Suncity Group Alvin Chau’s arrest and the CCP factional struggle

On Nov. 26, the Wenzhou City public security bureau in Zhejiang Province announced that the Wenzhou procuratorate had issued an arrest warrant for Alvin Chau Cheok Wa, the CEO of the Macau gambling group Suncity Group Holdings. The announcement said that Chau was wanted on cross-border gambling allegations, and urged him to surrender to the authorities as soon as possible.

The Wenzhou public security bureau announcement elaborated that Alvin Chau had contracted gambling halls in Macau and other places from 2007, operated online gambling platforms in the Philippines and elsewhere in 2016, formed a junket agent network that helps Chinese citizens engage in offshore and cross-border gambling activities, and established a company that helps gamblers make cross-border fund transfers. Gradually, Chau formed a cross-border gambling criminal syndicate with himself as the leader, “Zhang Ningning and others as the backbone, with fixed personnel, clear hierarchy, and a large number of people,” the announcement said. The announcement added that Chau’s cross-border gambling criminal syndicate had “developed 199 shareholder-level agents, more than 12,000 gambling agents, and more than 80,000 domestic Chinese gambling members.” The syndicate was also involved in “particularly large sums of money” and “seriously harmed the social management order.”

Alvin Chau was arrested by Macau’s judiciary police in the early hours of Nov. 27. That afternoon, the Macau SAR government issued a communiqué stating that it was notified by the mainland authorities about Chau’s case in August 2019, and acted to arrest Chau and others based on evidence gathered from a criminal investigation that was launched in April 2020.

In the evening of Nov. 27, Macau’s judiciary police announced the bust of an illegal gambling and money laundering criminal syndicate and the arrest of 11 people. Details of the arrest were announced in a special press conference held at 2:00 p.m. on Nov. 28. On Nov. 29, Alvin Chau and four other criminal suspects were taken into mandatory custody.

On Nov. 29, Party mouthpiece People’s Daily published an interview with China University of Political Science and Law professor Qu Xinjiu on cross-border gambling. Qu said that the CCP government adopts a “zero tolerance” attitude toward cross-border gambling crimes, and draws a clear red line against offshore gambling syndicates. “Regardless of which country or region a casino is in, and no matter whether it is legal [to operate casinos or online gambling platforms] there, so long as [gambling groups] extend a criminal hand to the mainland, there will be severe punishment under the law,” Qu said.

Qu added, “The criminal suspect Alvin Chau formed a cross-border gambling criminal syndicate using Suncity Group as an intermediary to accrue huge profits. Chau also instructed others to develop agents on the mainland, organized mainlanders to travel to Macau to gamble or participate in online gambling, and set up companies in the mainland to dispose of gambling-related assets, collect gambling debts, help customers with cross-border payments, and other activities [that may not be illegal under PRC law but which the CCP is looking to clamp down on]. These activities were carried out in mainland China and seriously harmed the social management order on the mainland; the ‘Criminal Law of the People’s Republic of China” should be applied and criminal responsibility should be investigated in accordance with the law.”

On Nov. 30, Reuters reported that Suncity Group had closed all of its VIP gaming rooms in Macau, citing two sources with direct knowledge of the matter. One of the sources noted that the closure will “result in a cut of around a third” of Suncity Group’s Macau headcount.

On Dec. 2, Alvin Chau resigned from all positions at Suncity Group; Chau had earlier sold all his shares in Suncity Group on Aug. 31. Suncity Group also announced that gaming rooms operated by Sun City Gaming Promotion, which it claims is wholly owned by Chau, have been closed. Suncity Group also suspended its travel-related business because Sun City Gaming Promotion said it would stop supply of hotel accommodation products.

Background: 
Alvin Chau, 47, started out in the Macau gambling industry in 1994. After just over a decade, Chau became successful and was regarded as a local “king of gambling halls.” Chau is also widely believed to be a member of “14K Triad,” Macau’s largest criminal organization.

Chau founded Suncity Group in 2007. The gambling group owns over 30 VIP gaming rooms and 450 gambling tables in Macau and elsewhere, and accounts for 45 percent of the VIP gaming room market in Macau in terms of profit. Suncity Group’s local market dominance would earn Chau the nickname, “Little King of Gamblers.” Suncity Group is also involved in tourism, film production, concerts, restaurants, luxury goods, and auctions. Hong Kong media estimates that Chau has a net worth of over $1.4 billion.

Alvin Chau actively supports and participates in the CCP’s external united front work operations. Chau holds official positions in the united front apparatus and has organized united front groups. He previously cooperated with the CCP in the production of political propaganda.

