By Evelyn Goh, ANU and James Reilly, University of Sydney

As the dust settles from the Chinese Communist Party’s 19th Congress, one of the strongest edifices left standing is Xi Jinping’s signature foreign policy initiative — the US$1 trillion Belt and Road Initiative (BRI). Two members of the BRI Leading Small Group, Wang Hunning and Wang Yang, secured five-year positions on the reshuffled Politburo Standing Committee. The BRI even received an awkward mention in the revised Party Constitution.

The BRI generates political influence through ‘connectivity power’ — the influence a central government accrues through infrastructure projects that connect its domestic periphery and neighboring states to the central core economy. Three types of infrastructure projects are most likely to generate connectivity power: transportation (roads, railways and ports), communication (cellular networks and internet cables) and energy (oil and gas pipelines, hydropower dams as well as electrical lines and grids).

Within these projects, China’s connectivity power is likely to emerge through four mechanisms.

First, and most directly, new infrastructure projects should bolster the flow of people, goods, capital and energy. Since the BRI is essentially a promise for a US$1 trillion state-backed investment surge, capital flows in particular are likely to yield an ‘early harvest’.

The BRI already appears to be stimulating additional investment, as more Chinese investors take a stake in firms in BRI recipient countries, perhaps in the expectation that they will receive easier access to BRI-earmarked capital or can capitalise upon Beijing’s efforts to boost exports from BRI-recipient countries. By August 2017, the value of Chinese mergers and acquisitions in the 68 countries officially participating in the BRI already totalled US$33 billion, surpassing the US$31 billion tally for all of 2016.

Trade patterns are less likely to change dramatically, since China already represents the most important source of imports for about three quarters of BRI countries and is the most important trading partner for just under half of them. Yet even in trade the BRI’s impact is emerging. China’s trade with BRI countries in the first half of 2017 rose four per cent faster than China’s overall foreign trade. Standouts include Russia, Pakistan, Poland and Kazakhstan — all key players along the new Silk Road.

As new energy projects come on line they will also begin to reshape energy flows. For instance, the Kyaukphyu–Kunming natural gas and oil pipelines across Myanmar and into Yunnan province enable Beijing both to diversify its energy sources and to tighten economic interdependence with Naypyidaw.

Second, connectivity projects help put China at the centre of a thickening web of linkages, bolstering Beijing’s capacity to set the standards by which trans-border networks operate. China’s high-speed trains and ultra-high voltage electrical lines, for instance, will likely shape regional standards as they begin to stretch beyond China’s borders.

In China’s bid for global influence, currency may well be the most significant standard it can aim to reset. Over half of the 35 economies that have signed currency deals with China are in the BRI. Of the 68 BRI countries, one third now have direct access to the Chinese renminbi (RMB) from their own banks. Economists confirm that easy access to the RMB promotes trade with China. Mongolia is a prime example. Almost 90 per cent of its exports go to and one third of its imports come from China. In 2014, Ulaanbataar signed a 15 billion RMB (US$2.2 billion) currency swap agreement with China, which was extended for another three years in July 2017.

Connectivity power can also extend into institutions. Established multilateral development institutions, such as the Asian Development Bank, may incorporate Chinese-backed projects. For instance, the World Bank funded the Kazakhstan stretch of the Western Europe–Western China Highway, which will now serve as the main roadway of the BRI’s central corridor. But such synergy can cut both ways — the involvement of Western financial institutions might dilute Beijing’s influence over the terms of lending, or they may help legitimise and amplify China’s model of infrastructure-led development.

A fourth pathway of potential influence runs through the domestic politics of recipient countries. Beijing hopes that domestic groups benefitting from the infrastructure projects will lobby on China’s behalf. Greece’s influential shipping industry, for instance, has quietly nudged Athens toward a non-confrontational China policy following massive Chinese investment into Greece’s shipping sector.

Like any ambitious policy initiative, Xi Jinping’s BRI strategy entails considerable risk. Beijing-backed infrastructure projects can alienate influential groups and trigger populist backlash, pushing leaders to adopt anti-Chinese rhetoric.

Further, while extending massive loans may initially bolster Beijing’s influence, leverage shifts to the host country once the project is underway, as was starkly evident in the case of the Myitsone Dam in Myanmar. Since Myanmar’s leadership bowed to public pressure and froze the massive project in 2011, Chinese investors and officials have been unable to compel a policy reversal or even secure compensation.

Increased connectivity also facilitates factors of instability. Guns and drugs are smuggled into China through burgeoning trade routes. Beijing has long been wary of engagement between its Muslim-dominated provinces — Xinjiang and Ningxia — and the Muslim world in Central Asia and the Middle East due to fears of importing instability.

