Gamblers from China have largely been the story behind the dramatic growth in recent years of legal casino gambling across East and Southeast Asia. But that dynamic could change. And quickly.
For some time now, the Chinese government has had it in for online and proxy gambling, both of which are illegal in the People’s Republic, as part of a renewed effort to crack down on capital flight, a problem that has plagued the nation’s economy for years.
Nearly every major facet of China’s vast bureaucracy has been enlisted in the campaign. Most recently, it has caught up the Ministry of Culture and Tourism, which announced on August 26 that it is compiling a list of gambling-based tourist destinations that will be off-limits to Chinese citizens.
Without providing details, a report from the ministry carried by the official Xinhua news agency blamed the as-yet unnamed destinations for “disrupting China’s outbound travel market and endangering Chinese citizens’ lives and property.”
Terming the new system a “blacklist,” the report said the ministry and “several relevant departments” will impose “restrictions” on Chinese citizens wishing to visit those destinations.
It’s not known how this will play out, but clearly it’s not good news for an increasing number of countries around the region that have hosted or are hosting massive investments in resort-scale casinos predicated on a seemingly limitless appetite for gambling among the many Chinese who possess the wealth to indulge it.
They include Australia, Cambodia, Malaysia, the Philippines, South Korea, Siberian Russia, Vietnam and Singapore.
Cambodia has moved in the last year to shut down a flourishing garden industry in online gambling in response to diplomatic and economic pressure from Beijing, while industry giant Naga Corp. continues to invest heavily in expanding its China-facing NagaWorld resort complex in the capital of Phnom Penh, where it holds a monopoly.
The Philippines, a hub for online and proxy gambling, has been under similar pressure. It, too, has developed a resort cluster in Manila focused on high rollers from the PRC and the Chinese junkets that supply them. Its owners and investors include Macau’s Melco Resorts & Entertainment, Genting, Bloomberry Resorts and others.
The feeder market for South Korea’s 16 foreigners-only casinos has shifted dramatically over the last decade from Japan to China, and the country is attracting large-scale investment in tourism to keep up with its increasing popularity among travelers from the PRC. Among the investments is a planned US$5 billion gaming resort in Seoul under the auspices of U.S.-based Mohegan Gaming.
In Vietnam, Hong Kong-listed SunCity, reputedly the largest junket in Macau, is investing in a multibillion-dollar gaming resort on the South China Sea coast.
In Australia, casino giant Crown Resorts has been knee-deep in legal and regulatory controversies over its marketing practices involving Chinese VIPs𑁋including within China, where casino marketing is illegal and where several Crown employees were arrested and jailed three years ago, charged with luring Chinese citizens to the company’s luxury casino in Melbourne. In its home country Crown is plowing an estimated $2 billion into developing an even tonier casino in Sydney aimed almost exclusively at those same VIPs while investigations into a variety of alleged improprieties related to the company’s marketing to foreign high rollers continue. SunCity boss Alvin Chou, a Chinese citizen, has been banned from the country by Australian authorities.
Observers, meanwhile, are trying to parse out what the “blacklist” may or may not entail.
A trio of JP Morgan analysts said, “At this stage, it’s difficult to know exactly how the government will clamp down and what it means by ‘black-listing,’ but we suspect capital flows through underground banks and agents, as well as junkets’ promotion of these overseas markets, will be heavily scrutinized.”
They pointed out that it could prove beneficial to Singapore’s two casinos, and specifically to Las Vegas Sands’ Marina Bay Sands, which limits its exposure to China-based junkets as a matter of policy.
South Korea and Malaysia are likewise less dependent on junkets, they noted, adding, “It’d be interesting to see how or if the Japan’s casino IR plans would be affected by this.”
Union Gaming analyst John DeCree noted how a rough patch a few years back in relations between Beijing and Seoul resulted in a steep drop in Chinese tourism and “resulted in a notable impact on VIP revenue in the Korean foreigner-only casinos.”
Ultimately, though, the market with the most to gain would be Macau, or it would appear that way, though it’s not known whether that will come sooner or later.
“While the blacklist would exclude Macau, as the SAR is part of China, the potential disruption to the junket system would likely hinder a VIP recovery in the near-term,” DeCree said.
He added that with many of the Macau junkets involved in the offshore trade, “We suspect a cooling-off period is on the horizon as junkets wouldn’t want to risk any potential repercussions.”
Which is another concern on the minus side, he said, as this could work to compound “the growing liquidity concern in the junket system that has already seemingly inhibited a VIP-led recovery in Macau.”
The JP Morgan analysts agreed. “Overall, we would characterize this news as short-term pain for long-term gain for Macau,” they said.
“It’s inevitable we will see some dent in the pace of VIP recovery given potential collateral damage𑁋junkets/agents who bring players to non-Macau markets are the same ones as those in Macau, and they will most likely keep a low profile for now to avoid any fallout from the clampdown.”