China’s Lurch Toward One-Man Rule Under Xi Jinping

February 28, 2018

China’s Lurch Toward One-Man Rule Under Xi Jinping

The Chinese Communist Party (CCP) has traditionally rooted the legitimacy of its autocratic rule in the principle of institutionalization: it is the Party, and not a particular person or family, which holds the reins of power for, ostensibly, the benefit of all 1.4 billion Chinese.

But that already specious assertion took a severe knock on Sunday following the publishing of a proposal — one certain to be ratified next month — that China’s two five-year presidential term limit be abolished. This will essentially allow current President Xi Jinping, who is already China’s strongest leader for generations, to remain in power for as long as he desires.

The move is the culmination of a series of power plays by Xi over recent months, including having his eponymous political thought enshrined in the national constitution, and failing to appoint any potential successors to China’s apex executive body, the Politburo Standing Committee (PSC). But the timing of the announcement before Xi has even officially completed his first term in office has stunned China-watchers and raised serious questions concerning the governance of the world’s number two economy going forward.

“This is a very significant move towards China transforming into a one-man system,” says Jude Blanchette, a Beijing-based researcher on Chinese politics for The Conference Board analysis firm. “It’s hard to overemphasize what a big deal this is for the future of China and the world given China’s importance to the global economy and global institutions.”

Xi’s consolidation of power domestically comes as he has also announced his intention to be more assertive internationally. His signature Belt and Road Initiative — a trade and infrastructure network tracing the ancient Silk Road though Eurasia and Africa — stands to radically boost China’s geopolitical clout at a time when the White House under Donald Trump has questioned key alliances and the very international institutions that have been the foundation of American hegemony.

Read More: Xi Jinping Becomes China’s Most Powerful Leader Since Mao Zedong

China’s burgeoning influence, augmented by Washington’s retreat into nativist languor, further normalizes autocratic political systems that have been on the rise since the 2008 financial crisis. Beijing has ramped up censorship and clamped down on dissent since Xi, 64, took power in late 2012, coupled with incessant trolling of Western democracy as unstable, unpredictable and unable to deliver the goods. Meanwhile, Trump has launched a war on the American media and toadied up to strongmen from Russia’s Vladimir Putin to Philippine President Rodrigo Duterte and, of course, Xi himself.

The question remains whether China is set to repeat past mistakes where unquestioning observance to its leadership contributed to disasters like the Great Leap Forward of the 1950s and Cultural Revolution a decade later. Academics and officials are increasingly reluctant to voice opinions that differ from the Party leadership, which is invariably hailed with gilded paeans in the state press, while critics are summarily detained.

“There’s a risk of it become courtier culture, sycophancy, just telling him what he wants to hear,” says Professor Nick Bisley, an Asia expert at Australia’s La Trobe University. “It doesn’t have to be like that but the risks are very real and unsettling for those inside and outside China.”

Agrees Blanchette: “If we hold that good policy outcomes require the maximum amount of voices and input in design and implementation then we should be worried.”

Chinese President Xi Jinping attends the 2018 Chinese New Year celebration party on Feb. 14, 2018 in Beijing, China.
Chinese President Xi Jinping attends the 2018 Chinese New Year celebration party on Feb. 14, 2018 in Beijing, China. TPG/Getty Images


Xi should know the risks better than anyone. Like millions of his contemporaries, he was sent down to live in the countryside during the Cultural Revolution of the mid 1960s, reduced to toiling in fields and sleeping in a flea-infested cave in China’s hardscrabble central province of Shaanxi. His father was repeatedly purged by CCP patriarch Mao Zedong, whose unassailable cult of personality wreaked numerous hardships on his people, including the Great Leap Forward, a frenzied experiment in collectivized industrialization that cost some 20-50 million lives between 1958 and 1962.

It was because of these calamities that the CCP leadership from Deng Xiaoping — architect of China’s economic revival — introduced collective leadership around the PSC, presidential term limits to ensure a smooth leadership transition, and thus countering a Mao-like strongman ever holding the country to ransom again. But Xi over recent months has taken careful aim at each of these safeguards. Meanwhile, his trademark ideology of the “Chinese Dream” and “great revival of the Chinese nation” has drawn uneasy comparisons with Mao-era sloganeering.

