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Is China uninvestable? | Financial Times

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Good morning. I have more to say about yesterday’s topics — capital flows and private equity — but I’m still doing some reporting. Meanwhile, back to the biggest business and finance story in the world: President Xi Jinping’s attempt to transform of China’s economy. Email me: robert.armstrong@ft.com

Is China uninvestable?

If you have not been following the political and financial tremors that have been shaking China in recent months, I recommend the twin reads by my colleagues Tom Mitchell, James Kynge and Sun Yu, detailing how Xi is “reinserting the party into the private sector and into family lives in a way that has not been seen since Deng launched the ‘reform and opening’ era in 1978”.

Investors will have heard about government interventions in the technology, education, alcohol, video game, real estate and entertainment sectors, and will be wondering which industry is next on the hit list. To me, however, it is the tone set by the party and its allies that is most unsettling. A taste:

“A monumental change is taking place in China. The economic, financial, cultural and political spheres are undergoing a profound revolution,” Li Guangman, the pen name of a prominent leftist commentator, wrote in a commentary that captured the zeitgeist. “It marks a return [of power] from capitalist cliques to the people . . . It is a return to the revolutionary spirit, to heroism, to courage and righteousness.”

This commentary was amplified by state media. When governments start transmitting messages about “capitalist cliques”, surely it is time for foreign investors to pack their bags?

Some are. Here is a chart of global equity funds’ collective China exposure, based on a sample of funds with more than $1tn in assets, compiled by Copley Fund research:

The market capitalisation of China’s four biggest tech companies, formerly foreign investors’ darlings, have fallen by almost $1tn:

There is not a universal rush for the exits, however. Todd Sohn of Strategas Securities points out that the KraneShares CSI China Internet ETF received $1.5bn in inflows in August. While some of that may be down to demand for exchange traded fund shares for shorting, he says, most of the flow is likely to be from bargain hunters.

Looking at Chinese stock valuations, however, it is clear that we have not had a proper rout. Here are the forward price/earnings ratios of mainland Chinese stocks, Hong Kong shares and an index of US-listed Chinese groups, along with the 10-year average valuations of each (the dotted lines):

China stock valuations sit at their long-term averages, having only given up the premiums picked up in the past year and a half. Given the politics, is a foreign investor sticking their toe in this not particularly inexpensive water making a big mistake? 

It would be useless for me to attempt to draw a gestalt image of Chinese political economy, and weigh the chances of various outcomes. I don’t know enough. But a clarifying question does occur to me: does the CCP care about what happens if foreign investors take flight? Do outcomes for foreign investors figure in the party’s political calculus? I put the question to three China experts.

George Magnus of Oxford University’s China Centre, who appears frequently in this space, thinks the answer is basically “no”:

“I don’t think the party does care that much if global investors are selling Chinese equities, especially if these are foreign listings. If a distrust of Chinese assets resulted in a fire sale of domestic equities and bonds in China and capital flight putting pressure on the reserves, then yes, I think they’d try to limit that damage. 

“But you know what? The speed and scale of the initiatives that are being unrolled smacks of an ideological campaign to put backbone into citizens and the economy. It may not be a revolution as such, but there’s nothing random about it either. And because of that I suspect the leadership sees global investors as bits of capitalism that are of little relevance to them. 

“ . . . I suspect real estate and healthcare are the next sectors in the regulatory crosshairs, maybe even finally, the introduction of a property or other tax on capital.

“Foreign investors need to factor in the risk they could get blamed for any market or economic volatility, and have restrictions imposed on access to dollars and more restrictions on outward capital movements. It’s that sort of climate.”

Another noted China watcher — who did not want to be named because they live in China and would prefer to continue doing so — noted that as long as the party aims to internationalise its currency, it has to consider the “prestige” brought by foreign investment in its capital markets. But the party has no economic need for foreign investment: 

“When do you need capital inflows? When they bring you something like technology or management skill, or if you have huge investment needs and weak domestic savings . . . China doesn’t need capital, it has huge investment and a huge current account surplus, and stock and bond investments don’t bring technology or skills.”

