China’s Digital Yuan Launch Could Threaten Macau’s Gambling Industry

Gambling companies in Macau are exiting the industry or have already started diversifying their operations away from the city. They say that the gambling industry is in danger if China’s digital yuan is fully implemented across the nation. The industry’s revenues have already been affected by stricter regulations and the COVID-19 pandemic over the past few years. The city of Macau has experienced a drop of revenues by $27 billion this year as COVID travel curbs kept lucrative Chinese gamblers away.

While visitors are slowly returning, gambling operators see China’s intention to launch the much-awaited state-backed cryptocurrency, digital yuan, as a potentially greater threat to the casino industry in Macau, which is the largest gambling hub in the world.

This comes after Macau gaming regulator, the Gaming Inspection and Coordination Bureau, approached a number of casino operators to discuss the possibility of replacing Hong Kong dollars with the use of digital yuan in purchasing gambling chips. The discussion has sent shock waves among gambling operators in Macau. Hong Kong dollars’ relative anonymity has been playing a key role in the operation of Macau’s gambling industry.

However, if digital yuan is implemented, then this would imply that Beijing would have complete visibility and control of financial flows in Macau, which is known for its lax regulatory system for its casinos. The U.S State Department has recognized the city as a money laundering hotspot.

High-roller Chinese gamblers may shy away from using the Macau casino junket system, which in the past has been linked to money laundering activities. The role of junket operators normally involves arranging hotel stays, private jets, and other accommodation and support services to high-roller gamblers for betting in Macau’s casinos.   

Macau junket operators are, therefore, assessing options to counter threats facing revenue generations in the gambling industry. Some small operators have already given up completely. For example, Eric Leong, who has been providing junket services to Chinese gamblers for decades, exited the gambling industry this year and has begun import and distribution of consumer goods such as luxury bags and cosmetics.

Leong thinks that if the digital yuan is implemented, then it would ruin Macau’s gambling industry. He stated: “Everyone in this industry is trying to survive however they can. If the water is too clean, there’ll be no fish. The big gamblers will go away if casinos need to be that transparent.”

Furthermore, an associate professor at the Centre for Gaming and Tourism Studies in Macau Polytechnic Institute, Zhou Jinquan, talked about the potential impact of the CBDC on gambling in Macau. Jinquan said:

“If applied widely, the digital yuan will…breach customer privacy and restrict people’s betting amount to the potential conversion cap imposed on the digital yuan to foreign currencies.”

Macau-linked shares declined in trading because of the fears associated with the new rise of digital yuan usage. On Wednesday, December 2, Galaxy Entertainment Group Limited, which has one of the largest shares of high-rollers revenue among casino operators in Macau, declined more than 3%. Suncity Group Holdings Limited, another big junket operator in Macau, fell as much as 2.8%. Wynn Macau Limited and SJM Holdings Limited also declined as much as 2.5% and 1.4% respectively.

While Macau and Hong Kong are two special administrative regions of China, Macau city is the only part of China where gambling is legal. Gambling is one of the major industries of the city. More than 58,000 people are employed in the gambling and gaming industry and almost 98% of them are working in casinos. In Macau, Casinos contribute revenues of around $45 billion as 66% of all revenues generated by casinos made from high rollers. As China is accelerating the digital yuan pilot program in major cities, the introduction of the CBDC would clearly have an impact on Macau’s junket industry.