China-Cambodia Free Trade Agreement (CCFTA) inspires ‘Diamond Hexagon’ cooperation framework
By Zhang Zhao, Zhi Gang
From February 9 to 11, Cambodian Prime Minister Hun Sen visited China as the first foreign leader to arrive after the Chinese New Year. On February 10, President Xi Jinping met with Hun Sen and the two sides agreed to jointly commence a new era of building a China-Cambodia community with a shared future.
On January 1, 2022, the Free Trade Agreement between the Government of the People’s Republic of China and the Government of the Kingdom of Cambodia (China-Cambodia Free Trade Agreement, CCFTA) entered into force. Over the last year, the policy dividends have been gradually released, with bilateral trade and investment liberalization and facilitation enhanced and pragmatic economic and trade cooperation yielding fruitful results. According to statistics from the Chinese Ministry of Commerce, in 2022, China-Cambodia trade reached a new record high of US$16.02 billion, up 17.5 percent year on year. China has been Cambodia’s largest trading partner for 11 years in a row. The mutually beneficial and pragmatic economic and trade cooperation has become a “ballast stone” for China-Cambodia relations.
Remarkable Policy Dividends
In recent years, China has remained Cambodia’s largest trading partner and largest source of investment as well as Cambodia’s main export destination for rice, bananas, and mangos. In 2021, China and Cambodia achieved the goal of US$10 billion in two-way trade two years ahead of schedule. With the entry into force of the CCFTA, development of China-Cambodia bilateral economic and trade relations entered a new stage.
The agreement has brought the proportion of zero-tariff products in the goods traded between Cambodia and China to more than 90 percent for both countries. According to its provisions, China provides duty-free status to 97 percent of imports from Cambodia including clothing, footwear, mechanical and electrical parts, and agricultural products, whereas Cambodia removes tariffs on 90 percent of its imports from China including textile materials and products, mechanical and electrical products, and vehicles.
The most direct dividend of the concession of tariffs has been an increase in bilateral trade in goods, which has added to the profits of Cambodian producers and exporters and provided more job opportunities. According to statistics from the General Administration of Customs of Cambodia, in 2022, Cambodia’s volume of foreign trade reached US$52.4 billion, up 9.2 percent year on year. The total value of its exports was US$22.48 billion, up 16 percent year on year, while the total value of its imports was US$29.94 billion, up 4.3 percent year on year. As the largest trading partner of Cambodia, China accounts for a quarter of Cambodia’s foreign trade.
Today, Cambodian goods are mainly exported to Europe and the United States, and its imports are mainly from China, Thailand, and Vietnam. With the entry into force of the CCFTA, China’s share will be upgraded in the market structure of Cambodia’s merchandise trade. According to the Cambodian government’s vision, the country’s exports to China should eventually increase from about 6 percent of its total exports at present to 25 percent. If the CCFTA can help Cambodian exports meet the government goals, Cambodia’s trade deficit with China will be reduced. And China’s increased investment in Cambodia will attract capital inflows and stabilize Cambodia’s international balance of payments, which will improve Cambodia’s economic performance in the long run.
Furthermore, in 2020, the European Union withdrew part of the tariff preferences granted to Cambodia under the EBA (Everything But Arms) trade scheme, which exerted a negative impact on Cambodian exports of garments, footwear, suitcases, and sugar. The CCFTA entered into force just in time to solve export problems affecting Cambodian products. Exporting more Cambodian products to China will alleviate part of the impact of the move by the European Union.
“The EU’s withdrawal of part of tariff preferences will make it difficult for some Chinese enterprises to operate in Cambodia,” commented Chinese Ambassador to Cambodia Wang Wentian on February 15. “However, with the entry into force of the RCEP (Regional Comprehensive Economic Partnership) and CCFTA agreements, more Chinese companies will invest in Cambodia.” Despite any difficulties, bilateral economic, trade, and investment cooperation will see sustained, sound, and stable development.
