By Kimkong Heng, Assistant Dean of School of Graduate Studies, University of Cambodia
Sovinda PO, master’s degree student in International Relations at the School of Advanced International and Area Studies, East China Normal University, Shanghai, China

The BRI and the Way Forward for Cambodia

To reap maximum benefits from this highly ambitious infrastructure development and investment initiative, Cambodia needs to work to expedite its reform processes and ensure its political stability. First and foremost, Cambodia must make sure its 2018 national election will not scare investors too much. Reports have shown a noticeable drop in real estate investment over the first quarter of 2017 prior to the Cambodian commune election in June this year and the much-anticipated and much-feared national election in July next year (May, 2017b). Should something go wrong, say, a civil war as frequently warned by Prime Minister Hun Sen, Cambodia will be at a disadvantage and lose out on what the Chinese Belt and Road Initiative has to offer, not to mention other investment prospects.

Second, Cambodia has to continue to fully address many burning social issues ranging from corruption to nepotism and impunity to social injustice. Although China’s aid and loans have often arrived in Cambodia in a nostrings-attached fashion and this practice is most unlikely to cease anytime soon, it is imperative that the Cambodian government be willing to tackle the issues head-on if it wishes to see and enjoy real economic prosperity throughout the country. With corruption and other contentious issues still looming large, perhaps it could be that Cambodia will seriously lag behind its neighboring countries in terms of economic growth, public engagement and trust, social solidarity, and national reputation on the global stage. In this respect, the exciting prospects of China’s OBOR initiative would be challenged, if not diminished.

Third, Cambodia would stand to lose if it does not begin to aggressively and heavily invest in building its human capital. Having been the unfortunate victim of genocide for nearly four years from 1975 to 1979, followed by the Vietnamese occupation and protracted civil war, this war-torn country has begun its national restoration process from scratch as almost all of its intellectuals were liquidated or forced to flee the country. Although remarkable improvement has been made to its human resources over the past decades, Cambodia is still facing serious challenges regarding its skilled labor force. The lack of skilled labor could translate into employing foreign 12 professionals or technicians for high-paying jobs, while many Cambodian workers perform the unskilled ones. Thus, Cambodia would not be able to derive benefits as substantial as it should from China's project of the century.

Fourth and importantly, Cambodia has to seek to diversify its foreign policy to avoid falling completely within the Chinese sphere of influence. Jumping on the Chinese bandwagon at the expense of its relations with its Southeast Asian neighbors and the US as well as the US allies would definitely not be the best option for Cambodia, although China is Cambodia’s largest foreign investor and its most generous economic and military supporter. An option for Cambodia to ensure its prosperity, sovereignty, and foreign policy autonomy could be to enhance its relations with all the countries in the region and beyond. If Cambodia does not adopt an omnidirectional foreign policy – making as many friends as possible – this small state would risk losing its independent foreign policy to China and become a true Chinese patron. Thus, it is vitally important for Cambodia to restrain itself from alienating others while relying solely on China’s unconditional aid and loans. This Chinese inclination may seem effective in the short term, but it would not be beneficial for the country in the long run.

Finally, in addition to ensuring political stability, tackling critical social issues, building up human resources, and forging flexible self-reliant foreign policy, Cambodia has to take its relationship with its ASEAN counterparts seriously and do whatever it possibly can to enhance ASEAN unity and centrality. As a member of ASEAN, Cambodia has garnered great economic and geopolitical benefits from this regional organization. Cambodia’s value and leverage ability are enhanced, Mahbubani and Sng argue, with its current ASEAN membership, without which this small state would be less capable, if not incapable, of taking advantage of its geopolitics and ASEAN privilege. In this regard, Cambodia not only needs to settle its domestic affairs but also improve its foreign policy by fostering good relations with its neighboring countries and strengthening its role and relevance in ASEAN.

