Writer: Varun Venkatesh
Editor: Sean Lu
Casinos are havens of chance and greed—but in Southeast Asia, they have transformed into tools of governance. “Casino diplomacy” is an emerging practice of using gambling economies as mechanisms of geopolitical posturing. Conceptually, foreign funds and influence travel in and out of countries through casino zones, creating cycles of dependency between nations and the providers of their capital. Indeed, this theory has found itself manifesting in Cambodia, Laos, and the Philippines, whose economic futures rely on the profitability of gambling zones and the hope of external investment and tourism. Unfortunately, behind the glow of neon lights lies a significantly darker reality: a fragile market and weak institutions dependent on vice and foreign leverage.
In 2024, the gambling industry across Southeast Asian countries reached a market valuation of $3.48 billion. Analysts projected its expansion at a compound annual growth rate (CAGR) of 5.24% through 2033. However, regardless of the growth of casino revenues, government decisions and legal oversight on the casino markets have nearly come to a standstill. As such, it is reasonable to argue that the expansion of casino zones is a shared regional pattern. Countries are betting on an industry, one with maximum risk and uncertain returns.
Cambodia, Laos, and the Philippines are playing the same game, but each country has different stakes. Cambodia’s hand holds a set of problems: dependence on China and the relinquishing of control over economic growth. In parallel, Laos has gone all-in on debt diplomacy by sacrificing its autonomy over policy decisions, calling for Beijing’s subsidization of its markets. The Philippines is raising a different game plan, reaping harvests from skyrocketing turnover, while permitting corruption to plague its government. Politicians from all three countries are content with the illusion of prosperity. Unfortunately, this leaves their constituents waiting patiently for the cards of proper economic reform and opportunity to be dealt.
This reality is especially clear in Sihanoukville, a port city in Cambodia that was once labeled the future growth capital of the country. Instead, it has become a city run by an entirely different nation. In 2019, more than 90% of local businesses were Chinese-run, and almost 70% of Cambodia’s foreign direct investment (FDI) came directly from Beijing. Profits circulate outwards when another country controls the businesses that local consumers interact with. Economic theorists label these sorts of cases “enclave economics”: high-value, profitable economic activity controlled by foreigners with little to no spillover into domestic industries or human capital.
Laos’s experience has been very similar to Cambodia’s; only, rather than receiving direct investment in the form of relief, the country has fallen into a pit of debt nearly impossible to return from. Indeed, nearly $644 million has been sunk into casino zones, which the government has argued would plug gaps in its fiscal system and boost tourism rates. However, the capital that the country used to fund its casinos came from China, which already holds more than 120% of Laos’s GDP in external debt. As such, casino diplomacy, at least from the Chinese perspective, is just another form of their debt-trap diplomacy. Beijing supplies the money, the contractors, and the clientele, while Laos simply provides the land and political approval. This reality has manifested, with gambling zones like the Golden Triangle Special Economic Zone (SEZ) near Boten operating with limited state oversight over the past few years, which blurs the lines between any sort of national sovereignty and the extraction of resources by a foreign actor.
A more complicated story is being told in the Philippines. On paper, recent growth looks like an absolute success. In fact, casinos generated ₱350 billion ($6 billion) in revenue in just 2024, and online gambling alone generated nearly ₱115 billion within just the first half of 2025. On top of that, these numbers have bolstered foreign interest in the Philippines economy, suggesting an economic model that, unlike those of Cambodia and Laos, appears to be successfully working. But beneath this surface lies something extremely fragile. Money laundering has become prevalent, with regulators already investigating nearly $19 million being laundered through casinos in vast corruption schemes. There is a structural concern to consider here: the state’s growing reliance on “easy rents” from gambling has weakened incentives to bolster long-term sectors such as clean and sustainable industries, public education, and even innovation. Therefore, when governments like the Philippines become dependent on non-productive rents, they become significantly less accountable to citizens and considerably more prone to corruption and dependency. The Philippines’ $6 billion funding of new casino projects further risks institutionalizing this problem.