The problem the party has to solve is almost the opposite: investment is so high that much of the capital is malinvested. As a result, debt is growing faster than gross domestic product. The irrelevance of foreign investors to China key problems doesn’t mean Chinese stocks might not go up, “but you have to get both the valuations and the politics right, and that’s just really hard”.

Jörg Wuttke, president of the EU Chamber of Commerce in China said:

“Does the party care [about foreign investors in capital markets]? Of course not. We should not forget, they are Communists, what matters to them is the party, what the party hates most is volatility [which they see in open stock markets].

The party is fully aware they are a huge domestic economy, they only rely on a few things from the world market . . . they feel less vulnerable and more at ease becoming a more insular country. They care more about foreign manufacturers, because they substitute domestic supply chains for foreign ones. But if someone doesn’t buy stocks and bonds, who cares? Institutional investors? Nice to have, if they don’t ask to look at the books.

China may not be uninvestable. But the stock market as a whole is still expensive, given that the party is cracking down on the symbols and sources of wealth and inequality, and has little incentive to consider the fate of foreign investors. 

One good read

Regular readers will know I have a side interest in the ancient world, and have tolerated my occasional references to it. This past weekend I came across this short essay by Simone Weil, first published almost 80 years ago. It’s the best thing I’ve ever read about the Iliad.

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EU calls for fines against Poland for ignoring court rulings

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EU rule of law updates

The European Commission has asked the European Court of Justice to fine Poland for ignoring court rulings over the country’s controversial judicial reform, in a significant escalation of a stand-off between Brussels and Warsaw over the supremacy of EU law over national rules.

The long-running confrontation over moves by Poland’s conservative nationalist ruling party to gain powers over its judiciary, including a disciplinary chamber with the power to punish judges, has deeply soured relations between Brussels and the EU’s fifth-largest member state. It has also hardened Eurosceptic voices in Warsaw.

Tensions were inflamed further last week when the EU’s economy commissioner said that the disbursement of tens of billions of euros in pandemic recovery funds requested by the country would be affected by Warsaw’s response to the commission’s insistence on the primacy of EU law.

The commission’s request to the ECJ on Tuesday stems from the country’s failure to comply with so-called interim measures imposed in July by Europe’s highest court over Warsaw’s controversial judicial disciplinary regime.

“The commission is asking the court to impose a daily penalty payment on Poland for as long as the measures imposed by the court’s order are not fully implemented,” it said in a statement, which did not specify the amounts involved.

The commission added that it would set in motion a separate process for Warsaw’s failure to comply with a second ECJ ruling that declared that Poland’s disciplinary regime was incompatible with EU law. Poland’s new regime, the court said, provided insufficient guarantees of judicial impartiality and independence, and did not protect judges from the influence of Polish politicians.

Brussels’ potential fine and legal proceedings come despite a pledge in August by Jaroslaw Kaczynski, head of the ruling Law and Justice party and Poland’s de facto leader, that the disciplinary system would be amended.

The commission is under increasing pressure from parliamentarians to make clear that the bloc will not tolerate a move by Poland to contest the primacy of EU law. Brussels officials view it as an existential threat to the very legal order that underpins the EU project.

That stance, however, has prompted scathing Polish criticism of the EU among some ruling party politicians. They equate it to financial blackmail, raising the question of whether the country would be better off without EU financing.

Poland in May requested €23.9bn in grants under the EU’s landmark recovery funds programme, along with €12.1bn in loans, but the package has yet to be approved. Paolo Gentiloni, the EU’s economy commissioner, said last week that the legal fight between Brussels and Warsaw had “possible consequences” for the Polish recovery and resilience plan.

Konrad Szymanski, Poland’s minister for EU affairs, suggested on Monday that the stand-off was harming the EU’s standing in Poland.

“In terms of the political costs of this — due to the disturbances that we are observing — their scale is unclear today, but there are some: there is certainly a political cost for the EU in Poland,” he told local television.

“Poland is owed money from the European Union budget and the Reconstruction Fund. Not because of this or that attitude of whichever political capitals or EU institutions. But as a result of international agreements, from the law,” he added.



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Germany protests to Russia over wave of cyber attacks

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Cyber warfare updates

Germany has accused Russia of launching a spate of cyber attacks on politicians amid suspicions that Moscow is interfering in this month’s election to decide who succeeds Angela Merkel as chancellor.