Conclusion

It is undeniably true that Cambodia-China relations have gone a long way, dating back more than two thousand years, and therefore both countries have regarded each other as “close friends,” at least from the Cambodian side.

The fact that Cambodia chooses to bandwagon with China should be seen as a common form of Cambodia’s diplomatic behavior. As a small state in its developing stage, Cambodia is in desperate need of support and investment from all corners of the world. Embracing the BRI is apparently and rightly what Cambodia should do as the project aligns with the kingdom’s national development strategy, in particular, the Rectangular Strategy and the Industrial Development Strategy 2015-2025. In this regard, the BRI is a grand development plan Cambodia can take advantage of to realize its national aspirations to become a middle-income and high-income country in the next few decades.

However, Cambodia’s total acceptance of China’s Belt and Road Initiative can be a mixed blessing, considering a strong likelihood that Cambodia may fall into the Chinese debt trap and China’s sphere of influence. In addition, Chinese investments and development assistance, outside or inside the BRI framework, which very often target the few Cambodian elites, not the general public, may facilitate corruption and nepotism, further the exploitation of natural resources, and worsen human rights records in Cambodia. More importantly, as Cambodia enthusiastically supports China’s BRI and continue to receive China’s “no string attached” aid and loans, its foreign policy will be undermined and formulated in favor of China’s broader interests and influence in the regional and international arena.

Recognizing these challenges, this paper recommends that Cambodia actively engage in its many reform agendas, including legal, educational and health reforms, preserve and enhance political unity and stability, strive to resolve key domestic issues, strengthen human resources, and pursue independent foreign policy. To move forward and remain relevant in the Southeast Asian region, the wider Asia-Pacific region, and the global community, Cambodia needs to enhance its relations with countries in ASEAN and work hard to foster ASEAN unity and centrality, while also adopting a pragmatic open-door foreign policy – making as many friends as it possibly can.

Please click to read the full report.

By The Association of Southeast Asian Nations (ASEAN)

FDI flows into ASEAN in 2016 remained high despite a decline to USD 97 billion, which reflects the general downfall trend of global FDI flows into the developing economies.

FDI flows from most ASEAN Dialogue Partners and intra-ASEAN investment actually increased, with the latter reaching an all-time high and accounting for a 25 per cent share of FDI flows into the region.

However, these increases were not enough to help overcome the decline which was due to divestment, acquisition of foreign assets by ASEAN companies in their home countries and repayment of intracompany loans by affiliates within the region.

Many foreign companies have a long historical association with the region, some dating as far back as the 1800s and they continue to invest and expand in the region.

This year’s Report examines the historical investment development of two Dialogue Partners of ASEAN, namely the European Union (EU) and India. Major multinational enterprises (MNEs) from these countries have been present in ASEAN in a wide range of industries. Many of them operate in multiple locations across the region in different segments of the value chains.

This year’s Report also features the development of economic zones in ASEAN. This is a welcome follow-up to the “ASEAN Guidelines for Special Economic Zones Development and Collaboration” adopted by ASEAN Economic Ministers (AEM) in 2016. ASEAN has at least 1,600 economic zones of various types.

These zones, ranging from free trade zones, export processing zones, IT parks to mega special economic zones, have played a significant role in the socioeconomic development in the region and in attracting FDI. Given the rapid economic growth and demand, ASEAN Member States continue to develop more economic zones to boost FDI.

Policy makers, entrepreneurs, and other stakeholders may find this Report useful in understanding economic zones in ASEAN, as well as the business and investment development in the region in general.

Please click to read full report.

Thawing China-Philippines relations sees Beijing sign up as backer for country's ambitious infrastructure makeover.

Belt and Road largesse set to transform train travel across the Phillipines.

A proposed 610km railway line – linking Manila, the Philippine capital, to Matnog, a town to the south of the country and the site of a new 50-hectare eco-city – is set to be the latest beneficiary of Belt and Road Initiative (BRI) investment. Following detailed negotiations during last November's ASEAN summit in Manila, the final loan agreement is expected to be ratified early this year, almost exactly 12 months from the date that initial discussions began.

