Beijing's Gaming Crackdown Leaves Macau Reeling

Beijing's move to stamp out online gambling to help contain capital outflows is hitting liquidity in Macau's VIP segment, at a time when the world’s No 1 gambling hub is hobbled by slowing economic growth, Sino-US tensions and coronavirus lockdowns.

In June, Beijing identified the cross-border flow of funds for gambling as a national security risk.

Since then, financing channels used by the online gambling sector and cryptocurrency lending platforms have been cut off, with tens of thousands of suspects arrested.

Authorities have frozen thousands of bank accounts and seized more than US$32.95 billion, according to government statements, while illegal gambling rings across the country have been purged on a near weekly basis.

Casino executives and junket operators in Macau say the crackdown is hitting big spending VIP customers due to worries over their financing channels via the junkets.

“It definitely impacts liquidity,” said Lam Kai Kuong, director of the Macau Junket Association, adding the VIP industry may never return to revenue levels hit two years ago unless the mainland stops its suppression of VIP gambling.

Junkets operate in a grey area, luring big spending gamblers with luxury perks and lines of credit, often using underground banking networks and payment channels.

The VIP junket sector in the former Portuguese colony accounts for almost half of overall revenues, which hit US$36.5 billion last year.

While many top junkets are not directly involved in online gambling, agents under them use these channels to settle debts and provide credit for high rollers.

"The junket sector in Macau has been living on borrowed time for years, and the end is drawing nearer," says Anthony Lawrance, managing director of Greater Bay Insight, a consultancy.

"China clearly intends to cut out these middlemen and gain better control over the outflows of renminbi (yuan) through Macau.”

The crackdown comes as casinos struggle with a dearth of travellers due to coronavirus restrictions.

China has announced the resumption of Macau tourist visas for nationals from September 23.

Ben Lee, founder of Macau gaming consultancy IGamiX said even if there was demand from high rollers to come to Macau, the ability of the junkets to finance gaming activity remains severely constrained and would put further onus on casino operators.

“The only way for the VIP segment to recover is for the casinos to expand their lines of credit without corresponding cash collateral (from the junkets) which has been a prerequisite for them in the past.” (Reuters)