Germany’s foreign ministry said it held Russia responsible for illegally targeting a number of national and regional politicians with “phishing” emails to gain access to personal details.

These “unacceptable actions” posed a “risk to Germany’s security and its democratic decision-making processes, and [placed] a heavy burden on the bilateral relationship” with Russia, said Andrea Sasse, a spokeswoman for the German foreign ministry.

State secretary Miguel Berger had passed Germany’s protest directly to Russian deputy foreign minister Vladimir Titov at a meeting of the two countries’ security policy working group last week, Sasse said.

The warning comes ahead of what appears to be the most open election in recent German history, with polls pointing to an inconclusive outcome that could usher in months of uncertainty in Europe’s most powerful country. It will bring the curtain down on Merkel’s 16-year reign as chancellor.

Some polls point to a victory for the left-of-centre Social Democrats and their candidate for chancellor, finance minister Olaf Scholz. An INSA poll published on Monday put the SPD on 26 per cent, the CDU/CSU on 20.5 per cent, the opposition Greens on 15.5 per cent and the pro-business Free Democrats on 12.5 per cent.

It is unclear which party Moscow would like to see win the election. Both Scholz and Armin Laschet, the CDU/CSU’s candidate for chancellor, have struck emollient tones on Russia.

However, Annalena Baerbock, candidate for the Greens, is highly critical of the Kremlin and opposes Nord Stream 2, the pipeline across the Baltic Sea that brings Russian gas directly to Europe, bypassing Ukraine. Critics say it will increase Europe’s dependence on Russian energy exports.

Concern has been growing in Berlin that Russia could attempt a reprise of its interference in the US election in 2016. Thomas Haldenwang, head of Germany’s domestic intelligence agency the BfV, said in July that foreign intelligence agencies considered the Bundestag election a “significant target” and were exploring ways to affect the outcome.

Germany has long accused Moscow of seeking to access the digital networks of its political institutions. Merkel said last year there was “hard evidence” that Russian forces were behind a huge hack of the Bundestag in 2015 that also targeted her own emails.

The two countries also clashed over the killing of an exiled Chechen rebel leader in a Berlin park in 2019, which Germany said was carried out on the orders of the Kremlin.

Sasse said that in recent months, hackers had been using “phishing” emails to try to access the personal login details of MPs in the Bundestag and in Germany’s 16 regional parliaments.

“These attacks could serve as preparations for influence operations, for example disinformation campaigns linked to the Bundestag elections,” she said.

The Kremlin and Russia’s foreign ministry did not immediately respond to a request for comment.

Sasse said the “Ghostwriter” cyber group, which for years had combined “traditional cyber attacks with disinformation and influence operations”, appeared to be behind the attacks.

She said Berlin had “reliable information” that its activities “can be attributed to a cyber actor of the Russian state, and in particular Russian military intelligence, the GRU”.

Haldenwang said in July that the attempted hacks could be a prelude to “hack and leak operations” on social media in which personal information acquired by hackers was “published in a selective and misleading way and also falsified with manipulated information in order to discredit individuals or parties”.

In 2018, US authorities charged 12 Russian intelligence officers with hacking Hillary Clinton’s campaign and the Democratic National Committee during the 2016 presidential election which was won by Donald Trump. They said the Russians stole and leaked emails as part of a Russian government effort to interfere with the election.

Meanwhile, US intelligence concluded in March this year that Russia’s president Vladimir Putin authorised “influence operations” aimed at supporting Trump’s re-election attempt in 2020.

Germany’s federal court last year issued an arrest warrant for Dmitry Badin, a Russian man who allegedly works as a hacker for Russian military intelligence and who is believed to have been behind the 2015 attack on the Bundestag.

Additional reporting by Max Seddon in Moscow





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Cyber slavery: inside Cambodia’s online scam gangs

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The first punch lands on the left side of the young man’s face, the second on the right.

Several more follow. Knees strike his stomach. He cannot defend himself, his hands are cuffed. His attacker, face outside the frame, has his fist wrapped in cloth.