“While there appears little internal opposition to Xi at present, it could emerge in the future, such as in the event of economic instability or a mishandled international incident,” says Tom Rafferty, regional manager for China at The Economist Intelligence Unit. “Nervousness about his position could lead Xi to back wider crackdowns and political purges.”

The lack of neither elections nor term limits risks such problems returning with a vengeance. And worryingly for the international community, that Xi is brazenly prepared to rewrite four decades of political orthodoxy at home means he would have few qualms about tearing up the rule book abroad, where Beijing has long flouted international norms that it perceives as constraining its interests.

“It’s another piece of evidence that says be worried about a China led by Xi Jinping,” says Bisley. “Because if he’s happy to do this at home, then boy is he going to be happy to do it abroad.”

The Lessons of Black Monday

February 13, 2018

The Lessons of Black Monday

by Barry Eichengreen

“Will Trump respond like FDR in 1933, reassuring the public that the only thing we have to fear is fear itself? Or will he look for someone to blame for the collapse in his favorite economic indicator and lash out at the Democrats, foreign governments, and the Fed? A president who plays the blame game would only further aggravate the problem.”-Barry Eichengreen
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When interpreting sharp drops  in stock prices and their impact, many will think back to 2008 and the market turbulence surrounding Lehman Brothers’ bankruptcy filing. But a better historical precedent for current conditions is the huge one-day drop on October 19, 1987.


BERKELEY – US President Donald Trump has regularly pointed to the stock market as a source of validation of his administration’s economic program. But, while the Dow Jones Industrial Average (DJIA) has risen by roughly 30% since Trump’s inauguration, the extent to which the market’s rise was due to the president’s policies is uncertain. What is certain, as we have recently been reminded, is that what goes up can come down.

When interpreting sharp drops in stock prices and their impact, many will think back to 2008 and the market turbulence surrounding Lehman Brothers’ bankruptcy filing. But a better historical precedent for current conditions is Black Monday: October 19, 1987.

Black Monday was a big deal: the 22.6% price collapse is still the largest one-day percentage drop in the DJIA on record. The equivalent today would be – wait for it – 6,000 points on the Dow.

In addition, the 1987 crash occurred against the backdrop of monetary-policy tightening by the US Federal Reserve. Between January and October 1987, the Fed pushed up the effective federal funds rate by nearly 100 basis points, making it more expensive to borrow and purchase shares. In the run-up to October 2008, by contrast, interest rates fell sharply, reflecting a deteriorating economy. That is hardly the case now, of course, which makes 1987 the better analogy.

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Treasury Secretary Steven Mnuchin

The 1987 crash also occurred in a period of dollar weakness. Late in the preceding week, Treasury Secretary James Baker made some remarks that were interpreted as a threat to devalue the dollar. Like current Treasury Secretary Steven Mnuchin at Davos this year, Baker could complain that his comments were taken out of context. But it is revealing that the sell-off on Black Monday began overseas, in countries likely to be adversely affected by a weak dollar, before spreading to the US.

Finally, algorithmic trading played a role. The algorithms in question, developed at the University of California, Berkeley, were known as “portfolio insurance.” Using computer modeling to optimize stock-to-cash ratios, portfolio insurance told investors to reduce the weight on stocks in falling markets as a way of limiting downside risk. These models thus encouraged investors to sell into a weak market, amplifying price swings.

Although the role of portfolio insurance is disputed, it’s hard to see how the market could have fallen by such a large amount without its influence. Twenty-first-century algorithmic trading may be more complex, but it, too, has unintended consequences, and it, too, can amplify volatility.

Despite all the drama on Wall Street in 1987, the impact on economic activity was muted. Consumer spending dropped sharply in October, owing to negative wealth effects and heightened uncertainty, but it quickly stabilized and recovered, while investment spending remained essentially unchanged.

What accounted for the limited fallout? First, the Fed, under its brand-new chairman, Alan Greenspan, loosened monetary policy, reassuring investors that the crash would not create serious liquidity problems. Market volatility declined, as did the associated uncertainty, buttressing consumer confidence.

