Less sin, more Shrek in Macau as China takes aim in corruption fight

MACAU Sun Nov 3, 2013 4:00pm EST

MACAU Nov 4 (Reuters) - The media scrum surrounding the politically connected chairman of a Chinese financial services company was interested in one particular unpaid loan.

The amount - $1.3 million - was nothing extraordinary. But the story behind it was. Xie Xiaoqing, chairman of Rongzhong Group, was sued in January for failing to repay the money to Sands China Ltd, U.S. billionaire Sheldon Adelson's Macau gambling unit.

Xie has said he wasn't gambling and the money was for a friend. A spokesman for his company said Xie was not available to comment.

For many years, politically linked tycoons and government officials were frequently spotted betting millions in the southern Chinese city's lavish VIP rooms. But their numbers have dwindled because of an anti-corruption campaign led by China's new leader Xi Jinping.

Just a few years ago, that might have devastated Macau, which typically generated 70 percent of its revenues from high rollers including wealthy government officials. In the third quarter those big whales accounted for just 65 percent, according to government data, the lowest share since 2006.

Yet annual revenues are on a pace to rise 16 percent to $44 billion - seven times what Las Vegas took in last year - and October's numbers smashed analysts' forecasts, jumping 32 percent to a record $4.6 billion.

Middle-class mass-market gamblers have taken up the slack at just the right moment, and some of those government officials are still finding their way in, albeit more quietly.

"It is much stricter with the leadership change," said Li, a Macau junket operator who helps organise high rollers' travel and hotel arrangements and asked to be identified only by his surname. "They (officials) keep a low profile and stay in service apartments arranged by other people" instead of opulent casino suites, complete with massage rooms and karaoke parlours, that they once preferred.

Interviews with more than a dozen casino executives, government officials, junket operators and industry analysts show Macau is learning to live with closer scrutiny from Beijing. Most sources asked for anonymity or to be identified by only one name because of the sensitive topic of corruption.

TOMORROW IS EVEN BETTER

Beijing is both subtly and openly making its presence known in Macau, a tiny metropolis about one-third the size of Manhattan, spread across a densely populated cluster of three land masses.

Across from Galaxy Entertainment Group Ltd's gold turreted casino on Macau's Las Vegas-style Cotai strip stands a gleaming new People's Liberation Army building. Billboards hoisted next to the towering structure depict armed soldiers on guard with the caption, "Macau tomorrow is even better".

Beijing is also deepening ties with casinos and the junket operators that bring in the wealthy VIPs by helping to arrange their gambling credit and collecting their debts.

New regulations put in place over the past year in Macau require junkets and casinos to report suspicious transactions and player lists each month, including details of when they played and how much they won or lost. Macau is set to implement a new money laundering law next year which may allow authorities to freeze and seize assets.

This close scrutiny is a sharp change from just a decade ago, when violent gangs controlled the VIP gaming rooms and street crime was a regular occurrence.

"In the early days it was pretty much anything goes," said a former executive at the Venetian Macau, a glamorous casino, hotel and luxury shopping centre owned by Sands. "It really was the Wild West. There really was very limited, if any control."

Government officials would typically visit Macau for leisure or personal business, using fake passports or special permits which gave them easy access, according to junket and casino executives.

Since the corruption crackdown, officials have been finding some creative ways to avoid detection. Macau casinos have some of the most sophisticated surveillance technology yet spotting officials gambling on the property can still be difficult, said a senior executive at one of Macau's newly opened resorts.

"There are some low-ranking officials from state-owned enterprises who still come but if they have fake identification it is very difficult for us to spot," the executive said.

In one recent example, casino workers caught an official whose passport had two different birth dates.

Some officials are getting their gambling fix without setting foot in Macau, placing bets by calling someone sitting at a baccarat table and giving verbal instructions, said a junket operator who gave his English name as Mark.

The VIP segment isn't going away. Macau's 35 casinos still rake in big bucks from these gamblers who drop 1 million yuan ($164,100) on a typical visit. But the high rollers are now more likely to be wealthy private businessman rather than government officials and politically connected tycoons.

Zhonglu Zeng, a professor at Macau's Polytechnic University who co-authored a study on high rollers from mainland China, said although the total number of high rollers are now bigger than before, the proportion is now heavily skewed to private business owners than officials.

Academics estimate that government officials now comprise perhaps 3 percent of VIP room visitors, down from about 30 percent 3 years ago.

FAMILY-FRIENDLY MACAU

Gaming taxes generate 80 percent of Macau's government revenues, and both Beijing and local authorities are keen to diversify. Professor Gao Peiyong, director of the National Academy of Economic Strategy told local media last week that the proportion of gaming tax making up financial revenue "is too large to be healthy."

Casinos have been under pressure by Macau authorities to expand non-gaming amenities to attract families and a wider traveller base. Upcoming tourist-friendly events include the Grand Prix, a high-profile boxing match featuring Manny Pacquiao and celebrity award shows.

Sands signed a deal with DreamWorks Animation in April which allows the casino to use characters including Shrek and Po from Kung Fu Panda. Costumed employees regularly roam the lobby and shopping centres, interacting with customers.

Manuel Neves, head of Macau's gaming body the DICJ, said the ultimate aim is to emulate Las Vegas's feat of generating as much revenue from outside the casinos as inside.

"The transformation is big and fast. We still depend a lot on gaming. With the gaming tax the government can do a lot of things, one is to push the other activities," he said.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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