Analysts have played down the potential for any significant threats to the Macau and wider Asian gaming industry after the Chinese government issued a judicial interpretation of laws regulating foreign currency transactions.
The interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate, which came into effect on 1 February 2019, primarily target those attempting to move money outside of China’s banks.
In particular they provide more clarity on what activities are deemed illegal, such as fake transactions via over-invoicing or fake purchasing, illegally providing cash settlement or cheque-cashing services and all underground banking services. They also provide more specific sentencing standards for those caught in the act and outline various levels of offense.
However, while the crackdown could in theory cause major headaches for Asia’s VIP gaming industry – particularly in Macau – analysts were quick to play down any immediate concerns on Friday.
“It’s unclear as of yet what (if anything) the government will target,” said brokerage Sanford C Bernstein. “A strict reading of the rules implies almost all avenues of money movement outside of banks is restricted but the reality is that this was largely the case already.
“The new rules largely seem to highlight that these types of activities are not allowed and will be prosecuted. But we have seen crackdowns before on these activities prior to the announcement of these new rules. The rules give law enforcement more tools to work with in targeting activity that was already largely operating outside the bounds of what is allowed.”
JP Morgan analysts offered a similar outlook, stating in a note, “We think this is a high-level interpretation of existing law, which in itself doesn’t necessarily indicate any incremental change in the government’s stance … while there wasn’t any mention of Macau or casinos either (obviously).
“It all comes down to (1) the level of enforcement of this fine-tuned law; and (2) how (much more) serious the government wants to clamp-down on illegal FX activities and underground banks. It goes without saying the impact on Macau’s high-end demand could be severe, if and when the government significantly steps up the level of clamp-down. But this has always been the key risk for the sector and the news merely reminds us of such risks, in our view.”
One potential long-term impact, according to Bernstein’s Vitaly Umansky, Eunice Lee and Kelsey Zhu, could be further consolidation of the junket industry “to create larger, more diversified capital bases.”
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