Cambodia goes all-in on China in casino port city

By Matthew Tostevin and Prak Chan Thul
A Chinese Blue bay resort under construction is seen at the Preah Sihanoukville province, Cambodia November 26, 2017. REUTERS/Matthew Tostevin

By Matthew Tostevin and Prak Chan Thul

SIHANOUKVILLE, Cambodia (Reuters) - Between Sihanoukville's beaches and its multiplying casinos, "Lao Qi" and Bun Saroeun run restaurants barely a hundred dusty meters apart. But their fortunes could not be more different.

For while Lao Qi is riding the Chinese boom that brought him and thousands of others from China to the Cambodian resort, Bun Saroeun's business was built on low-budget Western visitors. It is far less profitable and now he faces eviction.

Sihanoukville starkly illustrates how Cambodia's ever tightening relationship with China is transforming the country. Just as China's aid and investment have helped Prime Minister Hun Sen defy Western criticism of a crackdown on his opponents, they are also binding Cambodia's economy ever more closely to China's.

Sihanoukville, which has Cambodia's only deep-water port, was carved out of the jungle in the 1960s and named after former King Norodom Sihanouk. Once a playground for Cambodia's elite, it fell on hard times during the Khmer Rouge genocide and conflicts of the 1970s and 1980s before becoming a stop for backpackers and other Westerners looking for sun, sea, sand and - for some - sex.

But a steady trickle of Chinese money into its casinos has now swelled to a tide that promises to remodel a city touted by developers as the first port of call on China's "Belt and Road".

"This is like China 20 years ago. The opportunity is huge," said Lao Qi, 33, who goes by his nickname and first moved here from China's Zhejiang province to work in a casino. His noodles and fried rice can now make him hundreds of dollars a day.

Down the road at the Ecstatic Pizza restaurant, 59-year-old Bun Saroeun counts himself lucky to make over $100 a day. Rising hotel prices and the noise of construction are discouraging Western visitors and Cambodian tourists from the city, he says.

"A few Chinese came here but now they have their own restaurants," said Bun Saroeun, whose landlord is now evicting him to redevelop the prime property near the Occhuteal Beach.

The Chinese influx is very much by design. In charge of the city is governor Yun Min, the former regional military commander and a close ally of Hun Sen. He made trips to China himself to encourage investors and offer them protection.

"We want more of them to come," he told Reuters, estimating that Chinese already rent half the property in the city. "We benefit from them."

Cambodia's "Chinese" resort city IMG - http://tmsnrt.rs/2AtY4cS

'MACAU TWO'

Estimates for the numbers of Chinese now resident in the city of 250,000 run from the thousands to the tens of thousands, but no figures are made public.

Across Sihanoukville, Mandarin signs are proliferating. Supermarkets packed with Chinese goods are commonplace - the only Cambodian items tend to be beer and bottled water.

Yet the current Chinese influx into Sihanoukville is nothing compared to what is forecast. Near the once tranquil Independence Beach, concrete towers have sprouted in months, promising casinos, hotels and thousands of apartments.

"This is Macau Two," boasts Chen Hu, the 48-year-old general manager at the $200 million 38-storey Blue Bay Resort development, comparing the city to the world's biggest gambling center.

At his showroom, groups of prospective condominium buyers from China admire the model. About 20 percent of at least 700 apartments have already been sold, he says. Prices range from around $125,000 to $500,000.

"A lot of people complain, but a lot of people also benefit from the injection of money from China,” said William Van, 60, who owns an apartment block now filled largely with Chinese workers and has seen the value of his investment soar.

A clear attraction for all Chinese investors, developers say, has been the close Cambodia-China relationship - strengthened by Hun Sen's repeated trips to Beijing and Chinese President Xi Jinping's visit to Phnom Penh late last year.

On his latest trip to Beijing last week, Hun Sen won offers of investment of $7 billion from Chinese companies in a highway, a satellite city near Phnom Penh, and projects in education, entertainment and banking. It was unclear how new or firm the promises were, but they highlight the accelerating investment trend.

Business is following the flag China has planted in Cambodia.

“It’s continuing and may even be exploding,” said U.S. based academic Sophal Ear, co-author of a book on China’s quest for resources abroad. “We are talking orders of magnitude now beyond what anyone else is doing...They’re crowding out other investors with the sheer volume and scale of their activities.”

Pictures of Xi and Hun Sen feature prominently in one of the glossy handouts from the Prince Real Estate Group as it markets apartments in Phnom Penh and now starts work on two projects costing $1 billion in Sihanoukville.

"It is a core location of the Belt and Road initiative," said marketing director Hu Tian Lu, referring to China’s infrastructure-led development and diplomatic initiative.

A short drive from the port is an expanding Special Economic Zone, where 90 percent of the 110 companies now operating there are Chinese, enjoying tax-free imports and exports and corporate tax holidays.

China is due to build a four-lane highway to Phnom Penh, the international airport in Sihanoukville is being expanded - some 70 percent of international flights are already to Chinese destinations - and improved rail links are eventually planned under the Belt and Road program.

MORE CHINESE TOURISTS

Although Sihanoukville is a focal point for Chinese investment, the phenomenon is far from localized.

More tourists to Cambodia come from China than any other nation - 635,000 in the first seven months of the year, or a fifth of the total. Cambodia hopes to draw two million Chinese tourists a year by 2020.

Chinese investment over the 2012-16 period was over $4 billion - more than 30 times that from the United States, even including a $100 million Coca-Cola plant which opened last year. China's $265 million in aid last year was well over twice that of Japan's and nearly four times that from the United States.

Chinese dams provide most of Cambodia's electricity; a third of the garment factories that produce Cambodia's main export are Chinese.

Nearly half of Cambodia's $5.8 billion foreign debt is also owed to China - many multiples what it owes any other country.

The government's political debt to Beijing has also grown.

As Western countries have condemned the arrest of Hun Sen's main rival and the dissolution of his party ahead of next year's election, China has voiced support for Cambodia's efforts to keep order.

From Cambodia, China can count on its loyal support on regional issues, while it also gains a strategic foothold deep in Southeast Asia. Sandwiching Sihanoukville are concessions owned by Chinese companies that give them control of well over one-third of Cambodia's coastline.

The gush of money into Sihanoukville has meant a bonanza for land owners: one hotelier told how the Chinese turned up with an offer of twice what he was making to take his hotel over for casino staff. He no longer needs to work.

For anyone renting, it is a nightmare. Long term Western expatriates talk of being "Chinesed" - being turfed out because a Chinese customer has turned up willing to pay much more.

Real estate agent Thim Sothea got a harsh lesson in the way the market was trending when his landlord evicted his business, Sihanoukville Property, from a spot near the beach so a Chinese company could move in at double the rent.

“It’s becoming Chinatown here,” he said at a meeting at a cafe because he is still looking for a new space. “That’s fine for the rich who own hotels and property, not for everyone else.”

It also suits Lao Qi just fine. He already has plans to open a new restaurant, which he expects will be closer to the beach.

(Editing by Bill Tarrant)