The Chinese government is on a crusade to clamp down on online gambling in an attempt to control money flow and it’s causing VIP players in Macau to suffer seized funds, at a time when the world’s biggest gambling hub is already suffering from slow economic growth, tensions with the United States and coronavirus lockdowns.
Recently, President Donald Trump took to Twitter and told US companies to leave China and come back home as the ongoing trade war between the two nations has ratcheted up again, with both sides threating to introduce new tariffs in the near future.
Beijing decided in June 2020 that international transactions of funds for gambling was a security risk to the nation. Since then they have cut off several financing channels used by players, including cryptocurrency lending platforms, and tens of thousands have been arrested
So far thousands of bank accounts have been frozen and close to $33 billion has been seized by the government according to a recent statement. Illegal gambling gangs across the country are broken up by police every week.
Junket operators and casino executives in Macau are concerned as the mission to get rid of online gambling and ways to finance it are taking its toll, especially when it comes to VIP players who turnover millions every month.
“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.
With financial junkets operating in somewhat of a grey area, players with money to spend have been lured to play with luxury perks and extensive lines of credit, most of the time resorting to financing players via underground banking networks and online payment channels.
In 2019, overall gambling revenues in the former Portuguese colony came in at $36.5 billion last year and it is believed that the VIP junket sector accounts for close to half of that. Many of the top junkets are not involved with inline gambling directly, but many agents under these junkets are using these channels to clear debts and extend lines of credits to 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.”
Casinos in Macau are already struggling with a scarcity of players because of coronavirus restrictions and eagerly await September 23, the date set for when some of the restrictions may be lifted in order for tourism to resume.
The founder of Macau gaming consultancy IGamiX, Ben Lee, 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.”
China and US have been locked in various intensities of a trade war for decades and an executive order issued by President Donald Trump may have spurred the recent activities of the Chinese government.
In the beginning of August this year, President Trump’s order to ban Chinese social messaging giant WeChat for “undermining national security” may have had unintended consequences for American business interests in Macau.
The messaging service is widely used by American casino operators to connect with players from mainland China but when the executive order comes into effect it will be illegal for US citizens and corporations to carry out “any transaction related to WeChat.”
Wynn Macau, MGM China, and Sands China are subsidiaries of US parent companies and they could become collateral casualties of the current tensions between the two nations as all three casino operators are currently waiting to see whether their licenses will be renewed or revoked.