Inside Asian Gaming CEO Andrew W Scott recently met with Suncity Group CEO and Director Alvin Chau at SKY 21, atop Macau’s AIA building. One of Suncity’s many non-gaming offerings, the well-known bar and restaurant was the perfect venue for an after work drink and an in-depth discussion about the state of Macau’s VIP industry, and potential solutions to conflicting gaming regulations in Macau and mainland China.
Images: Eduardo Martins
Andrew W Scott: Casino gambling is illegal in mainland China but is the primary economic driver of Macau. This creates somewhat of a contradiction given that Macau is part of China. How does this apparent conflict play out in practice?
Alvin Chau: The central government has stated it is committed to cracking down on online gambling, fraud and illegal financing with the purpose of preventing the illicit outflow of capital and I agree that the Macau SAR government and the gaming industry should fully cooperate.
Since the handover of sovereignty back to China in 1999, Macau is the only place for legal gambling on Chinese soil under “One Country, Two Systems.” In the past 20 years there have been many gray areas in legal gambling due to differences in the rules and laws on both sides and the ambiguity which arises as a result. Based on the current system, I think regulation is needed to supervise Chinese gamblers in terms of their capital quality, as well as the capital sources of casinos and VIP rooms, while collecting data on gambling funds in Macau.
This regulatory system can avoid authorized people or entities running casinos or VIP rooms in Macau falling into a gray area in relation to laws in mainland China.
It can also stop some people taking advantage of loopholes to make illogical deals offering huge amounts of credit to gamblers, or settling debts with gamblers through illegal means such as the forced sales of assets or share transfers on the mainland.
The regulatory system is necessary to solve the numerous social problems created on the mainland due to the Macau gambling industry, and not make mainlanders feel like Macau casinos are mysterious and sinful abysses.
AWS: Macau’s gaming industry has boomed in the past 20 years on the back of the flow of capital from the mainland to Macau, yet as you say the mainland has strict laws over capital outflow. What are the main problems which have surfaced in relation to this?
AC: We need proper financing channels. In the past, most of the inflows of capital to Macau were done through illegal channels to support the development of the Macau gaming industry. Capital comes to Macau through illegal channels and we cannot deny that Macau’s legal gaming business benefits from this capital, so this topic is quite sensitive.
On the one hand, mainland China supports Macau’s economy under “One Country, Two Systems.” Thanks to the support of the motherland through supporting the liberalization of the Macau gaming industry and the launch of the Individual Visit Scheme (IVS), the Macau gaming industry has soared.
On the other hand, mainland authorities have cracked down on illegal financing channels to Macau. The lack of clarity between the two systems has made it difficult for gaming operators to comply with the laws. I hope the relevant institutions in Macau can establish a comprehensive and complete set of business strategies and financing channels which are compliant with the laws of both sides.
So because mainland authorities have to clamp down on the illicit outflows of capital from the mainland, this poses an indirect negative impact upon Macau’s gaming industry and deals a huge blow to the Macau economy.
AWS: As CEO and Director of the number one VIP gaming promoter in Macau, you are obviously seen as a leader in the industry. What’s your view on how this conflict between the goals of mainland China and Macau could be solved?
AC: Banks in Mainland China could issue travelers checks to mainlanders that Macau casinos, VIP rooms and banks could cash in. Using this approach, banks could vet the capital quality of the individuals using the checks while banks and the mainland authorities could also supervise the financial status of each gambler. This will also reduce the chances of Macau gaming entities lending huge amounts to gamblers, and reduce the risk of bad debt.
There could also be new legislation capping the amount of gambling credit. Maybe the credit could be capped at a certain multiple or proportion of the amount of the travelers checks. Through this, we could see clearly who is providing credit and how much, as well as what is legal.
In addition to the supervision of the credit system, the betting amounts should also be considered. To avoid criticism of “irrational gambling behavior” I personally feel that casinos should reduce the maximum bet for any one hand to HK$1.5 million (US$192,000).
The way capital has been moving to and from Macau has created gray areas. This has become more complicated as mainland China authorities have vigorously cracked down on funds moving to Macau illegally. Why don’t we consider making this process standardized, allowing mainlanders to experience gambling, which is a type of consumer expenditure, in a more transparent way in Macau?
