China cracks down on junkets

A new report has shown that China has initiated the largest number of anti-graft investigations since the end of 2015, in a sign of what may be a renewed drive to crack down on corruption and looks set to have a direct effect of Macau revenues for the rest of the year and into 2019.

China last initiated an anti-corruption drive back in 2012, focusing on state officials working at all levels of government, employees of state owned enterprises, party members and the military.

macau casinoIntended to stave off the illicit flow of capital abroad, the move had an immediate detrimental effect on Macau, as high rollers, which comprise over 50% of the former Portuguese enclaves total gaming revenue, avoided the tightly monitored casinos. China had even gone so far as to use facial recognition technology to identify its own officials who were suspected of corruption entering Macau casinos so they could be further monitored.

As a result of the crackdown, VIP gaming revenue began to decline in May 2014 and continued to fall for a total of 28 straight months.

Macau’s resilience

Macau has previously been impervious to global down turns. After Portugal handed over Macau to China in 1999, Macau became the only place casino gambling was legal in China and was declared a Special Administrative Region. Casino license were handed out to global casino operators such as MGM Resorts International, Wynn Resorts and the Las Vegas Sands Corporation among others and by 2013 gross gaming revenue peaked at $45 billion, comprising over 75% of the enclave’s total revenue and pulling in seven times more money than Las Vegas.

Even as the global financial crisis of 2008, and the European debt crisis of 2012 drove world markets sharply down, Macau continued to grow by leaps and bounds. From its inception in 2002, when Macau saw gambling revenue comprise 41.73% of its GDP, total gambling revenue as a percentage of GDP would hit 91.6% by 2010, thanks in large part to the gambling mecca’s focus on Chinese VIPs.

By 2017, the government of Xi Jinping in mainland China began to ease up on its anti-corruption campaign and Chinese whales began to filter back into Macau, but all was not smooth sailing. In October of that year the Chinese government arrested 18 of James Packer’s Crown Resorts staff on the mainland, including three Australian executives, a Malaysian and 14 Chinese nationals, who were operating in China attempting to lure Whales on VIP junkets to Crown Resorts casino in Melbourne. While the officials were eventually released, the move sent a chill through the junket market in neighbouring Macau and revenues stumbled again.

Official Chinese state sources

The new report put out by brokerage house Sanford C. Bernstein Ltd., cited data from the Communist Party’s own Central Commission for Discipline Inspection to illustrate the uptick in prosecutions.

“The most recent three-month average (April [-end] to July) number of investigations is the highest since the fourth quarter 2015. Any re-emerging anti-corruption campaign would bring headwinds to the VIP sector and high-end premium,” wrote analysts Vitaly Umansky, Zhen Gong and Kelsey Zhu. The graph indicated there had been an aggregate of around 115 investigations in the months of May, June and July this year.

Earlier this year, in June, fears of an intensified crackdown spread across the markets, when the Chinese suddenly removed China Union Pay Co Ltd. cash machines from certain stores, including high end jewellery shops, pawn shops and Coati casino resort hotels. While China said the move was simply part of regular maintenance, many experts believed it was a sign of a wider crackdown on illicit foreign currency exchange, one of the main points of focus of China’ anti-corruption drive.

The report went on to compare the number of corruption investigations as reported by the Chinese authorities with Macau casino revenues for the period between April 2013 and July 2018 to illustrate that no sooner had Macau VIP revenues began to climb, then after a short lag time, usually a couple of months, the number of anti-corruption investigations increased, and Macau casino revenue would begin to fall again.

However, a lull in investigation activity between March 2016 and March 2018, saw Macau VIP gaming revenue again begin to rise steadily. While it’s important to note that correlation is not proof, there is the strong possibility that the increase in anti-corruption investigations will again have a direct effect on Macau gambling revenue for the remainder of 2018 and may well slow Macau’s meteoric growth well into 2019.

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Jean Carter is from Oakland, California and studied jewelry design at the Fashion Institute of Design and Merchandising in San Francisco, California. After graduation, and pining for a warmer climate, Jean relocated to the Tule Springs suburb of Las Vegas, where she owns and operates her own online jewelry boutique incorporating traditional native American styles with her own unique designs. A true fan of the sophistication and glamor of Las Vegas casino life, Jean is also a freelance blogger specializing in all things suave and fashionable surrounding the casino lifestyle.