CHINA is getting closer to publicly announcing that the Philippines is under its blacklist as a tourist destination due to its displeasure that the new Ferdinand Marcos, Jr. government hasn’t made any move to close its overseas gambling operations in the country, diplomatic sources said.
The only message from the President so far — a weak one— on the issue was through the Office of the Press Secretary officer in charge: “The President is closely monitoring this and as far as the President is concerned the Philippine National Police is in charge of this matter.”
The police are being left to decide such a crucial issue involving a superpower in the region and our second biggest trading partner?
For the Chinese, that meant a “no,” Marcos won’t move decisively in closing down its Philippine overseas gaming operations (POGOs). Since 2019, China has repeatedly told the Philippines that online gambling operations have worsened the spread of illegal gambling in their country. with more and more young Chinese addicted to it, and they would want these closed.
“Maybe we’ll just make the decision for Marcos,” a Chinese diplomat said, as the President seems to have had so far a track record of taking too long to make decisions. On the other hand, perhaps US Vice President Kamala Harris’ visit to Palawan would convince the Chinese to make their own decision sooner than later.
China’s concern about online gambling in the Philippines is part of its bigger efforts in the region.
In 2019, China announced a so-called blacklist of countries to which travel restrictions would be imposed on Chinese citizens, a key move to close down online gambling in these nations targeting the China market. While China has not named the countries in the blacklist, many believe this included the Philippines, Cambodia and even Australia which have online gaming and casino operations. Cambodia, which had a bigger online gambling sector, closed this business down in 2020 under pressure from China, and later ordered even its casinos closed down.
China itself clamped down on illegal gambling within its territory, starting in 2019.
In 2019, 25,000 people were arrested in China for illegal betting-related activity, which increased to 110,000 people in 2020. Illegal betting raids were undertaken in every province across China, as well as transnationally, disrupting online betting hubs in the Philippines and Cambodia.
A common view is that China is intent on closing POGOs here because legitimate Chinese tourists become prey to the criminal syndicates which often accompany these enterprises. However, China actually has major economic reasons to clamp down on online gambling based outside its borders, according to a study by the Asian Racing Federation released in September.
“The key reason for China’s crackdown on illegal betting is fear over unregulated capital flight out of China, which is theorized to be harmful to the Chinese economy because it:
“1) Reduces China’s government revenues primarily through erosion of its tax base; 2) reduces domestic market liquidity, which can cause the value of assets (such as real estate) to decline, potentially resulting in social instability; 3) puts downward pressure on the yuan which, in turn, undermines Beijing’s ability to control yuan exchange rates; and 4) downward pressure on the yuan in turn incentivizes domestic savers to move their currency into stronger foreign currencies, creating a vicious circle of a constantly devaluing yuan.
“Illegal betting is not the only way unregulated capital moves out of China, but it may represent a fifth or more of total outflows. This is based on the People’s Bank of China’s 2019 estimate that illegal betting-related outflows are in the order of 1 trillion yuan ($154 billion). That would have represented 2 percent of China’s record capital outflows, of $725 billion in 2016.”
Philippine data partly confirm the capital outflows due to online gambling. Data from the Anti-Money Laundering Council showed P14 billion out of the P54 billion, or 26 percent, of POGO transactions from 2017 to 2019 were deemed suspicious transactions, a data category usually denoting a money-laundering operation.
The probability is high that the Chinese would likely soon announce that we are being put in its “blacklist” of tourist destinations — since it is part of a bigger project, as reported by the Asian Racing Federation:
“In 2019, with unregulated capital outflows rising again, Chinese authorities launched a three-year campaign against online betting codenamed ‘Operation Chain Break’ as part of its efforts to combat such illicit transfers. As well as capital flight, other reasons for the crackdown on illegal betting include social harms such as issues related to gambling, fraud and the exploitation of illegal Chinese workers in offshore illegal betting hubs.
“Operation Chain Break is broader in scope compared to previous anti-illegal betting campaigns, targeting overseas entities and countries, and involves various government stakeholders, including the propaganda department, the cyberspace affairs committee, the People’s Bank of China, the National Immigration Administration and the foreign affairs, security, finance and commerce ministries, among others.
“A series of concerted law enforcement and legislative efforts have targeted cross-border illegal betting (both online and land-based) in 2020. This includes a non-public government blacklist of destinations assessed to attract Chinese citizens to gamble overseas, an amendment to criminal laws on organizing or soliciting Chinese citizens to gamble overseas and publicity campaigns including a dedicated website to report illegal online betting.”
In the Philippine case, the rationale for allowing POGOs to operate here is the estimated P65 billion they directly contribute to the economy, which was 0.3 percent of the GDP in 2020; its employment generation of 20,000 Filipino workers; and the P7 billion in taxes collected (2021 figures) from these.
Despite widespread complaints by condominium owners that Chinese POGO workers often leave their units vandalized, the cessation of this business will seriously depress the Metro Manila property markets. A property consultant claimed that the POGOs’ 1 million square meters of office space represent P18.9 billion in annual office rentals.
I don’t think though that government policy to allow these POGOs to operate really involves a cost-benefit calculation. As almost always in this country, it is oligarchs, foreign and local, above-ground and underworld, who really determine economic policy.
The POGO industry is such a shadowy world that — would you believe — the Anti-Money Laundering Council in its study of the industry reported that “the offices of the POGOs, local gaming agents and authorized representatives do not exist at the registered addresses provided by Pagcor (the agency supposedly regulating them).”
No wonder there are so many applicants and so many lobbyists for the posts of chairman and member of the board of directors of Pagcor every time a new administration comes in. One of its current officers should declare a possible conflict of interest if indeed his clan’s huge property had been sold to one of the biggest POGO operators, to be used for online gambling.
For such a huge industry, the businessmen behind it aren’t really known, although it is whispered in posh bars that a Chinese tycoon supposedly called Kim Wong and a Filipino casino magnate are the big bosses of the industry.
A list of the operating POGOs is included in this column. If you know who owns them, please email me.
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