The expansion of textile and clothing firms of China to Asian Least Developed Countries: The Case of Cambodia

Since the 1990s, the rapid expansion of China’s textiles and clothing enterprises to Cambodia has been closely linked to the phenomenon of industrial clustering of textiles and clothing firms at the Yangtze River Delta, Pearl River Delta and Bohai Rim. The report adopts the case study approach to examine the pattern and features of overseas foreign direct investment (OFDI) of textile and clothing firms in Zhejiang province and Jiangsu province of the Yangtze River Delta to the least developed countries (LDCs) in the Asian and Pacific region, particularly Cambodia, and make the corresponding policy suggestions on the sustainability of South-South investment and cooperation. The fieldwork in Zhejiang province for this study showed that the subsidiaries of Chinese textile and clothing firms in Cambodia had been gradually integrating into the vertically-integrated value chain of textile and clothing firms in China, thereby becoming an important node in global textile and clothing value chain. Interviews (see annex 1) by the authors in the Yiwu specialized wholesale market indicated that business linkages between the specialized wholesale market and the Asia-Pacific LDCs have been developing fast in the past decade, although the ratio of businessmen from the Asia-Pacific LDCs is relatively limited compared with those from the LDCs in Africa. The internationalization of specialized wholesale markets has promoted commercial activities between China and LDCs in the Asia-Pacific region and led to an increase of OFDI from Chinese textile and clothing firms to LDCs. The fieldwork in Jiangsu province has demonstrated that Chinese textile and clothing firms have started to change their investment behaviour from voluntary overseas expansion by individual firms to the establishment of overseas economic and trade cooperation zones, such as Sihanoukville Special Economic Zone (SSEZ) (see annex 2) in Cambodia, which facilitates the collective expansion of Chinese textile and clothing firms and improves the textile and clothing manufacturing capability in Cambodia. The OFDI from China to LDCs has not had a great impact on local employment. However, the global financial crisis has led to a rising number of unemployed textile and clothing workers in China. The factors constraining sustainable OFDI from China in Cambodia include poor infrastructure, relatively high labour costs compared with other LDCs, low efficiency of government assistance and inadequate financial services. The policy suggestions on facilitating sustainable investment from China to the LDCs from the perspective of Cambodia are to: (a) encourage OFDI by Chinese textile and clothing firms in overseas economic and trade cooperation zones in the Asia-Pacific LDCs; (b) forge the regional production network between China and the LDCs; (c) upgrade the financial package to support Chinese textile and clothing firms’ FDI; and (d) improve the infrastructure facilities and government efficiency in the LDCs.