| The regulatory storm that's swept through the private sector in China has finally arrived at the baccarat tables of Macau, the only place in China where gambling is permitted. For the casinos, all bets are off. Perhaps they're destined to be treated like video gaming companies—a social vice to be tolerated but not encouraged. The giants in that industry, including Tencent, are in the process of being throttled by a new set of rules, such as limiting kids to three hours of playing time each week. And they've all been reminded that profits are secondary to their social obligations.
For Macau, this would be a best-case scenario. The owners of Wynn Resorts and Las Vegas Sands can only hope their operations don't share the fate of home tutoring companies, deemed to be such a social ill that they've been shut down altogether.
An announcement that Chinese authorities may dispatch officials to oversee day-to-day operations of Macau's casinos is ominous for companies that derive the bulk of their profits from the gaming mecca—and whose local licenses are up for renewal next year. Gambling revenues in the tiny enclave are six times the Las Vegas strip.  Staff prepare chips for the opening of the casino at the MGM Cotai resort in Macau in 2018. MGM China christened the multibillion-dollar mega resort in Macau following multiple delays in the government approval process. Photographer: Anthony Wallace/AFP Macau itself, a former Portuguese colony, has always flaunted its reputation for decadence. China took over in 1999, two years after recovering neighboring Hong Kong from the British. Unfortunately for the casinos, Beijing's hard-liners take a dim view of the kind of society Macau has long exemplified: dedicated to the pursuit of pleasure and profit, economically stratified, gang-ridden and secretive. The big bets on baccarat and blackjack and poker are made in the casino VIP rooms, where private business owners from the mainland rub shoulders with officials who control access to resources that fuel the Chinese economy—the most important being land and bank loans. It's not a coincidence, then, that regulatory attention has shifted to gambling, as Beijing reins in lending to its massively indebted real estate sector.  Ray Dalio Photographer: Takaaki Iwabu/Bloomberg From the government's perspective, the out-of-control property market has become by far the worst social evil, responsible for much of the country's yawning wealth gap. The largest developer, Evergrande Group, owes around $300 billion and is in a desperate struggle for survival. Beijing's stated intention is to make housing more affordable for the masses, not a speculative asset for the rich. Wall Street investors still piling into China, such as Ray Dalio, the founder of Bridgewater Associates who called recent market swings "wiggles," may be underestimating the force of this crackdown. We're in the throes of a full-on "rectification" campaign that is as much about morality as economic management. President Xi Jinping is going after everyone, whether they be real estate tycoons, video gaming magnates or gambling moguls. It's entirely possible that in doing so, however, he'll collapse the real estate market and shutter the casinos. Already, his crusade to achieve "common prosperity" has helped crimp sales of everything from Italian fashion to French brandy and Swiss watches. "Effeminate" singers, as Beijing has called some, and entertainers are suddenly under scrutiny. Is the game up in Macau? Some observers predict mainland authorities will go easy on casinos, given that Macau derives 80% of its government revenues from the gambling industry. Then there's the interests of investors to consider: The late Sheldon Adelson, backer of Sands Macao, filled in a stretch of sea between two islands to build the world's biggest gaming floor. "We're the largest investor of any kind in the history of China," he once boasted.  Sheldon Adelson Photographer: Kiyoshi Ota/Bloomberg But in pursuing Xi's social agenda, Chinese regulators have demonstrated a high tolerance for economic pain and a low regard for the financial wellbeing of investors, particularly foreign ones. After Tencent shares slumped again this week on more regulatory flyspecking of its gaming business, not a single Chinese company was left among the world's 10 largest enterprises by market value.
In the casino world, everyone knows the house always wins. Perhaps not this time. Junket operators—the fixers who bring in high-rollers from the mainland to Macau and extend them lines of credit—are already in despair. One recently lamented that "there is no hope in Macau."
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