He drags his victim by the lapels into the middle of the frame, faces him to the camera and tells him to speak.

“Dad, I’m in Cambodia, I’m not inside of China,” says the young man, through tears, his voice breaking and blood streaming from his nose. “I beg you, please send money.”

The ransom video, which was sent to the victim’s parents, was one of several shown to Nikkei Asia by Li*, a person who helps rescue human trafficking victims in Cambodia.

This ransom video supplied to Nikkei shows a handcuffed man being beaten with a stick while other victims watch in horror

Another video shows a shirtless man cuffed on the ground being beaten with a stick while two more captives, handcuffed to a nearby window grill, watch on in terror. In a third, a grounded man, a foot on his neck, writhes in pain as he is electrocuted with a Taser.

The videos provide a window into the dark world run by transnational criminal networks able to smuggle people from China, through Vietnam and into Cambodia and Myanmar.

The networks, which are known mainly for running online gambling operations, force their captives to perpetrate online scams. They grew out of an influx of online gambling groups and casino operators, mostly from China, who flocked to the coastal city of Sihanoukville in 2016. They found in Cambodia a haven of low taxes and lax regulations after a clampdown in the Philippines.

Catering mostly to the community in mainland China, where all gambling except state-run lotteries is illegal, Sihanoukville quickly attracted aspirational labels like “the Macau of south-east Asia”.

Cambodia map

At its peak in 2019, the city’s online gaming sector was generating several billions of dollars annually, according to one expert, and employing tens of thousands. Demand for space soared, kicking off an unprecedented building boom, which drew more workers from China.

But as the city rapidly grew, the criminality at the core of many gambling networks became plain to see, spilling out into the street with fights, shootings and murders.

The bubble burst later that year when Cambodian Prime Minister Hun Sen, pointing to the threat of organised crime, announced a ban on online gambling.

The ban was widely seen as a result of pressure from Beijing, Cambodia’s largest source of aid and investment, which has pursued a years’ long crackdown against online gambling operators.

Cambodia’s state apparatus and security services are entwined with Prime Minister Hun Sen’s Cambodian People’s Party © AFP via Getty Images

Still, the south-east Asian nation, notorious for endemic corruption, has continued to be used as a base for the criminal networks linked to online gambling and fraud.

Mostly from China, but also other south-east Asian nations, victims are kidnapped by these groups, held captive and forced, under threat of violence, to perpetrate web scams.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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Getting a clear picture of the numbers is difficult. “This is something where there’s clearly no oversight,” said Jason Tower, the Myanmar country director for the United States Institute of Peace. Li estimated at least 30,000 people have been trafficked to Cambodia, while Chhay Kim Kheoun, a spokesman for the Cambodia National Police, denied the number of victims was in the thousands. He said he could not give a figure but acknowledged “some” cases have happened.

Tower, who has studied the activities of online gambling companies in China and south-east Asia, estimated that the victims of these types of internet scams in mainland China could range between 100,000 and half a million.

He said there were “hundreds” of job advertisements on social media every day, attempting to lure Chinese workers to places in Cambodia and Myanmar associated with the criminal networks.

“This is a major problem,” he said. “I don’t think we have a sense of what the precise scope of it is at this point.”

Sleeping, eating or working

On his second day in Cambodia, Hua* realised he was a captive.

‘The Macau of south-east Asia’ is becoming known for more than gambling © Vann Soben

The 29-year-old was somewhere in the coastal province of Preah Sihanouk, but he could not see the ocean. He guessed there were about 1,000 people in the walled compound, made up mostly of two-story buildings that looked to him like a neighbourhood from his native China. There was little else around.

A supervisor gave him a cell phone, showed him to a computer and told him to download Chinese social networking apps. Each day, until the early morning, he was told to befriend women in China, gain their trust and entice them to invest in bitcoin.

Every few days, the bosses held performance meetings. Earners would be rewarded, allowed to start late. People whose work was deemed unsatisfactory would be beaten.

“We were either sleeping or eating or we were working,” he told Nikkei.

Captives are subjected to violence and torture, which is sometimes filmed and sent to relatives to spur them to send ransoms. Some have been killed and their deaths reported as suicide, according to workers who have escaped.