The origins of the scheme, formally known as the Philippine National Railways (PNR) South Long Haul Project, date back to 2015, when it was first mooted by the Bicol Regional Development Council, the trans-provincial body responsible for the region's economic regeneration. It was subsequently adopted as one of the flagship projects of the Build, Build, Build initiative, the massive infrastructure development programme initiated by Rodrigo Duterte, the Philippine's controversial President. It is believed that Duterte is committed to seeing the project completed before the end of his term in office in the summer of 2022.

Once completed, the massive P151 billion (US$3.01 billion) rail initiative will run south from Manila to Matnog, connecting the provinces of Sorsogon, Laguna, Batangas, Quezon, Camarines Sur and Albay along the way, as well as a number of international seaports and Special Economic Zones. It is also envisaged that it will vastly improve connectivity between Southern Luzon's urban centres and several regional growth hubs, ultimately enhancing productivity in the industrial, services and agricultural sectors.

As an added bonus, it is also expected to boost tourism within the Bicol region by as much as 30%, while carrying up to 400,000 passengers in its first year of operation. In total, it will cut the transit time between Manila and Bicol from 11 hours to just six.

The huge cost of the project is largely down to the need to replace the legacy PNR track with, in the first instance, a single-track at-grade (at the same level) rail system. According to the country's Department of Transportation, in addition to the costs of replacing the track, the project's budget will also extend to the provision of new carriages/engines and a number of other supplementary requirements. On top of the Chinese investment, between P800 million and P7 billion of funding has been allocated to the project from the Philippine government's 2016 and 2017 budgets, with a further P3 billion expected to be diverted from the 2018 public spending round.

In addition to the South Long Haul project, the Philippines' government has also approved two other major rail projects over the past 12 months – the P358 billion Metro Manila Subway and the P134 billion PNR-South Commuter Line. It is envisaged that, ultimately, these three projects will segue into one integrated commuter rail system.

Overall, the confirmation of the mainland funding is seen as yet another sign that relations between China and the Philippines are continuing to thaw. A consequence of this improved diplomatic relationship is that Duterte can now rely on BRI funding to help bankroll many of his administration's priority economic redevelopment and job-creation initiatives, which have been costed at about US$167 billion. To date, China has pledged US$24 billion in order to help realise these proposals.

Marilyn Balcita, Special Correspondent, Manila

Transformative East Coast Rail Link secures mainland investment, enhancing connections to China-funded port.

The East Coast Rail Link: Set to transform the economic prospects of Malaysia's less-developed regions.

Work is set to begin on two of Malaysia's most ambitious infrastructure development projects – the construction of the East Coast Rail Link (ECRL) and a major upgrade to the Kuantan Deepwater Port. Both projects are being bankrolled by Chinese investment, with their development managed by two mainland-led consortiums, a sure sign that Beijing sees the programmes as an integral part of the Belt and Road Initiative (BRI), China's ambitious infrastructure and trade facilitation programme.

The ERCL is one of the key planks in Malaysia's bid to economically rejuvenate its eastern region. With a proposed budget of some RM55 billion (US$13 billion), the 700km rail line is being constructed by the China Communications Construction Company (CCCC), the state-owned infrastructure development giant, and is expected to be operational by July 2024.

Fully-electrified, the oxbow-shaped line will be built in two phases, ultimately connecting Port Klang on the west coast, the country's largest container port, with Kuala Lumpur, the Malaysian capital, while also servicing several urban centres and ports along the eastern seaboard. Its northernmost terminal will be Pengkalan Kubor, a strategically significant town on the Thai-Malaysia border. The line will carry both a 160 kph passenger service and a more sedate 80kph freight service.

