Building Friendships, Building Dams

by Carl Middleton
Monday, September 17, 2007

China’s Charm Offensive in Southeast Asia Bodes Ill for Mekong Basin Rivers

Kampot province in Southern Cambodia is a sleepy coastal region most renowned for its fresh pepper, salt production, and durian fruit. The Kamchay River weaves its way across the land, from the highlands of Bokor National Park southward through a fertile valley of durian orchards and rice fields before arriving in the provincial capital, Kampot Town, where the steep-sided plateau of the national park dominates the skyline. Rich in natural wealth, the national park is also a popular tourist destination, especially the rapids and pools at Touk Chuu on the Kamchay, where families play in the cool, clean water and vendors from nearby villages serve freshly prepared local delicacies.

This tranquil corner of Cambodia is soon to be transformed into the country’s new powerhouse. Several kilometers upstream of Touk Chuu, deeper within the national park, Chinese engineers are busy finalizing surveys that will clear the way for construction later this year of Cambodia’s first large hydropower scheme, the 193-megawatt Kamchay Dam. The 110-meter-high dam’s reservoir will flood 2,000 hectares of forest, or two percent of the national park’s area. According to a 2002 survey, this protected forest is the habitat of 31 mammals and 10 endangered species, including Asian elephants, leopard cats, and tigers. The Cambodian Government has decided it is willing to sacrifice the forest in order to secure desperately needed power, a constraint on economic growth where electricity prices are among the highest in the world.

This is not the first time that the Kamchay Dam has been considered for development. In the early 1990s the Canadian International Development Agency (CIDA), strongly encouraged by the Cambodian government, investigated the feasibility of the dam. CIDA concluded the project was economically feasible, but withdrew its support following heavy pressure from a coalition of Cambodian and international NGOs concerned about the project’s poor social and environmental standards.

The project lay dormant for almost a decade. Then, in 2005, to much fanfare, Chinese Premier Wen Jiabao and Cambodia’s Prime Minister Hun Sen presided over an agreement signed in Kunming, China that approved Sinohydro Corporation, China’s largest hydropower developer, to step in and develop Kamchay Dam. High-level Cambodian and Chinese government officials had pushed forward the Kamchay Dam’s revival in closed-door negotiations that largely left other stakeholders, including the local authorities and the public, out of the process.

Using a US$280 million concessional loan from China to Sinohydro Corporation, the company will build, own and operate the Kamchay Dam for 44 years, before transferring the project (quite late in its expected lifespan) to the Cambodian government in 2050. Opposition politicians have questioned the length of the contract, which are typically 25-30 years in length. They have also questioned a July 2006 vote by Cambodia’s National Assembly to guarantee Sinohydro financial compensation if the project faces difficulties or underperforms. Leaders of the ruling party justified the guarantee by claiming that it was necessary to secure Sinohydro’s investment. One abstaining opposition lawmaker, H.E. Keo Remy, pointed out that the Sinohydro contract had not been revealed to the lawmakers by the time of the vote.

Villagers in Mak Prang commune living downstream of the dam site along the Kamchay River remain blissfully unaware of the project’s potential implications for their lives. Those living closest to the dam, who have witnessed the arrival of excavators and other heavy construction equipment from China, say their main concern is that “the dam will collapse.” Poor river water quality, however, is a more real threat, and could devastate the local tourism industry, pollute irrigation water that feeds the abundant durian and rice fields, and contaminate Kampot Town’s water supply, extracted just downstream of the planned dam site.

While the project site’s location within a national park means there is almost no resettlement, there will be a large number of people affected by the impoundment of the reservoir. According to the local commune chief, the poorest 30% of villagers in Mak Prang commune depend on the collection of forest products such as bamboo, rattan, and malva nuts from the proposed reservoir area to supplement their income. Neither the company nor the government have yet to develop concrete plans to replace their livelihoods, with some local government officials suggesting that new industries will grow in Kampot and generate employment. Realistically, the electricity will more likely feed industrial growth in Cambodia’s capital, Phnom Penh, or in a planned export development zone close to Cambodia’s only major deep-water port, Sihanoukville.

In many ways, the Kamchay Dam is a microcosm of the complex process through which political, economic and social relationships are being fostered between China and its downstream neighbors located along the Mekong River that threads the countries together. Especially in Cambodia, Burma and Laos, China is willing to support controversial infrastructure projects as part of its diplomacy agenda. These governments warmly welcome the investments.

A Growing Relationship
Political ties between Cambodia and China have warmed considerably in recent years, smoothing the way for increased economic interdependence and trade. In an interplay of politically motivated “development aid” and profit-driven entrepreneurial spirit, Chinese State Owned Enterprises (SOEs) have committed to investing in a number of high-profile infrastructure projects including hydropower dams, bridges, and highways. The projects are often backed by Chinese government-supported “Policy Banks,” such as the China Export-Import bank.

While Cambodia’s traditional Western donors, together with the World Bank and Asian Development Bank, have been hesitant to support the government’s ambitious yet contentious hydropower development strategy, the Chinese government has proven willing to provide both technical expertise and financial backing. The Cambodian government approved a second major hydropower project in early 2007 and four more are known to be presently undergoing detailed feasibility studies.

