Manila's big bet on China's online gambling habit gives Beijing a headache

An estimated $200b is spent each year by Chinese gamblers on illegal betting sites, many streamed from the Philippines.
PHOTO: Illustration by Henry Wong

Inside a well-lit Manila studio, a young Filipino woman in heavy make-up and a low-cut black dress flips card after card. She is the dealer in a game of baccarat, a popular game in casinos worldwide. But she stands alone – the players are thousands of miles away in mainland China.

A camera directly opposite produces a video stream which is then marketed to the mainland – often under the guise of an innocuous gaming or video streaming website – where gambling is illegal.

Anyone who wants in on the bet must use a VPN to circumvent China’s Great Firewall , which the government uses to keep a tight leash on its domestic internet.

A handout photo. A Manila-based website markets online gambling in mainland China
PHOTO: South China Morning Post

After each hand, the dealer deftly swipes the card across a bar code to update the website and show the players if they have won or lost. More data is sent to a server, operated by a Hong Kong-based tech company, that works around the clock to keep hackers at bay.

“The girls have their profiles up on the players’ screens and, if you tip them, they will interact with you. Their attractiveness is also part of what draws players,” said a former employee of the tech company.

As China returns to a pre-coronavirus lifestyle, the government is working hard to kick its citizens off an age-old vice that has worsened due to months of strict lockdown measures. “Covid-19 was good for business, there was an increase in users that even caused the system to break down a couple of times,” the former tech employee said.

China’s security apparatus hinted at the uptick in online gambling since the Covid-19 outbreak when the Ministry of Public Security published a statement in April – ostensibly about the dangers of cross-border betting and associated telephone fraud – which said “especially since the outbreak of the new coronavirus, overseas casinos and gambling websites have increased their efforts to lure our citizens”.

Gambling was outlawed in China when the Communist Party took power in 1949 and has remained banned. Despite the legal restrictions, mainland Chinese have found ways to place their bets – going overseas or travelling to the gambling hub of the Macau special administrative region.

The emergence of online gambling – also illegal under Chinese law – has provided another opportunity for China’s gamblers who bet an estimated 1 trillion yuan (S$200 billion) a year through online sites, according to a 2019 report by Economic Information Daily, an affiliate of state news agency Xinhua.

But, according to the former tech employee in Hong Kong, there are dangers for players online where, unlike a real casino, they can gamble on credit rather than paying their money up front to buy into a game.

“It’s worse for the player in that they don’t realise how much they are losing, I think that’s the way Chinese like to gamble,” he said, adding that he was aware of one online gambling platform which turned over around US$130 million (S$200 million) in daily transactions.

Ben Lee, managing partner at Macau-based gaming consultancy iGamix, said most online platforms targeting the mainland China market were based in the Philippines, where gambling is legal. “Many of these firms are in A-grade office towers, fronting as call centres, located in Makati,” he said, referring to Manila’s financial district.

According to Lee, the Chinese market took off in 2016 with the election of President Rodrigo Duterte . Soon after taking office, Duterte appointed a new chairman to the Philippines Amusement and Gaming Corporation (PAGCOR), a state-owned enterprise that runs its own casinos as well as issuing licences and regulating privately owned venues.

Under its new head Andrea Domingo, PAGCOR began issuing licences specifically for online gambling firms catering to markets outside the country, granting them the official designation of Philippines Offshore Gaming Operator (Pogo).

As the playing field quickly became crowded, mainland China’s huge, albeit illegal, demand for gambling opened up a new frontier. Lee – who has worked in the Filipino casino industry – estimates that for every Pogo there are eight to 10 solution providers that pay a lease fee for the video signal. These unlicensed firms are the main drivers of online gambling into mainland China.

“[The solution providers] take that signal and they relabel it and then they are the ones basically acting as the online casino,” he said. Names like Galaxy, one of the world’s biggest casino operators, and pioneering online gambling website Casino 888, are copycatted to add an air of legitimacy.

Lee added that every solution provider employed “armies of Chinese telemarketers” who used Chinese social media platforms to reach out to and get new customers hooked on their company’s platform.

A handout photo. This online gambling website is trying to divert attention from its activities by using an image of popular TV series Band of Brothers on its front page.
PHOTO: South China Morning Post

The Chinese government is well aware that the Philippines is the linchpin of the country’s online gambling market. In August last year, its Manila embassy put it on the record, saying “the casinos and offshore gaming operators (Pogos) and other forms of gambling entities in the Philippines target Chinese citizens as their primary customers”.

The embassy said a conservative estimate of the gambling-related funds flowing illegally from China to the Philippines amounted to hundreds of millions of yuan every year.

According to the former tech employee, some solution providers avoid detection from the Chinese authorities by operating a large number of personal bank accounts.

Huge sums of money can be broken down among these accounts until they are small enough to be sent overseas without falling foul of China’s capital outflow rules.

A call centre-like office is then set up in Manila where Filipinos manage transfers to and from the Chinese bank accounts. To avoid suspicion, accounts are left alone for a few days after each transfer.

“They don’t know Chinese so they don’t understand what they’re clicking on, they just follow instructions,” the former employee said.

Since the Covid-19 outbreak, the Chinese government has launched multiple campaigns targeting online gambling on different fronts, from the financial plumbing underpinning the industry to the public allure of placing a bet.

One campaign launched by the Ministry of Public Security in February led to the closure of 27,000 bank accounts involved in cross-border gambling within four months, according to a report by Global Times, a Chinese state-run tabloid.

China’s National Internet Emergency Centre issued a report this month saying the number of websites “implanted with dark gambling chains” by late 2019 had dropped from more than 10,000 to “less than 1,000”.

On Aug 13, the Communist Party’s propaganda department joined forces with the Cyberspace Administration of China and the Ministry of Public Security to launch a social media campaign against cross-border gambling.

Since then, cautionary videos have flooded Chinese social media and video-sharing platforms, some using highly cinematic plot lines to drive their message home.

One video, produced by the Chongqing Municipal Entry-Exit Administration Bureau, featured a father gambling in a Southeast Asian casino before being kidnapped and tortured by local thugs, then wandering around a jungle before getting shot in the back.

According to Lee, the Chinese government has previously gone straight to the source of the problem. “They’ve got their agents crawling on the ground in Manila – and they have done this three or four times already – they will tell the Filipino immigration department we have identified ‘800, 900, 1,000 mainland Chinese nationals, we’ve cancelled their passports, we will send a charter flight to pick them up, please take them out’,” he said.

The Macau-based consultant said the Chinese government had other weapons at its disposal that it was not using. Most of the internet traffic into China went through Hong Kong as a gateway to the mainland in terms of the submarine cables which carry telecommunication signals, he said.

“Any digital signal, any signal of any sort that is related to gaming, it is illegal for it to be carried through Hong Kong. The Hong Kong government could set up filters to make it illegal for local telecom providers to let these people access their gateways.”

The industry, in turn, is looking for new ways to evolve. According to the ex-employee of the Hong Kong-based tech company, many solution providers are interested in moving their transactions with mainland Chinese users onto cryptocurrency accounts.

However, he said, this brought its own set of problems. “The Chinese government loses control in this way but then the problem is that the value of cryptocurrency fluctuates.”

This article was first published in South China Morning Post.