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Chinese investment pouring into Thailand's neighbours

China has been the beneficiary of huge foreign direct investment. But in recent years, the tables have turned, and China has becomes a prominent foreign investor in Vietnam, Cambodia and Laos. This article, condensed from several by Deutsche Presse-Agentur, looks at what Chinese investors are doing across Thailand's northern and eastern borders.

Published on December 3, 2007

Earlier this year, China's Commerce Ministry predicted foreign investment by Chinese enterprises would likely exceed US$20.9 billion (Bt707 billion) this year, up at least 30 per cent from last year, as Beijing continues to encourage Chinese companies to expand abroad.

China's direct foreign investment began to soar in 2005, when the figure jumped 123 per cent year on year to $12.3 billion. The Commerce Ministry's 11th five-year plan, which began last year, predicts aggregate direct foreign investment by Chinese companies will top $60 billion by 2010.

A considerable slice of that investment is going to Vietnam, Cambodia and Laos - Thailand's neighbours - which are building their economies from scratch.

In Cambodia, China was the dominant foreign investor last year, with $763 million in investment approvals - nearly double its 2005 total. Russia was a distant second last year, with approvals totalling $278 million.

In Laos between 2001 and this past August, Chinese foreign direct investment in projects approved by the Lao Committee for Planning and Investment amounted to $1.1 billion, second only to Thailand's projects, worth $1.3 billion.

In Vietnam, Chinese investment skyrocketed from $66 million in 2005 to $312 million last year.

Chinese investment in Cambodia has been welcomed with open arms following a decades-long relationship. The Chinese government is pouring money into bridges and roads - it donated $6 million worth of steel bridges to Cambodia in 2001 - and has pledged military assistance in the form of new vessels for the country's dilapidated navy. Cambodia's revered former king, Norodom Sihanouk, spends months at a time in Beijing, and Chinese Premier Wen Jiabao showed the value he placed on the relationship in April 2006, when he included Cambodia in a tour of New Zealand and Australia. China also agreed to waive outstanding loans to Cambodia five years ago.

These days, China's emphasis on Cambodia is increasingly looking beyond aid towards desperately needed investment. Chinese, and now Cambodian investors, are planting hectares of biofuel crops like jatropha, which Chinese industry devours insatiably. Recently, a Chinese company signed a deal to grow mulberries over a tract of land in southern Cambodia as a resource from which to supply raw silk to its factories and offered to build a factory to process the silk-worm cocoons in country.

In May, China's fifth-largest steelmaker, Wuhan Steel, announced it had joined the Anshan Iron and Steel Group, Shanghai's Baosteel Group and Beijing's Shougang Iron and Steel Group to explore for iron ore in Cambodia's remote northern province of Preah Vihear - on the border with Thailand.

Earlier this year, an investor was given the go-ahead for a $215-million hydroelectric plant in the coastal province of Koh Kong. Huot Pongan, Cambodia's under-secretary of state for industry, mines and energy, says the benefits outweigh the risks.

"We don't have enough electricity. China is developing that for us. We don't have the resources to build mines and harvest our resources. China does. And China has been here for a long time and will stay here for a long time," he says.

In Laos, besides investments in hydroelectric plants, Chinese companies are also investing in mining, rubber plantations, telecommunications, construction materials, hotels and restaurants. In August, Chinese investors opened the China Market near Vientiane Airport. It is now one of the biggest shopping malls in the capital. Chinese merchants man the stalls, and Chinese goods are on sale.

The huge increase in Chinese investments in mining and hydropower plants has led to a two-year moratorium on new concessions. Laos has handed out more than 140 mining concessions in recent years, many to Chinese enterprises looking for gold, copper, iron, potassium and bauxite.

For instance, Australia's Ord River Resources has joined China's Non-ferrous Metals International Mining to develop a 727-square-kilometre concession on the Bolaven Plateau in southern Laos into one of the world's largest bauxite mines, for the manufacture of aluminium. Such concessions are hard to secure in Laos without a Chinese partner.

"It's political," says Vinay Inthavong, a Lao entrepreneur and chairman of the Vico Group. "If the leadership wants to stay in power, they have to support China and Vietnam."

In Vietnam, Yang Dewei, 42, manager of a factory called United Motor Vietnam, explains: "Doing business here is pretty much the same as in China, except for the language difference."

For Chinese investors, Vietnam's economic climate has the advantage of familiarity: a fellow communist country implementing economic reforms, plus an emerging middle class eager to consume basic and luxury goods.

This explains why Chinese companies invested in 57 projects in Vietnam last year, up from 40 in 2005. At least 250 Chinese investment projects have been established in the last five years, says Vietnam's Planning and Investment Ministry.

China remains a relatively small investor in Vietnam, ranking 13th behind top investors South Korea, Singapore, Taiwan and Japan. But Vietnam has been a major location for China's outsourcing factories.

In 2005, the last year for which detailed figures are available, about 35 per cent of Chinese investment in Vietnam was in manufacturing, while in 2004 that sector represented 83 per cent of Chinese investments. The balance of investment - and the other pillar of China's move into Vietnam - reflects its priorities elsewhere in the world: natural resources.

Investment in projects like coal extraction and bauxite mining made up 44 per cent of Chinese investment in Vietnam in 2005, up from only 3 per cent the year before.

Still, for Chinese manufacturers like Yang Dewei, Vietnam's low wages, geographical proximity and cultural similarity make the country an attractive place to export factories.

"It's not exactly the same," he says. "For instance, in my home town of Chongqing, in southern China, the people eat spicy food, and I have a hard time finding good food here. But I am here for the business, and so far it's worth it."


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