Signaling the countries’ strengthening relationship, in April 2006, China’s Premier Wen Jiabao announced a package of $600 million in loans and grant aid to Cambodia during high-level talks with Cambodia’s Prime Minister Hun Sen, which included the financial backing for the Kamchay Dam project. Hun Sen thanked Wen Jiabao for the “no strings attached” loan, commending China for not interfering in the internal affairs of Cambodia. The Chinese aid package, which will be disbursed over a three to four year period, is marginally less than the amount pledged to Cambodia by all Western donors combined for 2006.

Cambodia is not alone in receiving special attention from China in mainland Southeast Asia. Burma and Laos have also been the recipients of major aid packages, infrastructure investments, and, to varying extents, military cooperation (mainly to strengthen domestic security forces). They have welcomed China’s policy of non-interference in its provision of aid, which is disassociated from human rights and good governance conditionalities. Strengthened political relationships with China benefit Burma, Cambodia and Laos on the global stage too, as China proves willing to block or dilute international actions that harm these weaker countries’ interests, as well as to moderate pressure from the region’s more powerful players, namely Thailand and Vietnam.

Thai villagers protest at Chinese Embassy in Bangkok to demand a halt  in blasting rapids on the Mekong for a navigation project
Thai villagers protest at Chinese Embassy in Bangkok to demand a halt in blasting rapids on the Mekong for a navigation project

In return, China expects little. Burma, Cambodia and Laos have publicly announced their support for the “One China” policy (which does not acknowledge Taiwan’s sovereignty) and recognize China’s interests, mostly trade related, which China reciprocates, in principle, on an equal footing.

In addition to increased opportunity for trade and investment, China reasons that stimulating economic growth will reduce the risk of state failure and, therefore, potential security threats at its borders. China is also especially interested in countering US and Western influence on its doorstep, an interest generally shared by Cambodia, Burma and Laos. These warmer friendships are, of course, also strategic alliances and open up opportunities within the region to China, including trade routes and access to natural resources. For example, Burma, offers overland access to the Andaman Sea, considered vital for both trade and diversifying China’s routes for oil imports from the Middle East and Africa. China’s oil imports currently arrive via tankers that must navigate the Straits of Malacca – a pirate infested region that could also act as a potential choke point in the case of conflict.

China’s policies toward Southeast Asia have encouraged not only major SOEs to invest in mainland Southeast Asia, but also Chinese traders and workers to migrate to these countries to seek opportunity and profit. As the volume of trade has grown, economic inter-dependence has become more entwined, thus consolidating China’s influence in the region.

In the eyes of the leaders of Burma, Cambodia and Laos, China provides an attractive alternative development model to that offered by the West, under which they need not cede decision-making or bend to western interests' mandates. The realities of the environmental destruction and widening social inequity that accompany China’s development model are, at this point, largely unacknowledged by the region’s decision makers.

Despite the significant benefits of partnering with China, the Governments of Burma, Cambodia and Laos are hesitant to completely depend upon China’s Guardianship for both historical and practical reasons. They have, therefore, continued to court other donors and powerful players to act as a counter-balance to China’s growing influence.

China woos Laos
In July 2007, Laos celebrated the thirtieth anniversary of their Friendship and Cooperation Treaty with Vietnam, its traditional regional ally since resistance to French colonialism and, more recently, as Communist states sharing a common struggle. In reality, however, Laos is widely viewed as a Vietnamese client state. Yet the nature of the relationship is changing, according to Andrew Symon of Asia Times Online, who writes: “Economics and business, rather than the old fraternal bonds among aging Communist Party cadres, will be the ties that bind future bilateral relations.” Symon observes that, on the back of increasing regional integration, Vietnam must now compete with Thai, Chinese and Western investors for access to Laos’ rich natural resources, including its massive hydropower potential that is coveted for export to meet the growing energy demands of its regional neighbors.

In August 2007, Laos’ Prime Minister, Bouasone Bouphavanh, visited Beijing where he met with Chinese President Hu Jintao. Hu told Bouasone that China and Laos had huge potential to cooperate on key areas, such as trade, energy and infrastructure. Bouasone said, “Development of the bilateral relations not only serves the fundamental interests of the two peoples, but also helps maintain the regional and world peace and prosperity.” Both Laos and China, although Communist states in name, have recently made moves towards adopting market economic principles.

Through China Exim, China has already financed the controversial 40 megawatt Nam Mang 3 dam, located 80 kilometers northeast of the Laotian capital of Vientiane, which provides power for the Lao and Thai markets. The project, completed in 2004, affected thousands of people and flooded 1,000 Ha of National Park. The project was the scene of the first ever villager-led protest, when some 40 ethnic Hmong men armed with sticks and guns, infuriated that they might be evicted from their lands without having received information about where they would be relocated, halted dam construction for five days (see WRR, April 2003). Chinese companies are known to be involved in developing at least eight proposed hydropower projects in Laos to date, including the controversial proposed Paklay Dam on the Mekong mainstream.

