Banco: The impact of China's anti-corruption campaign on tourism and gambling in Macau

Abstract

Macau's casino sector is many times larger than the Las Vegas Strip, drawing tens of billions of dollars annually from millions of predominantly Mainland Chinese gamblers. The city's casino industry is also a gateway through which funds may be laundered and illicitly extracted from Mainland China. Despite these characteristics, the market remains relatively unexamined in academic literature. This thesis examines the nexus between Macau's casino market and Mainland Chinese party politics. Specifically, the study focuses on the impact of Chinese President Xi Jinping's anti-corruption campaign on Macau's VIP baccarat and tourism markets. The study outlines the background of Macau's gambling and tourism markets, and the nature of the connexions between VIP baccarat market and the laundering and illicit extraction of funds from Mainland China. Using panel data methodology in conjunction with a range of official and third party sources, the study engages in ex post analysis of the campaign's impact on Macau's VIP baccarat and tourism markets. The study makes novel use of Internet search analytics and media reports to arrive at an accurate campaign start time, while using Internet-sourced reports of anti-corruption activity as a proxy for the campaign's intensity. Building on a model of the corrupt government official or would-be launderer as a rational investor, the study proposes that changes in VIP baccarat revenue and in tourists' visitation and spending behaviour are explicable as rational responses to the changing risk of legal sanctions arising from the anti-corruption campaign. The study concludes that the campaign exerted significant negative impacts on VIP baccarat revenues and on Mainland Chinese per capita tourist expenditure, but had only minor impacts on mass table baccarat and on the travel and expenditure behaviour of non-Mainland Chinese tourists. As firms around the world become increasingly dependent on Chinese consumers, and as Chinese firms interact increasingly with the global market, a better understanding of the reach of Chinese party politics into the corporate world is long overdue. This study offers original insights into the determinants of Macau's baccarat and tourism markets conditions, and the wide-ranging impacts of Mainland Chinese party politics.