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The Business Herald’s markets and banking reporter.

Cooling down the hot money from China's high-stakes gamblers

SkyCity could suffer from China's crackdown on currency exports.
Macau's Casino Lisboa. China's anti-corruption campaign has hit gambling revenues in Macau. Photo / Bloomberg
Macau's Casino Lisboa. China's anti-corruption campaign has hit gambling revenues in Macau. Photo / Bloomberg

Casino operator SkyCity Entertainment is keeping a close watch on China's capital control crackdown, which a gaming analyst says could have an effect on the lucrative Chinese high roller gambling market in Australasia.

China's central bank pledged last week to take a hard line on illegal currency transactions - including those facilitated by underground banks - used to sidestep that country's foreign exchange quotas.

Chinese nationals are officially restricted to the equivalent of US$50,000 ($77,000) a year in foreign exchange, although loopholes are used to get around the restriction.

VIP junket operators, who lend money to wealthy Chinese for gambling overseas, often use the underground banking system to get around China's capital controls.

The crackdown comes as SkyCity reports strong growth in Asian high rollers visiting its casinos.

In a trading update last week, the company said it was seeing strong growth in its international business, with turnover exceeding $7 billion in the six months to December 31, up from $4.7 billion in the same period a year earlier.

The firm, which operates three casinos in New Zealand and two across the Tasman, has even been considering purchasing a private jet to shuttle wealthy gamblers between its casinos.

SkyCity's Aussie rival, James Packer's Crown Resorts, already operates a number of jets.

Aaron Fischer, head of consumer and gaming research at Hong Kong-based sharebroker CLSA, said the strengthening of controls, combined with Asian market volatility and China's economic slowdown, could affect the high roller gambling market across Asia this year.

"These things could have a negative impact on revenues in New Zealand as well," he said.

China's capital outflows are estimated to have reached US$1 trillion last year, a more than seven-fold jump from US$134.3 billion in 2014, according to Bloomberg.

The bolstering of capital controls aims to reverse the surge in outflows, which took place as investors, spooked by a weakening Chinese yuan, moved cash out of Asia's biggest economy.

A SkyCity spokeswoman said the firm was yet to see any impact from the capital control crackdown, but that it was continuing "to monitor the situation closely".

"Given the uniqueness and quality of the SkyCity offering, it is our expectation that international business activity will continue to perform robustly over the medium-term, which is consistent with the expectations of the majority of market commentators," she said.

Meanwhile, Fischer questioned how much benefit casino operators were getting from a Chinese anti-corruption campaign, which was expected to push high-end gamblers away from Macau, the only region of China where gambling is legal.

He said much of the lost revenue appeared to have "evaporated" rather than being absorbed by gaming operators outside Macau.

After peaking at around US$30 billion in 2013, revenue from high rollers at Macau's casinos is estimated to have halved since the anti-corruption drive kicked off.

"There's no way that US$15 billion has been absorbed by other markets around Asia-Pacific," Fischer said.

SkyCity expects net profit will be in the range of $69 million to $71 million in the six months ended December 31, up from $54.6 million in the same period a year earlier. Its shares closed up 6c at $4.67 yesterday.

High roller growth

SkyCity gambling turnover from VIPs in the six months to Dec 31:

• 2014: $4.7 billion

• 2015: Over $7 billion

Main markets for SkyCity's high rollers:

• China

• Southeast Asia

• South Korea

More criminal funds could end up in NZ

China's putting the handbrake on citizens taking money out of the country could lift the proportion of criminal funds coming into New Zealand.

Anti-money laundering expert Ron Pol said any new Chinese controls would need to be more effective than earlier attempts, which failed to stop vast sums leaving its borders.

"It is possible that new controls may change the relative proportion of legitimate and illicit funds," said Pol, a Wellington adviser and researcher on anti-money laundering measures.

"That is because controls will likely be more effective against legitimately earned money leaving the country than dirty money," he said.

China, the world's second-largest economy, leads the world when it comes to illicit capital flows, according to a 2015 report from the United States State Department.

Washington-based research firm Global Financial Integrity, according to that report, estimates that more than US$1 trillion of illicit money left China between 2003 and 2012.

- NZ Herald

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