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Last month, Chinese President Xi Jinping raised the topic of online gambling in a meeting with Philippine President Rodrigo Duterte.
Although the specifics of the issue are largely of concern only to those two countries, the story made international news. It’s rare to see online gambling come up for discussion at the highest level of government.
Based on the outcome of the meeting, it appears the issue is a long way from being resolved.
Gambling is by no means the biggest point of friction between the two countries. China is a notoriously difficult neighbor.
Like other countries in the region, the Philippines walks a tight rope. It endeavors to remain on good terms with the local superpower on the one hand, while at the same time facing domestic and foreign pressure to meddle in China’s territorial disputes on the other.
The Philippines has generally improved its relations with China under Duterte, at the expense of worsening ties with the United States.
Online gambling is unlikely to be a make-or-break issue for either side, but a continued failure to see eye-to-eye on the subject could be a significant stumbling block on the course Duterte seems to envision for his country.
This saga began in August with the Chinese government issuing a formal statement condemning Philippine Offshore Gambling Operators (POGOs) — specifically their employment of Chinese workers and targeting of Chinese customers.
The Philippine regulator PAGCOR responded with an attempt at compromise, announcing that it would issue no further licenses in 2019 while it looked into China’s concerns.
Chinese Foreign Ministry spokesperson Geng Shuang made it clear that this wouldn’t be good enough, hyperbolically describing online gambling as “the most dangerous tumor in modern society, detested by people all across the world.”
Shuang called on the Philippines to ban the activity outright.
Philippine ambassador Jose Santiago Sta. Romana fired back. “They can’t dictate on us,” Romana said. “Those are sovereign decisions.” He indicated that Duterte would reassert the legality of POGOs.
That’s more or less how things still stand, though the two leaders handled it more tactfully between themselves than Shuang and Romana did before the press.
Xi did reportedly raise the issue in their meeting, albeit only briefly, and he did not demand a complete ban. Duterte apparently promised to look into the impact of dismantling POGOs. A few days later, however, Duterte told reporters that POGOs are simply too important to the nation’s economy to comply with China’s wishes.
Online gambling in the Philippines will continue.
Indeed, online gambling is big business for the Philippines.
Application and licensing fees for new operators alone have raised the equivalent of $150 million this year, not counting tax revenue from existing operations. The industry employs an estimated 350,000 people in the Philippines, a third of those being Chinese marketing and customer-service representatives.
Gambling is also a driving force in the local real estate market.
A 2017 study revealed that online gambling companies were the second-biggest demand driver for office space in the country, and a 2019 update projects an overtake this year. The PAGCOR decision to suspend its licensing process caused a drop of more than 20% in the stock of leasing company Megaworld.
Its shares have bounced back in the days since Duterte’s indication that no larger ban on online gambling is forthcoming.
It’s also worth noting that Duterte was elected in 2016 on a strongman platform by an electorate that is widely distrustful of China. He can’t afford to be seen as kowtowing to the superpower, even as he works to improve relations between the two.
China may also view this as a small but worthwhile power struggle.
If Duterte shows that he’s willing to bend significantly to pressure here, he may be willing to do the same on issues of greater international concern. That makes it likely the matter will come up again sooner rather than later — likely in 2020 when PAGCOR’s moratorium on new licenses expires.
Though the dispute only concerns these two countries on the surface, it does have broader implications for the online gambling industry as a whole. For starters, a continued and intensifying Chinese crackdown could drive companies serving that market to seek greener pastures elsewhere.
Just as partypoker turned from the US market to Europe following the passage of UIGEA in 2006, and just as PokerStars did after Black Friday, the GGNetwork has turned its eyes westward in the face of pressure from the Chinese government. Others may follow suit.
There is also the matter of precedent.
China may not be of much direct importance to western gambling operators serving the international market, but Russia is. And Russia, like the US and China, is generally resistant to online gambling at the federal level. Governmental leaders often take a heavy-handed approach to international diplomacy.
Smaller countries wishing to control online gambling must generally deal with offshore operators directly, offering both a carrot and a stick. For a superpower, it’s easy to understand the temptation to instead force compliance from the countries playing host to those operators.
If China does manage to orchestrate its own Black Friday, it could embolden Russia to try the same thing. In both cases, the current approach of blacklisting hasn’t proven very effective.
In that sense, the less cooperative the Philippines is with China, the better it is for western operators with a significant customer base in Russia.