With 15 viaducts and 10 tunnels – the longest being 5.6km in length – 70% of the ECRL's capacity will be given over to freight services, with a throughput of more than 54 million tonnes of cargo anticipated by 2030. The remaining 30% will be allocated to the 5.4 million passengers expected to travel the route every year, making it the country's primary inter-regional transport system.

The initial 600.3km phase of the project will run from the Gombak Integrated Transport Terminal in the state of Selangor to Kota Bharu, the capital of the north-eastern state of Kelantan. With 21 stops along the way, it will connect Kota Sas, Kuantan Port, Cherating, Kertih Port, Kertih Airport and Kuala Terengganu, the largest city on the east coast. The second phase will deliver two extension lines – a 24.5km northern link running from Kota Bharu to Pengkalan Kubor and a 78.6km southern spur connecting Gombak and Port Klang.

In total, 85% of the funding for the project has been provided by the Export-Import Bank of China (EximBank) with the loan repayable at a rate of 3.25%. The remaining 15% has been sourced via Malaysia's sukuk Islamic bond scheme, an initiative managed by three of the country's domestic banks.

Overall, developing the country's rail infrastructure has been designated as a priority by the Malaysian government and forms a key component of its economic transformation plan. This focuses on providing enhanced links between the country's eastern and western seaboard ports, while reducing the development gap between the west coast and the country's less-industrialised eastern states.

It also seeks to remedy one of the country's most pressing infrastructure shortcomings. With the majority of Malaysia's inter-city rail lines running on a north-south axis, many of the towns, cities, ports and industrial zones in the country's eastern region have long been left solely reliant on road links. It is now hoped that the huge investment planned for the rail sector will bring it up to the standard of the country's existing port, air and road networks.

Once completed, the ECRL is expected to jumpstart economic activity in the East Coast Economic Region, which extends across 51% of Peninsular Malaysia and is home to some five million people. It is hoped the new line will boost the region's per annum GDP by 1.5% annually for the next 50 years.

Aside the from the economy of eastern Malaysia, the other key beneficiary of the ECRL is expected to be Kuantan, the state capital of Pahang and the site of the country's most significant east coast port. The port, which offers strategic access to the South China Sea, is currently undergoing a major upgrade. This will double its capacity to 52 million freight weight tonnes (FWT) and allow the largest container ships to berth.

The first phase of the work on the port's new deep-water terminal is expected to be completed by the summer of this year, with phase two scheduled to go online in 2019. Already one of the country's prime conduits for imported goods and raw materials for industrial production and manufacturing, the expanded facility is also expected to handle a greater throughput of imported oil and gas.

The redevelopment work on the port is being headed by the Kuantan Port Consortium, a joint venture between IJM Corporation Berhad, one of Malaysia's leading construction groups, and Beibu Gulf Holding (Hong Kong), a subsidiary of the Guangxi Beibu Gulf International Port Group, one of China's largest port development and management specialists. At present, ownership of the consortium is split on a 60:40 basis in favour of IJM, with the Malaysian government also having a special rights share.

One of the key beneficiaries of the port's redevelopment will be the nearby China-Kuantan Industrial Park, the first Special Economic Zone to be jointly developed by Malaysia and China. At present, the park primarily focuses on power generation, energy-saving initiatives, environmentally-friendly technology, high-end equipment and the manufacturing of advanced materials.

Geoff de Freitas, Special Correspondent, Kuala Lumpur

by Inframation News

Thailand's Department of Highways will meet with investors interested in the M6 and M81 motorway PPP projects on 31 January.

Project information will be released at the pre-tender meeting, with feedback from infrastructure investors as well as financial and legal firms being solicited ahead of the release of requests for proposal for the projects.

The scope of private financing for the M6 and M81 projects includes the design and construction of toll plazas and installation of toll collection and traffic control systems, at an estimated to cost USD 240m and USD 180m respectively.

The concessionaires will also be responsible for operation and maintenance over 30-year concession periods. They will receive availability payments while all toll-related revenues will go to the public sector under the PPP gross cost model.

