The revival of Sihanoukville, Cambodia's 'Gold Rush' city

Cambodia's Sihanoukville province is a key strategic location in China's Belt and Road Initiative (BRI). Its Special Economic Zone (SEZ), jointly run by China and Cambodia, has attracted 170 international enterprises and reported a trade volume of US$2.23 billion last year.

The SEZ has transformed Sihanoukville into a hub for textiles, leather goods and construction materials - but also turned the city into casino central.

After a 2019 ban on online and arcade gambling, followed by the Covid-19 pandemic, Chinese capital withdrew from the city. With the former hustle and bustle now a distant memory, is Sihanoukville - once known as the "Gold Rush" city - losing its shine?

Some ten years ago, Sihanoukville's clear blue waters and white sandy beaches made it a favourite of Western backpackers. That "sleepy" town was roused from its slumber by a flood of Chinese capital beginning in 2013.

Cambodia's lax financial policies and the legalisation of its gaming industry attracted droves of Chinese investors to open casinos, driving a boom in gaming-related sectors and construction. By early 2019, Sihanoukville boasted nearly 100 casinos, with new buildings sprouting up across the city.

According to Sihanoukville provincial government data, 90% of businesses in 2019 were Chinese-owned and managed, from hotels and casinos to retail and services. Of the US$1.3 billion in foreign direct investment (FDI) from 2016 to March 2018, US$1.1 billion was from China.

But the rise of gaming also brought a wave of crime, plunging the development of Sihanoukville into controversy.

In the name of public safety and order, the Cambodian government banned online and arcade gambling on 18 August 2019, in a watershed moment for Sihanoukville's development.

With many casinos having held online gambling licences, this prompted an exodus of hundreds of thousands of Chinese citizens involved in the industry. Many returned to China - and decided to stay after pandemic curbs made travel challenging.

Sihanoukville's economy was hit hard. Many construction projects linked to the gambling boom were halted after the news of the ban, with hundreds of unfinished buildings dotting the cityscape.

Lawrence Lennon, managing director of real estate service provider CBRE Cambodia, estimates that there are 1,000 unfinished buildings in Sihanoukville. He told Lianhe Zaobao that most were related to the gaming industry, and almost all were backed by Chinese investors. He revealed, "Some of them were casinos, and some were for housing the casino workers or some sort of gaming activity."

Ivan Franceschini, a postdoctoral fellow at The Australian National University's Australian Centre on China in the World, said that much of the construction could not be completed because the developers had run out of money. Some investors also abandoned their ventures upon realising that the online gambling ban would wipe out any hope of returns.

Not only did the ban cause significant losses for overseas investors, many Cambodian and Chinese workers were owed wages and had to leave empty-handed, said Franceschini, who is studying China's impact on Cambodian society.

When this reporter visited Sihanoukville in May, faded "for sale" and "for rent" banners hung at construction sites of unfinished buildings. Some sites were abandoned and overgrown with weeds; others had been turned into car parks.

There have been practically no real estate transactions in Sihanoukville in the past two years, said CBRE Cambodia's Lennon. "The market went from a situation of demand to a situation of high supply. I'm sure a lot of people want to exit and sell, but the demand wasn't there," he added.

Many residents see the half-built projects as a blight on the city's image. Undergraduate Marida, 18, said, "These unfinished buildings make people uncomfortable. If Sihanoukville were to develop into a tourism destination, these empty buildings would leave a bad impression on visitors."

The Cambodian government is reportedly in talks with stakeholders of the unfinished projects, to pave the way for construction to restart.

A Sihanoukville government spokesperson said in May that more and more foreign investors are returning, and some projects have resumed, adding, "In terms of the construction work, we have seen some progress, though not much."

China is Cambodia's top trading partner and its biggest source of FDI and inbound tourists. As of 2021, Cambodia has attracted US$41 billion in FDI, with US$18 billion or 43.9% from China - reflecting the hefty role of Chinese capital in Cambodia's growth.

It is widely thought that once China relaxes its zero-Covid policy and travel curbs, Chinese investors will return and Sihanoukville's economic engine will restart.

Ross Wheble, country head for Knight Frank Cambodia, said, "We are now starting to see several major local developers launching projects in Sihanoukville as the market is coming back now that Cambodia has fully reopened its borders to vaccinated travellers.

"We are confident the majority of these buildings will be completed once China lifts its zero-Covid policy," Wheble added.

If you want to get rich, build a road first. This principle has guided China's development since its reform, and under the BRI, this model has now found its way to Sihanoukville in Cambodia.

With Chinese funding, the Cambodian government has stepped up infrastructure construction in the past two years. Sihanoukville now has 34 asphalt roads, with a highway to the capital of Phnom Penh slated to open in July - Cambodia's first highway - which will cut travel time between both cities from six hours to just two and a half hours.

Sihanoukville is also expanding its airport, deepwater port and underground drainage. A power plant backed by Chinese state-owned generator China Huadian Corporation is being built as well.

Having ventured into real estate development in Sihanoukville back in 2015, Singapore-listed HLH Group has witnessed the convoluted trajectory of the city's development. Executive deputy chairman and CEO Ong Bee Huat told Lianhe Zaobao that the online gambling ban and the pandemic have devastated Sihanoukville's economy - but also present an opportunity for the city to adjust its development strategy.

Ong, who has worked in Cambodia for more than 15 years, said that Sihanoukville's ageing infrastructure had been inadequate for its rapidly growing population. "Before, the roads were in poor condition, and there were always traffic jams. There was not enough water, not enough electricity, and frequent blackouts," he shared.