As Deng Xiaoping warned decades ago, ‘when you open the window, a few flies will come in’. Like Deng, Xi Jinping appears eager to take this risk.

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US$1.7 billion of Chinese backing set to deliver Karnaphuli Tunnel Project, a key Belt and Road component.

Chittagong Port: Heavily congested and in desperate need of a deep-water upgrade.

Construction work on the China-backed Karnaphuli Multi-Channel Tunnel Project in southern Bangladesh is now well under way. The tunnel is seen as a key component in several projects related to the Belt and Road Initiative (BRI), China's ambitious international infrastructure development and trade facilitation programme. Once completed, the tunnel will connect the port city of Chittagong to the far side of the Karnaphuli river, the site of a new Chinese economic zone.

Due to be completed in 2020, the tunnel will slash the travel time between Chittagong and Cox's Bazar, one of the country's leading tourist destinations, and ease the heavy congestion on the existing two bridges across the river, while also connecting-up with the Korean Export Processing Zone and Shah Amanat International Airport. It will also feed into two other projects that are currently under way – the Asian Highway and the Dhaka-Chittagong-Cox's Bazar Highway.

At present, it looks as if all of the required funding for the tunnel is now in place. According to government sources, US$1.02 billion of initial backing was secured from the China Exim Bank, with a further $663 million facility – repayable over 20 years at an interest rate of 2% – subsequently confirmed. The outstanding balance was then provided by the Bangladesh government.

The project has been jointly managed by the Bangladesh Bridge Authority (BBA) and the China Communication Construction Company, with the Hong Kong branch of Ove Arup & Partners providing additional design and technical support. With a total length of 9km – of which 3.4km will run below the river – it will be the first tunnel in Bangladesh to facilitate simultaneous road and rail transit.

The tunnel is just one of a range of China-backed projects currently underway in the region. Foremost among these is the Special Chinese Economic Zone – formally known as the Anwara 2 Economic Zone – which was officially established in June last year following the signing of a Memorandum of Understanding (MoU) between the Bangladesh Economic Zones Authority (BEZA) and the China Harbour Engineering Company (CHEC).

According to Paban Chowdhury, BEZA's Executive Chairman, the zone will have the capacity to house 150-200 industrial units and will focus on a range of different industrial sectors, including shipbuilding, pharmaceuticals, electronics, agro-business, IT, chemicals, power and textiles. With up to 75,000 jobs set to be created, the zone will not exclusively rely on Chinese businesses, with Chowdhury saying: "As per our initial agreement, while Chinese investors will get preferential treatment, other local and overseas businesses will also be welcome."

In the case of both the tunnel and the economic zone, their success is heavily reliant on the Chittagong port's facilities being substantially upgraded. The port currently handles a staggering 92% of Bangladesh's ocean freight, with the country's surging economy seeing the required throughput growing by about 14% a year.

The port, however, is heavily silted and extremely congested, while also lacking the depth required for the current generation of tankers. As a result, it is widely accepted that a deep-water port upgrade is a priority for the country.

Over recent years, though, attempts to implement such an upgrade have fallen foul of a series of international disagreements. Back in 2010, China agreed to put up the money for the port's expansion, as well as for the development of a deep-water port on the nearby Sonadia island. Then, in February 2016, in something of an abrupt about-turn, the project was scrapped in favour of a Japanese-funded port development at nearby Matarbari, the proposed site of a massive coal-fired power station.

Such wrangling, however, has not lessened Bangladesh's strategic significance to the overall BRI project. The country is a key component of the proposed Bangladesh-China-India-Myanmar corridor (BCIM), one of the programme's six priority routes.

Overall, Bangladesh is also seen as a vital conduit between the semi-industrialised ASEAN countries and the highly populated Indian sub-continent. Its strategic location between South Asia and Southeast Asia also makes it an essential link in the BRI's mission of trans-regional integration.

Geoff de Freitas, Special Correspondent, Dhaka

With the Lower Sesan Two Dam just the latest Cambodian beneficiary of BRI funding, further collaborations await.

China's BRI-motivated largesse marks a new economic dawn for Cambodia.

As the waters of the Lower Sesan Two Dam began to rise last month, it marked the completion of just one of the many Belt and Road Initiative (BRI) projects currently underway in Cambodia. While China and Cambodia have a long history of co-operation, the BRI – the mainland's ambitious infrastructure development and trade facilitation programme – has taken this to new heights, particularly with regard to power generation.

