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Macau is cracking down on the unlicensed currency traders that help gamblers skirt China’s strict capital controls, raising fears of a fresh regulatory clampdown that could hurt the Chinese territory’s mega casinos.
Macau is the world’s largest gambling hub, with the government forecasting total gaming revenue of 216bn patacas ($27bn) in 2024, likely to be well ahead of the entire state of Nevada.
The former Portuguese colony operates a separate legal system from that of the mainland and is the only place within China where casino gambling is legal. The territory’s casinos rely on the business of tens of millions of mainland Chinese visitors every year.
Unlicensed currency traders have long been an important part of the financial infrastructure of Macau’s gambling industry, allowing visiting tourists from mainland China — which strictly limits how much money citizens can move offshore annually — to exchange onshore renminbi for the Hong Kong dollars used in casinos.
Policymakers within the semi-autonomous Chinese city’s parliament last week said it would make the provision of unauthorised currency-changing services within the premises of a casino or its associated facilities a criminal offence, with those caught punished with up to five years in prison and a possible ban of up to 10 years from gambling sites.
A cross-border crackdown on currency traders has dented the shares of the territory’s six casino operators, with a Bloomberg Intelligence gauge of Macau casino stocks falling about 7 per cent in the past month.
The crackdown has raised fears of the renewal of a Beijing-led regulatory campaign that roiled the industry in 2021, when authorities clamped down on the huge underground finance networks run out of the city to facilitate capital flight.
“First they cracked down on the big fish and now they’re going after the little ones,” said Ben Lee, managing partner at Macau-based consultancy IGamiX, adding policymakers were particularly sensitive to the trade given China’s slowing economy. “All these illegal touts going around getting money out of China is something they will not tolerate.”
In June, China’s Ministry of Public Security called for a “high-pressure crackdown” to “destroy criminal gangs throughout the chain”.
In July, the ministry said it had worked with police throughout China and Macau to crack cross-border currency trading gangs in Zhuhai, the mainland city bordering Macau, and other cities.
“Money exchange gangs are not a new phenomenon, but in times past they were considered of lesser concern than money laundering and underground banking,” said David Green, of Newpage Consulting, a former adviser to the Macau government.
In 2021, as part of a crackdown on capital flight, authorities launched a campaign against junkets, promoters that Macau’s casinos once relied on to attract high-spending mainland gamblers, ultimately arresting the heads of the city’s two largest junkets, accusing them of running vast underground financial mechanisms. “Now that junket operations have been pared back . . . unlicensed money-exchange operators have raised their profile,” said Green.
Analysts at JPMorgan estimated that gamblers accounting for no more than 10 per cent of the city’s gaming revenue used in-casino unlicensed money exchange services.
Any crackdown would probably push players to other “loophole” financing routes, including use of mainland bank cards to draw cash back at local pawn shops or currency exchanges outside of resort premises, they cautioned.
Citi analysts George Choi and Ryan Cheung noted that certain stocks, such as Sands China and Galaxy Entertainment were trading near or below their Covid-era lows. “Although most players have their own legitimate ways to get their funds over to Macau . . . we are afraid that this negative news could add uncertainties and hurt the already fragile investment sentiment against the Macau gaming sector,” they added.