The downturn of the last two years provided an opportunity for infrastructure upgrading, for the city to stand in better stead for future development, he added. Ong said, "Sihanoukville's biggest draws are its beautiful beaches and deepwater port; these are natural and can't be replicated. As long as the infrastructure can keep up, I believe tourists and investors will naturally come back."

Lennon agreed that "breathing space" was exactly what Sihanoukville needed. He remarked, "Imagine doing that when you have two million tourists coming through the city on an annual basis, it just wouldn't be possible.So the time has been used wisely and effectively to pave the way for future developments."

Learning from the experience of the southern coastal Chinese city of Shenzhen, Sihanoukville is developing sectors such as tourism, agriculture and logistics to diversify its economy and reduce dependence on gaming.

Late last year, the Cambodian government appointed the Urban Planning & Design Institute of Shenzhen to draw up a blueprint for Sihanoukville as a "multi-purpose SEZ". Sihanoukville's potential in logistics and tourism is starting to attract investors.

With Cambodia's only deepwater port, Sihanoukville has a natural advantage and immense potential in logistics. The Japanese government said last year that it was providing Sihanoukville port with preferential loans to build a new container port. At the start of this year, Japanese retail giant AEON revealed plans to build a 30,000 square metre multi-purpose international logistics hub there.

Sihanoukville's natural beauty remains a huge draw for tourists. HLH Group's Ong believes the 30-odd pristine islands nearby - such as Koh Rong, Koh Rong Sanloem and Koh Sang Saa - could rival the Maldives.

Tourism would also complement the city's gaming industry. Noting that the government intends for "tourism and gaming [to] go hand in hand", CBRE Cambodia's Lennon said, "We anticipate... that there will be a shift in the positioning of Sihanoukville to more of a premium gaming destination, similar to that of Singapore's integrated resorts."

He observed that although online gambling is banned, physical casinos can operate, though the government may limit the industry's scale via licensing.

Arriving in the coastal Cambodian city of Sihanoukville, one might have the surreal impression of being in China. Almost all the signboards are in Chinese, and familiar Chinese brands are everywhere.

Before the online gambling ban, more than 200,000 Chinese citizens lived in Sihanoukville. But as the gold rush abated, their numbers declined. As of May this year, only 23,375 remain, while many casinos and shops have shuttered.

Local residents expressed mixed feelings about the departure of the Chinese. They prefer today's relative calm, but see Chinese tourists and investment as essential for Sihanoukville's development.

"Sihanoukville is not as noisy as before," said Chea Chivey. The accountant, 22, continued, "After the Chinese left, there were also fewer social problems. But Sihanoukville is at a stage where it urgently needs foreign investment. Without continued investment from China, development will stop."

The influx of Chinese drove up costs of living and housing. Some Sihanoukville residents struck gold overnight, but far more were hit by sky-high inflation. A bowl of street-side noodles costs around US$4, with prices higher than in the capital of Phnom Penh.

HLH Group's Ong said that the flood of Chinese real estate investors caused prices to rise from a few hundred US dollars per square metre, to US$3,000 to US$4,000.

"There were too many people, and an undersupply of food and accommodation," he said. "Housing prices went up, rents went up, food prices also went up. At the peak, one egg cost US$1."

Looking to profit from the red-hot rental market, restaurant owner Svay Saiye, 54, built a house in 2018 and rented to Chinese tenants for US$4,000 a month. But the windfall was fleeting, and the exodus of Chinese capital has left the house empty. Saiye lamented, "I hope the Chinese come back soon. My house has been empty for three years, and I still have to pay a few thousand dollars every month towards the mortgage."

The cost of living in Sihanoukville has since fallen, and domestic tourists - who previously avoided the city due to high hotel prices - are returning. Tame, 37, a street peddler by the beach, said that back when most beachgoers were Chinese, they patronised Chinese businesses exclusively. Tame added, "It really didn't help us. But now some Cambodians have returned, so our business is actually better."

"I think there should be a balance, so even if the Chinese come back, locals and tourists of other nationalities will also come," Tame said.

The gambling boom brought law and order problems that caused locals to live in fear. Whether these can be effectively addressed, restoring tourist and investor confidence, will determine Sihanoukville's success.

In recent years, Chinese criminal gangs have used Sihanoukville as a base for illegal gambling networks and racketeering, even engaging in abduction and human trafficking to staff their operations.

Smey Simayi, 25, who works in a provision shop opposite a casino, said she often saw the Chinese brawling outside the casino and even witnessed an abduction. "We often heard gun shots, it's very scary," she recounted.

Under Cambodian law, firearms can be carried only by army and police personnel, and licensed persons. But locals revealed that black market firearms were readily available for around US$5,000.

Guns are not uncommon in Sihanoukville, and many foreign business owners - who are not allowed firearm licenses - hire armed bodyguards. The ubiquity of guns has even driven some shopping centres to put up notices prohibiting firearms on their premises.

The Cambodian government has tightened gun controls in recent years. Ong said, "In the last few years, we would often see police roadblocks, checking vehicles for drugs and guns."

According to Cambodian media reports, a gang of firearms smugglers were arrested in Sihanoukville this June. Sihanoukville governor Kuoch Chamroeun said then that the authorities had become a laughingstock because they had lost control of the situation. He said, "I want to declare again that we will not tolerate lawlessness and will continue to root out violent crime."

In 2019, the China-Cambodia Law Enforcement Coordination Committee, an inter-governmental partnership, was set up to target cross-border crime. To date, over 100 Chinese criminals have been arrested and repatriated.

Lennon expects the Chinese and Cambodian governments to expand their law enforcement cooperation. He estimates that as Sihanoukville goes upmarket, black and grey market criminal activity will become costlier and ultimately get squeezed out.

Ong observed that while the crackdown will take time, the government has clearly begun taking steps in the right direction, which will benefit the future development of Sihanoukville.

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