State-owned Enterprise

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By Lulu Luo & Jonathan Headin Dara Sokor, Cambodia

The highway runs through the forest like a black ribbon, down to the sea and to what must be one of the world's largest tourism projects.

Fifteen years after it began, there is still not much to see of the Dara Sakor Seashore Resort in southern Cambodia.

It is a grandiose scheme by a Chinese company to build a self-contained tourist city. A Chinese colony, some have called it a venue for " feasting and revelry" according to the company, complete with international airport, deep-sea port, power stations, hospitals, casinos and luxury villas.

The airport is still unfinished. A single casino, with an attached five-star hotel and apartments, sits alone near the sea, fronted by an unmade road, and surrounded by a construction site.

As a tourist business it has barely got started. But it has already had a damaging impact on one of Asia's richest natural environments, and on the thousands of people who live there.

China's economic footprint in Cambodia now dwarfs that of any other country. It provides half of all direct investment and most of its foreign aid.

Cambodia is an enthusiastic partner in the Belt and Road Initiative (BRI), President Xi Jinping's strategy for expanding Chinese built-and-funded-infrastructure around the world. A lot of this is clearly beneficial. But a great deal of Chinese investment is speculative, rushed and poorly planned.

The once quiet coastal town of Sihanoukville, for example, across the bay from Dara Sakor, was transformed in just a few years into a huge construction site to feed Chinese demand for casinos.

It fuelled a crime wave and then a collapse of the gambling economy during Covid, littering the town with half-built, empty tower blocks. There are good reasons to fear Dara Sakor may suffer similar problems.

" It's like baking without flour, " says Sophal Ear, a Cambodian academic at Arizona State University. " You cannot rely on unsustainable practices to achieve sustainable development. What about the Chinese real estate bubble? When China sneezes, Cambodia will catch a cold. "

Development, Hun Sen-style

Dara Sakor is the kind of development favoured by Cambodia's former prime minister Hun Sen.

It is on a massive scale, yet it was conceived in almost total secrecy. The BBC has found that there was minimal consultation or evaluation of the human and environmental cost.

The Chinese companies involved provide very little information about themselves, and some have dubious track records. The project has also seeded international suspicion of what other goals China might have in this part of Cambodia.

China's " ask-no-questions" approach to aid and investment appealed to Hun Sen, a self-styled strongman who, after bringing three decades of devastating war and revolution to an end in the 1990s, pushed for breakneck growth to help his country catch up with its neighbours.

But much of this growth has been achieved by giving generous concessions, in particular huge parcels of land, to favoured cronies and foreign companies.

" There are no institutions, " says Sebastian Strangio, who has written what is perhaps the definitive book on Hun Sen's Cambodia. " The system relies on keeping powerful people contented. "

This is the first in a series of stories that examines Chinese investment abroad 10 years after Xi Jinping launched the Belt and Road Initiative.

The Dara Sakor project dates back to early 2008, when UDG, a private Chinese construction company based in the northern city of Tianjin, secured a 99-year lease - the maximum term allowed under Cambodian law - with a single deposit of $1m. This was for the right to develop 36,000 hectares initially, with 9,000 more added later.

UDG was required to pay nothing more for 10 years, and after that only a paltry $1m a year - a breathtakingly generous arrangement for control of one-fifth of Cambodia's entire coastline.

As the land was inside the Botum Sakor national park, and greatly exceeded the legal limit of 10,000 hectares for any one project, it would have been very controversial - had anyone else known about it.

But because there was no information published about the deal at the time, there was no discussion of it in the Cambodian media.

Som Thy, a local fisherman, took the BBC on his motorbike along sandy tracks through the forest to see where he used to live, inside the UDG area. Much of the tree cover has now gone. In some places a few lonely giants still stand, surrounded by a denuded wasteland.

Since 2008 the national park has lost almost 20% of its primary forests, according to the NGO Global Forest Watch. More than 1,000 families have been uprooted and forced to abandon their villages. One of those families was Som Thy's.

