Cambodia's 264.6 billion yuan project, who can grab it from China and Japan?

Correct Answer Station

2024-05-24 13:03Posted in Anhui financial field creators

Recently, Cambodia launched a US$36.6 billion (264.6 billion yuan) infrastructure construction plan.

According to foreign media reports, China and Japan will be strong competitors?

264.6 billion yuan big project, who can grab it?

Cambodia, with a GDP of about $33.2 billion in 2023.

Despite its small economy, Cambodia is one of the fastest-growing economies in Southeast Asia.

In 2023, Cambodia's GDP will grow by 5.6% year-on-year, and the growth rate is expected to reach 6.6% in 2024.

Statistically, Cambodia has had a good start to the year.

In the first two months of this year, Cambodia's foreign trade volume reached US$8.12 billion, up 19.2 percent year-on-year, attracting US$1.3 billion in foreign direct investment, up more than 500 percent year-on-year.

Cambodia's GDP over the years

Cambodia has great potential for development, but it is seriously constrained by poor infrastructure.

Cambodia is rich in water resources and has many rivers, but unfortunately, several major rivers in Cambodia are not connected.

As a result, although the Mekong River (the Lancang River originating in China) flows through Cambodia, most of Cambodia's goods can only be transshipped to the sea through the lower Mekong River, i.e., Vietnam.

This not only pushes up the cost and time of logistics, but also has to rely on Vietnam's breath and be controlled by others.

To this end, Cambodia has launched the De Chong Phu South Canal project.

The De Chong Phu South Canal, about 180 kilometers long, is planned to connect the river port of Phnom Penh, the capital of Cambodia, directly to Sihanoukville, the country's only deep-water seaport, and a new port in the coastal province of Kampot.

After the completion of navigation, Cambodia will realize a direct connection from the Mekong River to the sea, and the canal will pass through the four provinces, opening up the waters of the Tonle Sap Lake, the Mekong River, and the Tonli Basak River.

According to Cambodian Prime Minister Hun Manet, at that time -

Cambodians can finally breathe through their noses.

Water transportation is not smooth, and road transportation in Cambodia is not very convenient.

In the case of expressways, it was not until October 2022 that the first expressway in Cambodia was officially opened to traffic.

This expressway directly shortens the driving time from Phnom Penh to Sihanoukville from more than 5 hours to less than 2 hours.

In order to increase the density of expressways, Cambodia will start construction of the second expressway in June 2023, and the third expressway will be planned simultaneously.

Plan map of Cambodia's third expressway

A total of 174 similar projects are planned in Cambodia.

Cambodia's Integrated Master Plan for Transport and Logistics Systems 2023-2033 sets out short-, medium- and long-term visions, listing 174 infrastructure development projects, including 94 road projects, 8 railway projects, 23 inland canal projects, 20 maritime projects, 10 air transport projects, and 15 logistics projects.

174 projects require an investment of US$36.6 billion (264.6 billion yuan).

For Cambodia, whose annual fiscal revenue is less than $6 billion, it is indeed a big deal.

The 264.6 billion yuan project is definitely a big cake.

In the eyes of foreign media, on a global scale, only China and Japan can take over.

The main reason is that this cake is not something that can be eaten if you want to.

At least 3 conditions must be met:

One is to have money.

Although Cambodia is prepared to finance infrastructure projects, it is limited by financial resources and cannot afford to provide sufficient funds.

This requires cooperation with overseas companies to build or develop.

Phnom Penh, the capital of Cambodia

It means that if you want to eat cake, you have to contribute both effort and money.

Second, it is necessary to have the ability and strong capacity for infrastructure construction.

Third, it is necessary to have a close relationship, and it is best to have cooperation experience and know the roots.

In this way, China and Japan, both of whom are Cambodia's "comprehensive strategic cooperative partnerships," are basically left.

Compared to Japan, China has a greater advantage.

On the one hand, China is Cambodia's largest trading partner.

In 2023, Cambodia's international trade volume reached US$46.8 billion.

Among them, China has nearly 14.8 billion US dollars, accounting for a quarter and six times that of Japan.

On the other hand, China is also Cambodia's largest source of foreign investment.

In 2023, the Council for the Development of Cambodia approved a total of 268 investment projects with an investment amount of about US$4.92 billion, with investment from China accounting for 66% of Cambodia's total investment.

