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Stakes high for online gambling as Xi meets Duterte

Explosive growth triggers Chinese crackdown

Philippine central bank governor Benjamin Diokno told reporters Wednesday that officials are bracing for the possible end of online gaming. (Photo by Manda Yeung)

HONG KONG/MANILA -- Online gambling operators and auxiliary businesses will be watching closely as Philippine President Rodrigo Duterte meets his Chinese counterpart Xi Jinping in Beijing on Thursday.

China-focused online gambling has become a powerful economic driver in both Manila and the Cambodian port city of Sihanoukville, despite the two national governments ranking among China's closest regional allies, where gambling has long been banned.

Manila and Sihanoukville now host more than 50 China-focused online gambling operations each. The online gaming boom has also seen the influx of hundreds of thousands of Chinese workers, which has been a boon for property developers.

Both cities' gambling sectors have been on edge since Beijing suddenly put the industry in its sights in July.

"Online gambling is a most dangerous tumor in modern society, detested by people all across the world," China's Foreign Ministry spokesman Geng Shuang told reporters last week when asked about online gaming in the Philippines and Cambodia.

Geng's comments followed pledges by the Cambodian government to stop authorizing online gambling after current annual permits expire Dec. 31 and by Manila to freeze the issuance of new licenses for what are known as Philippine Online Gaming Operators, or POGOs.

China wants more, however.

"We hope the Philippines will go further and ban all online gambling," said Geng, also noting that Beijing appreciated the pledges by Phnom Penh and Manila. "This will help create an enabling environment for our bilateral relations and peace and stability in the region."

Many are worried about how far the drive may go. With real estate consultancy Colliers estimating that POGOs currently occupy nearly 1 million sq. meters of office space around Manila, investors have been selling off shares of Philippine property companies seen as particularly exposed to the sector.

"POGO stakeholders are holding their breath," said David Leechiu, chief executive of Leechiu Property Consultants, a key broker for POGOs.

Shares of Filinvest Land and Megaworld, which investment bank Nomura has identified as the public companies most dependent on POGOs, have each fallen more than 20% since mid-July. Megaworld however said its exposure is "controlled" and that business process outsourcing companies take up a bigger share of its portfolio.

Philippine central bank governor Benjamin Diokno told reporters Wednesday that officials are bracing for the possible end of POGOs, with a team calculating the potential "impact on real estate and on the economy." So far, no POGO has pulled out of its office lease, Leechiu said.

The online industry "absolutely defines what Sihanoukville now is," said Tim Shepherd, a gaming executive previously involved with operations in the city and now senior partner of Hong Kong industry investment group Fortuna Investments Worldwide.

Noting reports that many Chinese workers are preparing to leave Sihanoukville, Shepherd said "this bubble has well and truly burst."

Cambodian officials recently ordered the demolition of 14 recently constructed buildings in Sihanoukville, including a number of casino hotels that were found to be dangerously flawed following a building collapse in June which killed 28 workers.

"The place is in chaos," said Brad King, managing director of Cambodia Real Estate.

Beijing's offensive began with a report in the state-owned Economic Information Daily alleging that Suncity Group, the biggest of the junket companies bringing high-rollers to Macau's casinos, was causing social harm and driving capital outflows by channeling Chinese VIPs to online gambling platforms in the Philippines and Cambodia.

Shortly afterward, China's Public Security Minister Zhao Kezhi announced the launch of a crackdown on organizations involved in outbound and online gambling, as well as companies providing financial and technical support.

Industry observers say that after keeping quiet in recognition of how the industry was giving a needed boost to its allies' economies, Beijing's hand was finally forced by a drumbeat of headlines about the Chinese presence around Sihanoukville and Manila.

Chinese officials "were of course aware of what was going on," said Ben Lee, managing partner of IGamiX Management & Consulting in Macao and a veteran of the Philippine and Cambodian industries. "I think what has happened is the explosive growth of online (gambling) in the two countries has finally caught up with them. It got out of hand."

International news reports out of the Cambodian city in the weeks before Zhao's declaration also highlighted the deadly Chinese hotel collapse, UN criticism of money laundering risks and Phnom Penh's apparent agreement to allow China to open a naval base nearby.

Duterte, previously an outspoken foe of the gambling industry, last month called on top Philippine gaming regulator Andrea Domingo to "entice more gamblers" after she said that POGO license fees would bring in 8 billion pesos ($153 million) for the government this year.

"The attitude (of Beijing) is quite clear," said Wang Changbin, director of the Centre for Gaming and Tourism Studies at Macao Polytechnic Institute. "They don't like gambling. All the (POGO) firms are targeted at China."

Suncity meanwhile responded to the original Chinese media report by denying involvement in unlicensed or illegal activity or in online gambling.

Chief Executive Alvin Chau has promised that the company would observe Macao laws in all its overseas operations and apologized for causing "inconvenience" to the city and the gambling sector.

The company continues to operate VIP rooms in casinos in Manila and Sihanoukville, though it did shut down its Australian operations earlier this month.

Online gambling operators in Manila and Sihanoukville are largely obscure companies, often registered in offshore havens such as the Isle of Man and the British Virgin Islands.

Contributing writer George Styllis in Bangkok contributed to this report.

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