(Bloomberg) -- It’s against the law for Cambodians to gamble. Yet in Sihanoukville, a once-sleepy resort town where three dozen casinos have sprung up, most in the past two years, Cambodians are betting that an infusion of Chinese-built infrastructure will pay off with jobs and prosperity. So far, they’ve also won increased crime, higher housing costs and more than a little ethnic tension.
The casinos in Sihanoukville, a city named for a former king, cater to thousands of Chinese tourists and workers who have descended on this nub of land on Cambodia’s southern coast. At the Golden Sand Hotel’s casino near Ochheuteal Beach, businessmen from places like Shenyang peel $100 bills from thick wads of cash as they suck on Chunghwa cigarettes. Even on weekday nights, the place is packed and filled with smoke. Young Cambodian women in short, tight skirts stand behind tables dealing cards. Chinese security guards dressed in black circle the room.
The influx of Chinese — they arrive on 87 flights a week at a single-runway airport that can’t yet handle jumbo jets — is tied to China’s Belt and Road Initiative, an ambitious plan to build an estimated $1 trillion worth of infrastructure across Asia and parts of Africa, dwarfing the post-World War II Marshall Plan. In Sihanoukville, projects include a special economic zone, where more than 100 Chinese-owned factories are already operating, and a four-lane toll road to the capital city of Phnom Penh, about 225 kilometers (140 miles) away which, will be built by China Communications Construction Co. In all, Chinese state-owned and private companies are involved in about $4.2 billion of infrastructure projects on Cambodia’s southern coast, including power plants and offshore oil exploration, according to RWR Advisory Group in Washington, which tracks Chinese investment.
All that investment, designed to pull Cambodia more closely into China’s orbit and open up new areas of investment in tourism, manufacturing and construction, is paying off. A dozen hotel-condo projects aimed at Chinese tourists and second-home buyers are going up. Two other tax-free economic zones are being built. And, of course, more casinos are planned, none with Belt and Road financing but all hoping to cash in on the investment flow.
“The scale of these projects is just enormous,” said Andrew Klebanow, a senior partner at Las Vegas consulting firm Global Market Advisors, who called Sihanoukville the world’s fastest-growing gaming jurisdiction in a May report. “I’ve never seen anything like that.”
The construction has kept Sihanoukville, a port city with a population of about 160,000, coated in dust and humming with the sound of machinery. It has boosted the local economy, now growing at almost 8 percent annually, a percentage point higher than the rest of the country. But it has also brought resentment. The concentration of Chinese casinos, hotels, restaurants, factories, businesspeople, gamblers and laborers resembles what, in another era, might have been called a colonial concession, an area carved out from sovereign territory and given over to an occupying power, much to the consternation of local residents.
Earlier this year, Sihanoukville’s provincial governor voiced his concerns in a report to Cambodia’s Ministry of the Interior. The presence of so many foreigners “gives opportunity to the Chinese mafia to commit crimes and kidnap Chinese investors due to increased insecurity in the province,” Governor Yun Min wrote. He reported unhappiness among Cambodians displaced or evicted because of suddenly soaring housing prices, and from local businesses competing with Chinese shops whose signs are written only in Chinese. “Some foreigners do not respect the traffic laws; they drink alcohol, get drunk, yell, have arguments, and are fighting each other at restaurants and in public places.”
Local newspapers are full of reports of money laundering, internet scams, illegal gambling, human trafficking and drunk driving. Electricity outages are frequent, often at dusk as the lights of the casinos suddenly power on, draining the grid.
Yet letting this Belt and Road outpost boom, even with its unintended negative consequences, is part of Cambodia’s strategy for luring foreign investment and fostering growth. The country, one of the poorest in Asia, wants to climb the development value chain, and China is offering a ladder. Of the $1.3 billion invested in Sihanoukville from the beginning of 2016 through the end of March, $1.1 billion has come from China, according to the provincial government. China is now Cambodia’s biggest foreign investor, and it sends more tourists than any other country.
“We want to grab the occasion to develop our country, because we don’t have any assistance from other countries,” Cambodia’s information minister, Khieu Kanharith, said in an interview in Phnom Penh. “If we want to catch up with the world, if we want to catch up with other countries, we need investment.”
From the viewpoint of Phnom Penh, where Cambodian Prime Minister Hun Sen is facing elections next month, any dystopian side effects come at a relatively small price. A paradise lost is no big deal in a country with many other paradises when the trade-off is needed revenue and the creation of jobs for 100,000 Cambodians entering the workforce every year. Sihanoukville, with more than half a dozen white-sand beaches, is being transformed into an industrial city. Cambodians on holiday and Westerners, formerly the primary visitors to Sihanoukville, can go elsewhere, government officials say.