Sesan Two is just the latest in a series of hydropower projects, largely built in collaboration with China, that have transformed Cambodia's energy landscape. The country has long suffered from a severe electricity shortage and, with its power generation largely fueled by diesel oil, its per watt prices have been among the world's highest. With its booming manufacturing economy sending demand growing by 18% a year, a large-scale hydropower development plan was seen as a priority as far back as 2003.

Even in those pre BRI-days, China recognised the strategic importance of nurturing the economic development of its near-neighbour. As a consequence, mainland businesses have long-bankrolled the development of Cambodia's hydropower sector.

In 2006, Sinohydro invested about US$280 million in such projects, while Sinomach and China Gezhouba jointly provided funding of around $540 million in 2008, with Huadian Power adding in another $580 million in the same year. More recently, China Huaneng, via its HydroLancang subsidiary, injected $410 million into the Sesan Two project. The outstanding costs of this $977 million project were then jointly met by Vietnam's EVN International and the Royal Group, one of Cambodia's largest investment-oriented conglomerates.

At present, seven of the hydropower facilities already online feed into the country's national grid, with a further two installations servicing more local power requirements. By the end of the year, when it is fully-operational, Sesan Two will have an annual capacity of 400MW, making it the country's largest single hydropower source.

As a result of the programme, electricity generation has soared across the country, sending prices tumbling. In 2014, when the hydro plants of Stung Tatai (246MW) and Lower Stung Russei Chrum (338MW) plants came online, the country's total level of hydropower-sourced energy soared by 82%, rising from 1,015.54 million kWh in 2013 to 1,851.60 million kWh. Despite such massive steps forward, the hydropower programme is still seen as in its infancy, with many more installations planned.

Despite the clear benefits to the country in terms of more affordable and more readily-accessible power, the hydropower programme has not been without its critics. Indeed, the Mekong River Commission (MRC), a regional advisory body, has warned that any further expansion of the sector could actually impair Cambodia's economic development.

More specifically, the MRC sees further hydropower developments as likely to result in a 70% drop in lake and floodplain fisheries production across the Mekong basin areas. This, it says, could see Cambodia's GDP drop by between $3 billion and $5 billion for the period 2020-2040.

On top of such dire prognostications, others have maintained that the economic argument in favour of further hydropower development may actually be fundamentally flawed. In particular, the steady decline in solar power costs – a technology that has a far lower environmental impact – is seen as making it an increasingly viable alternative.

Perhaps sensing a likely change in national and international sentiment on this front, last December saw China's Hengtong Optic sign a $200 million BRI-related deal with the Inner Renewable Energy (Cambodia) Company. This will see the businesses jointly develop two solar-powered 100-MW generating plants.

Geoff de Freitas, Special Correspondent, Phnom Penh

By European Think-tank Network on China (ETNC)

Sizing Up Chinese Investments in Europe

Chinese investments in Europe have surged in recent years, and have become a critical feature of Europe-China relations. Foreign direct investment (FDI) in the European Union traced back to mainland China hit a record EUR 35 billion in 2016, compared with only EUR 1.6 billion in 2010, according to data gathered by the Rhodium Group. In a historic shift, the flow of Chinese direct investment into Europe has surpassed the declining flows of annual European direct investments into China. As China continues to grow, develop, and integrate into the global economy, its overseas investments expand in quantity and quality, reflecting both the growing sophistication of the Chinese economy and broader Chinese commercial and policy goals. Going beyond FDI, Chinese investment is creating new realities for Europe-China relations.

This report by the European Think-tank Network on China (ETNC) brings together original analysis from 19 European countries to better understand these trends and their consequences for policy making and Europe-China relations, including at the bilateral, subregional and EU levels. As in all ETNC reports, it seeks to do so using a country-level approach. Through these case studies, including an introductory explanation and analysis of EU-wide data, the report aims to identify and contextualize the motives for Chinese investment in Europe and the vehicles used. However, the originality of the report also lies in the analysis of national-level debates on China, Chinese investment, and openness to foreign investment more generally. This is not just a story about FDI strictly defined, but about the (geo)political implications that emanate from deeper economic interaction with China. Ultimately, Europe is far from speaking with a single voice on these matters, and identifying where the divergences and convergences lie, will be crucial in formulating solid and complementary policy positions at the EU and national level moving forward.