AWS: How else could we achieve this sort of transparency for the industry?
AC: Real name registration for gamblers from the mainland in Macau. By having mainlanders who come to Macau to gamble register their real names it would help the Macau government have better oversight of complicated capital channels and fulfill its responsibility to cooperate with the mainland government in combating illegal capital outflow. This would also play an important role in counting the number of gamblers and tracking source of funds in the future.
AWS: Gambling has been the primary industry of Macau for many years but we are seeing mainlanders becoming increasingly involved in this industry, despite gambling clearly being illegal in their homeland. Do you see this as an issue?
AC: Yes – mainland people should be forbidden from participating in gambling operations. For a long time, the laws and regulations of Macau and mainland China have been inconsistent on whether to restrict the identity of those who participate in gambling operations. There is no provision in Macau law stating that partners in any business operation cannot come from the mainland.
However, according to mainland law it is clearly illegal for mainland people to invest, participate, organize and promote gambling activities and business either on the mainland or in Macau. Therefore, mainland people should not be allowed to open accounts as business partners. Only gamblers should be able to open accounts – using their real names – and only those who can write travelers checks should be legally allowed to take out gambling loans.
AWS: Credit plays an important role in the IR industry all over the world but rules for credit vary from jurisdiction to jurisdiction. What are your thoughts on extending credit for tourism, specifically gambling, in Macau?
AC: All credit issued in Macau’s casinos and VIP rooms should be monitored and declared. Macau should be a pioneer in Asia and around the world in developing the gambling industry.
From the perspective of gambling revenue, we have surpassed Las Vegas in the United States. Gambling is Macau’s leading industry. Macau an autonomous region, small in geographical size, yet ranks number one in the world in this industry. It has a huge market of 1.4 billion people in China, and relies on its geographical advantages in Asia. We should protect that while developing more diversified entertainment elements and constantly improving regulations and supervision.
It is necessary, in my opinion, to report and supervise gambling lending and borrowing. It is imperative to have the real names of customers and transparent gambling capital channels. We should also supervise the legitimacy of gambling lending and recognize our legitimate rights and interest.
AWS: Obviously gamblers sometimes default and we know debts are not enforceable in mainland China, however there have been some instances, such as in Hong Kong where a casino concessionaire won a famous case, in which debts were enforced. No doubt this causes confusion. What are your thoughts?
AC: Based on my previous recommendations, mainland courts should also start to accept and legally apply the judgment of Macau courts on enforcement of gambling debts. As I said, if mainland visitors enter Macau’s casinos and gamble, they should have to register using their real name to ensure they have legitimate capital channels. The regulatory authorities need to then confirm the legitimacy of any loan. Once this is in place, the mainland courts could accept any judgments made in Macau on repaying gambling loans.
AWS: You are proposing an entirely new framework that would avoid ambiguity between Macau and mainland China. If this were to happen, how do you see the future playing out for Macau in the long-term?
AC: I believe this would help Macau’s gambling industry develop openly and squarely so that it can truly become a multi-dimensional entertainment and tourism city.
A diversified entertainment economy is not solely about the content of its tourism products. Instead, we need to improve the legal basis, supervise operations and formulate detailed laws and regulations on the gambling habits and capital of each mainland tourist. Only in this way can we effectively carry out and independently measure return on investment, which would then enable us to determine the proportion of investment into non-gambling versus gambling products. We cannot rely on opaque gambling funds to support non-gaming products when we cannot accurately calculate returns in the long term. With legal gambling capital, investors would be more confident to invest in non-gambling products.
And not all non-gambling products are matched to all gamblers. We should address current structural problems, which include customers from a single source and the weak design of tourism products. As long as the relevant laws are enacted, investors will have confidence in the growth of the industry. If there is no sense of security, investment will only be a “trend” investment, short-sighted and eager for quick success and instant benefits, which will not help Macau’s long-term industrial development in a diversified way.
If there are complete laws and regulations, capital monitoring, and regular exchanges, communication and discussion between the two governments on the gambling industry, Macau will truly become a world center of tourism and leisure.
