than firms owned by individuals from mainland China.

Out of the 609 companies registered with the Garment Manufacturers Association of Cambodia (GMAC), an employer’s lobbying group, 111 are Taiwanese-owned and 249 China-owned. However, Chinese-owned manufacturers tend to employ fewer workers and are often small scale.

The largest Chinese manufacturer, Lin Wen Chih Sunbow Enterprises Co, employs 6,133 workers, while the largest Taiwanese-owned garment maker, Carlington (Cambodia), employs 9,830 workers, according to GMAC’s records.

Combined, the 249 Chinese-owned manufacturers employ 192,714 workers, for an average of 774 employees per company; the 111 Taiwanese-owned manufacturers in Cambodia employ 181,541 workers, for an average of 1,635 employees per company, according to Asia Times analysis.

Those per company workforce figures would suggest Taiwanese-owned factories are bigger net employers and more lucrative for the Cambodian economy than those owned by mainland China employers.

Although Beijing says that its geopolitical alliances and provisions of aid come with “no strings attached,” one clear thread is that partner nations should accept its “One China” policy.

Cambodia adopted this line after Hun Sen and his Cambodian People’s Party (CPP) launched a coup against its power-sharing partner, the royal Funcinpec party, in July 1997.

While the putsch was roundly criticized by Cambodia’s Western allies, Beijing said it would stand firmly behind Hun Sen and announced more aid and investment.

With Beijing’s support sealed, Hun Sen ordered the closure of the Taipei Economic and Cultural Office, Taiwan’s alternative to an embassy, in Phnom Penh in late 1997. He claimed this was because Taipei was “responsible for terrorism” because of its alleged financial support of Funcinpec, though it was more likely a friendly gesture to Beijing.

Taiwan had been a significant investor in Cambodia until the coup, funding $200 million worth of projects over the three years prior. But Taiwan’s investments fell to just $9 million in the year after its de facto embassy’s closure.

More recently, Taiwan was also alleged to have been part of a vast and unproven conspiracy concocted by the now-dissolved opposition Cambodia National Rescue Party (CNRP) to overthrow Hun Sen’s CPP-led government. Other alleged instigators include the US government, American NGOs and independent journalists.

But analysts reckon that Cambodia’s firm stance on the ‘One China’ policy risks jeopardizing possible improvements in trade relations with Taiwan, which could help Phnom Penh if it wants to diversify its trade to hedge against Western sanctions.

Murg said that as long as Cambodia prioritizes economic relations with China, it is “to a degree limited in building closer economic ties to Taiwan and taking advantage of the significant benefits that come along with Taiwan’s remarkable economic success.”

“While the Taiwanese business community keeps an extremely low profile in Cambodia, the inability to build the sort of official relationships necessary to expand existing trade, educational and financial linkages are a clear net negative for the achievement of greater economic diversification.”

New and better trade routes are now essential for Cambodia’s economic livelihood. In February, the European Union began the process of removing Cambodia from its preferential Everything But Arms (EBA) trade scheme in punitive response to an anti-democratic crackdown.

Presently, the EU and US purchase the vast majority of Cambodia’s exports, chiefly products made by its vital garment sector.

For months, Phnom Penh has oscillated between introducing partial reforms in the hope of appeasing the EU and trying to find ways of diversifying its export-drive economy away from dependency on Western markets, namely by increasing trade in Asia.

At the same time, Taiwan clearly aims to improve its relations with Southeast Asian nations. Taiwanese President Tsai Ing-wen launched the New Southbound Policy (NSP) in 2016, a bid to remove her country’s economic dependency on mainland China and to “deepen and broaden our presence in South and Southeast Asia,” she said in 2017.

In 2016, Taiwan’s investment flows into the Association of Southeast Asian Nations (ASEAN) region rose to $4.2 billion, up 73% from the previous year, making it the region’s seventh largest source of foreign direct investment, according to a recent report by analysts at the Brookings Institution, a US-based think-tank.

Last year, for example, Taiwan’s bilateral trade with Vietnam was worth US$14.5 billion, up 7% from the previous year, according to Taiwan’s Bureau of Foreign Trade. That made it Vietnam’s fifth largest trading partner, while Taiwan’s $31 billion in direct investment since 1988 makes it the fourth-largest provider of direct investment in Vietnam.

However, as the Brooking’s report noted, “Taiwanese policy analysts readily identify China as the main obstacle to further progress engaging NSP countries in trade and investment as well as educational exchange and tourism.”

Sophal Ear, associate professor of diplomacy and world affairs at Occidental College at Los Angeles, said that there “is definitely more that could happen trade-wise between Taiwan and Cambodia but artificial walls have been put in place by Cambodia at the instigation of China.”

“By insisting on a ‘One China’ policy, Cambodia is leaving money for its businesses and workers on the table. It is, instead, choosing to line its pockets privately with mainland [Chinese] money. This is not a new a problem for Cambodia,” he added.

Kimlong Chheng, director of the Center for Governance Innovation and Democracy at the Asian Vision Institute, a local think-tank, reckons that Cambodia can “establish a strong trade relation with Taiwan without hurting” its good relationship with China.

“That said, China would not interfere so long as Cambodia remains a fervent supporter of the ‘One China’ policy and that Cambodia will not trade arms and weapons with Taiwan, or would not engage in any joint military exercise with Taiwan.”

But if Cambodia is removed from the EBA scheme and tariffs are imposed on its exports to European markets – which could cost exporters roughly $676 million per year, according to a leaked government document from 2017 – some suggest that Beijing could make up the financial shortfall.

Some political analysts suspect that China could either hand the funds over to the Cambodian government in the form of aid, which would then be passed along to manufacturers and exporters as subsidies, or purchase the excess product that can’t be sold to Western markets.

The estimated cost would be loose change for Beijing but could forestall economic collapse in Cambodia, they say.

While noting this scenario is still “unlikely,” Murg said that would ultimately and ironically constitute “a de-facto subsidy to Taiwanese firms” by Beijing since many of the most-productive manufacturers in Cambodia are Taiwan-owned companies.

This market fact could “seriously [limit] Beijing’s options in light of its increasingly hostile approach to Taiwan,” he added.