China lashing out at Crown is China’s problem, not Crown’s

The Crown Resorts executives who got arrested last October for telling rich Chinese people that they could gamble in Australia, have been sentenced. Practically, they will be released in a few weeks. Lesson learned. Companies that hold their money in other countries best watch out. Beijing wants to keep money in the country and the Chinese people be damned if they want to move it out. Because what people actually want to do with their money doesn’t matter. What matters is how many currency units you can keep within a certain territorial border. Whoever has the most, wins the game. Or something like that.

The news brought Crown shares down about 1.4%, mostly because convicting executives sounds bad. But the verdict isn’t exactly surprising. I wouldn’t call the Chinese judicial branch independent. They do what they’re told. They were told to use these Crown executives as a warning to other non-Chinese companies. A not guilty verdict would have been embarrassing for the Chinese government.

But the practical effects of the verdict itself are nil. In These people are lucky they got off relatively easily. We can only hope nothing too terrible happened to them in prison. Crown isn’t going to be risking advertising in China again any time soon. They got the message.

Fortunately for Crown shareholders, the damage has already been done. The VIP segment is already down close to 50% across the board and yet Crown shares are almost at the same level they were at before the October arrests. At the time of the arrests, I said Crown was a buying opportunity and that has proven correct. The stock is up 14.6% since the day of the arrests. It’s a good time to take some profits now on up days, but not because Crown is in any particularly dangerous situation. It’s more of a China-centric issue that could temporarily hurt Crown, though not any more than other companies reliant on Chinese tourism.