Chinese investment in Sihanoukville has intensified, with investors snapping up properties in Ochheuteal Beach and putting pressure on local and Western-owned businesses.

When Craig Warren and his partners opened Mick & Craig’s Guesthouse in 2002 there were only a handful of buildings – a dive shack and some traditional Khmer houses – on the heavily potholed track that provided access to Ochheuteal Beach. For 16 years the entry road, which runs from the Golden Lions roundabout over a low-slung hill to the beach, has been a conduit of change.

Today, now wider and coated in asphalt, it is one of Sihanoukville’s busiest and most developed tourist strips, lined with hotels, restaurants, bars and travel shops.

Once the main attraction, Ochheuteal Beach has succumb to pollution and most tourists skip it altogether and head straight for the cleaner sands of Otres Beach further down the coast. But a ferry pier built by some enterprising Turks a few years back still brings a steady stream of visitors passing through or overnighting on their way to the tropical islands that lie offshore.

Mick & Craig’s, with its 17 spartan fan rooms and a restaurant turning out cheap and tasty comfort food, is one of the last vestiges of Ochheuteal Beach’s backpacker roots. But having survived a devastating fire in 2013 that gutted the guesthouse, it is now poised to be swept away in a flood of Chinese money pouring into Sihanoukville that is transforming the once sleepy coastal city into a glitzy casino enclave some are calling “Little Macau”.

More than 30 licensed casinos have been built in Sihanoukville, most in the last two years, primarily to help Mainland Chinese gamblers skirt laws that prohibit them from gambling on their own soil. And with the casinos come hotels, restaurants, shops and entertainment facilities catering to the 120,000 Chinese that visited the city last year, as well as the city’s 5,000 Chinese residents and workers.

But the Chinese are not only gambling at the baccarat tables and roulette wheels, they are also placing wagers on real estate. Chinese investors – from executives in suits to middle-class families ostensibly on a beach holiday – are flooding into Sihanoukville to join a land rush, racing to stake their claims on land or rental properties.

Open the floodgates

Chinese real estate investment has come in progressively larger and more aggressive waves. Early tides saw investors buy and build casinos, using the brick-and-mortar licences to piggyback online platforms that allow punters in Mainland China to join the game floor action. But live-dealer online gaming requires a big staff, so casino owners have snapped up villas and guesthouses across the city and packed them tightly with bunk beds for arriving Chinese workers.

“First they took all the mansions, especially on Victory Hill, because they have a lot of space,” explained Warren. “Then they started finding apartment buildings and once those filled up they started building their own.”

With the casinos in place and more on the way, hundreds of Chinese-run businesses – many with signage only in Mandarin – are opening to serve the specific needs of the city’s Chinese tourists, workers and residents.

“It’s like they’ve been given a green light – then the hordes come,” said Warren. “But you have to admire their business model. You arrive with your customers and you bring workers, restaurants and everything else. Even the pipe shops are Chinese, as if Cambodians can’t sell pipes.”

The influx of cash-flush Chinese investors is driving real estate prices up and forcing out established Western and Khmer businesses operating on razor-thin margins. Landlords whose fortunes have spiked are offering tenants cash settlements to vacate the premises or finding any pretext to end their lease early.

“The money is too tempting for landlords,” said Warren. “When your lease runs out your rent goes up 400 to 800 percent.”

The latest wave saw the departure of Sihanoukville old timers Steve Caley, owner of Stevie C’s Sports Bar, and Geordie Young, the Canadian entrepreneur behind Ernie’s Burgers. Both businesses abruptly closed shop in February after the landlord found Chinese tenants to take over their leases.

Weeks later a demolition team took down Utopia, a long-running backpacker hostel and food court occupying a prime corner plot. While the decaying complex had been on the block for years, owners and staff of neighbouring businesses said the abruptness of the demolition and secrecy of who was behind it had all the hallmarks of a Chinese investor.

Mick & Craig’s is next in line. Warren said he will close when the lease comes up for renewal in November, or earlier.

Over the years the rent on the 800-square-metre property has climbed steadily, from $125 in 2002 to $2,000 today. But the landlord might never have imagined a Chinese investor would come knocking with an offer for $25,000 a month.

That puts the rental rate at par with prime office space in Phnom Penh’s Vattanac Capital Tower, leaving Warren wondering how whatever Chinese business moves into the space – short of building a multi-storey luxury hotel – plans to turn a profit.

“There’s no way to make it selling $5 dinners,” he said, referring to his own restaurant.

Even with a massive increase in rents as Chinese businesses move into Ochheuteal Beach there has been surprisingly little inflationary pressure.

Despite paying twice the rent, the new Chinese occupants of the space previously leased to Ernie’s Burgers are selling noodle bowls at $4 – half the cost of Ernie’s burgers.

Undeterred by capital controls

Real estate agencies in Sihanoukville have never been busier. Starting at dawn, a succession of black vans and tuk-tuks pull up and deliver Chinese property hunters to their door. Investors frantically point to sale ads and snap photos with their iPhones, pressing agents for site visits in fear other Chinese buyers will swoop in and grab the opportunity. Chaos ensues when two groups arrive at the same time.

One businessman from Guangzhou, who only gave his name as Mr Xiao, said he arrived in Sihanoukville two days earlier and had just two days left to find a property before returning home. He had already looked at several commercial rental units, but said he would prefer undeveloped land as it has “more potential for higher returns” and can be flipped.

He said he was ready to pay US dollars cash to close the deal.