Some are sold between companies. Prices start at around $8,000 but vary depending on the financial means of a victim’s family.

The groups are referred to broadly as running online gambling operations but within that category exists a spectrum of activity. It ranges from websites offering live casino games for players in mainland China to blatant digital and telephone scams run by captives under duress.

Chinese suspects arrested for pulling scams are deported to China in 2019 © Vann Soben

The networks are mostly headed by Chinese nationals, but there are also groups run by people from elsewhere in south-east Asia. According to details of cases shared with Nikkei, they are able to buy the protection of some local authority figures in Cambodia.

The scale of this illicit industry is large but hard to pin down. Since 2020, Chinese police have arrested more than 130,000 people linked to 24,000 cases of cross-border gambling. However, the statistics, reported by Chinese state-run Legal Daily, do not refer specifically to trafficking crimes connected to the networks.

The Chinese and Vietnamese embassies in Cambodia this year have issued warnings about the threat posed by trafficking groups that lure victims with offers of high-paying jobs. In January, China urged its citizens to sign formal labour contracts before going to Cambodia to work.

“Otherwise, what awaits you is not a high salary, but the illegal imprisonment and kidnapping by online gambling dens,” the Chinese embassy wrote.

Sihanoukville: in June, China and Cambodia announced that a joint law enforcement office would crack down on perpetrators of kidnapping, extortion, online gambling and fraud © Vann Soben

In June, China and Cambodia announced that their joint law enforcement office would launch a crackdown after complaints about kidnapping, extortion, online gambling and fraud.

The head of the task force, Wu Jianmin, warned Chinese criminals behind such operations that they would be arrested and repatriated, even those who had become naturalised Cambodian citizens.

In the past 18 months, some 468 mainland Chinese and 37 from Taiwan were granted Cambodian citizenship, according to figures cited by local outlet the Cambodia China Times. During the same period, 83 people from other countries were naturalised.

“Cambodian nationality . . . will not make Cambodia a safe haven for them,” Wu said at a virtual news conference attended by Cambodia’s national police chief, Neth Savoeun, and China’s deputy minister of public security, Wang Xiaohong.

Hefty penalties await those extradited back to China. In August a court in Shanghai sentenced two men to 15 and 14 years in prison for involvement in web scam syndicates in Sihanoukville and Indonesia, according to a report in The People’s Daily.

‘Basically, these people are slaves’

On a recent afternoon at a café in Phnom Penh, Li scrolled through his phone, displaying details of some of the 170 victims he has helped to rescue.

Li is part of a volunteer network of Chinese businessmen living in Cambodia. While authorities do target the criminal groups, the work of helping the victims to escape has fallen largely on this network, which raises funds from the Chinese expatriate community and arranges transport, safe hotels, food and, in many cases, medical treatment.

They also liaise with authorities in Cambodia and China to organise victims’ paperwork and travel documents.

Photos on Li’s phone show swollen faces and bruised bodies, serious injuries inflicted by fists, feet and weapons like knives, sticks and Tasers, he says.

“They are not human beings,” he says of the trafficking groups. “They are gangsters and drug dealers back in China, but they can’t live in China any more.”

In addition to the people forced into slave-like conditions under online gambling groups in Cambodia, Li believes the number across south-east Asia could run into the hundreds of thousands, with Myanmar and the Philippines also hotspots for this type of trafficking.

Typically at these organisations, some of the workers, such as security guards, managers, and programmers, are treated well and paid. The remainder are duped and coerced. In his experience, 10 per cent of those trafficked are women who are used for sex work at the compounds or made to perform pornographic shows on webcams.

“Basically these people are slaves,” Li said. “I pity these young people. Most think they can get a job with a high salary.”

Such was the case for Hua, who worked for a food delivery company and at a karaoke bar in China.

He had left his home in Hubei Province believing he would work in customer service for between $4,000 and $5,000 a month.

He had spotted the job on the WeChat Chinese social media platform, and the person who answered his call was convincing, he said. Soon, he was on a bus headed to the Guangxi autonomous region. Then, together with about six others, he was smuggled across the mountains into northern Vietnam. From there, another bus took them to the Cambodian border where they again disembarked and “took a small path” to avoid border authorities.