Second, the crash did not destabilize systemically important financial institutions. The big money-center banks had used the five years since the outbreak of the Latin American debt crisis to strengthen their balance sheets. Although the Savings & Loan crisis continued to simmer, S&Ls were too small, even as a group, for their troubles to impact the economy significantly.

What, then, would be the effects of an analogous crash today? Currently, the US banking system looks sufficiently robust to absorb the strain. But we know that banks that are healthy when the market is rising can quickly fall sick when it reverses. Congressional moves to weaken the Dodd-Frank Act, relieving many banks of the requirement to undergo regular stress testing, suggest that this robust health shouldn’t be taken for granted.

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Donald Trump’s cameo in the new movie Wall Street: Money Never Sleeps

Moreover, there is less room to cut interest rates today than in 1987, when the fed funds rate exceeded 6% and the prime rate charged by big banks was above 9%. To be sure, if the market fell sharply, the Fed would activate the “Greenspan-Bernanke Put,” providing large amounts of liquidity to distressed intermediaries. But whether Jay Powell’s Fed would respond as creatively as Bernanke’s in 2008 – providing “back-to-back” loans to non-member banks in distress, for example – is an open question.

Much will hinge, finally, on the president’s reaction. Will Trump respond like FDR in 1933, reassuring the public that the only thing we have to fear is fear itself? Or will he look for someone to blame for the collapse in his favorite economic indicator and lash out at the Democrats, foreign governments, and the Fed? A president who plays the blame game would only further aggravate the problem.


The End of Cambodia’s Ersatz Democracy

February 8, 2018

The End of Cambodia’s Ersatz Democracy

by Author: Editorial Board, East Asia 

In 2017, the world’s attention turned to Cambodia for all the wrong reasons.

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Phnom Penh City

When Cambodians went to the polls to elect municipal councils in July, the opposition Cambodia National Rescue Party (CNRP) saw a substantial boost in its support, particularly in the rural areas long considered a stronghold of Prime Minister Hun Sen’s Cambodian People’s Party (CPP). The local results were seen to put the CNRP in a competitive position in the national election scheduled for July 2018.


Rather than prompting the government to become more responsive to the concerns of disaffected voters, the 2017 polls became the trigger for a brazen crackdown on the opposition, the press and civil society. The CNRP has been dissolved in a controversial court ruling, and its leader Kem Sokha has been jailed on trumped-up charges of treason. Media outlets such as the respected Cambodia Daily newspaper and independent radio stations have been shut down. The government is intimidating the largest and most vocal NGOs.

As Astrid Norén-Nilsson writes in this week’s lead article (which is part of an EAF special feature series on 2017 in review and the year ahead), the ongoing crackdown marks no less than ‘the endpoint of Cambodia’s era of electoral democracy — an era in which the opposition may have faced uphill struggles but was nonetheless dependably allowed to contest elections’.

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Certainly, Hun Sen’s Cambodia was no poster child for democracy and good governance before 2017. As political scientist Lee Morgenbesser has argued, after Hun Sen’s rise to power in the 1993 election overseen by the United Nations, the country became a textbook case of ‘competitive authoritarianism’. This is a system in which parties and civil society are allowed enough freedom to maintain the appearance of competitive politics, but where political institutions are so rigged that the opposition has no real path to power. In this view, the mistake of the CNRP was to get too popular, to the extent that a national election victory seemed a possibility — a scenario that Hun Sen could not countenance.

The degeneration of a pretend democracy into outright autocracy also marks the failure of decades of investment in Cambodian democracy and good governance by Western governments and international organisations. It is perhaps a small sense of responsibility for the current predicament that gives urgency to questions about what the world can or should do in response to Hun Sen’s crackdown. At present, targeted sanctions seem ‘the only realistic possibility of a somewhat modified course of government action, though [they are] a highly uncertain one’, writes Norén-Nilsson.


