China's Stranglehold Tightens on Macau

The apparent crackdown in Macau on activities connected to the high-stakes gambling business has ominous implications for Hong Kong.

Events over the past two months have shown that President Xi Jinping’s war on official corruption has led Beijing to intervene very directly in the affairs of the Macau Special Administrative Region, which in theory has the same degree of internal autonomy as Hong Kong.

First came warnings from mainland officials that Macau must diversify its economy away from almost total reliance on the gambling industry. That reliance has risen dramatically since the territory’s 1999 handover to China with the issue of many gambling licenses and the construction of vast casino/hotel complexes patronized largely by mainland Chinese, which have enabled it to overtake Las Vegas as the world’s leading gambling centre.

Then came a visit by President Xi himself, officially to preside over the installation for a second term of Chief Executive Fernando Chui Sai-on and celebrate 15 years of the return of Chinese sovereignty. But a bigger purpose was clearly to deliver strong demands for Macau to clean up its more obvious vice and cooperate in mainland efforts to combat corruption.

At long last, Beijing was officially recognizing the key role of Macau’s gambling industry as a conduit for capital flight and a way of laundering ill-gotten gains. Although Chui was re-selected unopposed, he was clearly ordered to bring in new ministers who would take more notice of illegal activities, and at least give an impression of propriety.

Then last week came the arrest of a member of Macau’s best-known gambling family, Alan Ho, a nephew of Stanley Ho, once the holder of the gambling monopoly and whose family is still a big name in the business. Alan Ho was charged with running a prostitution racket out of the Lisboa Hotel, the iconic 1960s casino/hotel complex of which he was de facto boss. The Lisboa was surely not alone among Macau hotels in making rooms available to prostitutes in return for payments significantly larger than normal room rates.

In this case, the identity of the accused is probably more significant than the crimes of which he is accused. It sends a message to the whole industry. Yet where can all this end without destroying most of the high-stakes gambling that accounts for most of the profits of these casinos? The casinos themselves, as well as the Macau government, are being required by the authorities to provide details not just of the junket operators – the middle men who bring groups of high-rollers from the mainland to Macau and arrange necessary financial transfers – but of the identities of the gamblers themselves.

Under these circumstances, it is perhaps surprising that turnover has not dropped by even more than it has. For sure, mainland tourist will continue to flood Macau for small stakes betting and shopping at its jewelry and luxury brand shops, but the high rollers are another matter.

Turnover at the VIP tables may well now be the barometer for judging how far Xi’s anti-corruption campaign is going, or is perceived to be going. The fear has to be deep among the tens of thousands of mainlanders who have become very rich, whether via overt corruption or through exploiting their positions as party members and directors of state-invested enterprises to acquire shares at give-away prices.

Beijing does not yet have to worry about capital flight via Macau, but it might in future if the exit from long renminbi positions becomes a flood. Meanwhile mainland high rollers who have already stashed away large sums outside China are likely to prefer to focus their gambling proclivities on casinos elsewhere – there are plenty to choose from now including Singapore, Australia, Monte Carlo and of course Las Vegas.

For Hong Kong, there are three warnings from events in Macau. First, it is now clear that the autonomy of the SAR is now minimal. Beijing is dictating the choice of officials and policies. This is made easier in Macau by the lack of any democratic development or organized political opposition. Behind it is now the assumption by Beijing that SAR autonomy is subject to overall national interest. This does not only merely leaving foreign affairs and defense issues to Beijing. It means that SAR policies must not interfere with mainland goals. Thus they are expected to fall into line and not be an obstacle to, in this instance, Xi’s anti-corruption drive.

Macau is expected to help that drive whether or not any crimes are being committed on its territory. Official mainland investigators have been in Macau to gain information on financial transactions.

Apply that same process to Hong Kong and it is easy to see why mainlanders may prefer to keep their offshore accounts well away from China. And beyond that it could undermine Hong Kong’s international reputation as a place with a separate legal and financial system and not beholden to mainland interests.

More broadly Macau also shows how the effort to get rich quick through exploiting mainland growth and wealth, thus narrowing its economic base, has become a very real threat to its always meager autonomy. To a lesser degree Hong Kong too – and its financial sector in particular – has become too dependent on the mainland, seeing its other Asian relationships relatively decline and Singapore gaining in relative international status.

Hong Kong has a much stronger autonomous backbone through its legal and political system. Nonetheless, with a get-rich-quick chief executive who combines incompetence in his job with parroting Beijing’s “patriotic” platitudes, a media which is increasingly in the pocket of mainlander money, and a big business lobby merely interested in preserving oligopolies, the forces of autonomy have a hard job ahead. Just look at Macau.