A casino in the Philippines that caters to Chinese punters. Photo: AFP

MANILA – In a major policy reboot with potential long-term economic and geopolitical implications, new Philippine President Ferdinand Marcos Jr is cracking down on the Chinese online casinos that proliferated in the capital Manila and across the country under his controversial predecessor.

This week, the Philippine Department of Justice (DoJ) announced it will close down the operations of up to 175 Philippine offshore gambling operators, known locally as POGOs, and accordingly deport as many as 40,000 Chinese nationals employed in the notoriously opaque industry.

The targeted POGOs, according to the DoJ authorities, have been operating despite having expired or revoked licenses as well as unsettled tax liabilities. Even more troubling are allegations of links to Chinese organized crime networks.

“The crackdown was triggered by reports of murder, kidnapping and other crimes committed by Chinese nationals against fellow Chinese nationals,” said Philippine Department of Justice spokesperson Jose Dominic Clavano in describing the official crackdown.

The potentially seismic decision drew praise from China’s embassy in Manila, which reiterated that Beijing “firmly opposes and takes tough measures to combat gambling.”

Around 30 licensed POGOs will continue their operations in the Southeast Asian nation, according to reports. At their peak, however, the offshore casinos employed as many as 210,000 Chinese nationals, an influx that radically transformed the landscape of many major Philippine cities.

The impending exit of the POGOs could create major economic disruptions, especially in the country’s real estate market. It could also deprive kickbacks for countless local officials and law enforcers who allegedly acted as local benefactors for the controversial industry.

The opaque industry thrived under President Rodrigo Duterte, who favored a hard pivot towards China at the expense of traditional allies. Despite his stated opposition to gambling early in office, the controversial Filipino leader nevertheless oversaw an unprecedented explosion in the country’s online casino industry.

Gambling industry revenues more than quadrupled to US$4.1 billion three years into his tenure. Meanwhile, licensing fees alone reached $140 million in 2018, representing an 11-fold increase. Almost overnight, the Philippines emerged as one of the world’s gambling capitals, along with neighboring Singapore and Macau.

Workers at an undisclosed Chinese-run POGO in Manila. Photo: Facebook

Even during the pandemic period, when Duterte imposed one of the longest-running and most stringent Covid-19 lockdowns, POGO operations still thrived in the transition to online recreation. In 2020, the government collected 7.2 billion pesos ($122 million) in revenues. In 2021, licensing fees alone amounted to 3.9 billion pesos ($80 million).

The overall contribution to the domestic economy, however, was likely far larger when sideline payments, domestic consumption and non-income taxes of POGO workers were included. By scaling back the controversial industry, however, the Marcos administration hopes to enhance ties with Beijing by instead attracting higher-quality employment-generating investments from China. 

The booming gambling industry raised alarm bells at the highest levels of government. One area of concern was national security since many of the Chinese-operated POGOs were clustered around vital locations, including the headquarters of the Philippine National Police, National Defense Department, Philippine Army and Philippine Air Force and Navy headquarters.

Then-secretary of defense Delfin Lorenzana publicly admitted, “[I]t’s very easy for all these [Chinese employees working in POGOs] to perhaps shift their activities to spying [since] they are near [military facilities].”

For his part, then-national security adviser Hermogenes Esperon warned of a huge influx of Chinese nationals entering on “false documentation” and clustered in exclusive compounds, which at one point he said potentially represented a national security “threat.”

“You’d also start getting worried when a whole building, condominium, tower is occupied by only one nationality where you would not be able to guard all their activities,” admitted the then-Philippine national security adviser.

At one point, top Philippine officials even discussed the possibility of relocating all of the online Chinese casinos to “self-contained hubs” in order to mitigate any national security threat.

Lawmakers, meanwhile, warned of the potential presence of thousands of Chinese intelligence officers under the cover of the POGOs, while bemoaning the depth of illicit activities, including tax evasion, prostitution, human trafficking, money-laundering, and, in some cases, murder, torture and kidnapping at the gaming outlets.

At one juncture, local authorities had to set up Mandarin-speaking units to specifically deal with violence and crime among Chinese nationals linked to the shadowy industry. 

An aerial photo depicting the location of Chinese-run POGOs and the Philippine military’s headquarters. Source: Defense Forum

Things reached a boiling point in 2020 when a number of lawmakers pushed for legislation to effectively ban the POGOs, pointing out how the Chinese-run offshore casinos have “been a source of untold criminal offenses and heinous crimes related to the conduct of such operations.”

Even the Chinese government began to pressure Manila to crack down on offshore casinos. But Duterte consistently stood by the controversial industry against both domestic and international critics.

Following direct conversations on the matter with Chinese President Xi Jinping, Duterte insisted:  “I decided we need it to benefit the interest of my country. Many will lose livelihood (sic).” 

When lawmakers questioned his decision to allow POGOs to continue their operations during pandemic lockdowns, Duterte insisted they were “clean” and essential to economic recovery.

The tide, however, was already turning against the shadowy industry. Beginning in 2019, Philippine authorities made it clear that POGO licenses would undergo thorough reviews and that there would be a cap on the number of licensed operators in the country.

Over the next three years, the number of licensed POGOs almost halved, with growing government scrutiny as well as rising taxes, rental costs and pandemic-related disruptions pushing Chinese operators overseas.

This year’s transition from Duterte to Marcos Jr has brought a reboot in Philippine-China relations. Although a close Duterte ally during the elections, Ferdinand Marcos Jr has recalibrated a number of key policies, including his predecessor’s violent drug war as well as anti-Western foreign policy.

Crucially, the new Filipino president is also pushing for a more mutually-beneficial relationship with Beijing based on concrete projects and high-quality investments. Early in his tenure, Marcos Jr suspended a number of big-ticket Chinese-backed infrastructure projects based on concerns of inadequate financing and high-interest rates.

The two sides have since relaunched high-level negotiations over bilateral economic projects. But also as part of the emerging reboot, Manila under Marcos Jr is beginning to crack down on shady activities, which have reinforced anti-China sentiments in the Philippines.

According to some estimates, the closure of POGOs that generated an average of $3.22 billion annually in recent years will create a major shock in domestic property markets and retail sectors.

According to Leechiu Property Consultants, a real estate consultancy, a total shutdown of the controversial industry could create a massive 1.05 million square meters (259 acres) of office space vacancy. The ensuing drop in property prices could also hurt major conglomerates, which have been the backbone of Philippine economic growth in recent years. 

The DoJ’s announcement, however, was openly welcomed in many quarters. For his part, Senator  Joseph Victor “JV” Ejercito, son of a former president and a close ally of Marcos Jr, supported the move to close down illegal offshore casinos and deport overstaying Chinese nationals employed in the industry.

He has called on the Philippine National Police  Bureau of ImmigrationNational Bureau of Investigation to “work double time to monitor and detect these kinds of operations.”

A Chinese-run gambling site run from the Philippines. Photo: Facebook

The Chinese embassy in Manila is among the most enthusiastic supporters of Marcos Jr’s crackdown on the shadowy industry. In a statement this week, the embassy said under “Chinese laws and regulations, gambling in whatever form by Chinese citizens, be it online gambling or gambling overseas is illegal.”

Chinese authorities vowed to “continue to strengthen communication and cooperation with the Philippine government and law enforcement agencies in particular in this regard, and handle deportation among other issues in a constructive manner.”

For Beijing, the move could further strengthen bilateral ties since the crime-infested POGOs “not only harm China‘s interests and China-Philippines relations but also hurt the interests of the Philippines,” the embassy statement said.