China Pushing to End Cross Border Gambling with Alvin Chau’s Arrest
The Macau government has taken a tough stand against the gambling operators working in their region, as the authorities circle in on entities enabling circumvention of the strict cross-gambling laws enforced by China. In a press conference last week, the Macau government explained the situation that has transpired leading to the arrest of the head of the junket operator Sun City group, Alvin Chau.
The Chinese state has for a long while been ramping up the pressure on the Macau casino sector, and this week they raised the stakes even further by arresting junket operator kingpin, Alvin Chau. ©lechenie-narkomanii/Pixabay
The arrest in Macau this week is the culmination of an ongoing political fight between the gambling elite of the city, and the authoritarian Chinese Communist Party (CCP). The CCP has for a long time been trying to curb the freedoms Macau’s casinos operate within, the whole concept of high-revenue gambling businesses generating extreme levels of privately controlled wealth sits in stark contrast to the core values of the state.
Legally speaking, Macau’s business model also operates under a set of precarious loopholes and pretexts. Cross-border gambling where money is moved from mainland China to Macau is illegal under Chinese law, and yet thousands of hyper-rich clients gamble all year long in Macau with little to no impunity. The system enabling them to circumvent the law is a complex and exploitive mechanism that takes advantage of loopholes in the Chinese legal system, known as junket operators.
Suncity Group is the largest such firm operating in this space, and for many years they have generated billions of revenue for their shareholders by offering a leading product. Alvin Chau the high-flying chief executive officer of Suncity Group was this week arrested by Chinese law enforcement under charges related to illegal gambling facilitation. The warrant for Alvin Chau’s arrest was issued by the People’s Procuratorate of Wenzhou City, which lodged the warrant after years of political maneuvering and backroom dealings around the topic.
Macau’s SAR Government Reaffirms Legality of Gambling
The past two years for Macau have been completely disastrous for the region. Initially the COVID pandemic obliterated the revenue-generating mechanisms of Macau’s casinos. Footfall completely dried up and there was little appetite for gambling amongst the traditional customer base, as the macroeconomic conditions turned extremely negative. Despite these setbacks, all was not lost, and the casinos were able to pivot around the changing market conditions and make further improvements to their leisure and hospitality services to compensate for the lost Gross Gaming Revenues.
But this was not the end of the difficulties for Macau, as the pandemic began ending the political discourse in China began showing signs that it was shifting away from its relaxed approach to gambling. Casino licenses across Macau are set to expire next year, and thus far the rhetoric hasn’t been particularly reassuring for the major operators that rely on this paperwork for their core business. The worst-hit entities are the western casinos that operate in the market, without any high-profile political support, building a stable business in Macau appears to be an impossible task.
The current proliferation is even more severe, the junket operators, including Suncity Group, have now been given an ultimatum to shut down their operations or face even more severe legal ramifications. With their chief now in handcuffs and facing some serious charges in China, it remains to be seen what the future holds for this previously very profitable business. Casino employees across the city have been reminded this week of the reach of Beijing, and that legal conditions can be flipped on their heads at a moment’s notice.
Investor Confidence in Macau is Dwindling
With the largest operators in Macau being mostly owned and operated by Western casino businesses, it remains a precarious market to invest in. One VC recently commented that the current uncertainty proliferated by the Chinese government has made the economic zone an almost impossible place to invest, with constantly changing conditions leading to enormous uncertainty in the market.
The cross-border gambling law has been sparingly implemented, and loopholes were allowed to exist for a long while given the enormous revenue the city was generating. With foreign wealth flowing into the accounts of Macau’s casinos and the taxes being paid against that coming through on time, the Chinese Communist Party has been particularly relaxed when it comes to implementing forced interventions.
In the next few years, a shift in political direction will make this industry an impossible anomaly within the CCP’s broader global outlook. Private businesses controlling enormous profits beyond the direct control of the state has always been difficult in this part of the world. It may well be the end of a long bull-run for Macau’s casino economy.