" It brings tears to my eyes to see it like this, all overgrown, " he said, looking out over what used to be his home and rice fields. A few cashew nut trees were still left from the orchard his family used to rely on to supplement their income from farming and fishing.

Like the other inhabitants of the 12 villages displaced by Dara Sakor, Som Thy was moved in 2009 to a small wooden house built by the company several kilometres from the coast.

In those first years there were many protests. Today Som Thy is one of a small group which still refuses to accept the company's compensation package.

He says it is impossible to make a living from the small plots of land they have been given, and that the sums of money they were offered are just a fraction of their original land's real value.

He sometimes sneaks back into Dara Sakor to take his boat out fishing. He has also travelled to Thailand in search of work. His continued opposition to the project means he cannot get a job, as his brother has done, on the building sites around the casino.

UDG has produced some dazzling brochures for prospective investors, with alluring images of manicured golf courses, orderly rows of villas, and happy families enjoying seaside leisure. There are complicated maps laying out the different parts of this model holiday city - the Science and Education New Town Zone, the World Trade City Center and the Forest and Elegance Zone.

But all this is a far cry from the stripped forests, displaced people and half-finished roads and buildings that you still see today.

According to the Chinese environmental organisation GEI, which published a detailed study of Dara Sakor in 2016, there is no evidence that the company has conducted any environmental impact assessments, as required by Cambodian law.

Nor could GEI find any information about how the forests, which were supposed to be protected, were redesignated as suitable for development. GEI says it presented its concerns to UDG.

" They did not respond to these points, " programme director Ling Ji told the BBC. " They just insisted that they had followed all relevant laws and regulations. They don't see the problem. This has a very bad effect on China's image. Many countries will think that Chinese companies are here just to plunder resources. Chinese companies do not have the awareness or ability to handle local grievances in other countries, because in China these are always dealt with by the local government. Overseas, it is very different. This is still a learning process for them. "

Chasing Chinese influence

The sheer size of the project has also rung alarm bells in the United States.

In 2020 the, citing human rights abuses against those evicted from their villages, but also the potential military use by China of the new airport. This has a runway far longer than needed for the smaller airliners expected to serve what is quite a remote tourist destination.

The US was already concerned about a naval base near Sihanoukville which is being renovated with Chinese state funding, and which Washington believes may be used in the future by the Chinese navy.

The US has become increasingly uneasy over Chinese-built infrastructure because of Mr Xi's emphasis on dual civil-military use - what China calls " military-civil fusion" - in its economic planning, and the official requirement for Chinese overseas projects to meet military standards.

" The PRC has used UDG's projects in Cambodia to advance its ambitions to project power globally, " said the statement accompanying the sanctions.

UDG has called the sanctions unjustified. The company says the US is acting on " fabricated facts and rumours" saying it " always religiously followed procedures required by law" and that those living inside its concession were illegal settlers.

It says the airport is being built on this scale to make Dara Sakor a " global transportation hub". It has backed this with some very ambitious targets. By 2030, the company's website says, it aims to have 1. 3 million long-term residents, nearly seven million tourists visiting every year, and to provide employment for one million people.

These are staggering numbers considering that tourist arrivals for all of Cambodia are still well below the peak of six million who came in 2019. UDG also took issue with the US description of it as a state-owned entity - we are a privately-owned company, it said.

This may be true, but there has been strong backing from Chinese state agencies from the earliest stages of the project.

China's top economic planning body, the National Development and Reform Commission, gave its approval even before the deal was signed, and has continued to monitor it. The Communist Party boss in Tianjin, Zhang Gaoli, was also involved early on, travelling to Cambodia at the end of 2008 to take part in the contract signing ceremony.

Mr Zhang would later rise to become one of China's most senior leaders, and from 2015 he ran the Belt and Road Initiative (BRI). Although Dara Sakor predates the BRI by five years, it is now officially described as a showcase BRI project.

