Cambodian Prime Minister Hun Sen is expected to step down in July. Photo: AFP / Tang Chhin Sothy

As dawn broke over Cambodia on Thursday (November 11), Prime Minister Hun Sen’s tensions with the United States had taken a somewhat unexpected hard new turn.  

Late on Wednesday in Washington, the US government imposed sanctions on two senior military officials: Cambodia’s navy commander, Tea Vinh, and Chau Phirun, director-general of the Defense Ministry’s Material and Technical Services Department.

Both are accused of planning to “profit from activities regarding the construction and updating of Ream Naval Base facilities,” the country’s largest naval base.

For years, US officials have accused Phnom Penh of secretly agreeing to allow Chinese troops access to the strategically situated base. Chinese access to the Ream Naval Base could shift security dynamics in the South China Sea, giving Chinese vessels a new southern flank in the hotly contested waterway.

At the same time, Washington announced that its trade representative will start an assessment of Cambodia’s Generalized System of Preferences (GSP) eligibility, which currently gives around 85% of Cambodian exports tariff-free access to US markets.

To complete the trifecta, the US State Department, Treasury and Commerce Department issued a joint advisory to “US businesses currently operating in, or considering operating in, Cambodia to be mindful of interactions with entities involved in corrupt business practices, criminal activities, and human rights abuses.”

The advisory note stated that Cambodia’s “systemic corruption, transnational organized crime, and human rights abuses” threatened “US national security interests” and the “fundamental freedoms of people in Cambodia.”

The timing is key. Since entering office in January this year, the Biden administration has said little about Cambodia. Deputy Secretary of State Wendy Sherman was dispatched to Phnom Penh in June but little appears to have come of the diplomatic visit.

In late September, the US House of Representatives passed the punitive Cambodia Democracy Act, but it’s likely to die in the Senate – as have similar bills in past years – and it notably isn’t a Biden administration initiative.

Cambodian navy sailors stand in formation on a Chinese naval patrol boat during a hand over ceremony at Cambodias Ream Naval Base. Photo: Twitter

But Washington’s latest wave of punitive action against Hun Sen’s government, and all coming on the same day, suggests a change in tact from Washington, significantly just before Cambodia takes over the rotating chairmanship of the Association of Southeast Asian Nations (ASEAN).

The Cambodian government is now desperate to rekindle economic growth after GDP contracted by 3.1% in 2020. The economy this year is expected to only grow by 2.2%, according to the World Bank.

Even the normally Panglossian Council of Ministers last month said it only expects the economy to grow by 4.4% next year. It may not be until 2023 or 2024 that Cambodia again sees annual growth of around 7%, rates needed to ensure progressively better living standards for the average Cambodian.

Fast economic growth is sine qua non for the popularity of the long-ruling Cambodian People’s Party (CPP), which has now established a de facto one-party state after dissolving on bogus grounds its only real political challenger, the Cambodia National Rescue Party (CNRP), in 2017.

But the CPP cannot rely on force alone, and a local election in 2022 and general election the following year will act as plebiscites on the party’s underlying popularity. To avoid a ballot box embarrassment, however slight, Hun Sen needs to kickstart the economy quickly.

With this likely in mind, the US possibly eyes newfound leverage. Cambodian exports to the US amounted to US$6.1 billion in the first nine months of 2021, up 28% year-on-year, according to the US Census Bureau.

The US is now by far Cambodia’s largest export market, especially after the European Union’s partial removal last year of Cambodia’s preferential trade privileges. Exports of garments, footwear and travel goods from Cambodia to the EU contracted by 35% in 2020, but grew almost by 4% to the US, according to the World Bank.

If some of Cambodia’s trade privileges are revoked under the GSP scheme, which accounted for $2 billion of the $6.6 billion worth of exports to the US in 2020, it could prove fatal for various sectors of the economy. Any GSP review could take several years, but the threat of removing trade privileges might deter investment in Cambodia in the short term, analysts say.

Cambodia’s exports to China, by comparison, were worth just $1 billion last year,  according to Cambodia Ministry of Commerce figures. Both countries recently committed to boosting bilateral trade to $10 billion by the close of 2023, but as of last year, Cambodia’s ratio of imports to exports with China was 7 to 1.

Chinese President Xi Jinping (left) walks with Cambodian Prime Minister Hun Sen during a meeting at the Peace Palace in Phnom Penh on October 13, 2016. Photo: AFP / Tang Chhin Sothy
Chinese President Xi Jinping (L) walks with Cambodian Prime Minister Hun Sen during a meeting at the Peace Palace in Phnom Penh on October 13, 2016. Photo: AFP / Tang Chhin Sothy

China’s friendship has been one reason for Cambodia’s successful vaccination campaign, in which it has fully vaccinated close to 79% of its population. But China’s economic importance to Cambodia is likely to wane somewhat in 2022, providing the US with a rare year when its own economic importance is inflated.  

