Cambodia Manufacturing Supply Chain China FDI: Diversification Questioned
21 May 20263 min read
Summary
- Cambodia attracted US$5.2 billion in manufacturing FDI in 2025, with China accounting for more than 70% of inflows, according to Cambodia Investment Review
- The Chinese FDI dominance means Cambodia's manufacturing sector functions as an extension of Chinese production capacity rather than a genuine alternative sourcing base.
- Companies pursuing China-plus-n strategies through Cambodia face the same rules-of-origin scrutiny as they would face in other Chinese-FDI-dominated markets.
Cambodia’s manufacturing sector attracted US$5.2 billion in foreign direct investment (FDI) in 2025, with China accounting for more than 70% of inflows according to Cambodia Investment Review’s February 2026 analysis, which compiles data from Cambodia’s Council for the Development of Cambodia. Chinese investors hold controlling stakes in the majority of those manufacturing facilities, meaning the sector functions as an extension of Chinese production capacity rather than a genuine alternative sourcing base.
FDI Composition Analysis
Of the US$7.8 billion in total investment approved by Cambodia’s Council for the Development of Cambodia in 2025, US$5.2 billion is classified as foreign direct investment, with Chinese investors accounting for the largest single share. This figure refers specifically to FDI inflows; total approved investment includes domestic capital and is tracked separately.
The incorporation address is Cambodian, but operational control typically flows from China. Suppliers, raw materials, management and technical expertise are sourced from Chinese networks. The value added locally is often limited to labour and the regulatory address.
The incorporation address is Cambodian, but operational control typically flows from China. Suppliers, raw materials, management and technical expertise are sourced from Chinese networks. The value added locally is often limited to labour and the regulatory address.
Manufacturing Growth Metrics
Cambodia’s manufacturing Purchasing Managers’ Index (PMI), a monthly measure of business conditions compiled by S&P Global as part of its ASEAN Manufacturing PMI survey, stood at 50.9 in April 2026, the second-highest reading in ASEAN after Malaysia. A reading above 50 indicates expansion. The result reflects active production but does not speak to the origin of capital, components, or management.
The sector is dominated by garments and textiles, which account for the substantial majority of Cambodia’s export earnings. Major international fashion brands, including H&M, Gap and Inditex, publish annual supplier transparency reports that list Cambodian manufacturers as active sourcing partners. The presence of these buyers provides market legitimacy but does not alter the underlying FDI composition.
Manufacturing output grew 50% year-on-year in 2025, according to Cambodia Investment Review, reflecting the pace of Chinese capital deployment into export-oriented production, particularly garments, footwear, travel goods and light manufacturing.
The sector is dominated by garments and textiles, which account for the substantial majority of Cambodia’s export earnings. Major international fashion brands, including H&M, Gap and Inditex, publish annual supplier transparency reports that list Cambodian manufacturers as active sourcing partners. The presence of these buyers provides market legitimacy but does not alter the underlying FDI composition.
Manufacturing output grew 50% year-on-year in 2025, according to Cambodia Investment Review, reflecting the pace of Chinese capital deployment into export-oriented production, particularly garments, footwear, travel goods and light manufacturing.
Rules of Origin Implications
Under US trade rules, substantial transformation requires more than geographic relocation. The origin of capital, management and supply inputs determines tariff treatment. A Chinese-owned factory in Cambodia assembling Chinese components does not typically meet the substantial transformation threshold for a change in country of origin.
For brands subject to Section 301 tariffs on Chinese goods, sourcing from Chinese-controlled Cambodian facilities offers limited protection. US Customs and Border Protection examines the entire supply chain, not just the final assembly location.
For brands subject to Section 301 tariffs on Chinese goods, sourcing from Chinese-controlled Cambodian facilities offers limited protection. US Customs and Border Protection examines the entire supply chain, not just the final assembly location.
Risk Assessment
Cambodia’s manufacturing boom introduces risk dimensions that supply chain planners need to price into their China-plus-n calculations, a strategy of diversifying manufacturing across multiple countries to reduce dependency on any single source. In Cambodia’s case, the additional country in the equation may not represent genuine diversification if the underlying ownership and supply network remains Chinese.
Transfer pricing between Chinese parent companies and their Cambodian subsidiaries, meaning the pricing of transactions between related entities within a corporate group in ways that can shift taxable profit between jurisdictions, creates a second layer of complexity. Intercompany transactions can be structured to minimise taxable profit in Cambodia while maintaining operational control from China.
Transfer pricing between Chinese parent companies and their Cambodian subsidiaries, meaning the pricing of transactions between related entities within a corporate group in ways that can shift taxable profit between jurisdictions, creates a second layer of complexity. Intercompany transactions can be structured to minimise taxable profit in Cambodia while maintaining operational control from China.
Future Outlook
Cambodia’s manufacturing growth will continue, driven by low labour costs and ongoing infrastructure development. The Chinese FDI concentration is documented in the Council for the Development of Cambodia’s own approval records and verifiable at the factory level through published supplier disclosures. Until that concentration falls or its composition changes materially, brands targeting Section 301 exposure reductions through Cambodian sourcing are managing optics rather than risk.