“It sounded real,” Hua recalled of the job offer. “But when I arrived in Sihanoukville, I was disappointed, it was different to what I had imagined.”

After a month of working for no salary, Hua decided to pay for his freedom. The ransom, $15,000, was presented as a bill.

“They counted everything: transport inside and outside China, accommodation, meals, border crossings, things I used like cell phones, computers, chairs,” he said.

“My family gathered the money . . . They remortgaged the house and borrowed it from relatives. Someone came to my hometown to collect it.”

Operating across borders, the traffickers and online gambling groups pay local authority figures for protection or, at the very least, to look the other way, Nikkei has been told. In one case, local police officers accompanied bosses and bodyguards from an online gambling group as they tried to recapture trafficked workers who had escaped.

Some cases have received public attention. A Cambodian court in April charged Soum Pov, a former two-star military general, and six accomplices after they were caught trying to smuggle 28 Chinese nationals across the Cambodia-Vietnam border using military-plated vehicles, according to a local news report.

Tep Phalla, a spokesman for the court, said Pov remained in custody while the case was under investigation. “[The case] is in the hands of the investigating judge; they are working on it,” he said.

The United States Trafficking in Persons Report places Cambodia on the tier 2 watchlist, meaning it does not meet minimum standards for the elimination of trafficking but is making significant efforts to do so.

It says “endemic corruption at many levels of government” severely limits efforts to fight trafficking, pointing to “consistent credible allegations of complicity” of officials in trafficking.

It goes on to say police sometimes tip off sex-trafficking establishments about raids, protecting venues in exchange for monthly payments or sexual favours from victims.

“Contacts alleged prosecutors and judges accepted bribes in return for dismissal of charges, acquittals, and reduced sentencing,” the report states. “Corrupt officials often thwarted progress in cases where the perpetrators were believed to have political, criminal or economic ties to government officials.”

Cambodia’s state apparatus and security services are entwined with the ruling Cambodian People’s Party. Top generals, police chiefs, judges and ministers belong to the party’s central committee. The head of the party, Hun Sen, is the world’s longest serving prime minister, having held the position for 36 years.

In another recent case to hit the headlines, local newspaper the Khmer Times spoke with several people tricked and held captive by a group running online scams based at a compound in Otres Beach, near Sihanoukville.

The case came to light after four Filipino victims were able to escape. Victims who spoke to the newspaper said they were recruited online, transported from Phnom Penh and had their passports taken upon arrival. They were told to create online profiles and lure unsuspecting men into investing in cryptocurrency and investment scams by pretending to be young women.

While a local police station was “meters from the complex”, officers were “afraid” to enter, the Khmer Times reported.

Cambodian authorities dealt with 139 cases of human trafficking and 59 cases of sexual exploitation in the first half of 2021, reported Xinhua, which noted the figures had risen year-on-year.

Chou Bun Eng, permanent vice chair of the National Committee for Counter Trafficking and a secretary of state at Cambodia’s Interior Ministry, referred questions about trafficking linked to online gambling groups to the National Police.

Kim Kheoun, the spokesman for Cambodia’s National Police, said police were “trying hard” to tackle this type of human trafficking but found it difficult to due “a lack of co-operation” from the victims, their families and others involved.

Asked about complicity among officials, including police officers, he said: “I don’t’ accept this, but if there’s such a case [of corruption] please point the officer out exactly.”

China strengthens clampdown

China’s mounting pressure on these groups in Cambodia forms part of a broader clampdown against online gambling networks. They are linked to more than $145bn in illicit outflows from the mainland, according to comments last year by Liao Jinrong, the director-general of the International Cooperation Department of China’s Ministry of Public Security, cited in state-run media.

Beijing has targeted payment services used by the groups to move money offshore and announced a “blacklist” of countries known as gambling destinations, on which it would impose restrictions.

While the list has not been made public, south-east Asia is in the crosshairs.

In a 2020 paper, Tower and Priscilla Clapp, both from USIP, traced the development of “gambling cities” backed by shady Chinese investors, some with triad links, who had moved among the Philippines, Cambodia and Myanmar to avoid law enforcement crackdowns.

