Macau Corruption Crackdown Targets Illegal Currency Exchanges on Cotai Strip

Posted on: July 8, 2018, 08:00h. 

Last updated on: July 8, 2018, 07:19h.

Authorities in Macau have arrested 13 Chinese mainlanders on suspicion of operating illegal currency exchanges on the Cotai Strip, Radio Macau reported Wednesday.

Illegal currency exchange
Illegal currency exchanges convert Yuan into Hong Kong dollars for gamblers in Macau, allowing them to avoid restrictions on the movement of cash from the Chinese mainland. (Image: Yujing Liu/South China Morning Post)

The gambling hub’s Judiciary Police has stepped up operations against the exchanges in recent weeks. A similar raid occurred on June 12, in which eight people were arrested, according to GGRAsia.

Gamblers use the exchanges to circumvent legal limits on the movement of cash into the gambling hub and the daily ATM withdrawal limits for UnionPay cards, China’s only domestic bank card.

There has been increased activity on the mainland, too. In May, Chinese police busted dozens of exchanges close to the Gongbei checkpoint in Zhuhai, which borders Macau.

Macau police chief Sit Chong Meng told media two weeks ago that his department had been involved in a concerted effort to counter the exchanges throughout the year and that “hundreds” of illegal operators had been deported to the mainland and banned from Macau for a period of three years.

Pressure on the Yuan

The crackdown is likely a reaction to the recent softening of the yuan, as the Chinese government seeks to prevent further pressure on the currency by clamping down on capital flight.

The border raids coincided with the sudden removal in early June of UnionPay ATMs from pawnshops in and around the enclave’s casinos.

Macau’s pawn industry also provides a channel to swerve rules on the cross-border movement of cash by allowing mainlanders to purchase high-value items with bank cards that can then be sold back to the broker for hard currency.

The incidents have raised fears that Beijing was stepping up its ongoing “anti-corruption” financial crackdown, which it unleashed on an unprecedented scale on Macau in mid-2014, sending the enclave spiraling into a two-year-long economic slump.

Growth Slows, Stocks Tumble

Beijing ultimately eased off, and Macau began its recovery around the summer of 2016. Since then, it has enjoyed 23 straight months of growth, but in May and June growth slowed, missing analysts’ forecasts, and investors in Macau casino stocks have gotten jumpy.

Some analysts were quick to downplay the impact of the ATM disappearances. Morgan Stanley said their significance was “overblown.”

“Historical efforts by central banks and monetary authorities have had minimal impact on gross gaming revenue [in Macau], while making the industry structure much more robust and sustainable in the long term. We expect this to be similar,” it said.

But analysts at Daiwa aren’t so sure. They believe the market had “downplayed the potential implications on the sector as this latest development poses heightened risks on the major liquidity channels in Macau.”