A shadow over Boeung Kak lake (2)

Where rule of law is weak, China’s investors should be wary of hiding behind local regulations, writes Liao Ruo, concluding a two-part article.

Perhaps concerned about the negative impact of the “relocations” from Boeung Kak, the commercial attaché at China’s embassy in Cambodia, counsellor Jin Yuan, gave an interview to the Global Times in January, rejecting responsibility on behalf of the Chinese firm. Shukaku bore sole responsibility for the relocations and Erdos Hongjun would only be involved after that process finished, he said, adding that compensation negotiations were being carried out by a special body appointed by the Phnom Penh government and had nothing to do with either company.

Admittedly, according to its contract, the Chinese company isn’t legally responsible for the relocations. But as a 50% shareholder in the joint venture and the project’s sole investor, doesn’t it have a social responsibility to the thousands of residents whose lives have been gravely affected by the scheme?

The Global Times report also stated that “Even though the residents’ buildings are mostly illegal, the development company has still paid out compensation and built alternative housing 20 kilometres outside of Phnom Penh.” The implication is that the residents’ demands are illegitimate, the developers have already done more than necessary and the Boeung Kak locals have no cause to bother the Chinese firm.

But in Cambodia, where the rule of law is weak, legality and justice may not always be one and the same. If you want to be a good investor, you have to make an effort to understand local realities, as well as obeying local rules.

Originally, the banks of Boeung Kak were uninhabited. But after the fall of the Khmer Rouge in the 1980s, Cambodians started to move back to Phnom Penh from the surrounding provinces and some settled here. In 2001, a new land law was passed: if a household could prove that it had lived in one place for the five years prior to 2001, then it owned the property.

Most of the residents around Boeung Kak meet that requirement. But the government has made slow progress certifying land rights, and so their ownership remains unrecognised. After the city government announced the leasing of land to Shukaku in February 2007, the locals started to fear they would sooner or later be driven away – and sure enough, the following year, government promises that locals would not be moved were broken, and pressure started to be applied. The nightmare began.   

As the Global Times reported, the developers did provide compensation. Residents were given three choices: US$8,500 in cash; a new home 20 kilometres away from the city and US$500 for moving costs; or temporarily relocation to another site with the option of moving back in five years.  

That may sound adequate, but it’s not. Land in the area already costs US$3,000 per square metre. Assuming each household originally had 50 square metres of land, it would have had a market value of US$150,000. And so $8,500 is far from a fair price.  

The majority of the displaced residents had no choice but to head to the city’s outskirts and “spend about US$6,000 on a piece of land, and then another three or four thousand dollars building a house,” Sia Phearum, secretariat director of Housing Rights Task Force, a Phnom Penh-based NGO, told reporters. They couldn’t buy land in the city proper for two reasons, he said: one, it is too expensive, and, two, they would only be likely to be relocated again.   

Unlike in Chinese cities, Phnom Penh does not have lots of residential property developments, and those that do exist are not built for ordinary people. If the average local wants a house, he or she “buys” a piece of land and builds on it. However, that “buying” normally means obtaining a proof of exchange from the village or county head, which has no legal force. If the government decides it wants the land, that piece of paper is not enough to prove ownership. Of course, residents can go through the proper formalities and have their land rights recognised, but that can cost US$1,500 in bribes to the authorities – more than an ordinary worker might make in a year.

The second option is no better. In early 2010, I visited the replacement housing provided to relocated locals by the developer: rows of single-storey buildings. Inside each house is just a large empty room. There are no kitchens, and the toilets are outside. Basic infrastructure is inadequate.

Most importantly, it’s too far from the city. Cambodia is not a developed nation, and leaving the city means going back to an agricultural society, away from modern infrastructure like electricity and running water. It can also mean losing your livelihood: Phearum said 60% of those who moved here ended up returning to the city and renting somewhere to live.

Moving has also caused employment and education difficulties. The women can no longer earn their usual income setting up small stalls by their front doors, as the area has very few residents – and those who do live here have no money to spend. Many of the men tend to work as motorcycle taxi drivers and this has problems too: it’s a 50 kilometre round-trip to the city, which means spending a lot more on fuel. There’s no nearby school, so some children dropped out. One middle school student told me that he’d missed a year of education, until an NGO gave him a bicycle so he could get to a school 20 kilometres away.  

The third option, to move back to Boeung Kak in five years, is even less popular. The developers are promising apartments in high-rise buildings, meaning residents will not be able to run stalls at their front door. The community also has no confidence that the developer will keep its promises.

And so the remaining 800 residents are refusing all three proposals and demanding land where they can build homes near the lake. The developer can continue to say its compensation schemes are more than fair, but in reality the residents have been placed in a hopeless situation.

How did this project attract two or three different Chinese firms, and how can those firms ignore the pleas of the locals? Perhaps it has something to do with who the Cambodian partner is.

’s chairman is senator Lao Meng Khin of the ruling Cambodian People’s Party, and a special adviser to prime minister Hun Sen. He is also ethnically Chinese, and always accompanies the prime minister on visits to China. In 2009, Khin was invited to Beijing for the 60th anniversary celebrations of the People’s Republic of China. He is often found lurking in the shadows of large Sino-Cambodian joint ventures.

In March 2004, Cambodian International Investment Development Group (CIIDG) – of which Lao Meng Khin is also chairman – signed a deal with China’s Henan Jinqu Gold, forming Jinqu Mining, to extract gold ore in Cambodia. In November 2004, he imported a train from China South Locomotive and Rolling Stock, the first such purchase from China made by Cambodia. And, in February 2008, a consortium of four Chinese firms, led by the Jiangsu Hodo Group, invested in a special economic zone in Sihankouville, again in partnership with CIIDG.

An investigation by United Kingdom-based NGO Global Witness has found that Lao Meng Khin is also a director of a forestry company that cooperates with Chinese logging business Hainan Wuzhishan Group, and of two more firms which, judging by their names, are likely China-Cambodia joint ventures: Petrol Camchin and Sino Hydropower.

Clearly, he has excellent contacts with the authorities in charge of various resources. Global Witness estimates that Lao Meng Khin and his wife’s company, Pheapimex, has felling rights to 1.33 million hectares of forest – 7.4% of Cambodia’s total land area. According to a US embassy cable released by Wikileaks, Pheapimex has recently obtained usage rights for 315,000 hectares of land for plantations and mining.

Having such a well-placed Cambodian partner may ease the worries of many Chinese investors. But high political benefits also bring high political risks. On September 11 this year, Cambodia’s main opposition party, the Sam Rainsy Party, issued a statement describing Shukaku as “an enemy of the Khmer people”. It warned all law-abiding companies and organisations to avoid any connection with the company, including owning its shares, making joint investments, loans, guarantees, purchasing or supplying products or services or cooperating in any way. Although the governing Cambodian People’s Party still has a strong grip on power and the Sam Rainsy Party is very likely to remain in opposition for the foreseeable future, its rhetoric and the public opinion it represents must be taken seriously.

Liao Ruo is a reporter based in Beijing. 

Homepage image from IAI

Part one: a community displaced