7 Oct

Why China’s anti-corruption campaign hurts Macau

WRITTEN BY Shawn Bolton

Anti-corruption campaign

Xi Jinping—the Chinese President and General Secretary of the Communist Party—recently launched an unprecedented anti-corruption campaign. The campaign targets government, military, and state-owned company officials suspected of corruption. Xi Jinping launched the campaign after he came to power in late 2012. This campaign investigated and prosecuted hundreds of officials across the nation.

The crackdown on corrupt officials and tycoons hit revenues at Macau’s high-rolling VIP lounges. Analysts predict that this year will be the worst for revenues. They’re expecting single-digit growth.

Why China’s anti-corruption campaign hurts Macau

Corruption index rankings

Xi Jinping is trying to fix a culture that’s known for bribery and graft. The corruption hurt the government’s legitimacy. It also jeopardized economic growth.

The above chart shows nations’ rankings in terms of corruption. Please refer to the score scale in the above chart. China is ranked 80th on Transparency International’s Corruption Perceptions Index for 2013. Singapore was rated as the cleanest country in Asia.

Local authorities are trying to gather information on Chinese officials. The corrupt officials could be laundering money through Macau.

Market reaction

“Controlling corruption is part of the business. China wants to help Macau. Both the central and Macau governments are helping Macau grow,” said Chien Lee, former Chairman and CEO of Iao Kun Group.

“The anti-corruption campaign has caused a lot tighter governance on the large amount of money leaving China,” and “investors are hesitating to invest in the junket industry due to the situation,” says Hoffman Ma, Deputy Chief Executive of Macau’s Ponte 16 casino.

“They’re just trying to put a collar on the junkets, not eliminate them,” said Steve Vickers, a former commander of the Royal Hong Kong Police Force’s criminal intelligence bureau.

Industry executives say that Beijing supports those operating within the rules. It supports those that are transparent about their business.

American-based casino operators in Macau—like Las Vegas Sands (LVS), MGM Resorts (MGM), and Wynn Resorts (WYNN)—are also feeling pressure from U.S. law enforcement to prevent money laundering. They feel pressure to push the Macau junkets for greater transparency. Exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the VanEck Vectors Gaming (BJK) provide overall exposure to the casino companies.

In the next part of the series, we’ll discuss why casinos are exposed money laundering and terrorist financing.

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