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China’s Xi Jinping Changes the Odds in Macau
Politics upends bets as corruption crackdown empties out casinos
China’s anticorruption crackdown has changed the fortunes for Macau’s casino operatores, whose shares have plummeted in the last 12 months. PHOTO: BLOOMBERG NEWS
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MACAU—If there’s one skill that the U.S. gambling moguls who staked their futures here have mastered it’s calculating the odds.
But after a spectacular run of success in Macau, the only place under Chinese rule where betting in casinos is legal, they’re flailing. A gusher of money and visitors that transformed this former Portuguese enclave into a gaming mecca that dwarfs the Las Vegas Strip is drying up.
The risk that none of them saw coming: politics.
A crackdown on corruption that has scared off many of their best customers —high-rollers who no longer dare show their faces in the VIP rooms—has become an unprecedented political exercise designed to rescue the credibility of the Communist Party and, in the process, consolidate the power of President Xi Jinping.
That makes it impossible to predict when it will wind down—if ever, since the task is theoretically never-ending.
Macau dramatically illustrates just how far China’ strongman leader is prepared to go with a campaign whose effects are now rippling into the wider economy.
All bets are off in this boomtown of half a million people on the Pearl River estuary where rules against gambling have never applied, even after the Portuguese handed it back to China in 1999. Mr. Xi has signaled he’s prepared to upend an entire industry that accounts for almost all the government revenue.
Just ask Steve Wynn, whose palatial casino complex gained fame for a smoke-belching mechanized dragon that rears up in the hotel lobby but which is now eerily empty on a Saturday night.
The provincial officials, state-enterprise bosses, real-estate tycoons and their entourages who once swept through Macau’s VIP parlors are a dwindling presence. Even the smaller fry who feed slot machines and play low-stakes baccarat are staying away.
In the decade through 2013, the year the anticorruption campaign began to bite, Macau’s gambling potential seemed almost limitless.
Revenues soared eightfold, adding the equivalent of a Las Vegas Strip each year. Even then, fewer than 2% of China’s 1.4 billion people had crossed the border into what is now a Chinese Special Administrative Region, like Hong Kong next door.
Sheldon Adelson, the backer of Sands Macao, filled in a stretch of sea between two islands and built the world’s biggest gaming floor. “We’re the largest investor of any kind in the history of China,” he boasted to the Associated Press in 2008.
But not even a financial commitment on that colossal scale could protect him when Mr. Xi decided to extirpate the rot within the party.
Shares of Macau’s six casino operators—including units of Las Vegas SandsCorp., Wynn and MGM Resorts International—have fallen an average of 56% in the past 12 months. More bad news is on the way as the campaign extends to illicit cross-border money flows. Under new rules that took effect just a few days ago, bank ATMs are spitting out less cash for Chinese travelers all over the world. That means less money coming through Macau’s casino doors.
Moreover, Macau dealings have lately caught the attention of U.S. federal law-enforcement authorities who are investigating an alleged bribery schemeinvolving payments to officials at the United Nations to gain support for real-estate development in Macau, people familiar with the matter said. The arrests last month of the Macau real-estate mogul Ng Lap Seng and his assistant are connected to the alleged scheme, those familiar with the matter said.
For almost a quarter of a century, political stability has been the one constant for foreign investors in China. For most of them, if they thought about the wider political picture at all, it was often to admire the efficiency of the Chinese brand of authoritarian capitalism that delivered high-speed railways, roads and airports in record time.
But Mr. Xi has thrown an unpredictable factor into the mix. Although he denies that his anticorruption drive is a disguised power struggle—“In this case, there is no ‘House of Cards,’” he joked on a state visit to America last month—its most prominent victims so far have been his rivals, including the former security czar Zhou Yongkang. Other powerful figures still stand in his way, and for the foreseeable future foreign enterprises -- not just the casinos—will have to contend with greater uncertainty.
Others who’ve taken a direct hit from the anticorruption campaign include Italian fashion houses, French cognac suppliers and Swiss watchmakers.
And the secondary effects are spreading through the broader manufacturing economy because, in a climate of fear, officials are reluctant to sign contracts that could attract scrutiny.
In the long run, a cleaner business environment should lower the cost of transactions for all players, including foreign investors, and help level the playing field.
As Mr. Xi continues to clean house, he has made clear to the casino moguls that if they want a future in Macau they’ll have to focus more on families and entertainment. The golden rule of gambling—“the house always wins”—no longer applies. In China, the president does.
