In a telling article published this week in The Diplomat, a strong case was made by two Beijing-based analysts warning investors about the dangers of offshoring garment production from China to Cambodia and Vietnam. With regard to Cambodia, the authors warned firms considering moving production southward about its relatively high labor costs, criticized the country’s supply-chain structures, commented on the relatively low productivity of Cambodian workers, and warned that the garment sector in Cambodia was regularly subject to strikes because of the industry’s unionized workforce.
They aren’t the only ones concerned about the future of the Cambodian economy, and they began by quoting Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia, as saying that twice as many garment factories have closed in the first six months of this year than the whole of 2018, a worrying trend since the garment sector is the country’s largest single employer and contributes the most to its export-driven economy. But the piece is remarkable as Chinese authors rarely openly criticize Cambodia, a country Beijing has strongly courted through an enormous influx of aid and investment, resulting in Phnom Penh being widely viewed as China’s closest ally in Southeast Asia.
The authors were identified as staffers at Anbound Think Tank and Anbound Consulting. Anbound’s website describes the organization as “an independent Think Tank with the headquarter [sic] based in Beijing. Established in 1993, Anbound’s research findings are widely recognized and create a deep interest within public media, academics and experts who are also providing consulting service to the State Council of China.”
Quite an interesting description as authoritarian, single-party China does not permit independent Chinese think-tanks to operate in the country. The firm’s open admission as to its relationship to the State Council also raises questions as to the motivation of the piece and what it could signal as regards China’s relationship with its client states and its own concerns regarding the offshoring of production as the US-China trade war continues. Before exploring those potential implications, it is worth examining the argument made, which depicts, at best, a marked oversimplification, and, at worst, a remarkable ignorance of the Cambodian garment sector and the garment industry in general.
Concerning the question of labor costs, the authors are indeed correct that those in the garment sector are relatively high, with a US$182 per month minimum wage. While the wage rate has increased from $80 per month in 2013 according to the International Labor Organization, this reality has been at the center of the development of the industry for the last two decades. In the early 2000s, recognizing Cambodia’s lack of comparative advantage in the textile sector, new incentives were created for foreign investment in the industry. The government permitted 100% foreign equity ownership, tax holidays for up to nine years, and an exemption on import duties for machinery and equipment.
Cambodia focused its approach around the question of ‘fair labor standards,’ reacting to growing popular opposition in North American and European markets to purchasing goods produced in abusive, sweatshop-style conditions
Moreover, Cambodia also focused its approach around the question of “fair labor standards,” reacting to growing popular opposition in North American and European markets to purchasing goods produced in abusive, sweatshop-style conditions.
Cambodia is unique in having a strongly unionized garment-sector workforce, although it has been weakened in more recent years, and a well-functioning Arbitration Council to mediate disputes between firms and their employees. Firms producing garments in Cambodia are thus able to avoid the odious labor-rights reputation of China and some others (although alleged labor-rights violations are one reason the European Union is considering removing Cambodia from its preferential Everything But Arms scheme, which grants tariffs and quote-free status to Cambodian exports). Still, this has real payoffs, as Cambodian-made goods are not subject to boycott movements and do not cause consumers to think twice about the working lives of the individuals who produced the item they are considering purchasing.
This is something that certainly cannot be said about China, where regular workplace suicides among factory workers have become a consistent component of reporting on the Chinese economy. Cambodia is certainly not China (after all, not many countries can rely on a Uighur slave labor force to churn out cheap products). Already, numerous American firms have cut ties with companies engaged in garment production based in China’s Xinjiang labor camps.
Cambodia’s wage realities have been more of a net gain for the country than a negative, with the garment industry today accounting for 16% of gross domestic product and 80% of the country’s exports. If the country is, in fact, such a negative place for garment firms to invest, that assertion is certainly not supported by even a cursory glance at the numbers.
The contention that Cambodia suffers from “supply chain” issues holds some value, but not so much for the garment industry. The Diplomat article makes a vague argument, stating: “Currently, the infrastructure and supporting facilities of the country’s manufacturing industry are relatively weaker than China’s and this, in turn, results in increased business costs for foreign investors.” Granted, but not garment-industry-specific, and no one is under the impression that a less developed country such as Cambodia would have the same level of supply-chain strength for high-value-added production as China. It is a disingenuous argument. While improvements to hard and soft connectivity have been a consistent focus of government policy and collaboration with bilateral and multilateral donors, they clearly have had minimal impact on the country’s garment sector.
Third, the article highlights Cambodia’s relatively low worker-productivity numbers. Yet what measure of productivity being utilized is neither stated nor cited. China does have higher productivity but Cambodia is catching up, and will only continue to do so, judging from year-on-year productivity figures. Or perhaps the authors simply do not understand the diverse metrics of productivity.
Finally, the authors cite the fact that the future of Cambodia’s garment-export trade arrangements with the EU and the US are currently at risk. However, only last week did the vice-chairman of the Cambodian Garment Manufacturers Association, at a conference organized by the Konrad Adenauer Stiftung, note that even with a removal of these agreements, it was highly unlikely that garment firms would relocate outside of Cambodia.
A document prepared for the European Parliament this year noted that if Brussels removes Cambodia from the Everything But Arms scheme, “forecasts of over half of Cambodian textile workers losing their jobs are probably over-pessimistic.” Indeed, it compared the likely outcome to what happened when Sri Lanka saw its EBA status removed earlier this decade, and its textile sector saw only 10,000 workers, or 4% of the sector’s workforce, laid off as a result.
Beyond the problematic nature of the analysis, the piece is an interesting signal to clients of China: When China’s interests, the maintenance of GDP growth and low unemployment that undergird the regime’s legitimacy are threatened, Beijing’s allies can be quickly and easily thrown under the bus to preserve the interests of the regime. This is probably not the best diplomatic strategy.
While it remains unclear whether the Diplomat article was officially sanctioned by Beijing, it provides further evidence of the weaknesses of China’s relationships with many of its allies and its “China First” approach to economic relations.
This article was co-authored by David Hutt, a political journalist who has been reporting on Southeast Asian affairs based in Cambodia since 2014. He is Southeast Asia columnist at The Diplomat, and a regular contributor to Asia Times, as well as to other international media. He was formerly president of the Overseas Press Club of Cambodia.