China Crackdown on Junkets to Contain Capital Outflow

China has intensified its fight against online gambling as the communist government exercises new financial controls to stem the flow of capital across the border. Online gambling, as well as junket operators, are now well and truly in the crosshairs of the Chinese authorities, the crackdown has hit liquidity in Macau’s VIP gambling sector the hardest, slowing recovery and putting a new strain on Sino-US tensions.

Macau casinos by the river.

Macau’s luxury casinos heavily rely on revenues generated via high-roller gamblers. With renewed pressure from the Chinese state to end junket financing, this sector is facing a serious existential threat. ©Henry_Wang/Pixabay

Agents working for the top junkets used by casinos to win high-roller business from overseas have regularly settle debts and supply credit through various online means. The latest crackdown launched in June has been implemented with the purpose of majorly reducing this activity.

The issue in Beijing has been raised now to a national security risk, and with this fresh bureaucratic attention cross-border flow of capital for online gambling has been identified as a major target. Previous existing transfer channels used by cryptocurrency and gambling platforms in Macau and China have been cut off. The shift in policy has resulted in the arrests of tens of thousands of individuals, and over $30 million in cash has been seized.

All this activity comes amidst the backdrop of a gradual purge against the gambling sector. Unlicensed operators have been hit the hardest, with authorities conducting regular raids and shutting down illegal gambling rings every few days across the country.

Crackdown Hitting Big Spending Customers

It is big spending high-rollers coming from abroad that casino bosses in Macau are most concerned about losing. The current laws in China make it difficult to move money out of the country, so-called junket operators provide exchange services for clients making large transfers in and out – with the junkets under newly founded pressure from the authorities, this financing channel looks set to lose its main capabilities.

With gambling illegal on the mainland, the industry in Macau is faced with a series of unique and tricky problems. Junkets are the medium that connects big high-rollers, attracting players with lines of credit, easy transfer processes, and luxury VIP perks – often these dealings are enacted via underground banking networks and payment channels. The VIP sector in Macau is hugely important to the sector, generating 50% of its revenue which was reported at $36.5bn in 2019.

Junket operators have seen the writing on the wall for many years. The practice of settling debts and providing credit indirectly via junket channels is something China has been intending to stamp out for many years. The goal is to reign in the industry, and take back control of the capital outpouring. The focus and pressure being put on by the authorities is causing indirect consequences in liquidity and cash-flow for Macau’s casinos, which reported recorded losses in 2Q20 financial results.

A run on deposits stored with Asia’s biggest junket operator Suncity was sparked last month after rumors began to swirl that the authorities were closing in on the firm. The panic led to over 900 VIP customers making withdrawals from Suncity VIP clubs in Macau in mid-July. The Macau Gaming Authority were made aware of the mass withdrawals, and photographs have been circulated showing lines of VIP players queuing outside junket parlors to get their cash in fear the authorities would seize it.

Responding to the panic, the Suncity Chairman Alvin Chau gave a rare online speech discussing the latest financial dealings of the company. Chau denied that there was a target on his company, and he assured customers that the firm was still in good financial shape, with enough cash to cover debts and obligations to its account holders.

Also in the junket sector, an industry-leading firm by the name of AG Asia Entertainment reported that it was ceasing operations amidst mounting pressure on its business interests. The Philippines based firm has advised all customers to withdraw cash before August 12th.

The crackdown on junket operators comes at a time when casinos are contending with huge losses in revenue from the coronavirus pandemic. Even if tourists did want to visit and gamble in the city, financing their gaming activity without junkets is a responsibility that casinos have never had to handle in the past. The survival of the VIP gambling sector and indeed the Macau casino industry may depend on how they overcome this financial prerequisite.

Have you enjoyed this article? Then share it with your friends.
Share on Pinterest

Similar Posts