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A peaceful and attractive county side in a rapidly developing and stable economy

The note of caution she sounds is appropriate. Cambodia is no economic pariah; rather, millions of Cambodians are beneficiaries of trade with the West. As Heidi Dahles highlights in her review of the Cambodian economy, trade unions representing garment workers have spoken out against Western economic sanctions. Western governments should take such warnings seriously. Any program of sanctions that harms Cambodian export industries would only play into the hands of Hun Sen and his narrative that the West is out to undermine Cambodia. Heavy-handed sanctions not only fail to guarantee changes in the behaviour of the target regime, but can lead to isolation and economic hardship that serves nobody’s interests (the experience of Myanmar under the old military junta is a cautionary tale).

However Western governments respond, there are ultimately larger forces at work aiding the entrenchment of authoritarianism both in Cambodia and elsewhere in the region. Hun Sen’s crackdown takes place in a world where authoritarian leaders are less dependent on the West for their aid and investment needs — and thus have fewer incentives to cultivate support among Western politicians by promising reforms and democracy. As Norén-Nilsson writes, ‘China’s full political and economic support enables Cambodia’s shift to autocracy, which occurs in the context of President Trump’s voluntary handing over of American regional and global leadership to China’.

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Hun Sen and his CPP can expect to win the July 2018 election decisively in a contest compromised by the effective exclusion of the largest opposition party. By closing off avenues for peaceful opposition, Hun Sen has thrown up hazards for Cambodia’s future. As we have learned from the fall of autocrats from Indonesia to Egypt in recent decades, when struck by crises dictatorships can prove surprisingly brittle — and efforts to unseat them typically lead to large-scale violence.

The West will make noises about the illegitimacy of the Prime Minister’s victory, and will likely continue to apply and even extend sanctions. But Hun Sen is here to stay, and the dictates of realpolitik mean that the Western powers will soon revert to pragmatic cooperation with Hun Sen’s regime when necessary.

The EAF Editorial Board is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Amy King, Liam Gammon, Jillian Mowbray-Tsutsumi and Ben Hillman, and is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

This article is part of an EAF special feature series on 2017 in review and the year ahead.

Also read:

John Cassidy on Janet Yellen’s Legacy–A Robust US Economy

February 2, 2017

John Cassidy on Janet Yellen’s Legacy–A Robust US Economy

by John


Dr. Janet Yellen, the Federal Reserve Board chair, is responsible for the economic success that Trump is taking credit for, but her successor will have to make some tricky calls.

During his State of the Union speech, on Tuesday night, Donald Trump took credit for the country’s strong rate of job creation, its rising wages, and the lowest unemployment rate in many years. Meanwhile, Janet Yellen, the person primarily responsible for these things, was preparing to leave her post as the chair of the Federal Reserve Board. On Wednesday, she chaired her final meeting of the central bank’s policy-making arm, and Friday will be her last day at the Fed.

On Monday morning, Jay Powell—a Republican, investment banker, and current member of the Fed’s board—will be sworn in as her successor. In a more just world, Yellen would have been given a second four-year term, as most of her (male) predecessors were. But late last year Trump decided to replace her with Powell.

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Jay Powell– an Investment Bank and Federal Reserve Board Member

Having spent fourteen years at the Fed, and having been the first woman to lead it in its hundred-and-five-year history, Yellen is leaving with a record of high achievement. A fiercely smart academic economist—she holds a Ph.D. from Yale—she served as a loyal and able deputy to her predecessor at the Fed, Ben Bernanke.

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Paul Volcker,  Alan Greenspan, Ben Bernanke and Janet Yellen

Upon taking the top job, she quickly demonstrated a mastery of the communicative and political skills that are necessary to run a large institution like the Fed. In speeches and at press conferences, she explained the Fed’s thinking clearly and carefully, doing her best not to lapse into the technical jargon beloved by economists. Her colleagues liked and respected her, and she charmed some key Republicans on Capitol Hill. (That helped to head off recent calls, emanating from some corners of the G.O.P., for an inquisitional audit of the Fed.)

She even got along well with Trump, a fellow-New York native. (Yellen grew up in Brooklyn.) Last November, when he announced that he would nominate Powell rather than keep Yellen for a second term, he said, “She’s a wonderful woman who’s done a terrific job.” This statement raised the question of why he didn’t leave Yellen in place. It was widely assumed that partisan politics were responsible: Yellen is a Democrat, and Barack Obama nominated her, in 2013. But there’s also another possibility. Trump may believe that, with Yellen out of the way, it will be easier for him to lay claim to some of her achievements.

