China and igaming: where is it now and where will it go?

Offering services in China offers huge opportunities for those companies comfortable with the risks. David Schollenberger of Healys reviews the legality of gambling in the PRC, Macau, Hong Kong and Taiwan.

China represents one of the largest gaming markets in the world and Chinese are some of the world’s most voracious gamblers.

The People’s Republic of China, Macau, Hong Kong and Taiwan all have different gambling legislation. This article will review the legality of land-based and online gambling in these four regions.

Macau
Macau is one of the two Special Administrative Regions (SAR) of the Peoples Republic of China (PRC). An island 40 miles off the coast of Hong Kong, Macau has an area of only 12 square miles and 600,000 people. As a SAR, it shares foreign policy and defence with the PRC, but otherwise has different laws. Macau is the only region of the PRC where gambling is legal and permitted, and has been legal since the 19th century. The regulator for Macau land-based gaming is the Gaming Inspection and Coordination Bureau (DIJC). Macau currently generates five times the gross gaming revenues from casinos, sports betting and poker than Las Vegas does. Visitors to Macau for use of the gambling services are overwhelmingly from the PRC and Hong Kong, with Japanese and Korean guests the next largest groups. Prior to 1999, visitation to Macau was not permitted for PRC residents. Following the 1999 agreement to transfer sovereignty of Macau from the Portuguese Republic to the PRC, such visitation is now permitted and accounts for the wild growth of Macau as the world’s largest gambling venue by gaming revenues. Online gaming in Macau is not licensed or acknowledged–as such it is neither prohibited or permitted. Foreign operators provide gambling services to Macau residents without interference from the Macau government.

Hong Kong
Hong Kong is the other SAR of the PRC, its UK sovereignty and administration handed over to the PRC in 1997. With a population of over eight million, it also has its own system of law separate from the PRC, but shares foreign policy and defence with it. Sports betting is licensed and permitted in Hong Kong through the Hong Kong Jockey Club (HKJC). The HKJC has a monopoly in offering all offline and online sports betting and lotteries in Hong Kong. Casino gambling and online casino games are illegal in Hong Kong. Strict penalties are applied for violations.

Taiwan
Taiwan prohibits casino gambling and sports betting other than that offered by the Taiwan Sports Lottery. Similar to the HKJC, the Taiwan Sports Lottery is the only entity authorised to provide sports betting the in the country. Odds at the Taiwan Sports lottery are not as favourable as those offered by international operators. International operators accessible in Taiwan are unauthorised, but are not blocked as they are in the PRC.

Peoples Republic of China
Casino games, poker, sports betting and online gaming are all prohibited in the PRC, other than sports betting offered by the Chinese Sports Lottery. The Chinese Sports Lottery's monopoly on sports betting in the PRC offers legal betting on all sporting events, both online and offline. Sports lottery vendors licensed by the Chinese government may offer online lottery purchases, but these are few in number and strictly regulated.

China has one of the largest internet services market in the world, with over 457 million users. Payouts are low from bets placed with the Chinese Sports Lottery. Foreign sites operating illegally in the PRC typically offer far better odds and payouts. It is illegal for punters to access these foreign sites from China, for the punter to send funds from China to the foreign site and for the foreign site to receive the funds from Chinese punters. The PRC government actively blocks access to foreign gambling sites, and banks are prohibited from making payments for gambling services. Violations may be punishable by fines and imprisonment. The RMB is not a convertible currency, which poses a further obstacle to online betting.

Despite the illegality and obstacles, the appetite for using foreign gaming services is large and the volume greatly exceeds the amount of legal betting through the Chinese Sports lottery. A substantial number of locally unregulated foreign operators and payment service providers operate in the PRC and a vast number of punters in the PRC use the services. Some of the largest, best-known worldwide sports betting companies take business from the PRC.

How do operators and payment service providers skirt the rules? Operators may use a variety of techniques to avoid blocking. A list of revolving URLs may be used by operators.  Payment service providers that take funds from punters, provide conversion of the RMB and make payment to the operators, may also use the same technique of revolving URLs. Some Chinese banks secretly work on an illegal basis with the PSPs, by means difficult for regulators to detect. Enforcement is therefore difficult.

Conclusion
Of the four jurisdictions discussed above, Macau has the most liberal approach to the offer of gaming activity. There seems no apparent reason not to open the jurisdiction up to licensing of online gaming and betting as well, other than possible concerns over its potential impact on the land-based business.

The PRC has a gigantic population, with a growing middle class expected to expand further rapidly over the coming years. The propensity to gamble and to use internet gambling services will follow this growth path, alongside the increase in middle-class disposable incomes.

The effect of not permitting and licensing online gaming in the PRC is that most of the online gaming and betting in China is unregulated and untaxed there, and in some cases operated by criminals.

Being unregulated means there are no social responsibility programmes, no monitoring of criminal activity or fairness controls in place. Unscrupulous operators may freely cheat the customer and launder money.

The government also loses the benefit of being able to monitor, regulate and tax the activity and protect the player. 

The sensible approach over time with a market of this size and the passion of the Chinese for gaming services must be for a legalisation and regulation of online gaming in all of these jurisdictions.

Unfortunately, similar to the US and the politics involved there, this will likely be some years away.