One of the keys to this transformation is the tax-free Sihanoukville Special Economic Zone, the province’s biggest Belt and Road project. Taking up an area 20 times the size of Vatican City, it promises to turn Sihanoukville into a Cambodian version of China’s Shenzhen by 2020. It will have about 300 factories, most of them owned by Chinese, employing 70,000 workers making garments and consumer goods at cheaper wages than in China. And they'll be able to take advantage of Cambodia’s free-trade status within Southeast Asia and with the European Union.
Meanwhile, the debt is piling up. Cambodia owes almost half of its $6 billion in foreign debt to China, and an additional $3.5 billion in lending for Belt and Road infrastructure is in the pipeline, according to the Center for Global Development, a Washington research group. Kanharith, the information minister, says the country can handle it. But a March report by the group placed Cambodia on a list of eight nations considered at high risk of debt distress as a result of loans to help finance Belt and Road projects.
How the boom is playing out in Sihanoukville could have international repercussions. Cambodia, which has no gambling regulator, no laws governing online gaming sites and lax money-laundering controls, has seen its casino industry flourish after crackdowns in other gambling centers, such as Macau and Manila, where betting online and by proxy has been curtailed.
Sihanoukville’s casinos offer live-dealer online gaming, which allows viewers to watch baccarat tables in real time and place bets remotely, according to Klebanow at Global Market Advisors. Behind the scenes, site operators rent offices on upper floors or backrooms, often sharing the casino’s gaming license, according to the operator of one site, who asked not to be identified. A law that would establish a gaming regulator and set rules for online gambling is expected to be adopted this year.
The lack of a legal framework makes it easier for gamblers to launder money or evade currency controls. In most online or remote-gambling operations, money from other countries is paid out in the local jurisdiction of the casino, which in the case of China can violate currency controls prohibiting the exchange of more than $50,000 per person a year. Macau banned proxy gambling in 2016 because of money-laundering risks.
Such risks at Cambodia’s casinos are “medium-high,” according to a report last year by the intergovernmental Asia/Pacific Group on Money Laundering. Cambodian banks “do not have adequate supervisory oversight commensurate with the risks,” the report said. It noted that even though suspicious transaction reports by foreign bank branches and subsidiaries more than doubled to 2,109 in 2016 from the previous year, Cambodia has had only three investigations of money laundering and no prosecutions. Casinos are required only to self-report unaudited quarterly data to the Ministry of Economy and Finance, which issues licenses. A ministry spokesman didn't reply to emails or text messages seeking comment.
Ministry officials told the report’s authors that only the country’s largest casino operator, NagaCorp Ltd., which holds a gaming monopoly around Phnom Penh and accounts for 44 percent of industry revenue, understands anti-money-laundering requirements. Smaller casinos, like the ones in Sihanoukville that typically have a dozen baccarat tables and a single row of slot machines, do not, the report said.
At least one Sihanoukville casino tries hard to accommodate money transfers from China. The money-exchange page on Jin Bei Casino’s otherwise English-language website is written entirely in simplified Mandarin, gives the rate of Chinese yuan to U.S. dollars and directs users to a Cambodian online money-transfer service called Huione Pay. That service accepts transfers from China’s online payment platforms WeChat Pay and Alipay, which are linked to bank accounts in China. Jin Bei and Huione didn't respond to emails.
Prostitution is also following the money trail. Advertisements shoved under the door at a Chinese-run casino hotel depict a barely clothed woman offering a “Dongguan-style set,” a two-hour series of sexual positions starting with a striptease.
The attempts to lure Chinese gamblers at Sihanoukville casinos, including free cigarettes and Chinese food rolled in on carts, don’t appeal to everyone. “I have to say the conditions are really not great,” said Zheng Guofu, a businessman in his mid-50s from Wenzhou who came for four days to visit a friend with a Sihanoukville factory and stayed at the Golden Sand. “The infrastructure and facility development is far slower than in China, and it’s dirty. Why should I waste my money in casinos where I need to put up with the fog of smoke and noise?”
None of that seemed to bother a cheerful 23-year-old who gave his name as Pet. Like 1 million other Cambodians, he was working in Thailand because jobs were scarce locally, but he returned for a casino gig where he makes $130 a month delivering fruit, cigarettes and beer to gamblers. His girlfriend, who deals cards, makes more than $200 a month plus tips, he said. The workers operate in three shifts, 24 hours a day. Pet isn’t bothered by the disparity between them and the richer Chinese. “Maybe all this money will come to me someday,” he said. “Who knows?"
Most of the workers live in dormitories provided by the casinos. But for those who don’t, like Pet and his girlfriend, it’s getting harder to find affordable housing. Most rooms in the newly built casinos are reserved for gamblers, and many guesthouses are rented to Chinese workers. Lack of housing has driven up prices and displaced long-time residents.
From his small clinic and drug dispensary where he has treated bloody noses of Chinese workers who get into fights at nearby restaurants, nurse Sing Saroeun pointed at several houses. “Before you could get that one for $200-$300 a month, and now it’s $2,000-$3,000,” he said. “It’s good for the people who have their own homes. For Cambodian workers, they’re having a difficult time to rent a room in the center of the city.”