These achievements include overseeing a historic period of job creation. “Under Yellen, the U.S. unemployment rate has fallen the most of any Fed chair term in modern history,” the Washington Post’s Heather Long pointed out last month.

In February, 2014, when Yellen took office, the unemployment rate was 6.7 per cent; today, it is 4.1 per cent. And almost three quarters of that decline came before Trump entered office.

It should also be noted that, when Yellen took office, most economists believed that an unemployment rate below five per cent, or thereabouts, would lead to inflation. If the unemployment rate fell below a certain key level, the textbooks said, prices would start rising. To head off an inflationary spiral, the Fed would have to step in and raise interest rates sharply—and such a move would risk a recession.

Yellen disputed this mechanistic view. Citing the fact that millions of people had ceased looking for jobs during and after the Great Recession of 2007-2009, she argued that the headline rate of unemployment was an inadequate measure of the state of the labor market, and that other metrics, such as the labor-force-participation rate, also needed to be taken into account.

More controversially, she also argued that there could be important benefits to the Fed running a “high-pressure economy,” in which the unemployment rate was kept low and new hires were hard to find. In such a situation, Yellen speculated, in a 2016 speech, workers who had dropped out of the labor force could be drawn back in, firms could be incentivized to make capital investments, over-all demand in the economy could be higher, and wages and productivity growth—which were languishing badly—could pick up

This argument harkened back to one made during the nineteen-sixties by an earlier generation of Keynesian economists, including James Tobin, Yellen’s thesis supervisor, and Nicholas Kaldor, the British theorist and policy adviser. With the rise of monetarism, new classical macroeconomics, and so-called New Keynesianism, this type of economics fell out of fashion. But, as Yellen perceived, it could perhaps hold the key to breaking the recent pattern of low growth, low rates of capital investment, and stagnant wages.

The experience of the past eight years shows that it took a big dip in the unemployment rate for median household incomes to recover some of the losses they had suffered during the recession. Only when the jobless rate fell below the level previously considered safe did hourly wages rise by more than the inflation rate. Yellen welcomed these developments and sought to extend them rather than choke off growth prematurely. Even now, in the ninth year of the post-2009 economic recovery, the federal funds rate is only 1.5 per cent. The rate of inflation, as indicated by the Fed’s preferred measure, is also just 1.5 per cent—below the Fed’s official target of two per cent.

It could be argued—and it has been argued—that, with such a low inflation rate, the Fed has no business raising rates, even slowly. However, a case can also be made that the Fed’s expansionary policies are responsible for a stock-market boom that is now turning into a bubble. Sensitive to both of these critiques, Yellen’s Fed has been removing the monetary stimulus slowly, in baby steps.

Thanks to Trump and the Republicans, the Fed now faces another challenge, in the form of an additional boost to the economy provided by a front-loaded tax cut. Should the Fed stick to its current policy stance and accommodate this new stimulus? Or should it perhaps accelerate its interest-rate hikes? Yellen won’t have to make that call. The onus will be on Powell, who must be keenly aware that any hint of the Fed adopting a more hawkish approach will bring down upon him a Presidential Twitter fusillade and more—including the possibility of disruptions in the markets. Yellen certainly deserved another term, but she may be getting out at the right time.

John Cassidy has been a staff writer at The New Yorker since 1995. He also writes a column about politics, economics, and more for 020118 Control&CNDID=49438257&spMailingID=12858345&spUserID=MTg4MDU2MzU5MDA5S0&

GDP Should Be Corrected

January 23, 2018

GDP Should Be Corrected

by Urs

The hazards of relying solely on gross domestic product as a measure of overall economic activity have become obvious over time, especially as corporate profits have outpaced GDP growth in key economies. But none of the flaws in GDP are fatal, and policymakers should focus on fixing them, rather than seeking an entirely new framework.


ZURICH – Respected economists have long pointed out that gross domestic product is an inadequate measure of economic development and social well-being, and thus should not be policymakers’ sole fixation. Yet we have not gotten any closer to finding a feasible alternative to GDP.

