How Cambodia's backpacker haven became a Chinese casino mecca

Sihanoukville now has over 100 casinos, although most are small operations.

(CNN)In Sihanoukville's Jin Bei Casino & Hotel, young Cambodian women wearing tight mini-skirts swerve through the thick cigarette smoke, carrying turquoise cocktails for Chinese gamblers. A dozen croupiers work the room, picking up thick wads of notes from the players and converting them into plastic tokens. "I earn $500 per month," says one croupier -- a small fortune in a country where the minimum wage is just $170 a month. Most players here are betting big, with the smallest token worth $100.

Once a quiet seaside haven for backpackers, Sihanoukville has morphed into a giant construction site in the past three years. Cranes dot the skyline, roads have become muddy potholed lanes and jackhammers resonate late into the night. Many of the new buildings are casinos. The province hosting the city on Cambodia's south coast now boasts 88 of them, compared to 15 in late 2015.
Most of this activity is due to Chinese developers, says Astrid Noren-Nilsson, a Southeast Asian studies expert from Lund University in Sweden. "An estimated 90% of businesses in Sihanoukville, including hotels, restaurants and entertainment establishments, are now owned by the Chinese," she says.
Many building fronts in Sihanoukville are now covered in Chinese characters. On the beachfront, Sichuan hotpots have replaced plenty of the 50-cent beer joints beloved by Western travelers.
    This has had far-reaching consequences for locals, squeezing their income from traditional backpacker tourism channels, pushing some into dangerous jobs on construction sites and bringing a thriving casino industry to the city, which has caused many residents to lose their homes.
    By transforming Sihanoukville into a casino mecca, Cambodia hopes to rival other Asian gaming hubs like Macao, Singapore and Manila. Gambling is illegal for locals since 1996. So the city hopes to attract Chinese tourists, who are not allowed to gamble in their home country. Despite a recent crackdown on online gambling, they are coming in droves.
    "It is extremely easy to obtain a casino license in Cambodia," says Ben Lee, the founder of IGamiX, a Macao-based consultancy firm focused on the gaming industry in Asia. "To get one, all you need is to prove you have a parcel of land and to pay an application fee to the Cambodian ministry of finance, which is in charge of overseeing casinos."
    Casino operators here aren't required to check their customer's identity or verify the origins of their funds, according to several industry experts. Earnings from gaming are not taxed, although the government collects a monthly fee from bigger casinos and a fixed levy on each table and slot machine from smaller ones, Lee adds.
    A new gaming law, which Cambodia plans to publish next year, would introduce a 4% to 5% levy on casino revenue. In Macao, it is 38% to 39%.
    The Financial Action Task Force, a crime-fighting organization founded by the G7, recently placed Cambodia on its gray list of countries vulnerable to money laundering, citing the lack of regulation of its casinos, which the United Nations Office on Drugs and Crime has warned could be used to launder the proceeds from organized crime, including methamphetamine trafficking.
    A few mega-casinos have, however, started to sprout up. The imaginatively named Wisney World will feature three themed casinos, an amusement park, a safari and an artificial lake. Meanwhile, to the east of the city, Suncity, one of Macao's largest junket operators, and Jincheng Group, a company linked to Chinese plane maker AVIC, have started construction on a huge gaming complex nicknamed "Chinatown" by locals.
    To the east of Sihanoukville, a new complex housing casinos and luxury condos is going up. Locals have nicknamed it "Chinatown".
    Sihanoukville has also become a hotbed for online casinos.
    In one establishment, tucked away in a side street, a row of women wearing black lace leotards shuffle cards. They stare into cameras with fixed smiles. There are no players. "The game is live-streamed to bettors -- usually based in China -- who play remotely," explains Jonny Ferrari, a Canadian online gaming consultant who lives in Sihanoukville.
    The online casino industry is sparsely regulated. "I have seen Chinese businessmen buy a building, get a casino license and rent out sections to various online casino operators," Ferrari says. "As long as they pay the rent, no questions are asked. They don't even have to show identification."
    These virtual operations are legal in Cambodia but not in China, where gambling is forbidden.
    To get around this prohibition -- and Beijing's strict foreign exchange controls -- Ferrari says "agents collect the money in China, using WeChat Pay or in Bitcoin, and a local representative in Cambodia provides a cash advance." He will use any future gains to repay himself.
    Thanks to this underground banking system, no money actually crosses the border.

    A close friendship

    Chinese companies started taking root in Cambodia in the late 1990s. But their interest really spiked after President Xi Jinping launched China's Belt and Road Initiative (BRI) -- his grand plan to push the country's influence globally -- in 2013.
    Beijing invested $5.3 billion in Cambodia between 2013 and 2017, Nut Unvoanra, deputy secretary general of the Cambodia Investment Board, told the Phnom Penh Post.
    "Just this year, new projects valued at $4.8 billion have been announced," says Andrew Davenport from RWR Advisory Group, an agency tracking Chinese investments.
    The investments make sense commercially. Chinese manufacturers profit from the lower wages in Cambodia and use it as a base to avoid American tariffs on Chinese goods. In Sihanoukville, the Chinese company Jiangsu Taihu Cambodia International Economic Cooperation Investment and a local partner have set up a special economic zone on the outskirts of town.
    More than 160 Chinese companies -- mostly garment, leather goods and furniture makers -- already operate in the area. In June, the United States fined several companies based there for dodging US tariffs by labeling their goods as Cambodian even though they had been produced in China, US Embassy spokesman Arend Zwartjes told Reuters in an emailed statement.
    "Beijing also wants to create new markets for its infrastructure firms abroad," says Agatha Kratz, an associate director at Rhodium Group who studies BRI investments. Chinese overcapacity means it needs to export some of its iron and cement by building roads, airports and railway lines, she adds. State-owned company China Communications Construction, for example, is building a $2 billion four-lane highway linking Sihanoukville and Phnom Penh, cutting the journey from six to two hours.
    Many of the workers on the construction sites are Chinese. The jobs left over for locals are tough and dangerous.