The boat with 41 Chinese people on board got into difficulties off Sihanoukville on Thursday, Preah Sihanouk provincial spokesman Kheang Phearom told AFP.
The once-quiet fishing village of Sihanoukville has been transformed by a Chinese investment boom in recent years, with dozens of casinos opening.
There have been growing reports of Chinese workers being trafficked or smuggled into the city to work.
Kheang Phearom said that as of 7pm (1200 GMT) 21 people have been rescued, and the body of one woman has been recovered from the water.
Officials are searching for the others, he said.
Provincial police chief Chuon Narin told pro-government media outlet Fresh News that a representative of the group told police they left China from a port in Guangdong province by speedboat on September 11.
Nearly a week later, they were transferred to a wooden boat with two Cambodian crew members in international waters, the police chief said. That vessel began to sink after breaking down on Thursday.
He said a fishing boat picked up the two Cambodians and left, abandoning the rest of the travelers and their boat.
According to Kheang Phearom, the Cambodians had also been detained for questioning.
Chinese Foreign Ministry spokesperson Wang Wenbin said Beijing was in close contact with Cambodian officials.
China "requests that the Cambodian side make full efforts to carry out search and rescue operations, and quickly confirm and find out relevant circumstances," Wang said.
Cambodian authorities have been trying to crack down on people-smuggling and trafficking networks following widespread reports of people from other Southeast Asian countries being tricked into migrating for job opportunities billed as lucrative.
"The sinking and loss of life is a real tragedy, but the fact there is smuggling and trafficking where it happened is no surprise," said Jeremy Douglas of the UN Office on Drugs and Crime.
"We've seen intelligence and cases related to drug and timber shipments in the area in recent years, and the coast is pretty much wide open."
There have been multiple recent reports of Chinese workers being duped into working in casinos or online scam operations in Sihanoukville and prevented from leaving.
Police and immigration officials raided a compound in the city earlier this month and detained more than 140 foreigners working illegally, 130 of them Chinese.
Officials said they had found evidence of illegal confinement and torture, illegal gambling, prostitution and human trafficking.
Along with thousands of mobile phones and hundreds of computers, officers also seized handcuffs, electric batons and electric shock equipment.
Last month, around 40 Vietnamese workers at a Cambodian casino broke out and swam across a river back to their homeland, while in July dozens of Indonesians were rescued from a scam operation in Sihanoukville, according to media reports.