A new Chinese government rule is about to hit Macau hard, and casino stocks are getting spanked

The Chinese government has started clamping down on the amount of money its people can take out of the country to curb capital flight, and that's going to hit the world's gambling Mecca, Macau, pretty hard.

As of Saturday the government will reduce the amount of cash Chinese people can take out in Macau from 10,000 to 5,000 patacas, according to the South China Morning Post.

Chinese gamblers use their national UnionPay cash cards to get cash out on the territory, so this will be an easy task for the Chinese government.

It has been monitoring UnionPay activity in Macau since 2014 anyway, when it came down hard on the territory's gambling sector. It was such a brutal crackdown that casino revenue plunged 50% from month to month at times.

Earlier this year it seemed like the industry was recovering, but these capital controls may reverse that trend.

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What's more, a bunch of huge casinos have opened in Macau over the past year with more to come online next year. That has analysts worried about over-supply issues.

Here's what Wells Fargo's Cameron McKnight had to say about it last month after Wynn Entertainment's new Wynn Palace, which opened in August, performed below expectations:

"Bottom line, the newly opened Wynn Palace is off to a slower-than-expected start. WYNN's market share didn't increase with the Palace opening, and operating expenses and promotions were higher than we'd expected. 2017 consensus is likely to come down, given a pretty hefty ramp built into Street estimates," he wrote in a note to clients.

So China's capital controls are coming at a time when the industry is vulnerable. But recent government data shows that it may not have another choice. In November, gross foreign exchange reserves decreased $69.1 billion, the largest drop in 10 months. Overall reserves fell to $3.05 trillion, down from a peak of $4 trillion in 2014.

And that's the gross number. According to Kynikos Associates, the hedge fund founded by famed short seller Jim Chanos, net reserves have fallen to a jaw-dropping $1.7 trillion.