By Oberon Theam
Cambodia’s new Funan Techo Canal represents more than just a significant infrastructure project, it is a cornerstone of the country’s long-term development strategy and a symbol of its increasing integration into global trade networks. The plan, a $1.7 billion project, involves building a 180 km (110 mi) canal from its capital, Phnom Penh, to its coast on the Gulf of Thailand, aimed at reducing the country’s dependence on moving cargo through ports in Vietnam. However, the canal has sparked significant controversy in the region, extending beyond its economic and environmental impact to new geopolitical implications, particularly regarding China’s increasing influence in Southeast Asia. From the perspective of the Cambodian government, by facilitating trade and enhancing Cambodia’s logistics capabilities, the canal offers transformative potential for new business opportunities in trade, manufacturing, and development which is something the country severely lacks as compared to Thailand and Vietnam. Most importantly, it also signals deeper political and economic ties between Cambodia and China, raising concerns about the balance of regional dynamics and international relations in the region, an idea that the United States does not take lightly. Although the Funan Techo Canal can act as a catalyst for new economic growth and stability, this initiative also embodies the complicated relationship between geopolitics and national sovereignty, highlighting the tensions between economic development and strategic autonomy. Overall, this dual nature, emphasizes the need for careful consideration of how the canal can influence Cambodia’s role in the evolving landscape of regional power in Southeast Asia.
Map of Cambodia’s Funan Techo Canal. Image from Stimson Center.
Economic Impact and Trade Enhancement
The Funan Techo Canal is designed to boost Cambodia’s domestic transportation network, facilitating the movement of goods and reducing transportation costs. With Cambodia’s current economy relying heavily on agriculture, particularly rice production, the canal opens new opportunities to allow for more efficient export routes, strengthening the country’s agricultural industry in international markets. In addition to agriculture, the canal opens the door for industrial and trade expansion which is crucial for current government initiatives to modernize the country. With the improved logistical infrastructure, it would make Cambodia a more attractive destination for foreign direct investment (FDI), particularly in the manufacturing of textiles, electronics, and consumer goods as Western companies seek new facilities to diversify away from China as it struggles with its economic slowdown and conflicts with the US-led world order.
The Cambodian government has forecasted that the Funan Techo Canal (FTC) will generate $88 million in revenue during its first year of operation, with projections reaching $570 million annually by 2050. Deputy Prime Minister Sun Chanthol also confirmed that China Road and Bridge Corporation (CRBC), a major state-owned Chinese construction firm, had secured the contract to build the canal. The canal project would follow a build–operate–transfer (BOT) model, where the CRBC receives a concession from the Cambodian government to construct, and operate the canal. Under this agreement, the company will manage the canal for a designated period, allowing it to recover its initial investment and cover operational and maintenance costs. After the agreed time frame, ownership and control of the canal will be transferred back to Cambodia, aligning with the terms set in the concession contract. With a finalized budget set at $1.7 billion and the arrangement of ownership till after recouping the company investment, the canal would be handed over to Cambodian partners within 40 to 50 years. However, on May 30, Prime Minister Hun Manet stated that Cambodian entities, though yet to be identified, would hold a majority stake (51% or more) in the canal project, with the CRBC contractor contributing the remaining share. Despite the evolving large proportion of the canal in Chinese hands, Cambodia’s political leaders continue to champion the project. In a June meeting, Deputy Prime Minister Sun Chanthol claimed that the canal’s economic internal rate of return (EIRR) would be 30%. From a trade perspective, the canal will enhance Cambodia’s ability to connect with major regional trade hubs, including Vietnam and Thailand, and create new opportunities for regional and global trade integration. Specifically, given Cambodia’s geographical location on the Mekong River, combined with new enhanced infrastructure, it has the potential to become a critical node in Southeast Asia’s trade network, further integrating into ASEAN’s economic bloc and connecting the region to broader global supply chains.
China’s Role: A Strategic Partnership
Although the vision of the canal was developed solely by the Cambodian government, it is also a product of China’s Belt and Road Initiative (BRI) with much of the financing for the canal coming from China. This is imperative to note as it ultimately reflects Beijing’s long-standing interest in developing Southeast Asia’s infrastructure as it seeks to connect the region to China’s vast economic system. The BRI, conceptualized in 2013 by President Xi Jinping, in short, seeks to develop a global network of roads, ports, railways, and canals that will facilitate new opportunities for efficient and robust trade, manufacturing, and investment. So when Cambodia emerged as a key partner in this vision in 2013, China began investing heavily in its infrastructure as part of its broader geopolitical ambitions. For example, its influence in Cambodia is evident through the numerous Chinese-funded projects, including large-scale infrastructure developments such as airports, dams, bridges, and roads scattered across the country from the coastal city of Sihanoukville to the ancient Khmer city of Siem Reap. In addition, state-owned Chinese banks have often financed these projects through loan agreements which have helped develop areas of the country long disregarded by the Cambodian government. As a result, nearly 40% of Cambodia’s foreign debt, amounting to over $11 billion, is owed to China, highlighting the country’s growing economic dependence on Chinese investment and financing.
