Cambodia: The Funan Takeo Canal and its Gamble with Economic and Environmental Costs

The Funan Techo Canal project, a large-scale infrastructure initiative with an estimated cost of $1.7 billion, aims to establish a vital waterway connecting the Mekong River to the Takeo Canal. Supported by China under the Belt and Road Initiative (BRI), the project is intended to boost Cambodia’s transportation capabilities and reduce its reliance on external ports, particularly those in Vietnam. However, the project has ignited significant debate due to its potential environmental impact and the effect on transboundary water resources, causing concern in neighbouring Vietnam and other countries in the region.

The geopolitical implications of the canal stretch beyond the immediate economic benefits for Cambodia. The project represents a strategic opportunity for China to extend its influence in Southeast Asia, with Beijing not only providing infrastructure investments but also deepening military cooperation with Phnom Penh. This allows China to use the canal as a tool for increasing its soft power across the region.

One of the key concerns centres around the potential expansion of China’s military presence at the Ream Naval Base, which could become a logistical hub for Chinese forces. Although the base is not officially recognised as a military installation, its development heightens China’s influence, causing alarm among neighbouring countries such as Vietnam and Thailand, as well as other global powers. Control over crucial waterways, including the Gulf of Thailand, enhances China’s strategic advantage in the region.

The canal also opens new avenues for exporting resources from Cambodia’s southern provinces, aligning with China’s economic interests. The improved logistics could facilitate the faster export of minerals and agricultural products, advancing China’s broader economic and military objectives. In this way, the Funan Techo Canal is not merely a transportation project but part of a more extensive strategy for China to consolidate its power in Southeast Asia.

Despite the grand ambitions behind the Funan Techo Canal, its economic viability remains questionable. At present, over 30% of Cambodia’s maritime cargo is routed through the Vietnamese ports of Cai Mep and Cat Lai. While there are some inefficiencies in Vietnam’s customs processing, these ports offer a much cheaper alternative to the anticipated costs of using the canal.

For instance, transporting a container via the canal is projected to cost around $550 per twenty-foot equivalent unit (TEU), compared to just $145 through Vietnamese ports. By the 25th year of the canal’s operation, the cost is expected to rise to $15,151 per TEU, while it remains at $468 through Vietnam. The financial advantage of using Vietnamese ports is overwhelmingly superior to the projected savings from the canal.

It seems unlikely that the canal will replace Vietnamese routes. Instead, it is expected to capture only a small share of internal cargo transport between Phnom Penh and Sihanoukville, potentially undermining the economic feasibility of the newly built highway. Consequently, the canal may prove unprofitable, discouraging Cambodian businesses from using it. It is expected that most of Cambodia’s exports will continue to be processed through Vietnamese ports, as they remain the most cost-effective option.