Corruption Just Became More Expensive

In the nearly two years since the anti-corruption campaign started, the casino industry in Macau has changed dramatically. The seemingly endless flow of high-rollers has dried up and the casinos are scrambling to build a viable business model around “mass market” gamblers.  It is not an easy proposition as it would take hundreds, sometimes thousands of average gamblers to replace each of the big spenders lost in the crackdown.

For at least the first year after the crackdown started, analysts and operators alike made predictions about a return to normal.  They were sure the good times would come back and the days of disastrous revenue declines would be remembered as a bad dream.  Now, no one predicts a return of the old model.  Certainly the government is not; both the central Chinese government and the local Macau government are pushing for a new Macau, an international tourist destination. For them the old Macau was a bad dream.

The crackdown has not eased and many of those convicted will be spending the rest of their lives in prison.  The sentences do not include time off to visit the casinos in Macau.

The former vice-governor of Guangdong, Liu Zhigeng, is under investigation for his reported involvement in corrupt activities, the Central Commission for Discipline Inspection (CCDI) announced on Monday. The Communist Party expelled Liu from the Party and Civil Service, subsequently handing him over to the judiciary department. The ongoing investigation into Liu’s activities was announced on February 24th. Macau Daily Times, 4-20-16

Officials who commit severe corruption crimes, such as taking a huge amount of bribes, may face a new sentence now — life imprisonment without parole, according to an interpretation issued on Monday by the top judiciary authorities. “The life sentence without parole is a new category of penalty for corruption, which means convicts given such punishment will spend the rest of their life in prison, no matter how well they behave while serving their sentences,” said Pei Xianding, chief judge of the criminal tribunal under the Supreme People’s Court. China Daily, 4-10-16

The old Macau is dying and the government is pushing change.  In the new city, gambling will still exist, but it will not be the main attraction.  The government of Macau is in the process of issuing its first “five-year” plan in the grand tradition of the Soviet Union and Communist China.   The plan calls for growth, improved industry structure, international tourism, a more efficient government and a better life for the citizens of the city.  It also calls for the casinos to achieve nine percent of revenue from non-gaming activities – an increase of two and half percent from current ratios.  Immediately after releasing the preliminary plan the government demonstrated its commitment to a better Macau by inviting Wushu masters for a grand gathering.  Wow! If I had a couple of billions of dollars invested in a casino in Macau, I would be so excited.

“The preliminary plan sets out seven major targets; namely, maintaining stable economic growth, improving the structure of industries, improving the city’s role as an international tourist destination, improving the quality of life and the quality of education for residents, protecting the environment, strengthening the efficiency of the government and expanding the structure of the legal system,” said Mr. Chui. Macau Business, 4-25-16

The government is inviting wushu masters from all over the world to join Macau’s four-day Wushu Grand Gathering in August, Secretary for Social Affairs and Culture Alexis Tam Chon Weng told reporters on Thursday…“Many foreigners like wushu. We’ll make the Wushu Grand Gathering a wushu carnival,” Tam said. Macau News, 4-25-16

Buried in the plan is the more unnerving concept of improving the structure of industries.  Just what does that mean for the casinos? Only the Central Communist Party knows – it is not the party’s plan, but it is driven by party policies.  In time the new Macau may be a success.  If any of the casino operators that are in today are still there at that time, they might be very profitable. The problem is not in the long-term, but in the short-term and that may be very painful.  But it could be worse; the casino owners could be sitting in prison with the corrupt officials.

In the United Kingdom, the gambling commission found Gala Coral negligent in discovering the source of a gambler’s funds.  A strict application of that principle might find the casino operation complicit in the corruption in Macau.  Of course, I don’t think that will happen.  But, I do think that it is possible that during the licensing renewal process it could become an issue. It could give authorities reason to grant licenses to new operators and not the existing ones.  What better mechanism for improving industry structure than changing from a “foreign owned” casino industry to a “Chinese owned and operated” industry?  In that case, the price of catering to the corrupt VIP gamblers will have been very high indeed.



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