It’s far from likely that Cambodia’s vital tourism and construction sectors, long dependent on Chinese investment and individuals, will recover before 2023. In 2019, around a third of all tourists to Cambodia were Chinese, but the number of Chinese visitors slumped to 329,673 in 2020 compared to 2,361,849 the previous year.

Because Beijing is set to maintain its strict “zero Covid” pandemic restrictions well into 2022 and possibly beyond, Chinese tourists are unlikely to return en masse to Cambodia until the following year.

A cottage industry has recently emerged to predict China’s economic decline and collapse, but sifting out the hyperbole it’s still safe to say that its economy appears much frailer today than in 2019.

Some economists now expect China to turn increasingly inwards. One sign in that direction: China’s outward foreign direct investment (FDI) declined by 3% this year, according to the World Investment Report 2021.

Washington may see yet another diplomatic opening to press Cambodia. In late October, Cambodia assumed ASEAN’s chairmanship for 2022, which will compel Cambodian officials to interact more frequently than perhaps they would like with their American counterparts.

Some are already anxious that Cambodia may seek to use its position to advance China’s interests in the region. Back in 2012, when Cambodia last held the rotational post, it stopped the bloc from issuing a joint statement on the South China Sea, where China contests territory with several Southeast Asian states.

The Phnom Penh government is no doubt aware of the daunting task of the chairmanship, especially as the Myanmar crisis will likely smolder well into next year on its watch. It will also need to be sensitive to not angering its neighbors on China.

A former senior Singaporean official floated the idea last year of expelling Cambodia and Laos because of their perceived subservience to Beijing.

The ASEAN chairmanship may also be Hun Sen’s swansong on the regional stage, which he won’t want to ruin by further confrontation with Washington. As a result, Cambodia will face even more pressure than normal in 2022 not to overstate its “ironclad friendship” with Beijing.

This handout photo taken and released on June 1, 2021, by the US Embassy in Phnom Penh shows Cambodian Prime Minister Hun Sen greeting US Under-Secretary of State for Political Affairs Wendy Sherman during a meeting at the Peace Palace in Phnom Penh. Photo: AFP / Handout / US Embassy Phnom Penh

All this arguably gives the US the sort of leverage it lacked in pre-pandemic years. US-Cambodia relations have deteriorated significantly since 2017, when Phnom Penh unilaterally suspended joint military operations with the US and started training with Chinese troops instead.

Over the following months, Phnom Penh banned several US Congress-funded organizations and Hun Sen made it known that he was prepared to rely solely on China as his new “ironclad friend.”

Then, in a fateful blow to relations, Hun Sen’s government accused the US of conspiring with the CNRP of plotting a coup, a claim that was never substantiated with corroborating evidence.

The CNRP was swiftly and forcibly dissolved in November 2017, forcing most of its politicians and activists to flee into exile. Very few have returned since, while the authorities continue to jail unapologetic CNRP followers on trumped-up charges.

Then came the issue over Chinese troops on Cambodian soil. In 2018, US officials alleged that Hun Sen’s government would allow the Chinese military to station themselves at a “tourism” development project in Koh Kong province.

The Union Development Group, a Chinese state-owned firm building the Dara Sakor project, was sanctioned by the US in September 2020, as was Kun Kim, a former joint chief of staff of the Royal Cambodian Armed Forces, over alleged land rights violations connected with the project.

From 2019 onwards, US officials alleged that Chinese troops would instead be allowed access to the Ream Naval Base, Cambodia’s largest and located near Sihanoukville, a hub for Chinese investment. Phnom Penh refuted such allegations, which would violate the country’s constitution.

However, it appears far from coincidental that the latest Cambodian military officials sanctioned by the US were implicated in the Ream Naval Base, although Washington only charged them with corruption surrounding the base’s Chinese-funded redevelopment.

When Washington previously attempted to exert influence over Cambodia, either via sanctions or thinly veiled threats of economic retaliation, it ran up against a relatively resilient Phnom Penh.  

The Cambodian government went into 2020 after a year when the economy grew at around 7% and it appeared to most in the country that close ties with China were bearing fruit. Indeed, Hun Sen boasted that a rising China could forestall any pressure from the US.

As a result, Washington appeared to change tack. Patrick W Murphy was installed as the new US ambassador to Phnom Penh in August 2019 and was apparently advised to try to forge some type of rapprochement with Hun Sen’s government.

But the wheel has since turned with the pandemic and Washington appears to sense new frailty and fragility in Phnom Penh amid a weak economy and rising perceptions it is a compliant China proxy.

How Hun Sen’s government responds to Washington’s latest punitive threats awaits to be seen.