Caixin
Jun 17, 2019 06:40 PM
BUSINESS & TECH

China Investment Poised to Help Cambodian Bike Industry Pedal Ahead

Workers on a bicycle factory's production line in Huai'an, East China's Jiangsu province on Nov. 1. Photo: VCG
Workers on a bicycle factory's production line in Huai'an, East China's Jiangsu province on Nov. 1. Photo: VCG

(The Straits Times) — A brand new factory is emerging on a 50 acre plot in Phnom Penh as part of a plan to shift production of millions of bicycles from China to Cambodia.

How fast it is completed, however, will depend on the meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit in Japan later this month, if it ever happens.

"If the meeting goes very well, they will go ahead at one pace," said Arnold Kamler, chairman of U.S. bicycle company Kent International, as he explained the calculations made by his Chinese bicycle supplier Shanghai General Sports.

"If it really looks like that thing is completely falling apart, they will go into warp speed."

Trump, who raised duties on $200 billion worth of Chinese imports last month, has threatened tariffs on another $300 billion worth of goods if Xi does not meet him at the G-20 summit.

While Vietnam, Taiwan and Chile have been identified by analysts as the biggest beneficiaries of diverted U.S.-China trade, manufacturing hubs like Cambodia are seeing greater interest from Chinese firms trying to relocate their operations to get around punitive U.S. tariffs.

The kingdom has a bicycle industry that enjoys tariff-free access to both the U.S. and European Union.

Last year, factories in Cambodia's special economic zones produced 1.4 million bicycles worth $287 million, with 64% headed for the EU. Another 7.3% of Cambodia's bicycle exports are bound for the United States.

A Straits Times check with Cambodia's Ministry of Commerce found at least two new Chinese-controlled bicycle firms that had set up shop recently.

Evergrand Bicycle (Cambodia) was registered in November last year, while XDS Bicycle (Cambodia) was registered three months ago.

Most of the bicycles made by Shanghai General Sports is produced for Kent, which sells some three million sets to retailers such as Walmart and Target every year.

If its factory in Cambodia is built at full speed, the Chinese manufacturer could be producing 50,000 bicycles a month by the middle of next year, Kamler told The Straits Times.

"The plan is over the next three to four years. They will reduce the size of their factory in China by about 50% to 60%," Kamler said.

Any remaining U.S.-bound bicycles still produced in China will be subject to an eye-watering 36% duty.

But Cambodia is facing its own headwinds.

The EU in February launched a process to suspend Cambodia's trade privileges after Prime Minister Hun Sen cracked down on his political opponents.

Amid sustained Western pressure over its human rights record, Phnom Penh has leaned increasingly on Beijing, whose investment in Cambodia accounted for 41.3% of all foreign direct investment and 77% of bilateral debt last year.

Between 2017 and last year, Chinese investment in Cambodia doubled in value to $3.3 billion.

"China's investments come with no conditions," said Chap Sotharith, a board member of the Cambodian Institute for Cooperation and Peace, a research institute. "It's not like investments from the U.S."

But this means that economic tremors from a slowdown in China are amplified in Cambodia, the third smallest economy in ASEAN. Growth in Cambodia's real estate sector, for example, slowed after Beijing tried to control Chinese debt and halt a slide in the yuan's value.

"Approved investments into construction projects declined last year, partly due to weaker external demand particularly from China, following the U.S.-China trade tension and China's restrictions on outbound investments in the real estate sector," a report from Cambodia's central bank stated in April.

The government, mindful of the potential damage from a protracted trade war on the Cambodian economy, is striving to improve its trade competitiveness, Cambodia's Minister for Economy and Finance Aun Pornmoniroth was quoted by Khmer Times as saying earlier this month.

This story was originally published by The Straits Times

Contact editor Yang Ge (geyang@caixin.com)

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