China went public on the eve of the Lunar New Year holiday with a warning to the gamblers among its citizens to be on their best behavior.
The Ministry of Public Security went public on February 5 at a press conference in which it re-emphasized the government’s intention to enforce to the fullest extent a new amendment to the criminal code that specifically outlaws the practice of organizing or soliciting Chinese citizens to gamble and increases the penalties for violations.
Liao Jin Rong, director of the ministry’s Bureau of International Cooperation stated:
“The annual Spring Festival holiday is the most rampant period for overseas gambling groups to invite gambling and gambling activities. It has not only caused a large outflow of funds, but also resulted in kidnapping, extortion, crimes involving gangs and other vicious crimes, which are serious threats. Our economic security and social stability underline the holiday atmosphere.”
The changes to the criminal code are designed to support an ongoing drive to rein in the country chronic capital flight problem, which has seen gambling dragged into an unwelcome spotlight in recent months as a “national security risk.”
According to Macau-based industry news site Inside Asian Gaming, the crackdown appears to target both those operating online gambling sites, which already are illegal, and the junket operators who occupy an equally shadowy realm as the enablers of the country’s massive high-roller trade, recruiting VIP players for casinos in Macau and other countries in the region and providing them with banking services designed to circumvent China’s strict currency controls.
It’s been reported that Chinese authorities pursued some 3,500 gambling-related cases in 2020 and detained about 75,000 suspects. More than 2,200 gambling platforms and more than 1,900 illegal payment platforms and underground banking operations were shut down. An additional 600 Chinese nationals were extradited from outside the country on charges connected with illegal gambling and money-laundering.
Analysts cited by IAG and Macau Business magazine said the latest warning was almost certainly not targeted at Macau but there would likely be some impact resulting from the heat the junkets and their operatives are facing. It’s likely as well to discourage some big players from traveling to the self-governing Chinese territory.
“It goes without saying that scrutiny on junkets/agents (who are also involved in foreign casinos, not just Macau’s) is escalating to unprecedented levels, which in turn will continue to cripple their abilities to bring players to casinos, foreign or otherwise, including Macau,” JP Morgan’s D.S. Kim and Derek Choi stated in a client note.
Analysts with brokerage Sanford Bernstein said this includes “when Chinese visitors in Macau are induced to join online gambling activity and/or approached to go to an overseas destination for future trips. These activities will be monitored and legal action taken in Macau.”
On the plus side, the JP Morgan duo said, “VIP has shrunk so much that the segment doesn’t really move the needle for profits or cash flows. Our models have junket VIP accounting for only about 5 percent of (the Macau market’s estimated 2022 EBITDA).”
“Moreover, we feel that investors have grown numb to these ‘VIP clampdown’ news anyway, following a series of intense headlines since mid-2020. We thus view the news as having limited impact on fundamentals and sentiment for now.”
It was also revealed last month that the Ministry of Culture and Tourism was expanding a “blacklist” of overseas casino destinations that target its citizens.
The Ministry of Public Security backed this up in its press briefing, saying it was deploying additional resources to bolster immigration controls and “strengthening law enforcement cooperation with certain countries” whose markets may or may not be on the list, whose contents have not been disclosed, although the Philippines, Cambodia, Vietnam, Myanmar, Laos and South Korea are understood to be prime suspects.
Bernstein said it does not believe the list to include Singapore, “partly due to the gaming industry there having strong regulation with regard to junkets and anti-money laundering.”
However, information provided by Genting Singapore suggests otherwise. The Hong Kong-listed operator of Resorts World Sentosa, one of the city-state’s two megaresorts, struck a pessimistic note in recent guidance to investors.
As analyst Samuel Yin Shao Yang of Maybank IB Research explained it, the company “does not expect the VIP market to recover to pre-Covid-19 levels due to China cracking down on anyone enticing mainland Chinese to gamble overseas.”
Bernstein said, “With the increasing restrictions the Chinese government is putting on overseas gambling, management expects a shift away from Chinese ‘super VIPs’ towards more mass/premium mass customers.”
The brokerage noted that management had given further guidance that without a return of tourists from overseas, 2021 would see “minimal improvement from second-half 2020.”
Resorts World Sentosa’s gaming revenue for full-year 2020 fell by 56.7 percent from the previous year, to SGD700.8 million (US$528.5 million), with most of that coming in the second half after Singapore eased lockdown measures and travel restrictions designed to contain the spread of the Covid pandemic.
