In trying to understand James Packer's retreat from Macau, the Shanghai Detention Centre is a good place to start.
The facility, next to a putrid stream on the edge of China's commercial capital, is where 17 Crown Resorts staff, including three Australians, will spend Christmas.
The fact they were arrested in China and are being investigated for "gambling-related crimes" reflects a failure of Crown's senior management and board to read the signals coming from Beijing regulators.
More importantly the arrests showed just how serious Beijing is about "operation chain break", its campaign to cut the illicit flow of funds to offshore casinos.
While the target for this operation is gambling, the broader goal is to stop money leaving China and in doing so relieve depreciation pressure on the yuan.
Crown has no assets in mainland China, but used it's high-roller team to encourage wealthy Chinese to visit its casinos in other places. Macau is a special administrative zone of China, not subject to the same rules as the rest of the country.
Cutting the flow of funds will remain a policy priority for Beijing in 2017 and it's as relevant to Crown's casinos in Melbourne and Perth as it is to those in Macau.
Further restrictions
One industry insider told the AFR Weekend the entire gaming sector was worried about a further tightening of China's capital controls and he believed such fears were partly behind Crown's sell-down in Macau.
The market got a preview of just how ugly further restrictions could be for casino stocks earlier in the month, when reports emerged Beijing had halved the daily withdrawal limit for China UnionPay customers using ATMs in Macau.
The US-listed shares of Melco Crown Entertainment fell 14 per cent on the withdrawal-limit reports and Crown's stock was off 6 per cent.
Both recovered somewhat after what appeared to be an about-turn by authorities, which halved the maximum withdrawal at any one time but kept the daily limit unchanged. That was before this week's shock Crown about-turn announcement.
Nomura gaming analyst Richard Huang said the Macau government often introduced seemingly innocuous tightening regulations as a warning, which could then be ratcheted up if the trend continued.
"The government's way of controlling the economy is a few painless tightening measures to send a message so that casino companies reconsider their business practices," he said.
"The market could panic again," said the source, who asked not to be named.
Scrapping ambitions
He suggested Crown was trying to get in front of any further restrictions on capital leaving China and thereby partially insulate its business in Australia by paying down debt and scrapping its ambitions for a casino in Las Vegas.
Clarity around what, if any, further restrictions China may impose to stabilise its currency won't be known until data for February is released in early March. But so far the signs are not good.
In November, China's foreign reserves fell by US$69.1 billion ($93.8 billion), the most in nearly a year, as the central bank sought to defend its falling currency.
Analysts expect reserves could fall even further in December and the trend to continue in January. Capital outflows are typically highest early in the year, when an individual's US$50,000 quota for foreign exchange is reset.
"The government doesn't want to see a capital exodus, which puts pressure on the currency," said Nomura's Huang.
While China still has US$3.1 trillion in foreign reserves, this so-called "war chest" has declined by $US1 trillion since peaking in June 2014.
Despite speculation around capital controls, on the surface Crown's decision to sell its entire 27 per cent stake in Melco Crown appears curious given high-roller revenues in Macau are set to rise in 2017 for the first time in four years.
Steady growth
In an interview with Macau's MAS TV on December 3, Lawrence Ho, Crown's partner in the former Portuguese colony, could not have been more upbeat.
He said there would be steady growth in revenue in 2017 and he batted away concerns about oversupply after a string of openings this year, saying Macau had less than a third of the hotel rooms in Las Vegas.
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Packer's decision to sell out of Melco Crown suggests he is not as bullish on Macau as Ho and also that his Australian operations may have some difficult times ahead.
In addition to this it is still not clear what the full impact on Chinese high rollers coming to Australia will be from the detention of its 17 staff in Shanghai, but the fact of Crown selling out of Macau, scaling back its US ambitions and paying down debt suggest it's preparing for the worst.