Trade and Investment Facilitation
Based on the China-ASEAN Investment Agreement and the China-Cambodia Agreement for the Promotion and Protection of Investment, the CCFTA seeks to enhance investment cooperation by facilitating two-way investment, advocating green investment, and making Chinese enterprises “going global” an important pillar of bilateral investment cooperation. It also includes agreements to deepen cooperation in key areas such as infrastructure, investment, and economic corridors and encourage enterprises from the two countries to cooperate on trade, investment, production capacity and environmental protection to maximize the effectiveness of the agreement. The two sides also pledged to enhance market openness and carry out economic and technological cooperation in major areas such as trade in services, e-commerce, tourism, IT technology, transportation, and logistics.
Cambodia has enacted and improved a series of laws and decrees to support trade and investment including the Investment Law, the E-commerce Law, the Consumer Protection Law, the Competition Law, and the Law on Public-Private Partnerships. It has also formulated a number of strategic plans on infrastructure construction, especially the plan to build the coastal province of Sihanoukville into a multi-purpose special economic zone (SEZ) to provide convenience for entrepreneurs and investors. The measures became effective during the COVID-19 outbreak. According to data released by the Cambodian Development Council this January, the Cambodian government approved 186 new investment projects with a contracted investment of US$4.03 billion, with US$1.69 billion of Chinese investment accounting for 42 percent of the total. In terms of tourism, the Cambodian Ministry of Tourism is accelerating application of the “China Ready” certification system, which will allow all domestic tourism practitioners to accept digital and cash RMB payments. The Cambodian government plans to work with relevant Chinese government departments and associations on three large-scale activities to celebrate 65 years of diplomatic ties between the two countries and attract more Chinese tourists.
Since the CCFTA came into force, China has actively promoted bilateral agricultural cooperation and facilitated the export of more Cambodian agricultural products to China. In 2022, China began to implement an agricultural development planning assistance project for Cambodia. The two sides have signed an MOU on cooperation on veterinary drugs, veterinary biological products, and feed additives. Efforts from both sides have facilitated the export of Cambodian Basa fish, corn, and longan to China. The two sides are also accelerating the approval for export of Cambodian products to China including pepper, wild aquatic products, edible aquatic animals, bird’s nests, and coconuts. In addition, China has improved the efficiency of cargo clearance at customs through measures such as “green channels” and “tiered inspection” for imported fruits, which has saved export costs for enterprises and facilitated the import and export of goods.
Contributing to the ‘Diamond Hexagon’ Cooperation Framework
The CCFTA is the first free trade agreement featuring a chapter dedicated to Belt and Road Initiative (BRI) cooperation. Furthermore, the BRI is highly compatible with Cambodia’s “Rectangular Strategy.” When discussions started, Cambodian Prime Minister Hun Sen expressed belief that the agreement would be important both economically and politically. Cambodian Commerce Minister Pan Sorasak called the agreement “an important basis for implementing and expanding the Cambodia-China comprehensive strategic cooperative partnership and promoting bilateral economic, trade, and investment cooperation.”
More than a year has passed since the CCFTA came into force. With focus on the BRI cooperation, the two sides have carried out active cooperation in various fields and in all business forms. The fruitful results have not only brought tangible benefits and convenience to bilateral trade and investment, but also further promoted the building of a China-Cambodia community with a shared future. “If Cambodia does not rely on China, who can we rely on?” Prime Minister Hun Sen has asked on numerous occasions.
This year marks the 65th anniversary of the establishment of diplomatic relations between China and Cambodia. In his meeting with Prime Minister Hun Sen on February 10, President Xi Jinping suggested that both sides focus on the six areas of politics, production capacity, agriculture, energy, security, and people-to-people exchange to build a “diamond hexagon” cooperation framework. The meeting demonstrated the sincere willingness of leaders of the two countries to unswervingly promote construction of a community with a shared future for mankind.
The initiative to build a “diamond hexagon” framework for China-Cambodia cooperation blazed a path forward for pragmatic and high-quality implementation of the CCFTA, which meets the requirements for the future development of larger and more dynamic bilateral economic and trade relationship between the two countries. Successful implementation of the agreement will help the two countries expand economic and trade cooperation to ensure the people of both sides share the dividends of cooperation. It will also lay a solid foundation for the “diamond hexagon” cooperation framework and provide new vitality for the steady development of China-Cambodia relations.
China Report ASEAN 