Using casino junkets is one of the most costly ways of transferring money out of China, according to a report from Bernstein.
The report titled “A Beginner’s Guide to Avoiding Chinese Capital Controls” discusses the mechanics of moving money out of the country through a number of different channels. Currently, mainland Chinese citizens are individually only allowed to transfer the equivalent of US$50,000 in foreign exchange per year.
According to the report, moving money via junkets is the least efficient way of moving money out of the country. Through the junket channel, VIP players from China receive gaming credit from junkets, who do the work to transfer RMB from China to Macau so that VIP players can gamble. The junkets’ business model is to effectively extend loans to VIP players in China and transfer money cross-border to Macau.
However, according to Bernstein, given the way in which junkets make profit – through player loss (junkets share net win with casinos), often VIP players are under constant pressure to gamble, and thus likely to lose between 12-22 percent of their funds at the casino table.
“By our estimate, each dollar provided by the junket to a player is rolled 5x-7x times on a casino table (in many instances even more). The expected loss in a Baccarat game based on this rolling multiple (and factoring in player commissions) can be ~12-22%+ of the buy-in principal amount,” says Bernstein.
“We believe junkets are a rather prohibitively expensive means to transfer money out of China, in relation to other alternatives available, and we do not believe it makes economic sense to use casino junkets to transfer money out of China.”
Other alternative methods discussed in the report include Bitcoin, the purchase of luxury goods as a store of wealth, over and under invoicing imports, and more. The report found underground banks providing “matchmaking” services to be the best method.
In the underground method, an onshore individual looking to move money out is matched up with an offshore individual who is looking to move money in. Money is only transferred domestically, and the underground bank acts as a matchmaker and takes a spread.