The 196km M6 will start from Bangpa-in and the 96km M81 start from Bangyai, both located on the Eastern Bangkok Outer Ring Road.

Construction of the M6 and M81 is due to be completed in 2020. Registration for the 31 January meeting is here.

M7 expansion
The government is adding 32km to the M7 (from Pattaya to Map Ta Phut), also due for completion in 2020. ​​​​​​

At its first meeting of the year, Thailand's Cabinet yesterday approved a 75% hike in tolls on the existing Bangkok to Pattaya M7 motorway: from THB 60 (USD 1.85) to THB 105 for passenger cars and up to THB 170 and THB 245 for six and ten-wheeled vehicles. The government is converting the motorway to a closed system by blocking entry points between toll booths.

By Asian Development Bank

Highlights

• Developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate). Without climate change mitigation and adaptation costs, $22.6 trillion will be needed, or $1.5 trillion per year (baseline estimate).

• Of the total climate-adjusted investment needs over 2016–2030, $14.7 trillion will be for power and $8.4 trillion for transport. Investments in telecommunications will reach $2.3 trillion, with water and sanitation costs at $800 billion over the period.

• East Asia will account for 61% of climate-adjusted investment needs through 2030. As a percentage of gross domestic product (GDP), however, the Pacific leads all other subregions, requiring investments valued at 9.1% of GDP. This is followed by South Asia at 8.8%, Central Asia at 7.8%, Southeast Asia at 5.7%, and East Asia at 5.2% of GDP.

• The $1.7 trillion annual estimate is more than double the $750 billion Asian Development Bank (ADB) estimated in 2009. The inclusion of climate-related investments is a major contributing factor. A more important factor is the continued rapid growth forecasted for the region, which generates new infrastructure demand. The inclusion of all 45 ADB member countries in developing Asia, compared to 32 in the 2009 report, and the use of 2015 prices versus 2008 prices also explain the increase.

• Currently, the region annually invests an estimated $881 billion in infrastructure (for 25 economies with adequate data, comprising 96% of the region’s population). The infrastructure investment gap—the difference between investment needs and current investment levels—equals 2.4% of projected GDP for the 5-year period from 2016 to 2020 when incorporating climate mitigation and adaptation costs.

• Without the People’s Republic of China (PRC), the gap for the remaining economies rises to a much higher 5% of their projected GDP. Fiscal reforms could generate additional revenues equivalent to 2% of GDP to bridge around 40% of the gap for these economies. For the private sector to fill the remaining 60% of the gap, or 3% of GDP, it would have to increase investments from about $63 billion today to as high as $250 billion a year over 2016–2020.

• Regulatory and institutional reforms are needed to make infrastructure more attractive to private investors and generate a pipeline of bankable projects for public–private partnerships (PPPs). Countries should implement PPP-related reforms such as enacting PPP laws, streamlining PPP procurement and bidding processes, introducing dispute resolution mechanisms, and establishing independent PPP government units. Deepening of capital markets is also needed to help channel the region’s substantial savings into productive infrastructure investment.

• Multilateral development banks (MDB) have financed an estimated 2.5% of infrastructure investments in developing Asia. Excluding the PRC and India, MDB contributions rise above 10%. A growing proportion of ADB finance is now going to private sector infrastructure projects. Beyond finance, ADB is playing an important role in Asia by sharing expertise and knowledge to identify, design, and implement good projects. ADB is scaling up operations, integrating more advanced and cleaner technology into projects, and streamlining procedures. ADB will also promote investment friendly policies and regulatory and institutional reforms.

This article was first published by the Asian Development Bank. Please click to read the full report.

With Hanoi's light-railway network scheduled to become operational in 2018, the broader Belt and Road picture is coming into focus with many of the initial phases of its development programme now approaching completion.

Hanoi's light-railway system: An integral part of the BRI's long road to completion.

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