China’s top lawmaking body is considering a change to the criminal code that will impose stiffer penalties on casinos and other entities caught soliciting its citizens to gamble.
The amendment, which cleared a second reading last week from the Standing Committee of the National People’s Congress, is another blow to the region’s burgeoning casino markets and the junkets that support a good deal of their VIP revenues as Beijing steps up its nationwide crackdown on capital flight.
“While promotion of gambling for/by overseas casinos has already been understood to be illegal for industry participants, a clear-cut ban on such activity would undoubtedly lead to fear among many junket operators and agents, in our view, as even a personal solicitation may be viewed as (very) illegal under the reported amendment,” said JPMorgan analysts D.S. Kim, Derek Choi and Jeremy An.
The measure also would impose new penalties for “opening a casino” within mainland China, which appears to be aimed at curbing the spread of online gambling, an illegal activity in which Hong Kong-based Suncity, the largest junket operating in Macau, has been implicated in state-sponsored media reports.
In its review of the amendment, the Standing Committee specifically blamed gambling for “large capital outflow” and the cause of “serious damage to the nation’s image and economic security,” according to a report by state-owned China News Service.
In line with this view China’s Ministry of Culture and Tourism is reported to be compiling a “blacklist” of overseas destinations it blames for disrupting the nation’s outbound tourism by opening casinos targeting mainland customers.
Both moves clearly spell trouble for regional markets such as Singapore, South Korea, the Philippines, Vietnam and Cambodia, which are looking to China’s gamblers in the short term to spearhead their recovery from the impacts of the Covid-19 pandemic and longer term to justify billions of dollars in completed or planned investment in resort-scale gaming.
These include a US$1 billion destination casino being co-developed by Suncity in Vietnam, a $1.6 billion casino Australia’s Crown Resorts is close to opening in Sydney, and new casino construction and/or major expansions in the works near Seoul, in Manila and in the Cambodian capital of Phnom Penh.
At the same time, while the crackdown appears aimed at markets that compete with Macau, it’s not at all clear how China’s only legal casino jurisdiction will benefit, or if, in fact, it will.
“You get half the picture. You don’t always know the motives that go into the decision-making,” noted Brendan Bussmann, speaking with GGBNews as director of government affairs for industry consultants Global Market Advisors.
What is known is that Macau’s explosive growth over the last decade and a half has largely been driven by VIP play originating in mainland China, which has depended in turn on the ability of the junkets and their affiliated underground banking networks to move massive amounts of unaccounted-for capital out of the country in the form of credit. As it stands, the crackdown has raised concerns both about liquidity on the banking side and the continued willingness of wealthy gamblers to risk scrutiny from Beijing, and it’s said to account in no small part for Macau’s slower than expected recovery from the pandemic now that individual travel to the casino hub from the mainland has been fully restored.
Credit Suisse analysts Kenneth Fong, Lok Kan Chan and Rebecca Law said average player spend was down by one-third during the first two weeks of October as the central government’s stance continues to affect the junket system and player sentiment in a negative way, with big players unwilling to come and those who do come spending much less than usual.
“Before the pandemic happened, Macau’s junket sector had already been seeing a declining number of ‘old’ clients𑁋even during major festivities like the autumn Golden Week𑁋for the past three years,” junket investor Luiz Lam told industry news site GGRAsia. “The reason could be that such clients’ wealth was already dwindling, (but) in some other cases we heard people were warned by Chinese authorities about their gambling activities.”
Either way, he said, “This is going to spell more obstacles for the junket trade.”
The bottom line, as Bussmann told GGBNews: “Beijing will determine how often you go (to Macau) and how much you will be able to spend and gamble.”
Factoring in the headwinds from the pandemic, whose impacts are still far from clear, it’s likely to be months, if not years, before the implications of this fully play out.
“We do not see a complete elimination of the junket system in Macau,” said brokerage Sanford Bernstein, but rather “a continued shift to premium direct (VIP) and premium mass” play, with the mass market, which now accounts for more than half of the territory’s gaming revenues, continuing to function as the “key driver” of “long term value creation.”
Bussmann agrees. “Obviously, you want both (VIP and mass). But when you look at the critical mass that is coming on line in the market, the improvements to transportation, the development of Hengqin island and everything else, even as strictly a locals market it’s still a strong market.”
There is also the fact, he said, that a “strong Macau” is in China’s interest.
“Absolutely. You have companies that are global companies that have invested billions and are investing billions more and you want that a gaming center and an entertainment center, not just for the Chinese, but for others who want to partake of that environment.”