China’s growing investment interests in Europe

Until recently, it was not uncommon to depict China as a minor source of investment in Europe and elsewhere in relative terms. Indeed, of total FDI stock held in the European Union by the end of 2015, China only accounted for 2 percent according to Eurostat figures, and its investment stock in many European countries remains low when compared with older investors. However, the facts on the ground are evolving rapidly, and China still has plenty of room to grow: The total stock of Chinese outbound direct investment worldwide still only represents 10 percent of its national GDP. Compare this to France or the UK (50+ percent), Germany (39 percent), the United States (34 percent) and Japan (28 percent). If China continues on its path towards more advanced levels of economic development, we must expect a massive further increase in its outbound FDI. Europe has already become a favored destination for Chinese investment, and policymakers need to adapt to a new force shaping the economic and political landscape in Europe.

As the country analyses of this report show, European economies have a wide range of assets and features that Chinese investors seek. There should be no doubt that China needs Europe (maybe even more than vice-versa). Patterns of Chinese investment highlight sources of European attractiveness that need to be better appreciated and leveraged. Among the things that Chinese investors seek in Europe are:

• Technology, to include established high-tech assets, emerging technologies and know-how;

• Access to the European market, for Chinese goods and services;

• Access to third markets via European corporate networks, especially in Latin America and Africa;

• Brand names to improve the marketability of Chinese products both abroad and for the Chinese market;

• Integrated regional and global value chains in production, knowledge and transport;

• A stable legal, regulatory and political environment, particularly in a context of global disruption and political uncertainty;

• Political/diplomatic influence in a region that in aggregate terms remains the second largest economy after the US.

Behind the growth in China’s outbound investments is the story of China’s economic transformation towards more consumption-based growth and higher value-added industries, including technology and services. The success of China’s economic transformation depends on an increased commercial presence abroad and deepening international linkages. This is not only true for all economic enterprises in China, including SOEs and private companies, but it also serves as a critical source of Party legitimacy and political stability.

In this context, many chapters in this report confirm the importance of Beijing’s policy initiatives in shaping investments overseas, and in Europe in particular. Beijing’s “going out” policy starting in 2001, and intensifying after the Global Financial crisis, has facilitated and encouraged the internationalization of Chinese firms for much of the last two decades as a means to develop the national economy. More recently, both China’s 12th and 13th five-year plans (2011-2015; 2016-2020) have encouraged overseas investments as a means to access supply chains, quality brand names and advanced technology – all reasons for investing in Europe. As China’s industrial strategy grows in sophistication, plans such as “Made in China 2025” will increasingly channel overseas investments as a means to achieve clear policy goals in the so-called “new strategic industries” defined in Beijing. In 2016, the largest share of Chinese global mergers and acquisitions targeted the high-tech sector (24 percent of total deal values), compared to 20 percent that targeted energy and material assets (Rhodium Group, 2017). The controls on outbound Chinese capital that the Chinese government deployed in 2016 and 2017 also highlight the crucial impact of Beijing’s interests and policies, i.e., the political nature of outbound capital flows. Finally, as China continues to press forward with its Belt and Road Initiative (BRI), an initiative now elevated to constitutional rank within the Chinese Communist Party in fall 2017, Europe can also expect to see an increasing number of related Chinese investments.

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The Government of the Hong Kong Special Administrative Region (HKSAR) held a seminar entitled "Strategies and Opportunities under the Belt and Road Initiative - Leveraging Hong Kong's Advantages, Meeting the Country's Needs” in conjunction with the Belt and Road General Chamber of Commerce on 3 February 2018 at the Great Hall of the People in Beijing.

The full-day seminar was attended by around 120 representatives from the business and professional services sectors in Hong Kong, and more than 380 chief executives and members of senior management from over 170 state-owned enterprises (SoEs). It enabled both sides to establish direct contact and facilitated the forging of strategic partnerships in taking forward Belt and Road-related work. There were also in-depth discussions on how to capitalise on the distinct advantages of Hong Kong's business and professional services sectors so as to jointly promote the Initiative.

1. Keynote Speeches

• Mr Zhang Dejiang, the Chairman of the Standing Committee of the National People's Congress, delivered keynote speech at the opening ceremony of the seminar（Chinese only）
• The Chief Executive Mrs Carrie Lam delivered keynote speech for the seminar (Chinese only)
• Mr Xiao Yaqing, the Chairman of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) delivered opening remarks for the thematic discussion sessions of the seminar (Chinese only)
• The Chief Executive Mrs Carrie Lam delivered closing remarks for the seminar (Chinese only)

2. Other Information

• Seminar Programme (Chinese only)
• Booklet on Hong Kong Special Administrative Region Delegation (Chinese only)
• List of State-owned and Mainland Enterprises and Organisations that enrolled and participated in the Seminar (Chinese only)

For more details, please refer to http://www.beltandroad.gov.hk/activities_20180203.html. 