Since 2016, Beijing has imposed stringent regulations aimed at curbing capital flight and bolstering its yuan in currency markets. Last August, China’s cabinet further tightened controls on outbound investment with new restrictions on “irrational” overseas investments in the property, entertainment and sports sectors.

While the capital controls have slowed real estate investment in other foreign markets, Chinese money is flowing hard and fast into Sihanoukville, often creatively labelled as investment to support Beijing’s Belt and Road initiative – a strategic priority of the Chinese government. In addition, a large share of capital flowing into the coastal city does not appear to have moved through the formal financial system.

One story making the rounds in local bars is of a Chinese developer with a project near Ochheuteal Beach who smuggled in several million US dollars cash hidden inside mattresses in a container shipment to Sihanoukville Port. After retrieving the container at the port, the cash was removed and replaced with local fill material so the mattresses could be used in dormitories for the project site workers.

Local officials have linked the intensification of Chinese investment in Sihanoukville to an increase in criminal activity in the city and rising tensions between Chinese investors and Cambodian business owners.

A report issued by Preah Sihanouk Provincial Governor Yun Min in January outlined the perceived negative impacts associated with the flood of Chinese money and workers pouring into Sihanoukville. The document cited an increase in money laundering, illegal gambling and human trafficking, though without providing statistical evidence. More established, however, was the report’s claim that the influx of Chinese investors was making property unaffordable to Cambodians and driving local businesses under, while resentment was growing over the number of hotels and restaurants catering exclusively to Chinese clientele.

The report did note, however, some positive impacts such as increases in land value, employment opportunities for locals and the accelerated pace of tourism development.

The foreign owner of a lodge near Ochheuteal Beach expressed similar sentiment about the rapid improvements in infrastructure that have accompanied arriving Chinese businesses.

“If a certain amount of [infrastructure funding] comes in that will get the city where it might not otherwise get in 100 years,” he said. “But once started, it’s difficult to turn the spigot off.”

Royal flush beats full house

Development has intensified in recent months and seen hundreds of local businesses uprooted.

In October, local authorities handed out eviction notices to business owners renting space along a busy 250 metre swath of Ochheuteal Beach near the ferry pier.

Local conglomerate Royal Group purchased the 2-hectare beachfront property more than a decade ago with plans to put up a resort, but ended up renting out the space to local bars and restaurants when foreign developer interest dried up following the 2008 global financial crisis. Now, with an unnamed Chinese partner signed on, the company is set to carry out the resort development project.

In December a demolition crew erected a metal fence and razed nearly 100 local businesses that had set up in makeshift buildings on the land. Royal Group did not respond to queries on its project plan, or identify the Chinese partner, but if a concept drawing that appeared briefly on the fence erected around the site is anything to go by, the plan is for a 25-storey luxury hotel and rows of low-rise apartments.

The construction work was halted and the fence dismantled on the orders of Prime Minister Hun Sen in what has been painted as a spontaneous gesture after the premier noticed the fenced-off site during a stroll along the beach earlier this month.

Sihanoukville Governor Y Sokleng told The Post that the premier shut down the project because the work commenced without the requisite permits and the development could adversely affect the beauty of the beach.

“He saw the occupation of the area with the fence and he did not approve it,” Sokleng said.

However, a camp built on the site to house Chinese construction workers remains, and the recent arrival of cranes and other heavy equipment suggests construction will resume shortly.

Toy and his wife Heng, the Cambodian owners of Toy’s Bar, were among the dozens of small businesses evicted from the beach area in January. Having first opened their pub and hostel on a hill near Utopia, the couple moved the business to the beach last year after a Chinese investor bought out their lease. Six months later they were forced to find a new location as wrecking crews tore apart their plywood shack.

Now, barely two months after moving into a tiny leased shed on Karaoke Street, a strip of Khmer restaurants and KTVs near Golden Lions roundabout, the couple have been handed another eviction notice.

“I just got here and now all the bars on Karaoke Street have been told they must close by Khmer New Year,” Toy said. “Where else can we go?”

Prince and the pauper

Chinese property developer Prince Real Estate quietly bought up Karaoke Street as part of a 16.5-hectare mixed-use development project that will see no less than 30 high-rise towers erected as well as a gated community of high-end villas and vacation homes. The massive development starts on the west side of Ekareach Street and spills across the marshy land north of the Golden Lions roundabout to Pub Street, a collection of hostess bars that Prince bought out earlier this month to secure access to Pulouwai Street.

The $1 billion project has been on the table for a while, but business owners along Karaoke Street were among the last to learn of it. Many are still unaware of the forces determining their fate.

In hindsight it should have been obvious, said Toy, recalling that four months ago an unknown party cut off water to all of the establishments on Karaoke Street and all efforts to have it restored have failed. Now the only access the street’s Cambodian-owned businesses have to water is to cross the street to where Prince is building a commercial complex and buy it off the Chinese foreman at the site.

Restaurant staff carry empty gallon jugs across the street, paying 500 riel to fill them and repeating the exercise more than a dozen times a day.

“The Chinese construction site has lots of water, but none of the restaurants five metres away have a single drop,” said Toy.

Some of the neighbouring Khmer business owners have talked about relocating to a site about a kilometre further inland. Others have plans to leave Sihanoukville. And some, including Toy, are just calling it quits.

“I give up,” he resigned. “I don’t want to sell, this business is my life, but I have no choice. If I want to live here I’ll probably have to go work for the Chinese.”