The problems the Philippines, Laos, and Cambodia are facing stand in stark contrast to the success of Singapore’s casino zones. There, casinos can operate within a transparent and tightly regulated framework, and the economy is highly diversified, reducing reliance on casinos as primary drivers of growth. This complementary model allows for gambling capital to coexist with development; in much of Southeast Asia, it substitutes for it.
The fundamental problem with economic development led by casinos is that it mimics the mechanics of gambling itself. Casinos can profit because the house always wins. However, when the house is owned by foreign investors, elites, politicians, and capital networks in Beijing, the nation fails by design. The economic logic of casino-led growth collapses on three fronts.
The first is the volatility and fiscal risk that gambling allows. Casino revenues are highly cyclical, entirely dependent on the existence of peaking tourism and large quantities of subsidies. For example, when COVID-19 hit the Philippines, gaming revenues dove by over 50% in just the first three months of 2020. Decades ago, Albert Hirschman, a German development economist, developed the theory of unbalanced growth: sectors with solid forward and backward linkages are prerequisites for development that is stable and profitable in the long term. Sadly, casinos provide neither.
The second flaw is institutional corrosion. Regulators in a casino-based economy become financially and politically involved with the industries that they oversee. In Cambodia, that means law enforcement agencies are implicated in several financial scams within casino SEZs. In the Philippines, money-laundering scandals have become a recurring story, prompting urgent reform calls from the Anti-Money Laundering Council. Across Southeast Asia, indicators of corruption control declined to near disappearance in the years when casino investment surged.
The third and most problematic weakness lies in external leverage. Countries lose their bargaining power when all aspects of their economy are housed elsewhere. In both Cambodia and Laos, gambling zones are just offshore liquidity sinks for the elites in Beijing, allowing for Beijing to informally control entire regions and permitting absurd rates of capital flight. More that 45% of Cambodia’s and 69% of Laos’s casino-linked SEZ investment originated from Chinese sources. These economies are already embedded within the capital networks of the Belt and Road Initiative. China has transformed its subsidies and “aid” into soft coercion, using the economic reliance of Southeast Asian countries on it as instruments of power projection and posturing.
When it’s all said and done, casino-led growth is self-defeating. It ties the fiscal stability of a country to the most volatile and corruptible industry. It strengthens foreign leverage over domestic decision-making and policy. It corrodes the institutions necessary for long-term economic, political, and social development.
Graphic By: Riddhi Das
Yet that does not mean that all is lost. These governments still possess the agency to cash out of the casino trap.
The first step towards doing so is to treat gambling as a transitional source of revenue rather than the primary one. The primary concern of casino-dependent nations is losing a basis of income. However, taxing casino inflows and outflows permits the development of other industries and leads to better economic outcomes. Funding education systems helps build human capital, sponsoring infrastructure projects ensures the facilitation of people and commerce, and creating innovation hubs full of domestically-controlled businesses moves countries up the value chain. Just a fraction of annual casino tax revenue being redirected toward the expansion of productive industries could yield gains far greater than the possible, not even guaranteed, short-term benefits from gambling.
Secondly, building regulatory bodies independent from the industry is critical. Conflicts of interest are inevitable when the Philippine Amusement and Gaming Corporation in the Philippines acts as both operator and overseer of casino zones. There needs to be a regulatory distance between state oversight and the gambling industries. Transparency and citizen oversight could be ways to reinforce this protective action. Otherwise, these countries are simply inviting the threat of corruption internally, which creates disastrous outcomes for the people of the nation.
Last but not least, countries must reduce their dependence on foreign investment from just one country. Southeast Asia is not without leverage. Other stakeholders—Japan, South Korea, the EU, India, Indonesia, and many other countries—are eager to discuss and sign onto partnerships in various angles of development. Broader FDI portfolios allow host nations to possess increased bargaining power in trade commerce, and more importantly, minimize the risk of geopolitical capture to near zero. The road to economic independence is strenuous, but it is the only way these countries can pave the path to genuine sovereignty and autonomy.
In our geopolitical and macroeconomic environment, just as in poker, the power belongs not to those who hold the cards, but to the one who owns the table. As long as casino-dependent economies allow others to own the capital, set the rules, and extract the winnings, the odds will remain stacked against them. Thus, true sovereignty will only begin when nations stop betting on chance and start investing in themselves.
