Macau was once China’s ‘good kid’, but as Beijing revives its gambling industry, that could all change

Unlike Hong Kong, Macao has long been dubbed “the good kid” by Beijing.

It was a playground for the mainland’s big players, who turned this semi-autonomous port city into the world’s richest gambling hub.

Macau lived under the same “one country, two systems” political model as Hong Kong, just 62 kilometers away, which also allowed it to operate a capitalist system in socialist China.

But the two cities were worlds apart.

As pro-democracy protests raged in Hong Kong in 2019, Macau was hailed by Beijing authorities for his “patriotism”.

But one man’s arrest signals that everything could be about to change for this sparkling hub of wealth and luck.

Last November, Macau police arrested Alvin Chau, the city’s self-styled Junket King, after mainland Chinese police ordered the 47-year-old casino tycoon arrested.

He was arrested by local authorities following allegations from China that he was running online gambling operations involving more than 80,000 mainland gamblers.

The billionaire had previously made huge investments in Australian casinos until he was refused a travel visa for Australia in 2019 due to money laundering allegations.

The crackdown on Mr Chau has decimated Macau’s gambling industry, which lost nearly US$5 billion ($6.94 billion) in Hong Kong stock the day after his arrest.

His arrest also drew international attention to Macau’s proposal to reform its casino system, with all six casino operators due to see their licenses expire in June.

The proposal, released last Friday, aims to increase local ownership in casino businesses while granting a maximum of six licenses and prohibiting license transfers between casinos.

It also sent a strong political message to the sector, which for years has pledged its loyalty to Beijing, according to Valarie Tan, a China studies analyst at the Mercator Institute for China Studies.

“Alvin Chau’s arrest is a very, very strong signal to all casino operators.”

King Junket

Mr. Chau established his gambling empire by controlling the majority of VIP rooms in all casinos in Macau.

Its casino empire also extends to Japan and Southeast Asia.

Mr. Chau became known as the Junket King by providing VIP room services for high rollers, many of whom were government officials.

In 2013, nearly 70% of Macau’s gambling revenue came from VIP lounge services, according to a report by investment consultancy Goldman Sachs.

But gambling activity among officials concerned Chinese President Xi Jinping, who feared the outflow of capital would interfere with his political goal of common prosperity, according to Ms Tan.

“This idea of ​​capital outflow has been framed by Beijing as a way for corrupt officials to export, save, cover and protect their illegal income,” Ms Tan said.

“It has been clearly spelled out in Xi Jinping’s Common Prosperity, that he is cracking down hard on government officials’ large incomes, illegal incomes, excessive incomes.”

Macau’s General Association of Gaming Industry Administrators and Promoters declined ABC News’ interview requests.

But association president Tony Kwok Chi-chung told a Leaving Hong Kong that Mr Chau’s arrest would have “significant impacts” on the city’s gambling industry, describing its VIP services as “industry leading”.

Jasper Lio, a sociologist and co-founder of Macaology, said Beijing’s crackdown on Mr Chau showed that, like Hong Kong, Macau was now on a shorter leash.

“Since Xi Jinping took power, Beijing has taken national security to a higher level, and Macao and Hong Kong are included in this consideration,” he said.

How the Glittering Gaming Center Was Born

Macau depends on gambling for its survival.

In the first quarter of 2021, despite the impact of COVID-19, gambling contributed 41.8% to Macau’s GDP, with one in seven residents working in the sector, according to the Macau Monetary Authority.

“We have a saying that there are only two types of jobs available for young people in Macau: working for the government or the casinos,” Sunny Au Kam San, a veteran local politician, told ABC News.

The history of gambling dates back to the 19th century when Portuguese colonial rulers made it legal so they could collect taxes from casinos.

Mr Au said the lack of resources in Macau made gambling the city’s main source of income.

“When Macau was handed over, Beijing also understood the reality and therefore allowed Macau to continue operating casinos.”

Beijing also initially saw Macau’s casinos as an opportunity to demonstrate its democratic system, according to Jasper Lio.

“The core value of ‘one country, two systems’ is to stay within the existing two-city system,” Lio said.

“In the case of Macau, this means that the gambling industry will not only be maintained, but will also improve under Beijing’s watch.”

“Everything comes from China”

One of the ways Beijing is establishing its connection with casinos is by opening up the huge Chinese tourist market to them by making Macau the only city where it is legal to gamble.

Today, as in Australia, Macau’s tourism relies heavily on the mainland Chinese market, with around 70% of its 27.9 million visitors coming from the mainland in 2019.

When other countries closed their borders during the pandemic, mainland Chinese visitors made up 92% of Macau’s tourism market, according to Glenn McCartney, associate professor of integrated resorts and tourism management at the University of Macau.

“If you look at half a million monthly visitors, it’s all from China,” McCartney said.

Heavy reliance on tourism – especially gambling – has put Macau in crisis during the pandemic, with its GDP falling by 56.3% in 2020.

But for Beijing, the pressure for Macau to reduce its gambling addiction is inevitable.

In 2021, Beijing launched a plan to diversify Macau’s economy by asking both Macau and neighboring Guangdong to invest in Hengqin, an area just between the two governance zones.

As Macau’s reform of the casino system is underway, that means new players could enter the market, and the three US resort companies and the three Chinese operators could lose their seats at the table.

Despite nerves within the industry, Dr McCartney said he was positive towards potential reform of the casino licensing system.

“It will bring stability,” he said.

“One of the issues that we have seen – and also from the authorities in Beijing – is that stability is very important in Macau.”

Will Macao be the next Hong Kong?

As well as reigning over its economic dependence on a handful of big players, Beijing has also embarked on a political crackdown in Macau.

Last year, he banned the city’s vigil assembly for the Tiananmen Massacre. It also bars 21 pro-democracy candidates from running in the September legislative elections.

This coincided with China’s implementation of a controversial national security law in Hong Kong.

Sunny Au Kam San, co-organizer of Macau’s Tiananmen Vigil and former council legislator, said that for years Macau’s pro-democracy group was so small it posed little threat to the pro-democracy camp. Beijing.

“Allowing the pro-democracy group to run for office at least could be symbolic and show that Macao is undertaking ‘one country, two systems’,” Au said.

The arrest of Alvin Chau could be just the start for Macau, according to analyst Valarie Tan.

She said that in the case of Hong Kong, Beijing had moved beyond the traditional pillars that supported Hong Kong society, including freedom of the press and independent judiciary.

She said a similar crackdown could be implemented across the mouth of the Pearl River.

“We should pay attention to Macau to see how it plays out,” she said.

“Macau has always been pro-Beijing and always been a good boy. But will that trigger something else?”