Chau’s CCP activity includes:

Alvin Chau and Suncity Group have been investing in films since 2011. They collaborated with mainland film companies Bona Film Group and Mountaintop Entertainment to produce several so-called “main theme” (主旋律) CCP propaganda films. These films include the 2016 film “Operation Mekong” (supported by the Central Political and Legal Affairs Commission and the Ministry of Public Security) and the 2018 film “Operation Red Sea” (supported by the People’s Liberation Army Navy).Trouble, however, found Alvin Chau after the CCP began tightening foreign exchange controls in response to the Sino-U.S. trade war. In July 2019, the state-owned Economic Information Daily reported that online gambling platforms in the Philippines and Cambodia controlled by Suncity Group had “deeply penetrated” the mainland. “The annual betting amount of Suncity Group’s online gambling platform in the mainland exceeds 1 trillion yuan, a figure that is equivalent to nearly twice the annual revenue of China’s lottery. Suncity Group’s annual profit is in the tens of billions, and these funds flow overseas through underground banks,” Economic Information Daily claimed. The state newspaper added that Suncity Group’s actions were disrupting the country’s financial order.

Later, Chau held a press conference to refute state media accusations against him. Suncity Group also issued an announcement to deny the “rumors,” saying that it “does not operate any online gambling business.”

1. The CCP wants the public to believe that Alvin Chau’s arrest is related to cross-border gambling and Xi Jinping’s broader effort to clamp down on corruption. Analysts may infer that Beijing is possibly adopting a zero-tolerance approach to gambling, tightening control over cross-border transactions, and instilling greater economic discipline as the PRC deals with “new challenges” and “downward pressures” on the economy.

However, Chau’s notoriety and background, as well as the timing of his arrest, suggest that there is more than meets the eye to his case. In considering CCP elite influence over the various apparatuses that Chau is connected with, as well as Xi’s political maneuvers in his second term, factional struggle between the Xi camp and the Jiang Zemin faction seems to be a key factor in Beijing’s decision to take out Chau at this time.

2. Alvin Chau’s rise to prominence in Macau coincided with intensifying CCP efforts to infiltrate and influence Hong Kong and Macau during that period. The CCP had already infiltrated both societies in the decades prior by influencing or controlling local businesses, social organizations, media, triads, the entertainment industry, and other sectors through a combination of united front operations and the cultivation of intelligence networks. From the 1990s to the early 2000s, the CCP would step up influence and infiltration efforts in preparation for the return of Hong Kong (1997) and Macau (1999) to the mainland.

Chau’s meteoric accumulation of fame and fortune in the aforementioned time period and his triad connections make it very likely that the CCP had installed and groomed him to assist it in controlling Macau society. After the transfer of Macau’s sovereignty to the PRC in 1999, Chau transitioned from being an underground Party asset to a public agent of the regime with him taking up a CPPCC position and openly carrying out united front operations (see “Background”). The “convenient” arrest of “14K Triad” boss Wan Kuok-koi just before the return of Macau to the mainland and his nearly 15-year imprisonment would have also given Chau greater leeway to expand his gambling and entertainment operations in Macau and in neighboring countries, while the CCP benefited from more control over the Macau underworld and society.

Chau’s “successful career” in Macau also coincides with the Jiang faction’s era of dominance in the CCP regime. Leading members of the Zeng clan, a princeling family with influence over the intelligence apparatus and allegiance to the Jiang faction, occupied crucial positions in the Hong Kong and Macau apparatus. Zeng Qinghong, Jiang Zemin’s longtime political enabler and the Jiang faction’s number two, headed the Central Leading Group on Hong Kong and Macau Affairs (2003 to 2007), the top CCP organ overseeing policy for both territories. Zeng Qinghuai, the younger brother of Zeng Qinghong, was a special inspector of the PRC Ministry of Culture, a former commissioner of Hong Kong’s culture ministry, and a vice chairman of the China Association for Promoting Democracy. The younger Zeng’s portfolios meant that the Zeng clan had strong influence over the entertainment industries on the mainland and Hong Kong, as well as Macau to a degree. Zeng Qinghuai would also be well-placed to “guide” film companies in Hong Kong and Macau (such as Chau’s Suncity Group) to invest in mainland productions and produce CCP propaganda “red” films.

Alvin Chau’s continued “good fortune” and growing business during the Jiang faction’s era of dominance mark him as a political client of the Jiang faction patronage network. Chau would likely have been regarded by the Jiang faction as a loyal associate, if he was not a member.

3. Suncity Group’s venture into the film industry in 2010 and its various collaborations with key regime apparatuses (see “Background”) in the production of “red” films further underscore Alvin Chau’s CCP connections and ties to the Jiang faction.

