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Cambodia considers reversing online gaming ban, irking China

With so much money at stake, investors say restriction was only temporary

A boom in online gambling has coincided with an explosion in Chinese investment in hotels and casinos, particularly in the coastal city of Sihanoukville, where authorities have granted more than 160 casino licenses.

PHNOM PENH -- Cambodia may walk back its decision to shut down its online gaming industry, risking the ire of closest regional ally China.

Online gaming has become a powerful economic driver in the Cambodian port city of Sihanoukville, attracting hundreds of thousands of Chinese workers catering to clients mostly within mainland China, where gambling remains illegal.

The explosive growth of online gaming over the last two years raised hackles in Beijing, apparently forcing Cambodian Prime Minister Hun Sen to issue a directive last month halting new online gaming permits.

The directive says that dozens of licenses expiring at the end the year will not be renewed, noting that action is needed to tackle "security and social order" and that "foreign criminals" have been engaging in "online fraud."

Just how this is to be implemented, however, depends on how it is formed into law.

"We are not sure yet if it's an absolute ban or not," Ros Phearun, deputy director general of Cambodia's Ministry of Economy and Finance, told the Nikkei Asian Review on the sidelines of the Mekong Gaming Summit in Phnom Penh this week. "So let's wait and see the draft law first."

Mey Vann, director general of the Ministry of Economy and Finance, later walked back his deputy's remarks, telling the gaming summit in Phnom Penh that the ban on online gaming is definitive.

"We don't want the market doubting and waiting," Vann told the Nikkei Asian Review, adding that Sihanoukville's "out of control" growth had triggered the clampdown.

Cambodia is not the only country in the region to develop an online gaming industry that caters to mainland Chinese clients; the Philippines has one as well.

Philippine President Rodrigo Duterte -- another regional leader who has forged closer ties with Beijing -- announced last week that he had rejected demands by Chinese President Xi Jinping to shut down his country's online gaming industry.

Cambodia, however, seems to have gone along with calls to shut the industry down, at least initially.

Cambodian officials recently ordered the demolition of 14 recently constructed buildings in the city, including a number of casino hotels that were found to be dangerously flawed following a building collapse in June which killed 28 workers.

According to local media reports, around 90% of businesses -- including massage parlors, restaurants and casinos -- in the beach boom town are owned by Chinese, and the influx of Chinese has led to a rising number of crimes like murder, kidnapping and extortion.

Still, industry insiders remain unconvinced and believe online gaming has a future.

"I think at the moment it's just a press release," said George Lazenby, general manager of Jin Bei Holding, which runs a land-based casino in Sihanoukville.

Jin Bei received an online casino permit last month and is looking to launch operations later this year.

"I think there's a bit of confusion about how this new law is going to be applied," Lazenby said. "There are a lot of people that have invested in this country, and [Cambodian authorities] don't want to upset them."

Lazenby said Jin Bei's online gaming permit was valid for 12 months.

"I still see a big potential here," said Kaare Ingvaldsen, the Asia-Pacific manager at U.K.-based sports betting data supplier TXODDS, who was attending the gaming summit to network with prospective partners.

Unfazed by reports that Hun Sen's directive had sparked mass departures of Chinese workers from Sihanoukville, Ingvaldsen said he believes the ban will be temporary.

"When the dust settles, I think they are going to send people [back] in," he said.

Maxfield Brown, business intelligence manager at investment advisory firm Dezan Shira Associates, said the upheaval in the online gaming industry is related to a lack of regulations and an inadequate tax regime that fails to benefit host communities.

New tax rules for online gaming announced in the Philippines could offer a possible solution.

"When the industry and the government find that fine line to walk," Brown said, "then it will be easier to regulate it, and you will probably see that down the line in Southeast Asia."

Daniel Li, CEO at Cambosia International and a former gaming executive in Cambodia, believes the government is serious about the ban.

The government saw social problems brought on by online gaming, Li said, moving Hun Sen to want "Sihanoukville to be a nice beach resort rather than a casino city."

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