Crown Casino arrests: Xi marks the spot and companies better take notice

The arrest of Crown Casino staff in China is a wake-up call for Australian companies doing business in China.

The arrest of Crown Casino staff in China is a wake-up call for Australian companies doing business in China.

While Crown itself is trying to ascertain exactly what the reasons are behind the arrest of up to 18 employees in China, including its executive vice-president of VIP International, Jason O’Connor, the drastic move is another reminder that the business environment in China has changed significantly under the rule of President Xi Jinping.

Xi’s rule has been associated with a major crackdown on corruption in China, which has seen arrests of senior officials and business people and a cutback in high-level business entertaining in China, particularly of public officials.

Practices which may have been acceptable a few years ago in doing business in China are now out of bounds.

But even more so, foreigners are finding there is now increasing and sometimes unexpected enforcement of rules and regulations in China which they have to deal with.

The lack of any substantial information about the Crown arrests meant many people with experience in the Australia-China business relations were reluctant to comment on the record yesterday.

But many noted how the business environment in China has changed in the past two or three years under the more hardline Xi.

“Companies have to be very careful about what they do in Chinese these days,” one expert told The Australian yesterday.

“If they don’t pay attention to what is happening in China and the anti-corruption drive they risk doing themselves some serious damage.”

Melbourne-based China expert John Fitzgerald, director of the Asia-Pacific Social Investment and Philanthropy Program at Swinburne University, warned that other industry groups in China needed to pay careful attention to public comments by Chinese officials.

“Other sectors should take note — education for example,” he warned.

“There have been reports of corruption associated with Australian student recruitment and institutional relationship-building in China. Australian educators should be on high alert, particularly in the current climate.”

Xi’s anti-corruption drive has caught many people by surprise with its intensity, but has gone down well politically at the grassroots level as ordinary Chinese are battling higher cost-of-living pressures while a level of ultra-wealthy Chinese seem to have done very well out of the Chinese economic boom.

Gambling is illegal in China but Chinese authorities have allowed the rapid growth of Macau, a Chinese-administered territory, as a gambling centre which is now larger than Las Vegas.

But under Xi, there have been tightened regulations on allowing Chinese people to gamble in Macau, which has hit its gambling revenues in the territory since May 2014.

What was initially seen as a temporary fall in revenues in Macau is now being seen as the result of a more permanent change in the mood in Beijing about gambling.

High-profile spending of money and gambling has been frowned upon, prompting some Chinese high rollers to look at betting further away from home including in Australia, Cambodia and the Philippines.

The higher gambling revenues coming to Australia would not have been unnoticed in Beijing.

The direct promotion of gambling in China is not allowed with promoters stressing tourist and travel and “resort” opportunities.

Many international casinos use junket operators in China to attract high rollers to gamble in their casinos.

Direct promotion in China by foreign companies associated with gambling is seen as a high-risk strategy in the current environment.

Several international casino operators are reported to have quietly shut down their China-based operations in the wake of concern about the changing attitudes of Chinese authorities and what could be seen as activities which could cross the line in a tougher anti-gambling environment. Several observers said they were surprised to see that an experienced operator like Crown was targeted, given its long-time experience in doing business in Macau through Melco Crown Entertainment, which is operated by the Hong Kong-based Lawrence Ho, son of legendary Macau casino king Stanley Ho.

The arrest of a significant number of people including a high-profile Australian executive is seen as a very serious issue not taken lightly by the Chinese officials involved.

Its impact in “sending a signal” to other Western companies doing business in China is also not to be underestimated.

While Australia-China relations have been under some strain in recent months as a result of Australia’s high-profile support of The Hague court’s ruling against China’s claim to islands in the South China Sea, the initial views yesterday seemed to be that the arrests were more specifics of the case rather than any politics.

The Chinese Embassy in Canberra was not informed ahead of time of the arrests.

The arrests come at a time when Chinese officials have also been concerned at the flow of funds going out of China which has put its currency at near six-year lows. They have been particularly concerned over money laundering and activities which could be seen as flouting the country’s strict foreign exchange laws.

President Xi has made consistent references to the need to crack down on money laundering in public statements.

At a meeting in Goa yesterday, President Xi and other leaders of the Brazil, Russia, India, China and South Africa economies issued a statement agreeing to “crack down on economic crime by fighting tax evasion, money laundering and corruption”.

Chinese officials have also been moving recently against what they see as underground banks taking money out of the country with high-profile arrests.

Officials said recently that they had arrested more than 450 suspects this year in 158 cases of underground banking and money laundering this year involving more than $30 billion as a result of a taskforce operation involving the Ministry of Public Security, the People’s Bank of China and the foreign exchange regulator.

While Crown battles to find out what is happening to its staff it is now very clear that the business mood in China is changing rapidly and companies ignore changed public views at their peril.