Not a single friend of Liubov Ivanova, a Russian who came to Sihanoukville seven years ago, has managed to stay in the same residence over the past year. Rents have doubled or tripled, said Ivanova, the guest relations officer at the Independence Hotel, and tenants are kicked out with only a few days’ notice. She and her family had to move once last August and then again in February. “The Chinese brought in two-level beds and started living 10 people in one apartment where we were two adults and one child,” Ivanova said, noting that the next time they have to move it will likely be out of Cambodia.
Daniel Mackevili, an American who’s lived in Cambodia since 2009 and runs the website Cambodia Expats Online, said that on a trip to Sihanoukville in late May he was shocked at how much the city had changed since his previous visit four months earlier. “It was just so quick," he said. “It’s like a total Chinese city now. It seems like it’s a part of China.”
While the governor’s report on crime said most of the kidnapping, drunken fighting and traffic violations happened among Chinese people, the impact spills over, creating a feeling of lawlessness. On the last weekend of May, the news from Sihanoukville on Mackvili’s website depicted a crash involving a Chinese driver in a Lexus that killed a Cambodian woman and seriously injured a man and child; the robbery of a Chinese man of $10,000 and his iPhone; and a Chinese man driving without a license and crashing into a motorbike. The site also carried a report from a Taiwanese newspaper about a British man vacationing in Sihanoukville who was beaten by 10 Chinese for having the word Taiwan tattooed on his forehead.
Frustrated police, speaking anonymously because they aren’t authorized to talk, say they try to enforce the laws but are powerless against what they call the culture of intervention. When they’re stopped, Chinese drivers take out their mobile phones and make calls, and then the police get a call from a superior telling them to let the motorists go. Worse, they say, when police set up road blocks to stop drunk driving, the Chinese speed up and cause them to dive for cover.
There were 28 traffic deaths in Sihanoukville in the first three months of the year, 10 more than last year, according to Cambodia's official news agency. Cambodians say Chinese are to blame. “Even when the Chinese are walking on the road, they walk like they bought the road, too,” said Srei Un, who runs one of the few Cambodian seafood restaurants on Ochheuteal Beach not undergoing renovation in order to rent out to Chinese for triple the revenue.
Hun Sen, prime minister for the past three decades and an increasingly reliable advocate for China’s foreign-policy goals, has tried to tamp down resentment by reassuring the public that the influx of Chinese workers is temporary, necessitated by shortages of skilled Cambodian workers and the high demand for development. The 2 million visitors a year China has promised Cambodia by 2020 will be different from the workers coming now.
“Don’t worry that Chinese want to live in Cambodia,” he said at a groundbreaking ceremony for a Chinese-funded university building in northeast Cambodia in late April. “Those people want to finish their work and get paid, and then go back to their country.”
Yet so elevated was the concern over Chinese behavior earlier this year following the governor's report that China's ambassador to Cambodia, Xiong Bo, made a rare public statement to address it. He blamed “a small amount of low-educated people” who break the law, according to Cambodian newspaper reports. The Chinese embassy in Phnom Penh didn't reply to an email request for comment and didn't answer its telephone.
Hun Sen chastised the governor for his letter, according to a senior government official who asked not to be identified. Word then came down from Phnom Penh that it’s up to provincial officials and police to enforce the law, and that Chinese behavior shouldn't be singled out in public statements lest it deter future investment, the person said. Police began 24-hour patrols, particularly in areas where 1 a.m. bar fights were breaking out.
The police chief in the district where many of the casinos are located likes to tout his big victory: the arrest last year of six Chinese kidnappers who had followed a casino owner from China and nabbed him when he left the premises one evening, demanding $10 million for his return. The armed suspects were caught within 24 hours, after a security camera spotted the license plate, Chief Sam Prak said, and they're now in a Cambodian prison.
Kidnapping attempts continue, however. On Wednesday, Cambodia Expats Online reported that nine Chinese men were arrested for beating and attempting to abduct two other Chinese men near the New Golden World Casino. Police caught the getaway car, the report said.
Min, the provincial governor, is now quick to accentuate “small negative but big positive things” about the Chinese investment influx. “I’m very happy when many are coming because they come to invest,” he said in an interview. “We welcome all investors, but they have to respect our law. It doesn’t matter whether they’re Chinese, French or American. We welcome them. We will protect their security.”
At the Seabreeze Resort, a casino-free oasis on Sihanoukville’s Otres Beach, Ukrainian manager Natalia Shuba has been monitoring the new projects. Chinese-built hotels are starting construction here too, the skeletons of their towers visible all along the shoreline. Even early on a Sunday morning, Chinese workers are banging away.
“Before this was countryside, and now they’re building skyscrapers,” she said. “In two years, this will be like a new country.”
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