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Macau is cracking down on unlicensed currency traders who help gamblers evade China’s strict capital controls, fueling fears of a new regulatory crackdown that could hurt the territory’s mega-casinos.
Macau is the world’s largest gambling hub: the government projects total gaming revenues to be 216 billion patacas ($27 billion) in 2024, likely far more than the entire state of Nevada.
The former Portuguese colony has a separate legal system from mainland China and is the only place in China where casino gambling is legal. The territory’s casinos draw tens of millions of Chinese visitors each year.
Unlicensed currency traders have long been an important part of the financial infrastructure of Macau’s gambling industry, allowing tourists visiting from mainland China (which strictly limits the amount of money citizens can move abroad each year) to exchange onshore renminbi for the Hong Kong dollars used in casinos.
Lawmakers in the semi-autonomous Chinese city’s legislature last week declared that providing unauthorized currency exchange services on the premises of a casino or its associated facilities would be a criminal offense, carrying penalties of up to five years in prison and a possible ban of up to 10 years from accessing gambling sites.
A cross-border crackdown on currency traders has hurt shares of the territory’s six casino operators, with shares of Macau casinos falling about 7 percent in the past month, according to Bloomberg Intelligence.
The crackdown has raised fears of a revival of the Beijing-led regulatory campaign that roiled the sector in 2021, when authorities cracked down on the city’s vast underground financial networks to facilitate capital flight.
“First they went aVsceker the big fish and now they’re going aVsceker the small fish,” said Ben Lee, managing partner at Macau-based consultancy IGamiX, adding that policymakers were particularly sensitive to the trade given China’s slowing economy. “All these illegal scalpers going around extorting money from China is something they won’t tolerate.”
In June, China’s Ministry of Public Security called for a “high-pressure crackdown” to “destroy criminal gangs along the entire supply chain.”
In July, the ministry said it had worked with police across China and Macau to dismantle cross-border currency trading gangs in Zhuhai, the Chinese city bordering Macau, and other cities.
“Money-changing gangs are not a new phenomenon, but in the past they were considered less of a concern than money laundering and black 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 casinos once relied on to attract big-spending Chinese gamblers, eventually arresting the heads of the city’s two largest junkets, accusing them of running vast underground financial mechanisms. “Now that junket operations have been curtailed … unlicensed currency exchange operators have increased their visibility,” Green said.
JPMorgan analysts estimated that gamblers, who account for no more than 10 percent of the city’s gambling revenue, used unlicensed currency exchange services inside casinos.
Any crackdown would likely push players into other “loophole” financing avenues, including using mainland Chinese credit cards to withdraw cash at local pawn shops or at currency exchanges outside the resort premises, they warned.
Citi analysts George Choi and Ryan Cheung noted that some stocks, such as Sands China and Galaxy Entertainment, were trading near or below their Covid-era lows. “While most gamblers have their own legitimate ways to get their funds into Macau … we fear this negative news could add uncertainty and damage the already fragile investment sentiment around Macau’s gambling sector,” they added.