One well-known shortcoming of GDP is that it disregards the value of housework, including care for children and elderly family members. More important, assigning a monetary value to such activities would not address a deeper flaw in GDP: its inability to reflect adequately the lived experience of individual members of society. Correcting for housework would inflate GDP, while making no real difference to living standards. And the women who make up a predominant share of people performing housework would continue to be treated as volunteers, rather than as genuine economic contributors.4

Another well-known flaw of GDP is that it does not account for value destruction, such as when countries mismanage their human capital by withholding education from certain demographic groups, or by depleting natural resources for immediate economic benefit. All told, GDP tends to measure assets imprecisely, and liabilities not at all.

Still, while no international consensus on an alternative to GDP has emerged, there has been encouraging progress toward a more considered way of thinking about economic activity. In 1972, Yale University economists William Nordhaus and James Tobin proposed a new framework, the “measure of economic welfare” (MEW), to account for sundry unpaid activities. And, more recently, China established a “green development” index, which considers economic performance alongside various environmental factors.

Moreover, public- and private-sector decision-makers now have far more tools for making sophisticated choices than they did in the past. On the investor side, demand for environmental, social, and governance data is rising steeply. And in the public sector, organizations such as the World Bank have adopted metrics other than GDP to assess quality of life, including life expectancy at birth and access to education.

At the same time, the debate around gross national income has been gaining steam. Though it shares fundamental elements with GDP, GNI is more relevant to our globalized age, because it adjusts for income generated by foreign-owned corporations and foreign residents. Accordingly, in a country where foreign corporations own a significant share of manufacturing and other assets, GDP will be inflated, whereas GNI shows only income the country actually retains (see chart).

Ireland is a prominent example of how GNI has been used to correct for distortions in GDP. In 2015, Ireland’s reported GDP increased by an eye-popping 26.3%. As an October 2016 OECD working paper noted, the episode raised serious questions about the “ability of the conceptual accounting framework used to define GDP to adequately reflect economic reality.”

The OECD paper went on to conclude that GDP is not a reliable indicator of a country’s material well-being. In Ireland’s case, its single year of astonishing GDP growth was due to multinational corporations “relocating” certain economic gains – namely, the returns on intellectual property – in their overall accounting. To address the growing disparity between actual economic development and reported GDP, the Irish Central Statistics Office introduced a modified version of GNI known as GNI*) for 2016.

The gap between GDP and GNI will likely close soon in other jurisdictions, too. In a recent working paper, Urooj Khan of Columbia Business School, Suresh Nallareddy of Duke University, and Ethan Rouen of Harvard Business School highlight a misalignment in “the growth in corporate profits and the overall US economy” between 1975 and 2013. They find that, during that period, average corporate-profit growth outpaced GDP growth whenever the domestic corporate-income-tax rate exceeded that of other OECD countries.

In late December, this disconnect was addressed with the passage of the 2017 Tax Cuts and Jobs Act. By lowering the corporate-tax rate to a globally competitive level and granting better terms for repatriating profits, the tax package is expected to shift corporate earnings back to the United States. As a result, the divergence between GDP and GNI will likely close in both the US and Ireland, where many major US corporations have been holding cash.

Looking ahead, I would suggest that policymakers focus on three points. First, as demonstrated above, the relevant stakeholders are already addressing several of the flaws in GDP, which is encouraging. Second, public- and private-sector decision-makers now have a multitude of instruments available for better assessing the social and environmental ramifications of their actions.

And, third, in business one must not let the perfect become the enemy of the good. We have not solved all of the problems associated with GDP, but we have come a long way in reducing many of its distortions. Instead of seeking a new, disruptive framework to replace current data and analytical techniques, we should focus on making thoughtful, incremental changes to the existing system.

The Enduring Cambodian Political Economy?