In the first two months of this year, China maintained its position as the largest source of foreign investment in Cambodia, with Chinese investment in Cambodia reaching US$545 million, accounting for 39% of foreign direct investment.

On the whole, China is stronger than Japan in terms of economic and trade closeness with Cambodia.

Especially in infrastructure, China and Cambodia have a number of successful cases of cooperation.

As early as 2013, the new container terminal project of Phnom Penh Port, supported by preferential funds provided by China, was completed, which is one of the largest river terminals in Cambodia.

In October 2023, Siem Reap Angkor International Airport in Cambodia was officially opened.

Siem Reap Angkor International Airport, Cambodia

The airport is led by China Cloud Investment Group, Yunnan Construction Investment Holding Group Co., Ltd., and operated by Yunnan Aviation Industry Investment Group Co., Ltd., and is the first international airport implemented by a Chinese enterprise in the BOT model (Build-Operate-Transfer) overseas.

Cambodia's first expressway, the Golden Port Expressway, is also a project invested by China Road and Bridge Engineering Co., Ltd. (China Road and Bridge) according to the "build-operate-transfer" model.

The 264.6 billion yuan project is China's first priority.

As analyzed above, participating in Cambodian projects requires both effort and money.

Cambodia's 264.6 billion yuan project can be regarded as a microcosm of overseas infrastructure projects.

For Chinese enterprises, going overseas has both opportunities and challenges.

Let's start with the challenges.

There are great differences in the development level, business environment, and political stability of overseas countries, and the external environment such as great power games and geopolitical conflicts is superimposed, and Chinese enterprises face multiple risks when going overseas.

For example, the "Duc Chong Fu Nan Canal" project has aroused objections from the Vietnamese government.

The red line is the proposed Dechongfu South Canal

After the Cambodian government announced that it would cooperate with Chinese enterprises to build the "Dechong Funan Canal" project, the United States pointed fingers again.

According to Bloomberg, the U.S. has unfounded speculation that the canal could be used to bolster China's so-called military presence in Cambodia, posing a potential security threat to regional neighbors such as Vietnam.

Although these "theories of military teleology" and "theory of environmental destruction" are groundless and purely slanderous, they have also had a negative impact on public opinion on Chinese companies going overseas.

In business.

China's overseas investment and construction projects should also consider the benefits and risks.

One of the major characteristics of infrastructure projects is that they have large investment and long return cycles, which also invisibly magnify risks.

The above risks must be ignored by Chinese enterprises going overseas.

Let's talk about opportunities.

On the one hand, overseas infrastructure projects have created a larger market for Chinese companies.

Chinese enterprises contracting infrastructure projects overseas can stimulate the export of cement, glass, ceramic tiles, coatings and other "four building materials".

From the perspective of the export destinations of the "four building materials", from 2019 to 2021, countries along the "Belt and Road" accounted for less than 60%, and from 2022 to 2023, the proportion has climbed to 65%.

It can be seen that the importance of countries along the "Belt and Road" is becoming increasingly prominent.

The trend of the export value of the "four building materials".

The second is to open up Southeast Asian transportation and serve the domestic and international dual circulation.

China's help to Cambodia improve its domestic transportation is also conducive to the mainland's international trade.

Taking the Dechong Funan Canal as an example, after its completion and navigation, it provides a new possibility for inland provinces such as Yunnan and Tibet on the mainland to realize freight transportation to the sea through the Lancang River.

Another example is the "Trans-Asian Railway", once fully completed, China's inland provinces will go west to the Indian Ocean, the Middle East, North Africa, Western Europe and other countries, which can shorten the distance by 3,000 kilometers and greatly reduce the time and cost of transportation.

Trans-Asian Railway

All this depends on the improvement and improvement of Cambodia's domestic transportation.

From a practical point of view, the domestic housing construction market has entered the era of stock, industry competition has been further intensified, and the survival pressure of infrastructure enterprises is great.

The potential market of countries along the "Belt and Road" has become the key to breaking the situation for domestic infrastructure enterprises.

That's why there is a saying that "if you don't go to sea, you're out".

Investment guru Charlie Munger said:

The first rule of fishing is to fish where there are fish. The second rule of fishing is, remember the first rule.

Chinese companies go to sea and go where there are fish!

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