China’s takedown last weekend of two underground banks caught funneling money to Macau is a good sign that the Chinese are successfully circumventing Beijing’s capital controls. The banks implicated were reportedly responsible for moving $3.1 billion worth of yuan to Macau for 10,000 clients. This is both bullish and bearish for Macau stocks because on the one hand, it shows that money is successfully slipping though the mainland. Macau needs this to maintain its recovery, and the more that gets through, the better for the industry. On the other hand, it’s bearish because it means that Macau is still pitted against the Chinese government, and at their mercy should their mood change.

The question is, can Beijing really stop the money flow, and do they even want to anymore anyway?

The end result of the bust was the freezing of only RMB30 million. That’s nothing. A tiny drop in the bucket that will have no effect on the industry. It signals that money smuggling is happening most likely everywhere, and two, that it doesn’t seem that Beijing is taking it all that seriously anymore. If they were, we would have seen headlines of huge busts in the billions of dollars, not just RMB 30M, a paltry $4.5M.

The act of busting an underground bank is like nabbing a dime-bagger on a street corner. Put one behind bars and the next one is just waiting in line right behind him. These banks are likely a dime a dozen, no pun intended. All that can happen is that the commission for taking the risk of moving money to Macau may tick up slightly, just like the prices for illegal drugs tick up after a drug bust, merely subsidizing the players that have not yet been caught. Capital controls are as futile as the drug war. They do not work.