The growth of China’s influence in Cambodia, Laos, and Myanmar

Switching Sides: China, the US, and Political Change in Southeast Asia from East Asia Foundation

The growth of the economy of the People’s Republic of China (PRC) is transforming the Southeast Asian region as low-paying factory jobs move out of the PRC and into the surrounding regions as wage competition drives the demand for regional hubs of production alternatives to China’s industrial machine. Laos, Myanmar, and Cambodia are benefitting from the drive of Chinese business leaders seeking to maximize their profit with the establishment of new component factories in their countries, leading to some of the fastest economic growth rates in the world. These economic development also more closely link the region to China’s growing power and, in the face of waning US interests or commitment to the region, provide yet another example of the economic rise of the People’s Republic of China.

“China’s definitely looking at these countries in general as an area where it can sell products and get good return for its investments…China itself is getting more expensive for its companies, and that’s reinforcing this trend,” said Edward Lee, an economist with Standard Chartered Plc in Singapore.

China’s investment extends beyond production and into infrastructure and other support services. China Minsheng Investment Group recently announced plans to build a 2,000 hectare city near Cambodia’s capital of Phnom Penh in a deal worth $15.9 billion or approximately 10% of Cambodia’s current gross domestic product.

Laos is benefitting from Chinese President Xi Jinping’s “One Belt, One Road” program with a planned railway from Vientiane, the capital of Laos, to the border of the PRC. Work on this railway project began last year in what is expected to be a transformative economic program for the landlocked country. Cambodia and Laos are each expecting economic growth rates above 7% this year.

The investment in infrastructure projects is largely seen as impossible without China’s help, with investment, material, and even labor capital coming directly from the PRC itself. Further, the Southeast Asian nations are becoming important intermediate destinations for Chinese goods, refining them into shoes and garments that are then shipped abroad. The International Monetary Fund cautions against economic dependence on China and pushes for diversification of local industries, citing the garment industry’s lack of local autonomy in the face of intense international competition. Many economic analysts also warn against the creation of a wealth gap and urge the Southeast Asian nations to focus on developing a middle class lest an oligarchic class is created by the influx of massive Chinese wealth, leading to an extractive elite that seek to dominate political power.

[Bloomberg]