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The US-China Trade War: Why Investors Should Come to Cambodia?

ISSUE 2019
No 12
Release 19 September 2019
By Mr. Thong Mengdavid

Trade war is basically called economic war which the involved countries employ economic tools to fight against one another. In short, it is the use of economic means for political ends. The United States is seeing China growing rapidly in economy, industrialisation, and aggressive technology sale and penetration in global markets. Therefore, several analysts believe the Trump administration has initiated the trade war to prevent China from overtaking the US as the global economic power and to pressure China to negotiate economic deals favourable for the US. In the current contexts of the war and China’s growing labour cost and tighter business regulations, more and more Chinese and other foreign investors are thinking of relocating their manufacturing bases to other countries. Cambodia is a small but fast developing country in ASEAN and is geographically easy to get access to different parts of the world. Moreover, Cambodia has gained favourable tariff and tax-friendly conditions from ASEAN member countries, Europe (despite the ongoing negotiations with the EU regarding the EBA), the United States and China. There are three major reasons why foreign investors should come to invest in Cambodia.

First of all, Cambodia’s labour force is relatively cheaper if compared with neighbouring countries, and the country has young population with over 50% of the total population aged under 30. Therefore, Cambodia is a good investment destination. Together with improving human resource and cheap labour cost but with comparable performance, Cambodia appears a little more competitive than her neighbouring countries such as Vietnam, Thailand and Laos. Additionally, Cambodia has free trade access to the US market under the Generalised System of Preferences (GSP) that aims to promote economic growth in developing countries. Besides the GSP status, Cambodia signed the Comprehensive Strategic Partnership of Cooperation with China in 2010 and also ratified the ASEAN-China Free Trade Agreement in 2008, both of which allow Cambodia to gain “Early Harvest” status making Cambodia trade with zero-tariff of most of her exported products to China. In 2018, Cambodia’s main export to the US were footwears, clothes, knit apparel, and woven apparel which made up to 3.147 billion US Dollars and the export volumes have kept increasing. Cambodia trade with China also increased by 22% from 4.76 billion in 2017 to 5.8 billion US Dollars in 2018. Cambodia’s exports to China were mainly agricultural products, while China’s exports to Cambodia included medium to heavy industrial products, electronics, medicine and cosmetics.

Secondly, Cambodia is one of the countries in ASEAN with the fastest economic growth and friendliest business environment due to strong government policies and commitments that embrace liberal economic system and promote sustained economic growth for raising national living standard. The Cambodian government has implemented various polices supportive of foreign investments such as 100% foreign ownership of companies, corporate tax holiday up to 8 years, 20% corporation tax rate after the incentive period ends, and duty-free import of capital goods. Furthermore, the government provides facilitations to make it easy and secure for start-up businesses in the kingdom. Geographically, Cambodia is located at the centre of various key regional co-operations such as ASEAN and Mekong-Lancang Cooperation (MLC), whose goals are to promote connectivity and socio-economic development in the region. Therefore, Cambodia may become the central point of logistic activities, where products can be exported easily and quickly to ASEAN countries as well as to the rest of the world. The Cambodian government has prioritised the improving and building of more roads and other transport infrastructures. According to National Bank of Cambodia, Foreign Direct Investment in the first half of 2018 was at 1.32 billion USD, which increased by 18% compared with 1.16 billion in the same period of the previous year. Most investments were in real estate, electronic manufacturing and semi-industrial sectors. They came from China, Hong Kong, Singapore, Taiwan, Korea and Malaysia. With the government’s supportive policies toward foreign investors, Cambodia could become a business sanctuary for those seeking for potential growth in business operations and for free access to the markets of the world’s biggest economies.

Last, the Cambodian government has promoted STEM for the country’s long-term economic development, which will provide adequate human resource for foreign investments requiring highly skilled and technologically capable labour force. The government’s “Industrial Development Policy 2015-2025” and the establishment of the National Science of Technology Council are crucial in facilitating and boosting the national technological capability to catch up with other more developed countries in the region. In 2014, the government launched two technology and science related policies. They are Cambodia National Science and Technology Master Plan 2014-2020 (with the support from the Korea International Cooperation Agency) and Cambodia ICT Master Plan 2020 which focuses on human resource training and enhancing digital literacy and cyber security. Moreover, the Cambodian government has been promoting and strengthening local industrial productions and human resource development by supporting local SMEs and E-commerce to produce more skilled labours and well-informed entrepreneurs. Therefore, foreign investors looking to invest in such areas should come to Cambodia.

In conclusion, Cambodia is a safe haven country for investors to do business due to the government’s supportive policies for foreign investments and the country’s gaining of favourable status for exports to various regional and international markets. Besides the opportunities in labour-intensive manufacturing sectors such as textile, investors can tap into emerging areas of investment in digital economy and technological and electronic productions. At the time when the U.S-China trade war is posing great risks to businesses and trade across the globe, Cambodia has become a favourable alternative destination for trade and investments. The country can play a part in contributing to the maintaining of global economic stability amidst the growing volatility caused by the US-China trade war.

The views expressed are the author’s own and do not reflect the views of the Asian Vision Institute.