For Cambodia, China’s involvement offers opportunities and risks that cannot be overlooked. On the one hand, the canal, if constructed correctly and operated effectively, will undoubtedly accelerate Cambodia’s economic growth, helping to modernize its transport infrastructure and attract foreign investment. In addition, some analysts even argue that this project could stimulate Cambodia’s economic development by improving the transportation of finished goods and potentially creating up to 1.6 million jobs. Furthermore, the canal could transform water resource management in the country, driving growth in the agricultural sector while enhancing flood control and water conservation. On the other, the heavy reliance on Chinese financing and expertise means that Cambodia is becoming increasingly aligned economically and politically with China. As a member of the Association of Southeast Asian Nations (ASEAN), Cambodia has historically aimed to balance relations with major global powers like China and the United States. However, its growing reliance on China may limit its flexibility in navigating tensions between these powers, particularly on issues such as current South China Sea disputes, trade relations, or security matters. This can be a problem as Cambodia’s recent history of supporting China’s positions in regional forums—including blocking ASEAN statements that criticize Beijing’s maritime claims—illustrates how economic dependence can translate into diplomatic alignment.
Geopolitical Issues and National Development
At the national level, the Funan Techo Canal plays a crucial role in Cambodia’s broader development strategy, which seeks to diversify the economy and reduce reliance on traditional sectors like agriculture. Outgoing Prime Minister Hun Sen and his son, current Prime Minister Hun Manet, have prioritized infrastructure development as a means of promoting economic growth, and the canal is central to this plan. More importantly, the canal’s impact on Cambodia’s political landscape is likely to be significant, offering the government a rare and tangible achievement that underscores its commitment to modernization and economic growth. In a country where corruption remains a serious challenge and large-scale infrastructure projects are often delayed, successfully executing the canal would represent a major victory for Cambodia’s government. With many past projects failing to materialize or falling short of expectations, the completion of this canal could provide the government with a critical platform to demonstrate its capability to deliver on promises and manage new initiatives. In addition to national development, the canal could serve as a mechanism for enhancing Cambodia’s strategic autonomy in trade.
Currently, Cambodia relies heavily on neighboring Vietnam and Thailand for access to international shipping routes. By constructing a direct canal that bypasses these countries, Cambodia can reduce its reliance on foreign infrastructure, strengthening its position as a regional player. However, this could cause friction with its neighbors, particularly Vietnam, which may view the canal as competition for trade routes flowing through its Mekong Delta.Vietnam has repeatedly expressed concerns about the potential impact of the Funan Canal on its port traffic, as well as the ecological and environmental effects on the Mekong River’s natural balance. However, this might be because Vietnam would see a large amount of financial loss from the canal if trade found a cheaper and quicker way to the Bay of Thailand and beyond. What needs to be done now is that Phnom Penh must mitigate regional fears and reassure its neighbors that the canal project complies with the 1995 Mekong Agreement which focuses on the sustainable development and management of the Mekong River Basin’s water and related resources and the regulations of the Mekong River Commission. While In Washington, the Cambodian government has consistently rebuffed claims by the US that the canal is advancing China’s military ambitions in the region, with analysts warning it could be leveraged to bolster its military presence in Southeast Asia, particularly due to Cambodia’s Ream Naval Base—a facility that has been expanded with Chinese assistance. The Ream Naval Base has come under intense scrutiny, with the Cambodian government having repeatedly denied such a possibility, citing its constitution, which bans any permanent foreign military presence, and stating that Ream is open to use by all friendly navies. Despite these assurances, the growing military collaboration between Cambodia and China continues to raise eyebrows among regional powers and Western analysts alike.
Environmental Concerns
The construction of the canal also poses significant environmental challenges that could strain Cambodia’s relations with neighboring countries sharing the Mekong River. Winding nearly 3,000 miles from the Tibetan plateau to the South China Sea, the Mekong River is home to the world’s largest inland fishery, accounting for up to 25 percent of the global freshwater catch and sustaining the livelihoods of tens of millions of people. It ranks second only to the Amazon River in fish biodiversity, hosting at least 1,200 freshwater species, and due to the effects of human development and climate change, the Mekong has faced unprecedented issues in recent years. Specifically, the canal is expected to continue to alter water flows and disrupt ecosystems in the Mekong Delta, raising the likelihood of disputes with Vietnam, which has already expressed concerns regarding upstream dam projects in China and Laos. The environmental disruptions may also threaten local fisheries and agricultural livelihoods, complicating efforts for regional cooperation. However, a critical concern is water security which is vital to the economies of Southeast Asia, as the canal is believed to function similarly to a dam, potentially hindering the natural flow of the Mekong River and restricting water access to southern Vietnam’s Mekong Delta. This alteration could exacerbate existing issues, such as the prolonged drought affecting the region and the increasing salinization of agricultural land in Vietnam. Additionally, the changes in water flow may negatively impact the habitats of endangered species that rely on the river’s natural ecosystem, further highlighting the potential ecological consequences of the canal project.
Conclusion
Although the Funan Techo Canal has the potential to reshape Cambodia’s economic landscape, offering benefits such as improved trade routes, increased foreign investment, and enhanced industrial growth, the canal’s broader implications reach far beyond Cambodia’s borders, reflecting the complex relationship of economics, geopolitics, and environmental sustainability in Southeast Asia. With China’s significant involvement in the project highlighting its ambitions to shape the region’s infrastructure development and enhance its influence, there are many more complexities at play. For Cambodia, this partnership offers a path to rapid development but also presents risks of over-dependence on a single major power. As the canal opens new opportunities for business and trade, it also highlights the delicate balance Cambodia must strike between its national development goals, regional relations, and global partnerships. Ultimately, in navigating these challenges, Cambodia’s future trajectory will depend on how it manages both the economic potential of the Funan Techo Canal and the political and environmental complexities it brings.
Image from IPS Cambodia website