UDG has also built close relationships with senior figures in the Cambodian ruling party. It has made several large donations to the Cambodian Red Cross, which is run by Hun Sen's wife Bun Rany, and gave a million dollars to fund the construction of a monument glorifying Hun Sen's achievements.

It has particularly close ties with the former defence minister Tea Banh, who heads one of the most powerful political factions in Cambodia.

The company issues very little information about its finances, though, which makes it difficult to assess its capacity for running a project this large.

One of the few known investments in Dara Sakor was a bond issue in 2017 underwritten by the China Development Bank. But that was for only $15m, a fraction of the nearly $4bn UDG has promised to invest.

And UDG's leading role now appears to have been taken over by another company, China City Construction Company or CCCC. It was almost unknown outside China when in 2014, for reasons that are still not clear, it inserted itself into the Dara Sakor project.

Executives from CCCC now play a leading role in UDG, and CCCC states that it, not UDG, is responsible for " the design of the overall programme for the planning and development of this special tourism zone".

Burst bubble

CCCC is a state-owned enterprise. But it is also a troubled company.

In 2016, then under the control of the ministry of housing, it sent shockwaves through the Hong Kong financial markets after it suddenly announced it was being privatised on the orders of the Chinese government. It said it was being taken over by a little-known equity fund called Huinong.

This panicked investors who had bought hundreds of millions of dollars of CCCC's so-called " dim sum bonds" - bonds issued in Hong Kong to get around Chinese capital controls. They tried to redeem the bonds, but CCCC could not raise sufficient cash to cover the payments.

CCCC has continued to struggle financially. It now has a tarnished credit rating and has been forced to sell off some of its more promising businesses.

It has also been revealed that Huinong, the mysterious fund which took over CCCC in 2016, is indirectly owned by the finance ministry, making CCCC technically state-owned again. This kind of opacity makes it very difficult to assess the real financial health of CCCC, which is likely to have been affected by the recent.

" There was a binge of outward investment in the initial Belt and Road initiative period, 2014 to 2016, " says Victor Shih, director of the 21st Century China Center at the University of California San Diego. " By 2016, though, the Chinese government had become a lot more careful. They were no longer throwing money and approving projects left and right. "

Another investor in Dara Sakor is a Chinese entrepreneur called She Zhijiang, who has, where large-scale human trafficking and scam operations have been uncovered. He is currently being detained in Thailand awaiting extradition to China.

Several people, from Thailand, Taiwan and the Philippines, have had to be rescued after saying they were being forcibly held in.

Publicity over scam centres operating in Chinese investment zones in Cambodia is now deterring Chinese tourists from visiting. As a result the anticipated recovery in tourism, one of Cambodia's most important sources of income, has been much slower than expected.

But a different approach under the new Cambodian PM - Hun Manet, Hun Sen's Western-educated son - is unlikely, according to Sebastian Strangio.

" He will be a prisoner of this system. He will have limited power to rein in its excesses, even if he should wish to do so, " he says.

Last week, just a month after succeeding his father, Hun Manet visited Beijing to meet Mr Xi and assure him that the China-Cambodia relationship is rock solid.

Dara Sakor is in fact just one of several very large land concessions in the area, most of which have been awarded to local Cambodian businesses allied to the ruling party.

The sheer weight of vested interests in the rapacious model of development followed in Cambodia until now makes it very hard to change.

Eighty percent of the national park is now being exploited commercially, and little heed is being paid to the repeated warnings from environmental activists that the country is on the verge of losing one of its most important natural habitats.

One of those activists, a young woman in her 20s, travelled with us to see Dara Sakor. She is currently out on bail after being given an 18-month prison sentence in 2021 for trying to organise a protest against another land grab.

She had taken a big risk coming with us to the UDG concession. " We don't have a choice, " she said, as we looked out over yet another stretch of ripped-up forest.

" We have to risk going to jail, or worse, to try to protect what's left for the next generation. "

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Source of news: bbc.com