In the future, some projects are expected to export electricity to China, including the 640 MW Nam Ou 8, to be co-developed by Sinohydro Corporation and Laos Government. The project could affect up to 50,000 people, displacing some 7,000 in the reservoir area. The 300-square-kilometer reservoir would inundate part of Phou Dendin National Biodiversity Conservation Area.

China befriends Burma
China has built close relations with Burma’s military regime, pledging continuing economic cooperation, especially in the development of economic infrastructure. China has funded major road improvements that, at the same time, improve its access to Burma’s Andaman Sea and Bay of Bengal deep-water ports. China’s support for Burma counters US pressures on Association of South East Asian Nations (ASEAN), undermining US and EU sanctions.

China has been a willing supporter of hydropower development in Burma, both for potential export to China and Thailand, and for domestic supply. It is the major backer and developer of the Myitsone Dam in Kachin State that would displace 10 villages along the upper Irrawaddy River, one of seven or more dams planned by the same Chinese company amounting to at least 11,760 MW. Three of the five hugely controversial dams on the Salween River (altogether around 15,000 MW) have known or suspected Chinese involvement (see WRR, October 2006).

The ties that bind
China’s reemergence as a global power has resulted in a renewed projection of influence into Southeast Asia, not attained since the time of the Ming Dynasty in the 15th century. In sharp contrast to the tribute-based relationship of the past, China has worked hard through economic support and diplomatic suaveness to present itself as a benign neighbor and dispel fears of a Chinese threat of hegemony in the region. Mainland Southeast Asia presents a complex playing field for strategic political games, a region of diverse states, cultures, and, of course, checkered historical relationships with China.

To allay the region’s fears, China has engaged in multilateral dialogues, such as through the Association of South East Asian Nations (ASEAN) and relaxed its claims in long standing regional disputes. On the other hand, China has built strong, direct bilateral links with Burma, Cambodia, and Laos, weaker members of ASEAN that hold key strategic economic and security interests to China.

China has also actively participated in the ADB’s multilateral Greater Mekong Subregion (GMS) program, which focuses mainly on regional economic integration through major infrastructure developments, which is completely in-line with China’s economic interdependence strategy and the opportunities this presents for China to progress its regional leadership aspirations. The GMS regional transportation network, for example, facilitates the economic integration of western and southern China with mainland Southeast Asia. China has been a keen supporter in pushing forward construction of the Kunming to Bangkok highway via Laos.

In contrast to the weaker states of mainland Southeast Asia, China has sought to build economic cooperation and trade with Thailand and Vietnam, both of which have closer relationships with the US and are perceived as economic rivals to China. As an example of China’s keenness to build economic interdependency, despite ongoing electricity shortages, China has signed agreements with both Thailand and Vietnam to export massive amounts of electricity in the near future.

Presenting itself as a friendly neighbor seeking win-win solutions, China has on-the-whole won over cautious Mekong region governments that have accepted the inevitability of China’s rise and sought opportunities within it, including as a counter-balance to US regional influence.

Whether China can sustain its current benign approach towards diplomacy with its Mekong region neighbors is at present an open-ended question. In part it will depend on China fulfilling its promises on mutually beneficial economic partnerships, which in turn depends upon its own sustained economic growth - another open question. China has proven itself willing to support controversial infrastructure projects throughout the region in exchange for political points, and has generally adopted an un-transparent frontier-styled capitalism both with its government partners and private sector traders.

But China’s aid projects are developed according to environmental and social standards that are substantially weaker that the already less-than-admirable standards of Western bilateral donors and Export Credit Agencies, and many of these projects will not endear Chinese investors to the region’s general population. A better way forward would be for China to recognize the importance of healthy river systems to the region’s people, and work to sustain these natural support systems for the common good rather than exporting their riches through the common grid. In the longer term this will ensure a fruitful result from China’s efforts to build better relations with its neighbors and a brighter future for all.

China’s Upstream Dams Undo the Charm

Despite sleek diplomatic maneuvers, like all great powers, on occasion China has acted unilaterally and in naked self-interest. Nowhere is this more readily apparent than on the Lancang River, the local name for China’s stretch of the Mekong River that links Yunnan Province, to its downstream Southeast Asian neighbors, and where China plans an eight dam cascade on the mainstream totaling over 16,000 megawatts. Two of the dams are already complete, and a further four are under construction. Villagers in downstream Thailand complain of dwindling fish stocks and erratic water levels because of China’s dam operation.

Despite an open-ended invitation, China has declined to join the Mekong River Commission (MRC), formed 12 years ago by Cambodia, Laos, Vietnam and Thailand to help manage the international river upon which 60 million of their citizens depend. As the upstream country with an extensive hydropower development program already underway, China appears concerned that joining the MRC would cede too much power to those downstream.

Ironically, at the GMS conference in Kunming in 2005, Wen Jiabao told the delegates, “All GMS countries are close neighbors of China. Nourished by the same river, our people have fostered long-standing friendship… We are resolved to work together with other countries to further consolidate and develop traditional friendship and constantly expand equal-footed and mutually beneficial cooperation.”