The ban by Hun Sen led many groups behind Cambodia’s gambling boom to relocate to Myanmar, particularly border areas under the control of ethnic minority armed forces, Tower and Clapp wrote.

“The spread of these types of criminal actors is something that you’re seeing around the globe now, happening on a larger and larger scale,” Tower said. “These Chinese criminal networks, who were doing the same sorts of things in China a few years ago, are now being chased overseas, they’re finding space where you have corrupt actors and continue doing the same sorts of things.

“There is increasing evidence they are trafficking people into these zones, including Chinese nationals, who are effectively prevented from leaving. They’re really working to try and get as many people as possible because their activities are labour-intensive.”

Beijing’s pressure campaign has intensified. The South China Morning Post in July reported tens of thousands were caught up in a crackdown after Chinese authorities ordered “all nationals in northern Myanmar” to return to the mainland.

As in Cambodia, Northern Myanmar was being used as a base by traffickers who were luring Chinese citizens with fake job ads promising high salaries, the Chinese state tabloid Global Times warned in March.

Once there, victims were held captive and forced into online gambling rackets and telecom scams and other crimes like selling drugs. Some kidnapped women were forced into prostitution, the newspaper reported.

China’s security apparatus also continues to scrutinise its citizens’ activities in Cambodia.

Chinese social media posts indicate that Chinese citizens with frequent or long stays in Cambodia are being quizzed by police when returning to China, with officers grilling them on what they do, where they stay, and demanding they show paperwork proving their work or business activities in Cambodia are legitimate.

The families of Chinese expats in Cambodia are also receiving calls from law enforcement agencies in China asking questions about what their family members do in Cambodia.

“It has been happening to many Chinese expats,” said one Chinese expatriate based in Cambodia and engaged in humanitarian work.

“I got a call from my local police department a couple of weeks ago. They asked about my job and to send photos of my passport. From their questions, it seemed they assumed I was somehow associated with illegal activities here.”

Tower cited three main factors motivating the Chinese government’s crackdown: the networks victimise Chinese citizens, they are linked to large illicit outflows and their operations harm the country’s reputation.

“It’s creating a lot of national security threats on several levels,” he said. “[Chinese president] Xi Jinping has really staked a lot of his legitimacy on the Party’s ability to deal with crime, to deal with corruption and with these sorts of problems. The criminal networks operating in south-east Asia are a source of major embarrassment.”

Despite the growing attention, many online gambling networks have remained in Cambodia, said Li of the volunteer network of Chinese businessmen living in Cambodia.

“I don’t think it’s decreased, there are more nationalities involved now, not just Chinese,” he said, adding that, after the ban, the groups became “more aggressive”.

He said Covid-19 border restrictions meant traffickers were changing their smuggling methods, increasingly using boats rather than overland routes.

In July, Cambodian authorities intercepted 36 Chinese nationals and two Cambodians who had entered the country illegally in a boat after travelling more than 2,000 nautical miles from China’s Fujian Province.

The pandemic has also made it tough for rescued victims to return to China, with the price of plane tickets, and the cost of following Covid-19 protocols, making the trip too expensive.

It has also exacerbated the economic distress that leads many to fall for the traffickers’ job offers in the first place.

Economic desperation was what drove Zhang*, who had lost his job in a steel factory, to respond to an advertisement seeking security guards in Cambodia for $4,000 per month.

“I needed an income to support my family,” he said, “so I decided to give it a go.”

With around eight people in February, he was taken overland through Vietnam into Cambodia, where he was held in a compound, given a cell phone and made to scam citizens in China on networking platforms such as Momo and Lvzhou.

He was eventually released in late June when his family paid a $5,000 ransom.

During his captivity, bosses forbid the trafficked workers from speaking to one another, but they would talk at night in their dormitories. This, he said, was how he learned that at least one person would not make it out.

“During my stay there someone jumped off the building. I didn’t see it myself, but everyone knew it, that guy died,” he said. “I consider myself one of the lucky ones.”

* Names have been changed to protect sources

A version of this article was first published by Nikkei Asia on September 1 2021. ©2021 Nikkei Inc. All rights reserved

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