January 18, 2018

The Enduring Cambodian Political Economy?

by Heidi Dahles, Griffith University

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Phnom Penh Skyline 2017 – Phnom Penh Is Changing Day By Day

Cranes building Phnom Penh’s rapidly rising skyline give testimony to Cambodia’s enduring economic success as well as to China’s commitment to investing in the Kingdom’s infrastructure. Cambodia has been highly successful in attracting foreign direct investment, creating employment and alleviating poverty for millions. The outstanding performance of its economy has been widely acknowledged: the Asian Development Bank calls Cambodia the ‘new tiger economy’ and the World Bank announced Cambodia’s transition from a low-income to a lower middle-income country. The widely held expectation is that Cambodia will achieve upper middle-income status by 2030 if recent growth rates are sustained.


That said, Cambodia also still holds least developed country status. For this reason, Cambodia is likely to retain the preferential trade agreements and donor payments that the country has enjoyed for decades. Economic prosperity is set to advance — unless politics gets in the way.

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Cambodia’s economic rise starkly contrasts the political chaos that reached a climax in November 2017 with the dissolution of the Cambodia National Rescue Party — the country’s only major opposition party — and the detention of its leader, Kem Sokha. Prime Minister Hun Sen has also threatened to close the Cambodian Centre for Human Rights, which was founded by the detained opposition leader.

The moves have been widely condemned as marking Cambodia’s shift to a one-party dictatorship, and many Western countries have threatened action. Member states of the European Union announced restrictions on rice imports from Cambodia, while Canada and Australia encouraged Cambodia to reinstate proper democratic processes. Perhaps the strongest response came from the United States, which Hun Sen has accused of supporting the arrested opposition leader’s efforts to conspire against the Cambodian government. In response, the United States immediately cancelled the US$1.8 million in funding it had pledged for the 2018 Cambodian general elections and it announced visa sanctions against Cambodian officials who were ‘undermining democracy’.

Since the 1991 Paris Accords, the United States has spent billions supporting the democratic process in Cambodia in order to restore and preserve peace after two decades of civil war and Khmer Rouge atrocities. Unfortunately, the recent political developments are widely viewed as a collapse of the democratisation process — a view that is shared by international rights organisations such as Global Witness and Human Rights Watch. Further recommended sanctions include asset freezes, travel bans on senior officials, trade restrictions and the suspension of all technical assistance for elections.

The Cambodian government and the ruling party have been rather bemused by Western criticism. The Prime Minister welcomed the cutting of US aid for the elections, pointing out that this would make an end to NGO meddling in Cambodian affairs. After all, Western aid has always been conditional on the government maintaining proper democratic processes and institutions. Alluding to the robust performance of the Cambodian economy, a spokesman of the ruling party dismissed concerns saying: ‘everything is better now than before’.

Will Cambodia’s political fiascos put an end to its economic rise? Cambodian unions fear foreign sanctions will involve a cancellation of preferential tax rates. In a joint statement, the four major unions in the country appealed to foreign embassies and buyers to treat their industries as separate from politics.

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Economic analysts expect the current political instability will have only limited, short-term effects. The West will tighten sanctions if Cambodia continues its crackdowns on democratic institutions such as civil society organisations and independent media outlets. These crackdowns are most likely to intensify in the run up to the 2018 general elections. Foreign investment in Cambodia overall will hardly be affected either way as the overwhelming majority comes from other Asian countries.

As one of China’s most favoured nations, Cambodia not only receives economic investment and aid with ‘no strings attached’ but also receives Beijing’s political approval. China has explicitly expressed its support for the Cambodian government and Hun Sen, who is one of Beijing’s most important allies in Southeast Asia (and in the South China Sea dispute in particular).

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New Roads for Cambodia

Similarly, the Cambodian business community is championing close ties to the government. It views an election victory for the ruling Cambodian People’s Party as the most desirable scenario since any other outcome would be detrimental to established business interests.

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His Majesty King Norodom Sihamoni

While the political drama is unfolding, Cambodian people go about business as usual and politics does not seem to be the first thing on their minds. The current ‘crisis of democracy’ has been a long time coming and is not alien to the region at large. Authoritarian rule is enduring across Southeast Asia. Arguably, as the United States rapidly loses its role as protector of democracy, the ensuing ‘politics of disorder’ is swiftly becoming the new regional order.

Heidi Dahles is Adjunct Professor at the Griffith Business School, Griffith University.

This article is part of an EAF special feature series on 2017 in review and the year ahead.