By James Laurenceson, Deputy Director of the Australia-China Relations Institute, University of Technology Sydney
Simone van Nieuwenhuizen, Project and Research Support Officer, Australia-China Relations Institute, University of Technology Sydney
Elena Collinson, Senior Project and Research Officer at the Australia-China Relations Institute, University of Technology Sydney

Executive Summary

The Belt and Road Initiative (BRI) was launched as a signature initiative of Chinese President Xi Jinping in 2013. China contends that the aim of the BRI is to enhance regional connectivity across five dimensions – infrastructure, policy, finance, trade and people-to-people links. The BRI was written into the charter of the Chinese Communist Party at the 19th Party Congress in Beijing in October 2017, indicating that it will remain a focal point for China’s foreign policy and its international economic outreach beyond the end of Xi’s second term in 2022. The Australian government has yet to formulate a policy on BRI engagement. To date the response has been limited to the signing of a Memorandum of Understanding (MOU) with China on cooperation with Australian companies on BRI projects in third-party countries. Australia and China are also reportedly currently considering forming a working group to further explore other types of cooperation on the BRI, although the formation of the group is still in the planning stage. This paper critically reviews the four major points of debate on deepening Australian engagement with the BRI.

1. The geostrategic outcomes of the BRI

The first is that Australia should keep its distance because the BRI has the potential to promote a geostrategic outcome unfavourable to its security ally, the United States. The major driver of geostrategic shifts in the Asia-Pacific region is China’s steadily increasing economic power. Short of the US and its allies, partners and friends adopting an active China containment strategy, this trend is likely to continue, irrespective of the BRI, although the BRI may accelerate it. There is a possibility that the US will lean on Australia to sign up to alternatives to the BRI. Should Australia opt to deepen engagement with the BRI, it could – and should – also participate in other initiatives that have a clear economic justification.

2. The BRI in China’s policymaking tradition

Another reported Australian government concern is that the BRI lacks a detailed roadmap outlining a pipeline of projects and this prevents meaningful participation in practice. However, in a Chinese policy-making tradition, at this stage the BRI is chiefly a concept, an invitation to cooperate, and has flexibility deliberately built in. This flexibility provides opportunities for creative Australian diplomacy to advance the national interest. Australian companies participating in BRI projects in third-party countries is only one way that cooperation might proceed. Australia could also use the BRI to pursue greater connectivity with China’s rapidly growing economy in areas not covered by the China-Australia Free Trade Agreement (ChAFTA), subject to national interest and national security considerations. For example, Australia could seek to harness the political capital that China is staking on the BRI to upgrade the three decade-old investment treaty that exists between two countries.

3. The BRI’s transparency and governance standards

China’s mixed track record on transparency, governance and local participation on overseas investments is another reason sometimes provided for why the Australian government should not more actively engage with the BRI. Australia has a clear national interest in supporting initiatives that result in strong development outcomes, pushing for adherence to principles of transparency and the implementation of a strong governance framework. At the same time, as the BRI’s main sponsor, China has financial and reputational incentives to promote the BRI’s effectiveness and long-term likelihood of success. The BRI will go ahead with or without Australia. More active Australian engagement with the BRI might assist in achieving better governance and development outcomes. For example, the financial resources China is willing to commit to the BRI could be used to leverage Australian funds and project evaluation expertise in a boost for regional aid and development. And Chinese investments in Australia, whether badged as part of the BRI or not, will still need to go through Australia’s rigorous foreign investment approvals regime. The Australian Treasurer retains the prerogative to reject bids they deem contrary to the national interest. The BRI does not bind Australia to China to the exclusion of an open, competitive bidding process for greenfield or brownfield investments. It may, however, act to increase Chinese interest and the value of Australian assets, and in some cases, Chinese companies may emerge as the only bidders.

4. The question of how the BRI benefits Australia

Limited economic benefits have also been cited as justification for hesitation on Australia’s part. Australia already has extensive trade and investment ties with China and as a high-income country with a solid credit rating attracting funding at competitive interest rates is, in a general sense, not difficult. Exactly how much new money China is putting on the table for the BRI is also not clear. Yet the fact that trade with China was already booming did not stop the Australian government from actively pursuing initiatives such as ChAFTA. And some Australian regions do struggle to attract the investment needed to support local jobs, as the government’s own Northern Development Strategy makes plain. There is also a regional dimension to Australia’s national interest with many emerging economies in the Asia-Pacific unable to secure the financing needed for infrastructure upgrading. For its part, Australia’s business sector has encouraged the government to take a more proactive stance on BRI engagement.

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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.

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