The health of business in the gauche, gaudy, glitzy casinos of Macau is a rough barometer of not only how flush China's wealthy aristocracy is feeling, but how insecure.
For Macau, whose gambling business is now twice that of Las Vegas, is not only a pleasure palace where fortunes can be joyously frittered away at the tables, splurged on vastly overpriced cognac or lavished on the more personal services of hovering flocks of young women.
Macau, a Portuguese colony for 400 years until returned to Chinese sovereignty in 1999, is also a money-laundering centre and a major channel through which wealth is spirited out of China. For many affluent Chinese, anxious the current Communist one-party state is approaching the end of its natural life after 64 years, Macau is a natural route to move some of their assets to secure boltholes overseas such as the United States, Australia, Europe and, of course, Canada.
The casinos make it easy to cash in gambling chips, which in many cases have been bought on credit through arrangements with the local triad criminal gangs back home over the border in China. And Macau, like Hong Kong, only an hour away by high-speed ferry, is well equipped with banks with generations of experience moving money around the world silently and invisibly.
It is a rough measure of how unsure many wealthy Chinese feel about the new, fifth generation of Communist Party leaders under President Xi Jinping that business is booming in Macau.
Xi himself has warned repeatedly that the Communist Party may be ousted unless it manages to overcome the all-pervasive corruption that infects its officials, and their relatives and friends who make up much of the wealthy class.
At the same time, Xi has set his face against any significant political reform that would introduce true accountability or the rule of law that could curb corruption.
Even the much-trumpeted program to liberalize the economy, which was announced last month, looks less and less substantial the more it is examined.
Not only are details and timetables hazy at best, but also Xi is appointing himself head of the committees that will manage the economic reform program.
This suggests the emphasis will be more on political control of the process than on freeing market forces.
So the rush to Macau keeps gathering steam. Casino revenues in May were up 13.5% on the same month last year, 21.1% in June and 20% in July.
This, however, is only a modest window on the full panorama of the money that has been flooding illegally out of China in recent years.
Measuring this largely hidden flood is, by its very nature, an imprecise science. But the Wall Street Journal took a stab at it last year and reckoned that $225 billion fled China in the 12 months up to the end of September 2012.
Global Financial Integrity (GFI), a Washington-based anti-money-laundering lobby group, which therefore has an axe to grind, puts the torrent at over $600 billion.
The consensus is that around $300 billion was spirited out of China last year. This exodus is about double the flow of inward investment, and the Macau route may be the most colourful, but is far from being the most important.
The really big chunks of money are moved out of China by creative accounting either between Chinese companies and foreign partners or between head office and overseas subsidiaries. Nearly $60 billion in illicit transfers moved into the U.S. by mis-invoicing in 2011 alone, according to GFI.
It is an easy business to avoid Chinese currency regulations by, say, asking a foreign partner to bill $15 million for a $10 million deal and park the extra $5 million when it arrives in a separate account. Equally, expenses billed to head office by subsidiaries abroad may be liberally inflated in order to get official permission for the transfer. •
Vancouver a top destination for assets of wealthy Chinese
Canada, and especially Vancouver and Toronto, are favourite destinations for wealthy Chinese seeking safe and secure havens for some of their assets.
Just how enamoured the new generation of Chinese business leaders, many of whom have benefited from close links to the ruling Communist Party, are with Canada is hard to nail down.
Canada's insouciance at the inflow of money, its provenance and purpose is one of the factors that make moving money into assets here attractive.
Occasionally, however, the curtain gets pulled back, offering a glimpse of what is happening behind the scenes.
Late last month, for example, this newspaper published a report from the commercial real estate firm CBRE, which said that up to 65% of all retail real estate and half the office buildings sold in downtown Vancouver in the last 15 months have gone to foreign buyers. Almost all of them were from China or the Middle East.
There was another fleeting image of the influx last year when the Wall Street Journal, as part of a story on the money fleeing China, launched a freedom of information request for an accounting of the illegal cash being brought by passengers through Vancouver's international and Toronto's Pearson airports.
The response was that between April 2011 and the end of June 2012, $13 million in undeclared cash had been discovered in the baggage of Chinese nationals entering Canada.
Passengers are meant to declare all cash in excess of $10,000, and the amount discovered by the Canada Border Services Agency among Chinese nationals represented 58% of the total in that period.
What stands out, however, is that the Wall Street Journal found that in the same period $13 million in undeclared cash was found by border agents at the two Canadian airports, $8 million was found by customs officials throughout the entire United States.
The reason for this extraordinary discrepancy is simple. U.S. agents seize undeclared illegal cash, while Canada charges a minimal fine and allows the passenger to leave with all the money.
One example that stood out was that a man from China was found to be carrying $80,000 in cash. He was fined $2,500 and then allowed to leave with the remaining $77,500.
$13m: Amount of undeclared cash discovered in the baggage of Chinese nationals entering Canada via Vancouver's International and Toronto's Pearson airports between April 2011 and June 2012
$8m: Amount of undeclared cash found by customs officials throughout the entire United States during the same period.
SOURCE: Wall Street Journal
