[SCMP Column] Chilling Effect

March 14, 2016

I am sure the British Journal of Criminology is not routine reading for Xi Jinping’s anti-corruption team headed by Wang Qishan, but perhaps last month it should have been.

Here was important but wholly unsurprising evidence that Macau triads are working together with Mainland criminal gangs at the heart of Macau’s gambling industry. The dry academic paper must surely illustrate the rich and easy pickings available to Mr Wang’s anti-corruption team with no more effort than video cameras outside the high-roller gambling rooms of Macau’s 36 casinos.

The paper, “Triad Organised Crime in Macau Casinos: Extra-legal Governance and Entrepreneurship”, was based on three years of research by two academics from Hong Kong’s City University, and reported here in the SCMP just a week ago. It showed that Macau’s casino VIP rooms – home to the massive junket business patronized by Mainland high-rollers – “are still dominated by triads to date”. A 14K triad interviewed for the study said that most VIP-room contractors “are triads or businessmen with a triad background”. The report described the junket business, which provided hotels, transport, loans and sex services to high-rollers that spend at least HK$500,000 per trip.

The idea of triads, Mainland criminal gangs, and thousands of senior Mainland officials collaborating harmoniously to fill Macau’s gambling halls must surely give Wang Qishan and his team seriously sleepless nights. And given the relative transparency with which the business has thrived at the heart of the Macau economy for the past decade or more, I am mildly surprised we have not seen more investigations and prosecutions in Macau.

Of the 166 “tigers”, and 1,401 “flies” officially reported to have been found with corrupt fingers in one Chinese till or another (of course not counting the tens of thousands who have been investigated and dealt with more discretely) few if any seem to have been tracked as a result of junkets to Macau, though these must surely have been commonplace over the past decade.
Of course, even though few high-profile cases have emerged from the Macau casinos, the chilling effect on the Macau economy of the past two years of anti-graft activity has been devastating. Macau’s GDP fell in real terms by 20.3% in 2015 as the flow of high-rolling punters from the Mainland slowed. This is of course hardly surprising, given that gambling activity accounts for two thirds of the tiny enclave economy and over 180,000 of the 400,000 jobs.

The casinos have taken an even more sobering hit. As gross gambling revenues have collapsed by 34% between 2014 and 2015, from Patacas 350 billion to Patacas 231 billion, share prices have tumbled. Among the biggest operators, Galaxy Entertainment shares are down 68% from their 2014 peak, while Melco Crown is down 64%, MGM China down 70% and Wynn Macau down 71%. With gambling activity in meltdown, so spending on luxury goods has also crashed. While overall retail sales were down 10.4% between 2014 and 2015, sales of luxury goods like watches, cognac and leather bags have tumbled 20- 25%. It is hard to imagine what pain such massive contractions must have inflicted on the livelihoods of ordinary Macau people.

With no sign in sight of an end to the anti-corruption drive, Macau’s government appears to have little choice but to batten down for the long haul. Following a clamp down on the junket operators, which has reduced their number from 235 to 140 over the past two years, casino operators are being encouraged to build up activity among “small-rollers” spending smaller sums in the football-field-sized open casino areas, and the pinball machines, and to build up convention and exhibition business and leisure and big shows.
To the relief of many in Macau, gambling revenues appear to have stabilized over the past 14 months to around Patacas 19 billion a month, and visitor numbers (two thirds of them from the Mainland) have risen slightly. But it is a brave punter that is betting on steady recovery from here. Still more work will need to be done on junket activity: a US government report last week highlighted the vulnerability of the junket business to money-laundering activity. It talked of “an informal financing system operating at the heart of the gaming sector in Macau.” With China’s financial regulators increasingly concerned about capital flight, Beijing must surely share US concerns about money laundering activity.

But if you are a Mainland official with a bucketful of corruptly earned cash that you want to get out of the country, is it likely that you would in the near future travel down into Macau and advertise your wealth at the baccarat tables? My betting is no. And I suspect such officials are going to lay low for quite a long time to come. That suggests that Macau’s economy is going to need to diversify as speedily as possible if it is not going to descend into a dark economic hole. Funding a Cultural Industry Incentive Scheme, and a Guangdong-Macau Traditional Chinese Medicine Technology Industry Park, may seem like grasping at straws, but in the absence of anything else, maybe there are few better ideas to pursue.

It is at moments like this that Hong Kong can feel thankful that it relies so lightly on gambling activity, and that it has such a diversified economy that is anyway six times larger than Macau’s. While gambling in Macau has imploded, the Hong Kong Jockey Club in 2015 saw wagers rise 10% to HK$191 billion, with revenues from betting and mark Six rising 4.5% to HK$31 billion.

But it would perhaps be complacent and naïve to imagine that Wang Qishan’s anti-graft drive might not at some point reach more deeply into Hong Kong. Given the sheer size of Mainland corporate and private investment in Hong Kong over the past 30 years, it is surely inconceivable that corrupt money has not found its way here. Perhaps we should ask the City University researchers to interview a few 14K triads in Hong Kong.
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