Macau was a refuge for those fleeing the second world war. In the past few decades, the former Portuguese colony has become a refuge for the cash of Chinese billionaires. Now Macau faces the end of its fuzzy status as privileged enclave within China.
A court has jailed Macau tycoon Alvin Chau for 18 years, marking a Chinese clampdown on the gambling sector. The US is meanwhile tightening curbs on Macau as a trans-shipment port.
The moves reflect east-west alienation and China’s tightening grip on its periphery, also demonstrated by the “Chinafication” of Hong Kong.
So-called “Junket King” Chau was found guilty of charges including criminal association. This calls time on all-expenses paid gambling trips for mainland Chinese high rollers to play at designated casinos.
Junkets underpin Macau’s $30bn gambling market and have a seamy side. A judge determined that Chau’s Suncity business had a sophisticated “under-the-table” betting system. This allowed high rollers to bet multiples of their chips on the table to evade tax.
Large credit lines helped turbocharge bets. This points to a large, shadowy financing industry. Chau’s group alone handled an estimated $105bn in under-the-table cash in the past decade.
High rollers make up less than 1 per cent of the city’s gamblers, but accounted for three-quarters of gaming revenue. Shares of LET Group, as Suncity was renamed, and subsidiary Summit Ascent are up more than 16 per cent this year on border reopening expectations. The stock of local peers are up more than 30 per cent.
The jailing of Chau will keep many high rollers away. That threatens the core economy of Macau, where gambling once generated nearly 90 per cent of tax revenue.
In a further blow, the US has hit Macau with sweeping controls on shipments of advanced chips and equipment. The Zhuhai border between Macau and mainland China has become a preferred route for smugglers.
Tourists in Macau have always needed to think carefully about how much money they are prepared to lose. That wariness should now apply to investors in local gambling stocks.
Our popular newsletter for premium subscribers is published twice weekly. On Wednesday we analyse a hot topic from a world financial centre. On Friday we dissect the week’s big themes. Please sign up here.