Jiang Zemin has a reputation of having “ruled the regime through corruption” (以貪治國). During the Jiang faction’s era of dominance, various Party elite families and key apparatuses (military, political and legal affairs, etc.) abused the “collective leadership” system to leverage their respective spheres of influence and accrue immense wealth through corruption. The ill-gotten gains acquired by the various regime apparatuses and elite families had to be laundered somewhere, and the entertainment industry became a major money laundering channel.

Reports about Suncity Group’s film business suggest that Chau was very likely involved in laundering the money of the CCP elite. In 2011, Suncity Group established Sun Entertainment Culture to invest in films. According to its website, Sun Entertainment Culture has produced and distributed more than 150 films to date, with a total box office revenue of over $2 billion (14 billion yuan). Chinese language media raised money laundering suspicions after finding that several films that Sun Entertainment Culture and Bona Film Group invested in from 2015 were found to be “unusually full” at the box office. In particular, the film “Operation Red Sea” (supported by the PLA Navy) grossed 3.6 billion yuan, while four other films with investments from both companies grossed over 1 billion yuan. In contrast, films that only Sun Entertainment Culture invested in but not Bona Film grossed between several million yuan to 10 million yuan, with the highest grossing film taking in just under 200 million yuan. Meanwhile, “The Battle at Lake Changjin,” a 2021 film produced by Bona Film and several other companies, but not Sun Entertainment Culture, earned over 5.7 billion yuan.

On Nov. 24, 2021, or three days before Alvin Chau’s arrest, several mainland media outlets published a report exposing the “business map” of Bona Film. Citing publicly available information, the report said that Bona Film was established in 1999 and was the first “private enterprise” in China to be granted a film distribution license by the State Administration of Radio, Film and Television. Today, Bona Film has investments in 20 foreign-owned companies and controls 100 mainland enterprises.

The mainland media report on Bona Film also notes that the company had set up a film distribution company together with central-owned enterprise China Poly Group in 2003. Subsequently, Bona Film monopolized the distribution of Hong Kong films on the mainland; previously, China Film Group Corporation, a state-owned film enterprise directly under the propaganda ministry, was the only company granted the right to import films into mainland China. Bona Film’s growing clout coincided with the period in which Zeng Qinghong was the chief overseer of Hong Kong and Macau and Zeng Qinghuai was in a position to influence the mainland and Hong Kong entertainment industries.

The mainland media’s recent attention on Bona Films just before the arrest of Alvin Chau bodes ill for the Zeng clan in particular and the Jiang faction in general (see point 4).

4. The arrest of Alvin Chau appears to be the latest in a string of political maneuvers by Xi Jinping since 2017 to “rectify” the remaining Jiang faction strongholds (finance, tech, entertainment, Hong Kong and Macau apparatus, political and legal affairs apparatus, etc.), consolidate power, and tighten his grip over the regime in preparation for a third term bid at the 20th Party Congress in 2022.

Notable moves by Xi include:

The Xi leadership likely found evidence of Alvin Chau’s money laundering and other problematic operations during their initial probe into him. Further investigations into Chau and his business dealings with him in custody would likely unearth plenty of dirt on his political patrons, other Party elites, and the wealthy Chinese class. This would enhance Xi Jinping’s leverage against the Jiang faction and others who oppose his power consolidation and third term bid.Xi could use what is extracted from Chau in political bargaining with the Party elite to get what he wants (third term, allies in key positions, etc.) at the 20th Party Congress in 2022. And should Xi believe that the Jiang faction and the “anti-Xi coalition” are making serious moves to undermine his leadership, he could use information from the Chau probe to take down some leading “big tigers” (members of the Zeng clan, etc.) to put the others on notice.

The investigation of Alvin Chau will likely also aid the Xi leadership in its “rectification” of the political and legal affairs apparatus and the military. As noted above, Chau’s company had invested or produced films with the support of either the military or the political and legal affairs apparatus, and both apparatuses were once Jiang faction strongholds.

5. Another key reason for the arrest of Alvin Chau and Beijing’s crackdown on gambling and cross-border transactions in general is the Xi leadership’s attempt to forestall economic problems under present circumstances.

Beijing is caught between a rock and a hard place with regard to solutions to rescue the economy. Exports are the only thing sustaining the PRC’s “troika” of growth drivers (investments, consumption, exports), and Beijing is struggling to deal with the fallout of the Evergrande crisis and financial contagion. Meanwhile, Beijing is wary of releasing stimulus to boost the economy lest the Federal Reserve’s inflation-curbing measures (bond-buying tapering, interest rate hike, etc.) triggers capital outflows from China.

By arresting Chau, Xi is likely looking to “kill the chickens to scare the monkey” and caution other capitalists (especially those who run underground banks or casinos) against helping their clients move money out of China when changes in the economic environment favors such action.