China Gets Tough on Red-Envelope Gambling

China Authorities Target Gamblers Wagering on “Red Envelope” Outcomes

China’s authorities are increasing their crackdown on gamblers misusing the online version of traditional “red-envelope” gift giving.

According to China’s official Xinhua news agency, at least 74 people have been arrested in connection with underground wagering involving the contents of virtual red envelopes (hongbao in Mandarin or lai see in Cantonese). These red, currency-containing packets are most often exchanged as gifts during Chinese New Year.

As with China’s Texas Hold’em app crackdown earlier this year, the online medium – meaning the virtual red envelopes – is being used as a proxy for real-world, underground gambling, coordinated through online chat services such as Tencent’s popular WeChat. The South China Morning Post details a couple of basic gambling formats, where participants in the underground games might each receive a red packet via WeChat or another platform that facilitates the red-envelope service. The gamblers can wager on virtually any element of the currency secreted within the envelopes each gambler receives, with examples including the lowest value received, the sum of certain digits in the amount received, or other variants. In the Morning Post examples, the loser pays all other gamblers a fixed amount, but virtually endless permutations are available.

Online red envelopes a growing niche

Given the growing popularity of virtual hongbao, it’s not a surprise that a segment of underground gamblers figured out a way to exploit the medium. The first online red packets were launched on another China-facing social media platform, Weibo, back in 2011; WeChat, which figures as the central platform in the Xinhua report, rolled out its own version in 2014.

The prevalence of this Chinese tradition also can’t be understated. An earlier Tencent statement regarding the popularity of the online hongbao declared that for the early-2018 Lunar New Year, a total of 768 million WeChat users sent or received hongbao via WeChat. That figure was up 10% from 2017’s Chinese New Year period.

Take that massive 768 million envelope figure, add in the fact that WeChat is not the only online service offering virtual hongbao (though it’s one of the largest), and that the tradition is even more ingrained in China as a physical gift, and its widespread presence in Chinese society is obvious. Hongbao has achieved a global presence as well, in the form of Chinese- and Asian-themed slot machines that often use a red-envelope presentation to distribute bonus-round payouts.

More difficulties for Tencent

Another takeaway from the state-run Xinhua News update is that China’s authorities are continuing to monitor social media in general and Tencent’s WeChat platform in particular in an attempt to combat such forms of gambling, which are strictly illegal in Mainland (People’s Republic of) China. As a gaming company, Tencent may have a natural affinity with China’s underground gambling scene, which in turn means that the company’s WeChat service may receive additional scrutiny.

Tencent has been among the Chinese companies pushing the envelope, so to speak, in finding ways to expand legalized gambling opportunities in China, as the arrests of three executives in connection with the poker crackdown showed. However, the Chinese reports indicate that in this red-envelope matter, Tencent and its WeChat service are working with the authorities to identify and eradicate groups connected to the illicit gambling rings.

Those underground rings have changed their tactics as well, jumping from account to account and purchasing dormant WeChat groups in an attempt to evade detection, creating something of a whack-a-mole situation regarding the continuing illegal activity. Nonetheless, China’s anti-gambling agencies have demonstrated years of diligence in pursuing various illegal gambling activities.

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