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After Sihanoukville: When a Belt and Road sideshow closes up shop

AseanToday.com

 Ollie


Photo:Dmitry Makeev

As the Cambodian government bans online gambling, the story of Sihanoukville has become a cautionary tale of Hun Sen’s attempts to shape the course of Chinese investment.

By Skylar Lindsay

After several years of booming construction and rising foreign investment, the hot streak for the Cambodian beach town of Sihanoukville has gone cold. In late December, Cambodian Prime Minister Hun Sen announced a permanent ban on online gambling, leaving thousands of Cambodian workers jobless. 

Sihanoukville’s new developments, from hotels to restaurants and infrastructure projects, have been built on Chinese demand, which is married to the casino industry. Gambling is illegal in China, apart from Macau, and while the Cambodian government bars its citizens from gambling, foreign nationals had been permitted to gamble online, until last year. 

Chinese interest in Sihanoukville has also been driven by the city’s role in Beijing’s Belt and Road Initiative (BRI), which promises investment in infrastructure and further economic integration. Hun Sen’s new ban suggests that the Cambodian state desires more control over runaway development—aiming to keep the highways, airports and economic zones, but drop the casinos.

Sihanoukville was transformed by Chinese seeking gambling opportunities

Sihanoukville is the latest case of a Southeast Asian city remade in the name of investment. Most of the new money in Sihanoukville is Chinese—90% of businesses in Sihanoukville are now Chinese-owned

The city’s Cambodian population more than tripled in less than a decade to more than 300,000 people. The Chinese community may number around 80,000 now. The city produces 5-10 times as much trash as it did in 2015—now 1,000 tons per day.

Much of Sihanoukville’s development was driven by the Chinese demand for online gambling. One business owner in the gaming industry told Southeast Asia Globe that as much as 85-90% of revenues at Sihanoukville’s casinos came from online gambling. 

But some of the money pouring into Sihanoukville is also reportedly associated with Chinese cartels, with money laundering and undocumented labour reportedly becoming major issues. Concerns over crime may have played a role in the Cambodian government’s decision to put an end to online gambling. 

report by the Cambodian Ministry of Interior revealed that in the first quarter of 2019, the number of foreigners detained for criminal activity increased by nearly 50% from the same period the year before and out of 341 foreigners detained, 241 were Chinese. It’s worth noting that the prevalence of Chinese crime reflects that the majority of foreigners in Cambodia are Chinese—the majority of foreign nationals who were victims of crime were also Chinese, according to the report.

The tide is going out for Chinese developers

Hun Sen declared a temporary ban on online gambling last August, citing threats to Cambodia’s “social order”, but announced that the ban would be made permanent in December. So far, at least 56 casinos in Preah Sihanouk province have closed, laying off over 7,000 casino workers. Many of those left without work have protested unpaid wages. The government reported that nearly 500,000 Chinese nationals have left Cambodia since Hun Sen’s announcement.

The impacts of the ban have not been limited to casino employees. Developers have stopped construction on major projects and put many Cambodian labourers out of work. Property and land sales have slowed to a comparative crawl. 

Since the ban, nearly 800 restaurants have closed and restaurant revenues have dropped to 15% of what they were. The cost of leasing commercial space in downtown Sihanoukville has dropped 80-85%. Many local residents who launched or expanded businesses to cater to Chinese demand have been left struggling to make back their money or pay off loans. 

The impacts also aren’t limited to those from the Sihanoukville area. Workers descended on Sihanoukville from around the country in search of high-paying construction jobs, some offering US$13 or more per day, in a country that just raised its minimum monthly wage to US$190.

Sihanoukville Autonomous Port - Cambodia
Sihanoukville Autonomous Port – Cambodia
Photo: Dmitry Makeev

Hun Sen is struggling to keep Sihanoukville’s state-sponsored boom on track

Foreign investment in Sihanoukville began to rise dramatically in 2016 as the city became a key point on Beijing’s Belt and Road Initiative, with Chinese companies backing port projects. Beijing has also signed a deal with the Cambodian government allowing the Chinese military to use the nearby Ream naval base. The new Dara Sakor airport under construction nearby is being developed by Chinese companies and China has sponsored a US$2 billion highway connecting Phnom Penh to the coast.

As in much of Cambodia, Chinese support in Sihanoukville has helped the Cambodian government to set a new development agenda. Last March, government spokesman Phay Siphan gave a two-hour press conference extolling plans to build a “city of miracles” in Sihanoukville, comparing its future to Singapore, Silicon Valley and Las Vegas.

But as the boom continued, it also brought negative consequences, even before the casino money ran out. Last June, a seven-story Chinese construction project collapsed, killing 28 people. A Cambodian provincial court charged five Chinese nationals, two for manslaughter, three for conspiracy in the crime.

After this and other incidents, residents in the area, construction workers and civil society groups voiced concerns over Chinese developers violating Cambodian law. Workers marched in Phnom Penh, calling for authorities to crack down on unregistered contractors and unregulated projects.

The Cambodian government’s attempts to control development in Sihanoukville are also having a negative impact on some local residents. In the highly-popular Otres Beach area, the government is pushing local residents out to make room for high-value construction. 

In mid-January, the government dismantled and bulldozed nearly 300 stalls belonging to vendors in the Otres Beach area. On January 20, a crowd of vendors from Otres protested outside Hun Sen’s residence to oppose the move and demand compensation. They called for the prime minister to intervene and provide them with an alternative location for their businesses, as well as land titles to offer them more security than they had at Otres.

The government has also demolished almost 300 homes for encroaching on Sihanoukville’s canals as it moves to redevelop the waterways. It’s unclear whether the residents will receive any compensation.

Sihanoukville won’t be Las Vegas, but it’s still on the Belt and Road

Chinese developers haven’t entirely abandoned Sihanoukville. Some are hoping to ride out the slump and envision a different future for the city, post-gambling frenzy.

As Yang Degang, a Chinese business leader and factory owner in Sihanoukville, told Nikkei Asian Review this month, “Chinese people are very resilient. We stay here because under the bubbles, there is beer.”

But while coveted Chinese investment brings economic gains, they come at a price. Cambodian political analyst Meas Ny spoke about the risks of Chinese development projects. “Social dialogue usually does not happen,” he said. “They don’t care to ask about local concerns until huge impacts take place—and they solve it later.” 

Sihanoukville is a reminder of the consequences of tying one city’s development too closely to volatile foreign investment. It remains to be seen whether Chinese developers try to salvage their businesses from the resulting quagmire—evidence of a pattern that may only become more common as the Belt and Road expands.

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