At a ceremony in August, Cambodia's leader Hun Manet knelt to receive blessings from saffron-robed monks as fireworks and balloons heralded the breaking of ground for a canal he hopes will transform his country's economic fortunes. Addressing hundreds of people waving the Cambodian flag, Hun Manet said China would contribute 49% to the funding of the Funan Techo Canal that will link the Mekong River to the Gulf of Thailand and reduce Cambodia's shipping reliance on its neighbor Vietnam.

Cambodia's government estimates the strategic, if contentious, infrastructure project will cost $1.7 billion, nearly 4% of Cambodia's annual gross domestic product.

But months later, China's financial contribution remains in doubt.

Four people directly involved in the investment plans or briefed about them told Reuters Beijing has expressed misgivings about the project and has not made definitive commitments on its funding.

"It is normal business practice for Chinese companies to assist Cambodia in exploring the construction of comprehensive water conservancy projects in accordance with market principles," China's foreign ministry said in an emailed statement to Reuters when asked about the canal.

The Chinese ministry did not answer a direct question about the funding but said the two countries were "ironclad friends," a comment echoed by Hun Manet in late October.

China's lack of clear commitment could jeopardise the entire plan, given uncertainty over the project's costs, its environmental impact and financial viability, experts, officials and diplomats say.

It also underscore how Beijing is drastically downsizing its overseas investments as its domestic economic struggles, even in countries it considers strategic partners, such as Cambodia. Once a prime example for Western-backed "nation-building" after the long civil war that followed the fall of the Khmer Rouge regime, Cambodia has in recent times been widely seen by diplomats and foreign policy experts as a Chinese client state, owing to Beijing more than one-third of its total state debt.

But Chinese investment in the Southeast Asian nation is now plunging, after a series of unsuccessful infrastructure projects, amid concerns over criminal gangs targeting Chinese nationals, and dropping tourist numbers.

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The 180km (112 mile) canal would greatly expand an existing waterway and divert water from the fragile rice-growing Mekong Delta to the Gulf of Thailand, cutting Cambodian shipping through Vietnamese ports.

In the months after the Cambodian government signed an "investment framework agreement" in October 2023 with China Road and Bridge Corporation (CRBC), a state-owned construction company, Cambodian officials went public about China's financial involvement. The text of the deal is not public.

In an interview with Reuters in May, the minister in charge of the project, Deputy Prime Minister Sun Chanthol, said CRBC would develop the canal and "totally" cover its costs, getting a multi-decade concession in return.

But at the August groundbreaking, the prime minister put CRBC's share in the project at 49%, with the remainder covered by Cambodian companies. The same day, his father and Cambodia's decades-long leader Hun Sen posted a statement on Facebook calling on Japan to invest in the canal.

When asked about Cambodian assertions that CRBC would have a 49% stake, an official for the company told Reuters in mid-October the figures circulating publicly were not definitive. "It's very complicated," said the official, who did not elaborate. CRBC and its parent company did not reply to requests for comment.

One person directly involved in the investment plans told Reuters in early November there was no Chinese money on the table at that stage, confirming the account from another official. A source from one of the Cambodian investors in the project said it would not be a surprise if China did not invest in the canal at all. A fourth official briefed on the matter said China earlier this year had privately criticised Cambodian officials for announcing Chinese funding for the project that had not been decided.
They all declined to be named because of the issue's sensitivity.

More than three months after groundbreaking, the site of the ceremony on the bank of the Mekong laid abandoned, a Reuters reporter observed.

Dithering over the canal comes as Chinese official development assistance to Cambodia, including infrastructure funding, is falling. China's disbursements to Cambodia are projected to drop to $35 million in 2026 from more than $420 million in 2021. There have been no new Chinese loans in the first half of this year, down from $567 million in 2022 and $302 million last year, according to Cambodian official data. Chinese funding for overseas projects is also falling elsewhere, but in Cambodia the impact "could be very pronounced," said Grace Stanhope of the Lowy Institute, a Sydney-based think tank. China is still building roads and other infrastructure but has pulled out from the construction of the new Phnom Penh airport, where it had initially committed $1.1 billion.

(Reuters)